In a recent conversation with a colleague, we were discussing why organizations engage consultants as opposed to hiring employees themselves. This led to an offshoot discussion about why organizations go even further – turning to fully outsourced services, especially in the area of IT, analytics and marketing. I thought it would be interesting to write about our discussions a little bit, especially within the context of business analytics, which is seeing a boom in outsourcing.

For example, IBM, Capgemini, Accenture and many large outsourcing services firms are reporting large double-digit growth in their analytics outsourcing businesses (of 20% or more annually). Offshore firms are seeing even larger growth numbers (around 40% between 2007 and 2011). And this is off of a large outsourcing pie – according to the State of the Global ICT Outsourcing Industry 2010 report, total outsourcing spending is more than $65 billion annually.

So, why outsource? There are a variety of reasons, but here are the major ones we discussed:

1) Lack of skill – for many organizations, analytics or technology skills may be missing. It’s more expensive to retrain or hire as a means to build up a specific capability, especially since lack of skills within an organization typically means that it’s difficult to interview the right candidates or specify the type of training required to successfully build up existing employees. Specifically in the analytics space, this is a big challenge as growth of data and the scarcity of data analysts is coming to a head. Additionally, many new data analytics techniques including big-data processing are rare within many organizations.

2) Lack of resources – even when the skill does exist internally, the ability to scale the operation up and down depending on business demand is a challenge. For analytics, this is especially acute as new areas within the organization are demanding analytical analysis of their data – marketing is probably the biggest driver today, but the growth of data to support new product introduction, support and supply chains is also growing significantly.

3) Lack of innovation – the “not invented here syndrome” is a well-known phenomenon when current capabilities are deemed “good enough” or “too unique” to require outside help. Often times, it takes someone external to the capability to challenge the organization to look outside for support or a review since the owner of the capability tends to be more complacent. On the analytics side, I’ve heard too many times that Excel, SAS or BI tools are sufficient for an organization – not so! There are new database technologies and analytical tools being innovated in the market place at an alarming rate. If an organization isn’t researching these now, they are already behind. This includes Hadoop, database appliances, R , in-database analytics and tools that put BI in the hands of business users such as Tableau or Spotfire.

4) Organizational or political problems – as a means to “get things done” or rely on an “expert opinion”, it may be necessary to bring in an outsider. This can be used to provide political “air cover” in making a decision or allowing an outside vendor to be the catalyst for change – and take the heat for doing so. From an analytics perspective, I’ve seen this when the owner of a part of the business needs to go around IT because they are too slow. Merkle, Acxiom and Epsilon are prime examples in the marketing space of vendors that meet this need on top of skills and scale.

5) Cost – in many organizations, IT and business process outsourcing (BPO) are often justified as cost savings. This is especially true for commodity services that can be supported by lower waged workers, especially in an off-shore scenario. In business analytics, surprisingly, this is not usually a consideration for now. In part, this is because of the scarcity of resources, but its also a factor of the fact that these roles need to be filled by workers with a specific skillset but also understand the business, the business strategy and how their work can impact the business. In this case, cost is just not the biggest driver – impact is.

If you are in the process of considering outsourcing or even building your own capabilities around analytics, now is a great time to put in place a strategy to understand what your near and long term plans are. Bringing the capability in house in the near term can be a real challenge. Equally, if you have an existing capability and aren’t taking advantage of the innovations and advancement of skills, you should start to look externally to see how you measure up – you may be surprised by how much is happening out there.