The Outlook for Outsourcing
All things considered, 2008 was a relatively stable year for the IT services industry.
Deals got smaller and shorter, but they grew in number. The second-tier providers and Indian
vendors did well, along with Accenture and IBM Global Services.
IT outsourcing providers were largely unscathed by the economic downturn throughout much of
the year. “It took almost two quarters for the effects of the slowdown to manifest in
providers’ financial statements,” says Eugene Kublanov, CEO of outsourcing advisory NeoIT.
By the end of 2008, however, CIOs became too distracted by the economic destruction to do
any outsourcing deals. “As the markets crumbled and CIOs were confronted with the prospects
of their personal employment, naturally, decision making around strategic cost cutting and
efficiency took a back seat,” says Kublanov.
That’s all poised to change in 2009.
“Whenever there’s a downturn, people outsource more, not less,” says Gartner analyst Linda
Cohen. “Organizations want to take costs out wherever they can. CFOs are pounding on their
CIOs to just outsource it, just offshore it.”
“The difficult economic conditions will push companies further than before to consider what
stays in house and what gets done by others,” agrees Kublanov. “Additionally, demands by the
business for further cost reduction will need to be addressed in an environment where many
companies have already leveraged labor arbitrage to source the low-hanging fruit.”
CIOs may sign hasty deals for short-term returns. In a case of what Cohen calls “convenient
amnesia,” IT leaders may forget all the lessons they learned, rushing into bad outsourcing
arrangements and chasing elusive benefits. “Everyone has a gun to their head right now,” she
says. “But the financial voodoo of outsourcing deals doesn’t work. You have to accept the
reality that if you hand your mess over to a vendor, you’re going to eventually have to pay
for that burden they take off your plate.”
Bad deals can lead to degradation in service performance and price increases down the line.
Smart buyers will ask for shorter term lengths, but in times of economic pressure, rational
thinking is hard to come by.
And remember all that talk about how an IT services provider could be your partner in
innovation? Forget about it.
“The focus will shift away from open-ended efforts,” says Stan Lepeak, research director of
outsourcing consultancy EquaTerra. “Buyers will not have much appetite for transformation in
Although outsourced innovation will be set aside in 2009, the greening of IT outsourcing
deals will not, if only because sustainability can mean cost savings. “Purely environmental
desires will take a back seat to explicit cost savings desires,” says Lepeak. “But green
that hits the bottom line will flourish.”
Groups Push Obama for Net Neutrality
Advocates of Net neutrality rules in the U.S. have called on President-elect Barack Obama to
act quickly to prevent broadband providers from blocking or impairing customer access to
The Open Internet Coalition has asked Obama to follow through on promises made during the
presidential campaign to establish Net neutrality rules. The coalition also called on Obama
to appoint a new chairman of the Federal Communications Commission (FCC) who would enforce
Net neutrality rules and champion broadband competition.
The group says Obama should also appoint leaders at the Federal Trade Commission and
Department of Justice who will promote an open Internet through antitrust and
consumer-protection laws, and put key staff in place at the new office of the U.S. chief
technology officer and the Office of the U.S. Trade Representative to promote open Internet
ideals both at home and abroad.
When asked if they believe that Obama will act on Net neutrality and broadband competition
given priorities such as the U.S. economy, coalition members say they expect the new
president to move ahead on tech issues. “Providing affordable, accessible, high-speed
Internet to all Americans is part of the economic recovery,” says Markham Erickson, director
of the coalition.
Large broadband providers have questioned the need for new Net neutrality laws, saying that
the FCC has already acted against carriers that have unreasonably blocked or slowed Internet
content. Strict Net neutrality rules may discourage investment in broadband networks at a
time when Obama is calling for more broadband, they have said.
Squeezing Vendors Yields Little Value
IT vendors may be growing desperate amid the global economic downturn, but CIOs must employ
a range of tactics—not just bullying—to extract cost savings from them.
That was the message of a teleconference on improving vendor relationships held by Forrester
Research last month. IT leaders can’t use a shotgun-style approach and expect success, says
software licensing analyst Duncan Jones. “Anything that is undifferentiated, like a general
letter that goes out [to vendors] saying we’ve got to cut everyone’s maintenance by 10
percent? That’s not going anywhere,” he says.
If a customer does succeed in lowering its services costs, “the vendor is going to
immediately substitute junior people,” says analyst John McCarthy, whose coverage includes
Tactics are different for software licenses and maintenance agreements. “You’re dealing with
a software rep who has different goals than you. He needs to sell new licenses and has no
interest in helping you cut costs,” says Jones. “But if you get up higher in the
organization, there may be people who care more about the long-term relationship, and
there’s flexibility there.”
Customers could also use money earmarked for new software as leverage, he says. “Anything
you’re trying to get, like cutting maintenance on products you’re not using, you might get
that as a quid pro quo for spending in another area.”
CIOs could also get more value from outsourcing through strategic hiring, says analyst Paul
Roehrig, who focuses on outsourcing and IT services. “I would get someone who really knows
how to manage a service provider. Some of the best outsourcing deals have really good people
who know how to get a service provider to do what you want.”
Can You Read Me Now?
Road warriors know that listening to an urgent voice mail message can be impossible when
you’re in a noisy airport or hotel lobby and there isn’t a quiet place to escape to.
