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September 07, 2003 at 08:00 PM
To The Editor:
If the point of the Ara Tremblys column on outsourcing in the July 7 National Underwriter was that insurance executives should be careful about what and to whom they outsource IT functionality then I emphatically agree with him.
Having said that I think he left out the most important part of the decision and the thing that makes his childcare analogy move beyond the ridiculous.
The whole point of outsourcing is for a company to delegate to another firm the work involved in delivering the functions that are not part of its core competence. Therefore, the first step in considering outsourcing is for a manager to make a determination of what, in fact, are the core competencies of his/her firm.
I would argue that parenting is very high on the list of what should be the core competency of a family. Even so, we do outsource some aspects of childcare–teaching certainly and, for many of us, daytime care–which allows both parents to work outside the home. What we do not even consider, however, is the delegation to others of the full-time responsibility for childcare, as he described, because that would involve our walking away from that important aspect of parenting.
The business exec needs to do the same analysis when considering the possibilities in outsourcing IT functions. Hosting a Web site is a good example of something that is probably not among an insurers core competencies, is a commodity-like service and generally can be done by others better and more efficiently than one can do it in-house.
That doesnt mean it is not important or that bad performance cant hurt the company. It simply means that it is probably a good management decision to outsource the function to a competent vendor.
The core competencies of an insurance company are usually underwriting, investment management and, sometimes, marketing/sales. They rarely include the IT functions. If some companies would argue that they have unique systems that greatly enhance their value propositions, then those are probably found in some very specific applications, not in their entire systems structure.
The point of all this is to suggest that insurance executives should use outsourcing to allow them to focus their energy and resource on their core competencies. They begin the process by a careful identification of those and then give consideration to selection of vendors for the others.
