Should you be outsourcing?

When two companies merge there's always going to be an IT supplier left empty handed. Sure enough, last autumn's nuptials between Halifax and Bank of Scotland (to form HBOS) claimed its first victim earlier this week. Intriguingly, the victim was Xansa (http://www.silicon.com/a54049 ) and implicit in HBOS' explanation was a rejection of the outsourcing model.

With two big out-of-house deals still on the HBOS roster - in the shape of IBM and BT - we'll have to wait and see whether this was just a handy excuse or a strategic goal.

Coming at a time when Ovum Holway predicts the UK outsourcing market will grow 15 per cent this year, there are clearly still deep divisions within the IT professional community over the virtues or otherwise of handing your IT function to a third party.

There's no right or wrong answer to this particular issue and we're not going to tell you which way to go. Instead, we'll offer a starting point for further discussion. Consider the following:

Cost control vs value for money?
Of course, these are not mutually exclusive concepts but they do occasionally get confused. Outsourcing will almost always help with cost control - you will know how much goes on your bottom line each quarter with no nasty surprises - but that doesn't necessarily mean you'll get value for money.

Suppliers will convince you they can negotiate preferable software licence deals and a more efficient use of staff because of their sheer size - it's economies of scale, stupid. Recent evidence suggests otherwise.

A survey carried out by SOCITM, the body that represents IT professionals in the public sector, found IT services can cost 25 per cent more when outsourced. Meanwhile, General Motors' CIO recently revealed his company had more than halved IT expenditure by taking most technology functions back in-house.

Centralised vs decentralised?
In explaining its decision to terminate the Xansa contract, an HBOS spokesman said the deal didn't suit a "decentralised model". The message is clear: outsourcing works on a large scale but doesn't suit smaller, fragmented projects.

Core business vs utility?
The perennial issue. Is IT integral to the way your business operates or does it - like the electricity grid - provide a useful but generic service? Is IT about making existing processes quicker and more efficient or is it about adding value to your business proposition? Is it about the bottom or the top line?

If IT is a utility, then outsourcing is a sensible option. If IT is core business, do you really want to trust it to someone else?