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Case Study - In-source, out-source or co-source?

The Scenario: Cut more cost out of the Information Systems budget!

The CEOs at two mid-sized companies in Pennsylvania were separately preaching the same message. The September 11 disaster further exacerbated an already weak business environment. All departments, especially corporate overhead functions like Information Systems, had to cut cost for the company to meet its financial objectives. The Vice-president of IS at each company faced the same dilemma. Each had already cut costs to the bone during the last budget update. The two VPs met and decided to assess if they could reduce more cost by working together.

The Challenge: In-source, out-source, or co-source?

Both VPs had cost reduction high on their priority list but both also had day-to-day responsibility for Information Systems. Neither could spend 100% on an assessment. They also wanted to minimize the involvement of others at this stage to avoid premature information leakage. They needed to find a consulting firm that had the technical, operational, management and financial breadth to quickly assess whether they should:

  • in-source (keep IS functions as-is)

  • out-source (outsource IS functions to a third party)

  • co-source (consolidate IS functions from both companies into a new co-owned entity)

The Approach: Conduct a detailed financial assessment of the alternatives

  • Determine which portions of IS must remain with each company to meet business objectives and which could be out-sourced or co-sourced to reduce cost.

  • Partition and reformat existing budgets into a common template to determine the current cost to in-source. Compare out-source and co-source alternatives against it.

  • Work with a major outsourcer to obtain the cost to out-source.

  • Estimate the investment needed to consolidate portions of IS into a new entity. Estimate the hardware, software and labor savings by consolidating into a new entity.

  • Financially compare the cash flow for in-source, out-source, and co-source alternatives.

  • Develop a recommendation for the two Chief Financial Officers.

The Result: The CFOs and CEOs approved the recommendation to co-source!

The two VPs of IS determined that application development, application support, and architecture should remain separate to meet each company's business objective. They also agreed that desktop support should remain separate since there was little synergy in consolidation.

  • Completed the assessment on schedule in 3 months. Determined that outsourcing would increase current cost by 25% and that co-sourcing would decrease current cost by 8%.

  • Both VPs were extremely happy with the quality and timeliness of the assessment. One said, "You did a great job. We received our value on this project!" The other said, "You have the rare combination skills where you can address technical issues with technology people and financial issues with CFOs."

  • The two companies selected LimNorris Consulting Group to manage the implementation of the new consolidated data center.

Copyright 2002 Lim, Norris & Associates, Inc. All rights reserved.