Now they can read those voice mails on their mobile device or laptop with the help of a new
system from Avaya. The system lets users convert spoken voice mail messages into text, use
that text in a message in any e-mail system and then optionally send the voice mail itself
as an attached audio file.
The system gives both callers and recipients new options for retrieving and saving their
communications. It also means that voice mail, in the form of text, can be stored, searched
and read just like any other kind of business communication. That can help companies comply
with disclosure laws, the company says.
Avaya’s Speech to Text system uses the SpinVox Speech to Text messaging service and the EVM1
(Enabled VoiceMail) gateway software from Mutare. It works with the Avaya Modular Messaging
voice and fax platform.
The system is aimed primarily at helping mobile users keep in touch and can work with any
connected mobile device, according to the company. It can handle English, French, German and
Avaya is one of the largest purveyors of unified communications (UC). UC is a set of
technologies designed to let people manage their communications as they like and be
contacted in the best possible way given where they are and what devices they have on hand.
But the concept, which is built around making everything into packets on a single IP
(Internet Protocol) network, also opens up new possibilities for merged forms of
Nationwide Uses Unified Desktops to Boost Customer Satisfaction
What’s one way to keep customers happy? Making your employees’ lives easier. Nationwide
Insurance’s IT department did just that by streamlining the applications that a customer
service representative (CSR) uses to handle calls. Now a unified desktop solution links
disparate applications to give reps a single view of a customer’s information.
Since implementing the new system, Nationwide has decreased call time by up to 20 percent,
and a CSR can take up to 10 extra calls per day.
Srinivas Koushik, CIO for Nationwide’s Property and Casualty Division, began thinking about
how IT could improve service after visiting the company’s call centers. He noticed that IT
hadn’t provided a single tool to make work easier for the CSRs. Before unification, billing,
claims and administrative data were housed in different programs that loaded separately,
which lengthened call time and led to customers being put on hold.
The WorkSpace solution from Jacada is a browser-based interface with tabs for billing,
claims, logistics and sales. CSRs can quickly see customer information so they can make
informed decisions about handling a call.
“The new system puts all the information together in one place,” says Koushik. The CSRs also
have to master fewer programs, which shortens training time. Koushik and his team have
rolled out the solution to two of the company’s four call centers.
Nationwide created a kind of dashboard for the CSR, says Bob Hafner, managing VP of
communications applications for Gartner. This trend is gaining traction as information
mash-ups are becoming common and the tendency is to “bring dissimilar but necessary
applications together for the individual to do their job.”
Report: Feds Should Regulate Cybersecurity
The U.S. government should overhaul its approach to cybersecurity, with sweeping new
regulations on private businesses and a new, centralized cybersecurity office in the White
The White House office is needed because the Department of Homeland Security is not equipped
to protect the government against cyberattacks, according to a report from the Center for
Strategic and International Studies’ Commission on Cybersecurity for the 44th Presidency.
The report also calls for new government regulations focused on protecting U.S. networks.
Most would focus on refining government efforts to protect its own cyberinfrastructure, but
regulations on private industry are also needed.
The report rejected the market-driven approach to cybersecurity advanced by President George
Bush. “The strategy essentially abandoned cyberdefense to ad hoc market forces,” the report
said. “We believe that cyberspace cannot be secured without regulation.”
DHS, the lead agency focused on cybersecurity, can be strengthened, the report said. It
should retain responsibility for the U.S. Computer Emergency Readiness Team and related
functions, but a new White House National Office of Cyberspace would coordinate and oversee
the nation’s cybersecurity efforts.
The report also recommends the creation of a new national cybersecurity strategy that
includes diplomacy, military action, changes in policy and the involvement of intelligence
and law enforcement officials.
Put Your Money Where the Business Wants It
IT leaders were told to “do more with less” even before the recession. Savvy managers like
Krischa Winright, associate VP of IT for Priority Health, a health insurance products
provider, have focused on showing what IT can do for the business. Winright’s team achieved
an estimated 12 percent reduction in expense spending (actual dollars spent) in 2008. How
did they do it? Winright shares a few tips.
CIO: You put a Project Management Office in place to improve the ability to
trace costs. Then what?
Winright: Well, let’s be careful. Project costs associated with large
business initiatives are only one portion of IT spending. We wanted to cut costs in ways
that would enhance our business alignment and increase the services we offer. To do that, we
had to expose all of the costs in IT—PMO and non-PMO—in terms the business could
understand. In other words: business applications. We enumerated all IT budgetary costs by
application, and then bucketed them based upon whether they were existing services or new
services being installed in 2008. We began to converge to fewer technologies and
applications that offer the business the same functionality, while increasing service levels
for each offering.
What other steps did you take?
We converted costly contracted labor associated with internal staff. We ferociously
negotiated costs with our vendors. We took advantage of virtualization and other convergence
technologies to maximize benefit from spending. We have proven a six percent shift of
spending from existing service costs to new services. This is a powerful message to share
with business partners. They will ultimately benefit when six percent more IT spending is
directed to new initiatives rather than to existing services costs.
What advice do you have for other IT leaders?
It is imperative that you and your business peers understand the complete picture of IT
spending in terms of business strategy. Then, and only then, will transparency into IT
spending be an effective tool to increase business alignment. (Read the full interview).