Wake-Up Call From WorldCom

There's more than cost cutting to outsourcing.

Nervous WorldCom Enterprise customers couldnt have been reassured by CEO John Sidgmores recent statement that the chances of a major service-level drop were low following news of $3.8 billion in accounting irregularities and the collapse of WorldComs share price to well below the cost of a pay phone call. IT managers who signed on with WorldCom for not just core voice and data networking services but also for bulletproof virtual private networks, voice over IP and business-to-business Internet infrastructure could only have been hoping for much stronger guarantees from Sidgmore as they scramble to find alternative providers or prepare to explain lower service levels to customers and partners.

WorldComs troubles should serve as a wake-up call for IT managers who are considering outsourcing the operation of networks, data centers, call centers and other key pieces of enterprise infrastructure. Although it might be tempting—especially in the current economic downturn—to view outsourcing as only a short-term, cost-cutting measure, doing so is risky business. Unless IT managers also consider larger issues such as the health of managed service providers, they could find themselves in the same boat as WorldCom customers.

Still, many high-level execs dont get it. For example, a recent survey of 150 senior executives at Fortune 1000 companies conducted by outsourcer Accenture found that companies planning to increase outsourcing are approaching it mainly as a means of cutting costs.

Theres a better way. In addition to examining the soundness and strategic direction of service providers, IT execs should retain enough expert staff to not only manage outsourcers and service levels but to also bring IT operations back in-house if that becomes necessary. They should also consider spreading risk by signing on with more than one service provider.

Inserting these strategic considerations into the equation will, in some cases, increase costs—but only in the way that a good insurance policy does. Indeed, the best outsourcing provider for the long term will probably not be the low-cost MSP. But, as the uneasy enterprise customers of WorldCom would confirm, cost isnt everything.