Simple Successful Outsourcing

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

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Nine months ago, ACS approached de Poerck with a proposal: ACS could now offer 24/7 help desk support to IFC for the same price. The reason? ACS was now able to transfer off-hours calls to its Bangalore office. De Poerck had significant experience with offshoring application development and maintenance to another outsourcer in Chennai, and was game. After a pilot, he signed up.

De Poerck says that the impetus for the change was the looming end of the multiyear ACS contract, which the World Bank requires IFC to put up again for bid at the end of a contract period. If ACS could offer IFC extended help desk service for the same price, perhaps it could outbid all comers. Regardless, "now that we have that team in Bangalore, there’s a level of performance and processes that weren’t in place before," de Poerck says. "We’re getting a lot better service."

Clean House Before Outsourcing

If the success rates and benefits of transaction relationships have you wondering why you don’t just outsource everything that you can characterize as extractable, beware. There is a potential trip-up. Emphasizing transaction relationships can make a company less innovative with its IT architecture. In the short term, transaction outsourcing can help a company clean up isolated processes, but in the long term these deals may actually reinforce application silos in a company, according to the CISR-CIO research.

This potential problem makes the need for enterprise architecture planning even more important for companies engaging in transaction relationships, Ross says. "We think of a transaction as a smallish piece of IT that the vendor ought to be able to provide value on," she says. "But that can be dangerous. Until companies have cleaned up internal processes, outsourcing transactions is going to reinforce silos. And that can make your internal architecture messier and messier." Over time, a weak enterprise architecture could inhibit a company’s ability to respond to changing market conditions.

Cinergy could have fallen into that trap. Before CIO Gaines’s arrival in 2002, the company had commenced a transaction relationship with DBA Direct to do database administration for its commercial energy business unit only. At the time, Cinergy IT was decentralized, with each of the company’s four business units operating autonomously. The DBA Direct deal "worked reasonably well and served its purpose," Gaines says. "But there was not a lot of visibility into it. It was filling a rather specific need in that business unit, and it wasn’t scalable."

When Gaines took the reins, he was charged with centralizing IT for the $4.7 billion company. One of his first acts was a review of Cinergy’s entire IT service delivery model. He also looked ahead to future needs. "We had an opportunity to get into some new emerging technologies, but that would require incorporating an enterprisewide data warehouse," he says. Gaines knew he did not have enough internal expertise to tackle that job.

Gaines began to look at outsourcers. He liked that DBA Direct had experience with his company. "The database work they would be handling was complex, and they were already managing a highly reliable database for us," he says. So he hired the vendor for database administration enterprisewide. DBA Direct started with the company’s Oracle databases. And as Gaines continued to centralize IT, the outsourcer took responsibility for most of Cinergy’s databases.

By reexamining the outsourcing relationship with DBA Direct and expanding it as part of a larger enterprise architecture strategy, Gaines avoided the silos that transaction outsourcing sometimes produces. The vendor has also proved valuable working directly with Cinergy’s other outsourcers, with whom Cinergy cosources much development and maintenance of applications that in turn rely on database functioning and availability.

But most impressive to Gaines has been how quickly DBA Direct, with its well-honed database experience and best practices, has been able to move Cinergy from its old data mart model to an enterprise data warehouse. Far from stagnating Cinergy’s architecture, transaction outsourcing has improved it. "I would never have been able to bring that [enterprise data warehouse] into this company as quickly if we tried to do it ourselves," says Gaines. DBA Direct "had that core competence because it’s their business. It wasn’t rocket science. But the need was so urgent for us—we had customers in the business who were building new applications dependent on having a data warehouse—that finding a partner like them was important."

CIOs should not be lulled into believing that success with transaction relationships means they’re ready for riskier adventures in outsourcing. According to Ross, knowledge from transaction outsourcing does not necessarily transfer to other, more complex types of outsourcing. "You’ll never find the level of success you have with transaction relationships in other types of outsourcing because nothing else is as extractable," she says.

Smart CIOs who have found success in transaction relationships know this, and consequently, they approach all outsourcing—even further transaction relationships—with due caution. "With transaction relationships, you tend to find a lot of happy people. They’re outsourcing smaller pieces of IT," says Ross. "But the bigger it gets, the riskier it gets."

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Copyright © 2005 IDG Communications, Inc.

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