Posts Tagged ‘outsourcing’

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7 Wrong Ways To Outsource Your IT Department

Monday, December 1st, 2008
There Are Many More Ways To Do Outsourcing The Wrong Way...

There Are Many More Ways To Do Outsourcing The Wrong Way...

Outsourcing, off-shoring, call it what you will, it’s been with us long enough that you’d think that the rules for how to do it correctly would be well known, right? It turns out that this isn’t always the case.

The current down economy is probably going to have most IT shops looking for ways to further trim costs and, of course, outsourcing MORE will be an attractive option. Geraldine Fox and Nigel Hughes work over at Compass and they’ve got a few words of caution for the rest of us when it comes time to consider IT outsourcing.

It’s all too easy to do this stuff the wrong way…

Skip The Planning, Dive Right In:

This is how all to many firms approach the outsourcing of their IT operations. All too often, firms view outsourcing as an opportunity to simply replace their expensive onshore headcount with less expensive offshore staff.

This view is not only short sighted, but just flat out wrong as lots and lots of firms discovered during the first wave of outsourcing in the 1990′s. It takes time and lots of planning in order to move IT functions from inside the firm to an outsourcing shop. Once they are there, you’re going to need more management resources than you have right now in order to stay on top of how the work is going.

“Lift & Shift”:

Many firms attempt to just pick up their existing IT operations and move them over to the outsourcing operation hoping that lower salaries there will automatically deliver the savings that they are looking for. What’s missing from this thinking is the simple fact that it will always take MORE people at the outsourcer to do the same job.

A good rule of thumb is to expect a 15% increase in headcount. Sure, you can probably move your ineffective IT operations offshore and experience some immediate short-term savings. However, very quickly these will vanish as outsourcing salaries continue to go up and staff turnover rates range annually from 25%-80%.

Out Of Sight, Out Of Mind:

Just dropping the work off and then not paying any attention to the people who are now doing the work is a clear recipe for disaster. Your firm is going to have to take on a whole new set of responsibilities.

These will include retaining outsource staff, investing in outsourced resources (training, orientation, retention), and making sure that they have a clear career path. Oh, and by the way, you had better be doing all of these things for your onshore / in-house staff or else they will become very jealous very quickly!

More, More, More:

One well known reality of outsourcing is that that productivity will drop. This means that it’s going to take more bodies to accomplish the same task. When you couple this with a high rate of turnover, you can pretty much wave goodbye to any outsourcing cost savings that you were counting on.

Smart firms realize that the solution to low productivity is not to throw more bodies at the problem; instead, you need to work with the outsourcer to fix the productivity problem at its source.

Everyone Else Is Not Doing Better At This Than You Are

No matter what your competition may be telling the press, don’t worry. No firms are really seeing monster discounts because of their outsourcing efforts. Many firms claim that they are achieving 40% cost saving when the reality is that at best they really are seeing cost savings in the 20% range.

Hold Those Horses:

When you decide to outsource more of your IT operations, keep in mind that this will have a major impact on your firm. Companies don’t do a good job of dealing with change and outsourcing part of your internal processes most definitely is change. Take some time to create the right mix of in-house and outsourced operations and then use a measured approach to implement it.

It Takes Two To Tango:

There is always the possibility that an oursourcing effort won’t work out. If this happens, you need to realize that both your firm and the oursourcer are to blame.

Don’t waste everyone’s time pointing fingers at the oursourcer and expecting them to fix everything. Instead, acknowledge your part in creating the problem and then sit down with the outsourcer and get to work finding a way to fix it.

Has your firm already started to use outsourcing firms to perform IT operations? How has it gone so far? What is the most important thing that you know now that you didn’t know when you started outsourcing? Leave me a comment and let me know what you are thinking.

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IT Innovation Tips From GM’s CIO

Thursday, November 13th, 2008
GM Has A Massive IT Outsourcing Program - Has It Helped Or Hurt The Firm?

GM Has A Massive IT Outsourcing Program - Has It Helped Or Hurt The Firm?

