What is the magic percentage of the IT outsourcing mix ? All firms big and small have found it elusive to decide. You always start small – most firms do so, however once they reach a critical point, they don’t realize when to take a step back and see if they are at optimum. Some don’t even realize they have already crossed the threshold for their set up. The eagerness to benefit from low cost is what kills the golden goose. Once companies see the costs going down rapidly with outsourcing they continue down the path of accelerating, not realizing what they already started to lose e.g. subject matter expertise, skillset that took ages to develop, the leadership and management abilities, local availability against offshore presence, cultural sensitivity, punctuality, time to market, competing with their peers etc. these are just a few.

It is not often that you come across CFO’s who often dictate the percentage with an eye on the balance sheet than on the continuity of the business while the CIO / CTO and their business folks reel under the duress of taking a hit and people at the fore front of execution and customer service pay the price. It is important to review once you reach the percentage that is optimal for business. For call centers it can be high, for KPO / BPO type of arrangements it can be larger than other modes of IT outsourcing with some transition and monitoring of key SLAs. However staff augmentation in complex technical and niche areas like product development, testing, Research and Development, prototyping, Engineering are some of key examples to pay attention to and stop when you reach the critical mass. It is easy to fall a prey to short term financial goals rather then seek a long term objective of sustaining and growing the business using IT outsourcing as a tool.

There are several cases where clients went renewing their 5 to 10 year contracts couple of times only to realize they lost everything they had connected with IT, they very own competitive spirit, time to market, raising IT budgets and were at the mercy of their IT outsourced providers who had more interest in making money than their clients ability to prosper. For them the mantra was simple, if not you I have dozens lining up like you to save. Then these companies go back to their drawing board, invest in high end consulting to draw a roadmap which will take several years of investment to gradually undo the damage they did to themselves.

Collaboration tools do help to achieve higher percentages however there is a limit on exploiting it even with high levels of maturity. Also consider the time zones. If your resource are on the other side of the globe, and though work your time zone to some extent that is not enough to guarantee full-fledged support you need and is not an excuse to ratchet up the percentage outsourcing.

If you are already in an outsourced environ revisit your optimal percentage, and make sure you have checks and balances to stay there and leverage efficiencies. Having a bloated outsourced environment will have hidden cost, instead work your tolerance given the nature of business and the responsiveness you need. Average ratio of your full time employees to contractors should be monitored closely to ensure the span of control is not sacrificed, it can be high in some areas like call center, KPO, BPO where supervision is not entirely needed with some management support, while collaborative development, R and D, Testing, Training and other niche areas needs ratios to be capped to achieve efficiencies and benefit from outsourcing.