What The World Is Flat Means to IT Outsourcing

The days of lump-sum outsourcing deals and blunt offshore labor arbitrage are gone. The future is about disaggregating IT processes -- and then figuring who is best equipped to handle them and where they are located. Here's how to do it right.

1 2 Page 2
Page 2 of 2

Sometimes a process or task doesn’t require face-to-face interactions but frequent contact is still important. It is possible to outsource these projects, but the outsourcer better be located nearby. Boehme was involved with a project during a previous job that involved a lot of data scrubbing. His department wasn’t staffed for the project, and it was low-level work anyway. “But at the end of the day you have to call people and verify their addresses,” he says. He found a partner in Mexico that had the computer skills, the language skills and, best of all, a voice over IP network, making the phone calls even cheaper. He decided on Mexico because he wanted to have people in the same time zone so they could call U.S. customers when they had to. It worked great. (He tried to source a DBA project in Mexico more recently, but after 90 days of interviewing, he couldn’t find the skills he needed. He ended up moving the project to India and having a team there work the night shift.)

When Sanzone was sourcing the trading application, he realized that the design team needed to be in occasional, but not frequent, contact with the requirements group and the traders—just enough to get a few questions here or there answered. So he decided to source that task out of Credit Suisse’s Raleigh office. The project was still done by his employees and in the Eastern time zone, but it was a less expensive rate than New York.

3. Does having your employees do it provide you with a competitive advantage?

This is the number-one reason not to outsource something. And it is a determination that every company will have to make for itself. There are some things that hardly any CIO would outsource—architecture, for example. And then there are situations where the answer may be counterintuitive. Homa, the Hannaford Bros. CIO, doesn’t outsource his help desk, even though that has become the low-hanging fruit for many first-time outsourcers. “I support about 300 internal applications and it would be very difficult to train an outsider how to answer those questions,” he says. But it would be possible. And if the cost savings were large enough, he might try to do it.

But there’s an important argument against it that isn’t readily apparent until you look—and think—more deeply. Hannaford Bros. is based in Maine, where IT talent doesn’t exactly grow on trees. So Homa views the help desk as an important training ground for his future stars. “My help desk is my farm team,” he explains. “It is a great way to get into IT without having an IT background. Maybe a third of the people who came into IT came in through the help desk.”

If Homa outsourced the help desk, he would be limiting his ability to grow the rest of his IT department. It’s not an obvious reason, and it illustrates why deciding to outsource something requires more than just a cursory level of scrutiny.

The End of the Billion-Dollar Outsourcing Deal

Understanding your IT department at this level also makes you a better outsourcing customer. Rather than taking large pieces of IT and outsourcing them to one vendor in a megadeal that essentially marries the company to that partner, CIOs can use the insight they gain from the analysis to find the right partner for specific processes and tasks. In fact, Boehme suggests that CIOs should have at least two partners, and make them compete for your dollars.

Jimmy Harris, managing director of infrastructure outsourcing for Accenture, agrees, although he warns of a few potential problems. First, he says, it isn’t a good idea to divide a process between vendors, despite some vendors’ claims that they can work together. Also, he says, CIOs should not spread out the tasks that form a particular process too broadly, because it just adds complexity. Workers are less motivated because they feel as though they have less invested in the final product. And, he adds, “If you have to engage in thousands of low-level communications because you broke up the work at too fine a level, you are going to lose stuff.”

In fact, in order to combat the complexity that comes from spreading your IT processes and tasks around the world, some CIOs have created a high-level position to keep track of outsourcing vendors and the projects that they are working on. “It’s an emerging function that may not have existed at a global level before,” says ABN Amro’s Rosenthal. “Vendor management becomes much more important now. [Having that group] helps us facilitate business decisions in ways that we didn’t have to before.” Applying this kind of methodology to your IT operations will let you see what components of your organization can be moved. By tapping into the skills network that outsourcing companies have built, you can react to new requirements faster. It’s enough to let even the smallest companies act like a big company.

“We’ve been able to get our staff to move up the value chain,” says Homa, reflecting on the impact that taking advantage of the new outsourcing world has had on his department. “It’s allowed us to raise our game.”

Ben Worthen writes about emerging business trends.

Copyright © 2007 IDG Communications, Inc.

1 2 Page 2
Page 2 of 2
Learn how leading CIOs are reinventing IT. Download CIO's new Think Tank report today!