by CIO Staff

Reader Feedback: Backsourcing and Outsourcing Contracts

Nov 15, 20054 mins

Put an Exit Strategy in the Contract

The best practices mentioned in “Backsourcing Pain” [Sept. 1] may help minimize the backlash that will accompany JPMorgan Chase’s transfer of work back home. My question is, why was the possibility of change not considered when the contract was set up?

In the fluid environment that is outsourcing, it is naive to assume that all will go well every time. There are too many players, too many opportunities to do things differently on both ends, and it is too difficult to convince the staff back home to accept backsourcing if the option hasn’t been on the table from the beginning.

The disaster in New Orleans, caused by an uncontrollable source, the weather, is evidence that an exit strategy must be well-defined and can’t consist simply of a “can’t happen here” mind-set.

As a pilot, I planned for and documented each flight and thought up alternatives if weather, equipment failure or customer illness occurred. For hundreds of flights, nothing triggered the alternate plan. But for the one that did—well, enough said.

Nobody likes to be the person bringing up the downside of a new approach to business. But management must consider and then track the conditions that indicate it’s time for change. I understand why companies do not like to create exit strategy plans. They take time, effort and money to prepare. But should the need arise to activate the plan, the savings are well worth the effort.

Norman H. Carter

President and CEO

Development Systems International

Lessons Never Learned

It seems that CXOs never learn the painful lessons of outsourcing. Case in point: JPMorgan and IBM, EDS and GM, and many other highly publicized outsourcing deals gone south.

It is obvious that outsourcing is upper management’s tool to make financial gains in the short term. However, the long-term financial operational gains are disastrous, employee morale is destroyed, trust in management is lost, and an entire gamma of negative issues result from the outsourcing deal.

Outsourcing has never been a panacea for mismanagement of the IT function, and the examples of such deals are plenty around us. Instead of outsourcing, companies need to evaluate what has worked within their IT organizations and apply the same principles in those areas where they are lacking resources, experience or knowledge. Implement an ongoing program for process improvement and constantly evaluate the outcomes of strategic and corporate decisions.

There is an old saying: The wishbone will never replace the backbone. That seems to be true with outsourcing. Many high-level managers wish that outsourcing would replace a well-structured and strategic management plan. That will never happen.

Daniel Jaramillo

Sr. Strategic Consultant

Northpoint Strategic Group

A Supplement to Good IT Health

One reason outsourcing looks so attractive to management is that it’s difficult to quantify lost productivity that results from outsourcing. Suddenly, it takes longer to do any project because of negotiation or translation issues.

Additionally, management is typically too isolated in the ivory tower to really understand the true impact of outsourcing. I worked for a company years ago that outsourced its infrastructure support to a large vendor. I joined the company as a senior consultant and had to wait two and a half weeks to get a network log-in ID. I found out that was a common experience with new employees. How much of the company’s savings was spent paying me to sit around mostly unable to work?

If outsourcing costs only a 10 percent reduction (a conservative estimate), multiply that times the burdened cost of your workforce. Are you truly saving anything?

I have a motto relative to outsourcing: “Nobody cares about you like you.” Despite all the promises in the world made by salespeople, it’s not their business that’s at stake, and they’re not personally vested in its outcome.

My experience is that broad outsourcing often destroys your ability to compete effectively. Outsourcing should generally be used to supplement, not to replace.

Pete Gedzyk

Vice President, IT

Morgan Stanley Credit Corp.