Economic conditions and competitive pressures are driving more companies to examine applications outsourcing as a means of reducing IT support costs and improving performance. But given the close links between business applications and business activity, it is essential that organisations understand which areas directly contribute to their competitive advantage and which, while critical, dont.

A team within London Business Schools MBA programme has published a report examining the differing perceptions and measures of success held by business, finance and IT executives in applications outsourcing initiatives. The results of the study, sponsored by Fujitsu, point to the following critical success factors:

• Sources of competitive advantage should determine what applications to outsource and what to keep in-house. Applications that support areas of competitive advantage and/or are subject to frequent change are typically not best suited to outsourcing.

• To gain the greatest benefits from applications outsourcing, the CIO must maintain a close relationship with the rest of the executive team.

• A balance has to be struck between agility and flexibility: in general, application outsourcing tends to increase flexibility (the way the business operates) and reduce agility (the ability to change when the business does).

• Organisations should anticipate the need to manage continuous change, even after applications are outsourced.

• In order to understand how well an application outsourcing agreement is running, organisations should seek to develop business performance measures, and not just IT or financial measures.

• It is important to apply the lessons learned in other types of IT outsourcing eg, ensuring a good cultural fit, aligning incentives towards a common objective and clearly defining processes.
  

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