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False Economy

Blackburn Rovers finished 6th in the Premier League in 2002-2003. At the end of the season, they sold Damien Duff, their main attacking threat, to Chelsea for £17.5 mn. Sounds like a good deal, right ?

Subsequent season, Rovers finished 15th. They lost the income they would have received by participating in the UEFA cup and also, lost the merit television revenues that are determined by the position on the table. Approx £10mn lost in UEFA cup revenues and nearly £3 mn lost due to position on the table. £13 mn wiped off the £17.5 mn gained from selling their key player. The deal does not look good anymore, does it ? Clearly in football,selling your key assets is not a good strategy.

However, too often people use false economy to justify a short term gain and soon, such decision comes to bite them where it hurts the most.

What does this have to do with IT ? Well, the laws of economics apply everywhere. So many organisations still treat IT as an unwanted child and outsource them. IT function is viewed as non-core and hence, an ideal candidate to be outsourced too.
Big consultancies provide a flashy business case that demonstrates “great savings” to the purchasing organization while taking away their painful headache. Too good to be true, n’est ce pas ?

The truth is that nearly 2/3rds of the outsourcing deals have failed/ are failing. Sainsbury’s has recently written off £290mn it had invested in an outsourced deal to Accenture. Over the years of this outsourced deal, they have also lost ground to Asda and Tesco. Coincidence ? Methinks not.

In today’s environment, IT is/should be the strategic arm for most organizations . Outsourcing it in the name of “cost savings” and “non core competency” will prove to be false economy.


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