Outsourcing Data Analytics - Proceed with Caution

I read a recent article describing how organizations are beginning to outsource some of their data analytics functions. Given the tight market for data specialists, outsourcing this function may seem like a good idea. While there are certainly benefits to outsourcing data analytics, organizations must be care and determine when outsourcing is advantageous and when analytics should remain in-house.

Outsourcing part or all of a data analytics process can make sense. For instance, organizations may wish to outsource part of the data analytics process in order to gain access to large sets of external data that may be combined with their own data. Or, an organization may choose to outsource an entire data analytics process to support routine operational processes like fraud detection, customer purchase predictions, etc. These data analytics practices are more common and, while very advantageous, do not really offer much differentiation since most organizations are likely to have a similar practice. Also, outsourcing may make sense when these functions can be easily segmented from internal process, moved outside of the organization, and integrated with the rest of the business processes.

Where I have issue over outsourcing data analystics is when either unique and strategic business data and knowledge is required in the analysis or anytime organization-specific knowledge is needed to design, conduct, and interpret the data analysis. First of all, organizations risk losing competitive advantage if they move strategic data or knowledge outside of the organization. The outsourcing agency may be able to learn from these proprietary methods or data and apply it to your competitors analytics practices. Even with confidentiality agreements, some knowledge may leak and find its way to your competitors. It is best to keep these more strategic analysis practices in-house.

Secondly, data analytics requires knowledge of the organization's business processes, business rules, data dictionary, and other insights. This knowledge is often specific to the organization and gained through experience and applied through contextualization. Outsourcing agencies will not be able to apply the same level of wisdom available through in-house analysis by experienced analysts.

Organizations should consider outsourcing as a means to gain greater access to data and expertise while carefully determining when it is more appropriate to keep the data analytics processes in-house.