Davidson's Law of Outsourcing
"Increased usage trumps technology standardization."
Explanation:
Since the 1980s, software development projects and information management projects increasingly involve integration of technologies. With the emergence of new requirements such as ERP, extra-nets, e-commerce, security and authorization issues, evolving and competing standards and a high rate of change and unpredictability about supplier success, very few companies can afford to keep on staff all of the expertise that is necessary to build information management projects.
As the complexity of projects increases, the natural reaction is to turn to pre-built components, packages, or services that can be combined to reduce the internal learning curve and knowledge requirements.
However, the sheer variety of issues that need to be considered with integrating information management projects is so high, that merely understanding the business problems and objectives, documenting the requirements and managing the project is a complex task of itself.
Suppliers are increasingly being paid for insight and expertise rather than for the tools that they provide.
So while standardization and standards do reduce complexity, the need for insight and expertise remains high.
Economically, this complexity typically causes large projects to be high risk. It is quite common for surveys of large projects such as ERP, information warehousing or CRM to report low rates of success and poor ROI.
Eclicktick experience suggests that it is not uncommon in post-audits of projects to learn that 50% or more of a project was wasted effort or budget. Given that the margin of most consulting projects is less than 50%, it is frequently lower risk to hire someone who has done the project before.
And if cumulative experience is important, then the advantage of contracting out can be very attractive. In the following example, a project type where there is a 20% cost advantage due to project learning quickly produces very rapid economic advantage to both the supplier and the customer:
Initial project cost =100
|
Number of projects implemented
|
100%
|
1
|
80%
|
2
|
64%
|
3
|
51%
|
4
|
41%
|
5
|
33%
|
6
|
26%
|
7
|
21%
|
8
|
