Science: Cheaper and better IT? Think again - Lynne Currie examines the move away from buying in information technology services

The grass is not always greener, as companies are beginning to discover after zealously offloading their information technology functions. Hiving off and farming out bothersome activities - everything from the payroll to the staff canteen - remains a fashionable option for companies trying to keep their focus and energies on their core business. But information technology has proved an area that cannot always be easily contracted out.

A report now suggests that although there appears to be no let-up in the pace at which IT is being 'outsourced', the trend could go into reverse after 1995. Organisation and Technology Research (OTR) says other European countries consider the UK distinctly 'over-

enthusiastic' about the practice, and warns that companies are throwing the technological baby out with the bath water.

After a decade of rapid growth - from virtually zero in 1984 to a pounds 650m market in 1992 - the concept of buying in IT services is well established in the private sector. But burnt fingers are starting to smart, with companies finding themselves locked into contracts costing more than they had expected, discovering that they needed to retain high-level staff at base, and, in their inexperience, handing over reins that should have been held within the company.

The growth in partnership agreements, in which the company and its IT supplier share profits and risk, could contribute to the decline in outsourcing. Tony Pitcairn, the report's author, says that the question then arises: why should the host company share any profit if it could run the information systems itself and keep the money? 'It is then only a small step to turning the information systems management cycle full circle.'

Once companies get over the expensive and disruptive business of abandoning old-fashioned mainframe systems, he foresees a finite life for farming out IT. But it is the public sector that could make a quiet diversion away from outsourcing - or at least the appointment of external contractors - by applying the principles of private enterprise to internal departments. All local authorities will be forced to put their IT functions out to tender by 1996.

The IT department of Reigate and Banstead Council in Surrey bid successfully to keep its own work, and even produced guides for others to follow suit. The council, which serves a population of 118,000, decided to go out to competitive tender before it was legally obliged to. Unusually, staff in the threatened IT section were not proposing a management buy-out, but wanted to remain as employees.

Mike Shillingford, the assistant director of finance, who heads the department, started to put together a bid in 1991. He was helped by the fact that the department was nearing the end of an onerous four-year programme to upgrade old-fashioned mainframe systems, which had given it a good starting point.

The first significant change of ethos came a year later, when a client manager was appointed to talk to the council's sections and find out what they needed. This was followed by agreements on the service the IT section would provide. 'We started looking at service levels and how best we could provide them; otherwise we were dead,' Mr Shillingford said.

Meetings with departmental directors were organised to maintain close contact. Everyone using the system received regular advice sheets on problems and good practice. Performance statistics, showing how faithfully service-level agreements were being kept, were published. 'It was a total reshuffle and rethink,' Mr Shillingford said.

The bid itself was a considerable reduction in the 15-strong department's budget, although there were no redundancies or wage cuts. 'One of the main factors (in the reduction) was the threat to our suppliers. If we lost, they lost. We talked to our main supplier and did ourselves quite a lot of good.

'The bid also engendered team spirit. Everybody was involved, and instead of me pulling them along, as I did in the beginning, I couldn't keep up with them. It's been good for us and good for the council.'

In the private sector, the trend towards outsourcing seems to be maintaining its momentum, as underlined by the recent awarding of two huge contracts by the Inland Revenue and British Aerospace. OTR, however, is unconvinced that it will continue. Mr Pitcairn points out that in the US, home of outsourcing, this same pattern was seen before the market started to slide.

He bases his findings on a survey of 2,000 companies in Britain and in the Netherlands, which showed no long-term commitment to the idea. He warns that carelessly negotiated contracts can lead to hidden costs and messy and expensive terminations. He cites one large undertaking anxious to dissolve its old-fashioned IT department, which dispensed with it wholesale. When problems arose with the outside contract, the company had to recruit a new senior manager to replace the one it had discarded.

Even those who are convinced of the benefits of outsourcing say that a contract has to be meticulously prepared. The words caveat emptor crop up repeatedly.

Ronnie Yearsley, former deputy chairman of BIS Information Systems and a commentator on the IT market, thinks outsourcing will continue to grow, but many companies must wish they had never gone ahead with it. 'It reminds me of the story of the asthmatic woman with a dog. She gave it away, then found a cure for her asthma and wanted it back. Its new owner said it was his now, and she couldn't have it back.

'The IT phenomenon is like that; you can't have it back. Once you've lost it, you may say that you're losing control of your business as a function of this. What you might see in the future is in-house systems analysis and design, but external hardware. This would leave you with direct control of new systems but not of the hardware and boxes and operators, which are capital intensive.'

(Photograph omitted)

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Arsenal supporters gather for a recent ‘fan party’ in New Jersey
football
Sport
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
PROMOTED VIDEO
Life and Style
Balmain's autumn/winter 2014 campaign, shot by Mario Sorrenti and featuring Binx Walton, Cara Delevingne, Jourdan Dunn, Ysaunny Brito, Issa Lish and Kayla Scott
fashionHow Olivier Rousteing is revitalising the house of Balmain
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
News
BBC broadcaster and presenter Evan Davis, who will be taking over from Jeremy Paxman on Newsnight
peopleForget Paxman - what will Evan Davis be like on Newsnight?
Life and Style
fashionCustomer complained about the visibly protruding ribs
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

Commercial Litigation Associate

Highly Attractive Package: Austen Lloyd: CITY - COMMERCIAL LITIGATION - GLOBAL...

Systems Manager - Dynamics AX

£65000 - £75000 per annum + Benefits: Progressive Recruitment: The client is a...

Service Delivery Manager (Software Development, Testing)

£40000 - £45000 per annum: Ashdown Group: A well-established software house ba...

Day In a Page

Evan Davis: The BBC’s wolf in sheep’s clothing to take over at Newsnight

The BBC’s wolf in sheep’s clothing

What will Evan Davis be like on Newsnight?
Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Inside a church for Born Again Christians: Speaking to God in a Manchester multiplex

Inside a church for Born Again Christians

As Britain's Anglican church struggles to establish its modern identity, one branch of Christianity is booming
Rihanna, Kim Kardashian and me: How Olivier Rousteing is revitalising the house of Balmain

Olivier Rousteing is revitalising the house of Balmain

Parisian couturier Pierre Balmain made his name dressing the mid-century jet set. Today, Olivier Rousteing – heir to the house Pierre built – is celebrating their 21st-century equivalents. The result? Nothing short of Balmania
Cancer, cardiac arrest, HIV and homelessness - and he's only 39

Incredible survival story of David Tovey

Tovey went from cooking for the Queen to rifling through bins for his supper. His is a startling story of endurance against the odds – and of a social safety net failing at every turn
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little