Feature

Simple Successful Outsourcing

CIOs who outsource discrete processes that have well-defined business rules are almost always happy with the outcome.

October 01, 2005 — CIO — You’ve heard the tales of outsourcing gloom and doom and read about the staggering percentages of outsourcing failure. Now consider these three CIOs’ experiences:

A CISR-CIO Study

This is Part 1 of a three-part series about outsourcing strategies and success models, defined in original research by MIT's Center for Information Systems Research and CIO magazine.
Part 2: Working with Offshore Partners Requires CIO Oversight
Part 3: Big Deals, Big Savings and Big Problems

* Five years ago, a business unit at energy giant Cinergy Corp. outsourced database administration services, with no plan to extend the contract to any other part of the business. But when Cinergy centralized IT two years later, CIO Bennett Gaines called on the outsourcer to provide database administration services enterprisewide. Since then, the outsourcer has proved instrumental in a major technology shift—from data marts to an enterprise data warehouse.

* Four years ago, Summit Information Systems, a software developer for credit unions, outsourced disaster recovery services for its data center, located in central Florida. In 2004, as Florida faced the worst hurricane season in its history, "[the outsourcing vendor] was willing to do whatever it took to keep our systems up and running," says Steve Steinbach, Summit’s vice president of data center operations.

* Three years ago, JM Family Enterprises outsourced all mainframe hardware, software and operations because mainframe usage at the $8.2 billion automotive holding company had leveled off. The outsourcing vendor immediately optimized operations so that critical month-end financial reports landed on the desks of JM Family executives first thing in the morning rather than late in the afternoon, as was the norm. "It was the same hardware. The same data. But they were able to gain efficiencies because they knew how to run a mainframe better than we were ever able to," says Senior VP and CIO Ken Yerves.

What’s this? IT executives who are satisfied with their outsourcing arrangements—even praising their vendors? This might seem strange, as mass indictments of outsourcing have led to misperceptions. In fact, some slices of outsourcing are almost always successful.

Research on Outsourcing

Research from MIT's Center for Information Systems Research (CISR) and CIO examined 90 outsourcing deals in 84 companies to help executives recognize opportunities for long-term benefits from outsourcing relationships. Read Achieving Sustainable Value from Outsourcing by Jeanne W. Ross and Cynthia M. Beath.

Cinergy, Summit and JM Family achieved success by outsourcing well-defined processes that had clear business rules. Jeanne W. Ross, principal research scientist at the Massachusetts Institute of Technology’s Center for Information Systems Research (CISR), calls such outsourcing arrangements "transaction relationships." These are the most straightforward of outsourcing deals. The work is relatively easily defined, and the CIO wants to farm it out for clear reasons: to gain access to specific technology expertise, to deal with variable demand for certain IT services, or to free up internal staff for higher-value work. And in these relationships, vendor and customer needs are usually aligned; what the two parties want coincides more often than not.