Ok, so maybe this is not really the best time for this posting seeing as the desperate situation all three of the major U.S. manufactures are currently in due to the current recession. However, if you can put all of that aside for just a bit, then Ralph Szygenda who is the CIO at General Motors (GM) had a talk with the folks at eWeek and he has some suggestions on how IT departments can use outsourcing to drive innovation. Now there are two terms that you don’t often see together! Let’s see what Szygenda has to tell us…

Who Does GM Outsource Their Work To?: About 60% of it goes to EDS (now part of HP) for historical reasons (GM once owned EDS), the rest goes to AT&T, HP. IBM, Capgemini, Covisint, and Wipro. Whew – is there anyone who is not on that list?

What Kind Of Money Are We Talking About Here?: In 2006 GM spent $7.5B on outsourcing contracts and, assuming that they don’t fold during the current economic crisis, they plan on spending another $7.5B in 2011.

How Many GM Employees Are Needed To Mange All This Outsourcing?: 1,500 GM employees manage the combined outsourcing vendors.

How Does GM Keep Their Outsourcing Vendors In Line?: GM continues to outsource additional business every year to the tune of 100′s of millions of dollars. All of the outsourcing vendors want to win this additional business. GM uses a report card that gets updated every 6 months to let each vendor know exactly where they stand and then GM uses that report card to make decisions about who gets additional business.

Does GM Kick Out Under-performing Vendors?: So far – no. However, all development of new systems are done at a firm, fixed price. That means that they start to lose money if they are missing a due date. There aer some firms that have not been able to win new business because of how they have performed; however, nobody has been kicked off the team yet.

Are IT Costs Going Down Because Of This Outsourcing?: GM reports that they are spending a lot less on support and maintenance. However, they’ve taken these savings and are plowing them back into the development of new IT systems. The overall cost of operating the GM environment has been going down for the past 12 years and they are forecasting it to continue to do so for at least the next three years.

Why Did GM Decide To Outsource So Much Of Their IT Operations?: GM did not get into the business of outsourcing their IT operations to cut costs; however, the results have been that costs are being cut. The reason that GM originally decided to outsource their IT operations was because they had started with autonomous business units – every branch had it’s own IT shop. Over the course of 10 years they’ve gotten rid of over 5,000 systems. In 2006 they decided to consolidate their IT operations. Outsourcing IT operations has allowed processes to be standardized across the organization.

What Is The Key To GM’s Innovation?: Szygenda says that it comes down to three things: standardization, simplification, and collaboration.

Do you think that GM’s massive use of outsourcing is a good thing or a bad thing? Do you think that distributing the work among so many different outsourcing firms makes managing the work harder or easier? What do you think that Szygend’s next steps need to be? Leave a comment and let me know what you are thinking.

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No Bubble Here: IT Spending Going Up Next Year!

Friday, October 24th, 2008
The Market Downturn Will Impact IT Spending, But Not Too Much!

The Market Downturn Will Impact IT Spending, But Not Too Much!

As the rest of the world seems to be going through some sort of complete meltdown, the IT industry is in the  process of holding its breath. 2001 was not all that long ago and we can remember what happened back then all too well: days of unlimited spending, lots of travel, and lavish celebrations came to a screeching halt almost overnight as the banks cut off credit and the IT bubble popped. Reading the newspapers and watching TV one would be lead to believe that the same sort of doom and gloom seems to be settling over all industries right now. Is another bubble popping what they mean by Internet 2.0?

Well the folks over at Gartner have some (basically) good news for you. They’ve been talking with everyone and their mother’s brother and what they have found out is that YES, IT spending is going to get cut back because of all of the financial turmoil that is currently going on. However, we’re not going to see the massive cutbacks that came after the dot.com bust.

Before the subprime fueled meltdown of the financial markets started to happen, Gartner had been predicting that spending on IT for next year was going to increase at a healthy 5.8%. To put this in perspective, you’ve got to realize that during the dot.com era, IT spending lived in the middle double digits. However, after the bust happened, IT spending descended into the basement of low single digit growth (less than inflation!) and remained there for several years. Gartner’s new guess for IT spending next year is (drum roll please) 2.3%.

Peter Sondergaard is Gartner’s global head of research. He believes that IT spending generally lags behind the general econonmy by at least two quarters, so the current meltdown won’t impact IT spending until roughly mid next year.

