Outsourcing can both be the right and the wrong decision

7. December 2016

About one month ago, Jens Brinksten (CEO of KMD in Poland) published an article at the Danish Computerworld with the headline ”There is too much carelessness with sourcing – do the preparatory work properly”. In the Danish article, Jens Brinksten lists a number of critical topics that many businesses neglect before starting souring, in his opinion.

It is a good article, but contrary to Jens Brinksten, we meet many companies that HAVE prepared and done their homework of what they want to accomplish with sourcing – just as KMD evaluated their position before deciding that having their own KMD development center in Poland was the right decision for them, instead of sourcing.

On the one hand, you have to list the advantages of doing it all by yourself. And on the other hand, you also have to list the disadvantages of doing it all by yourself.

Control and security

If a company decides to open their own development center, the decision is most likely made from a number of factors that are crucial to the company’s need for control and security. For example, if we were to continue development on an existing product, where the built-in software would be based on a completely new IT technology with the potential of gaining new market shares, would we outsource the development of this product? Or would we prefer to keep the control in-house and set the development team ourself? Maybe we would prefer to keep the crucial positions, such as e.g. the IT architect in-house, and outsource the rest of the positions in the development team?

Within the legal or contractual aspect, a company can also be limited to using subcontractors on a given project, to specific clients or within certain industries such as defence or the medical industry. There will also be cases of companies working within certain approvals, where it would be too difficult to include a subcontractor to the approval, certification or the like.

As listed above, there can be several cases which are so critical to the company that the best solution is to solve the tasks in-house. However, in-house does not necessarily mean “in this country” – a company can also use KMD’s approach and establish a subsidiary abroad and gain advantage of e.g. lower salaries, while keeping the security and control by doing it themselves.

Synergy and competences

What do you loose by doing it all by yourself, instead of sourcing? You loose synergy and flexible and cost effective access to competences.

Maybe the business needs extra resources or a specialist in a limited period of time during the development project? Maybe there are too many tasks for one person, but too few for two people? When a company establish their own development center, they have to pay for over-capacity and cover the expense themselves. By outsourcing you can split the expenses with other companies and benefit from the advantages of scaling and flexibility. Via the sourcing partner, the company can e.g. buy 5 hours of counselling regarding a database. If the company needs a certain process, the sourcing partner will most likely be able to deliver the process as a service, instead of owning the process themselves. These possibilities are lost when establishing your own subsidiary.

The owner or manager of a company in growth cannot solely focus on colleagues, you also need capacity and flexibility. The physical surroundings are also important during the growth; the office, cantina, IT equipment and infrastructure. The same factors are important in a down-scaling period, as the company is responsible for all legal and economic obligations.

We agree with Jens Brinksten about the importance of taking the time to consider the pros and cons for outsourcing. However, it is not our experience that those considerations are neglected or overlooked, which could lead to the wrong decision on whether or not to outsource.

It has been the right decision for KMD to establish themselves in Poland, despite them having to build up competences in running a business in Poland. Competences, which in our view, have no connection to KMD’s core business, which is developing IT solutions. It would be interesting to learn about their reflections for doing it.