How to Outsource-Proof Your IT Department—A New Game Plan

CIO —

CEOs increasingly believe that sending IT work offshore will magically reduce costs and increase productivity. To combat this outsourcery, CIOs need a little white magic of their own.

Kevin Sparks is being chased by ghosts. They're the ghosts of outsourcing past, and they're telling him to change his 200-person IT department at Blue Cross Blue Shield (BCBS) of Kansas City before his past becomes his future.

Sparks's history includes a stint at Yellow Freight where, he says, a large outsourcing deal with Arthur Andersen fell apart. Much of the outsourced IT had to be brought back in-house, causing an upheaval in his staff and operations. He also worked at a small managed health-care provider. Because he was short-staffed there, he used offshore developers to help fill in some of the holes in a packaged application he was installing to meet the Y2K deadline and to retire the company's legacy system. The code the outsourcers produced, Sparks says, was fine, but the coordination and communication expenses erased much of the savings derived from offshoring the work.

The common theme in these experiences was that the business thought that Sparks's IT group was neither flexible enough, nor cost-efficient enough nor productive enough to compete with the outsourcer—impressions that were often revealed to be wrong after the fact.

"There's always the perception among businesspeople that 'I'm paying too much and not getting enough return'," Sparks says. Especially in large companies, "a lot of the decision to outsource has to do with the fact that they're not in touch with what's going on in IT". CIOs haven't helped, Sparks believes, because they've failed to provide clear-cut proof that they can compete with outsourcers. Sparks wants to make his group competitive in every area that the companies he's worked for have used to justify outsourcing: cost, efficiency, responsiveness, productivity and quality. Here's how he's doing it:

• He has consultants helping him prepare for a Capability Maturity Model Integration (CMMI) assessment of his IT processes—just as the Indian offshore outsourcing companies do. This will give the business a clear picture of the efficiency, productivity and quality of Sparks's department to compare with what outsourcers have to offer.
• He's started a project management office to coordinate all midsize and large development projects to improve on-time performance.
• He's created an architecture group to standardize systems and apps wherever possible to reduce costs and increase productivity.
• He's developed performance metrics. Sparks's budget is now "transparent", he says, so the auditors can see exactly where he's spending and how much his people cost. At Kansas City prices, that's not a bad idea.

Oddly enough, Sparks doesn't have to do all this. BCBS is a non-profit, and doesn't face the competitive pressures of a public company. And with concerns about privacy and security running high in health-care, health-care companies assume a huge risk by sending anything out of house.

But Sparks is doing it anyway. Why? Getting better today means he'll be more competitive tomorrow, when economics and industry fluctuations begin to make a more compelling case for outsourcing.

And they will.

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