What’s going to get cut? Sondergaard says that hardware spending is an easy hit – it will probably get curtailed earlier and harder than either software or IT services. Spending on those IT services should probably focus on off-shore outsourcing. What’s interesting is that they aren’t predicting any more really big, big deals. Instead you should expect to see a collection of smaller outsourcing deals.

The folks in the software industry have cleverly thought to set up sorta of a “safety net” for themselves should this kind of contraction occur. Most software vendors (Oracle, SAP, Microsoft, etc.) have gotten their customers to sign up for long term support contacts so they may be able to dance by any general market slowdown with minimal impacts.

In IT it generally takes us about 10 years to adopt a new technology. This time around, the experts are thinking that the downturn may cause everyone to adopt new technology faster because it will result in big cost savings just when they are needed the most. Expect Software As A Service (SaaS) and so-called Cloud Computing services to be among the early winners from this situation.

What do you plan on doing differently within your IT department during this downturn? Do you believe that your budget will or will not be impacted by what’s going on in the market right now? Do you offer any long-term support contracts to your customers and if so, will they help you if things get tight? Leave me a comment and let me know what you are thinking.

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Cha-Cha Change Coming To IT In The Form Of Outsourcing?

Tuesday, October 7th, 2008
Shell Just Outsourced Most Of Its IT Department - Are You Next?

Shell Just Outsourced Most Of Its IT Department - Are You Next?

I just happened to run across an interesting article in Baseline magazine awhile back that pointed out a very interesting trend in IT that just might impact all of us. The good folks over at Royal Dutch Shell (the world’s 3rd biggest oil company) have just announced a massive outsourcing deal with EDS/HP. They appear to have gotten rid of just about all of their IT shop – lock, stock, and barrel. If they can outsource their entire IT shop, why can’t your shop be outsourced completely also?

We like to talk about how to go about aligning IT with the rest of the business so that IT can play a strategic role in the company’s success. Well, if you outsource all of IT that’s not going to be happening any time soon! Shell appears to have gotten rid of the parts of IT that have nothing to do with being an oil company. The following description of just exactly what is being outsourced comes from the press release about this deal:

The activities in scope of outsourcing include designing, building, maintaining and operating the IT infrastructure, and cover the desktop and laptop computers, the telephone and handheld devices, the shared servers for running the applications that support business processes, the storage for data, and the networks and bandwidth for data and voice transmission. The infrastructure services enable Shell companies to use applications that support their business processes and goals, and enable staff and contractors for teamwork across the enterprise, whatever their location, including offshore sites and some of the world’s most remote areas.

What this means for folks in IT is that all of the day-to-day IT effort of keeping the network up and running has been outsourced. No need for DBAs, help desks, or Cisco certified folks anymore.

The Shell CIO, Alan Matula, has told the press that the real objective of the outsourcing deal was to allow the company to focus on its core business operations. Hmm, that does not sound like good news for those who work in any part of IT that can be considered to not be part of the “core”!

Although this is just one deal, and it’s being done by a multinational firm so the impacts won’t be felt in just one country but rather in multiple countries, I still think that this is a big deal. In effect, Shell said “enough is enough” to increasing IT costs that sure didn’t seem to be providing any bottom line value back to the company. Oh oh, now that one big company has done this, what’s to stop everyone else from doing the same thing?

I think that we are seeing the natural progression of outsourcing. Companies have now become so comfortable with what it means to outsource a function and the firms that they outsource to that they are willing to outsource any IT function that is not a part of what makes them competitive in their market.

This is now and will always be a role for the part of IT that is developing the competitive tools that a firm needs to leap-frog its competition. Google’s search engine, Ebay’s auction platform, and Pixar’s design tools will always be developed by in-house IT staff because they define the company. However, all the rest can probably be done better by someone else.

This means that CIOs are going to have to get better at managing outsourced operations because they are still responsible for the results. Additionally, IT managers are going to have to learn how to work with outsourcing shops in order to complete the projects that they have been given. It’s a brave new world out there: get in, buckle up, and let’s go!

How much of your IT operations have been outsourced so far? Are you planning on outsourcing more of it? What parts of IT would you say are mission critical to the rest of the firm? Do you manage differently now that you realize that parts of your operation may be going away? Leave a comment and let me know what you are thinking.

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