Hands On, Hands Off

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Learn how vendor management has become central to the CIO Find out why delegating operational leadership may be right for you Test yourself to find out what kind of leader you are To successfully manage outsourcing relationships, you have to focus on the big picture while taking care of the details. Can one person do it all?

When Jim Infinger became Raytheon's new CIO, he cast a sceptical eye at the company's 1997 IT budget. With 80 per cent of the defence giant's dollar pie devoted to maintenance and just 20 per cent allotted for strategic efforts such as planning and research and development, he felt too much was being spent on non-value-added jobs. And that wasn't just his gut talking. "The total IT spending was out of line for the industry," says Infinger, who benchmarked his budget against other defence companies and found that the other companies were spending much more than Raytheon on development. So to free up IS resources and reduce his department's costs, he created a shared services and outsourcing team, one that would centralise responsibility for and outsource all of Raytheon's high-volume transaction work, such as its help desk and desktop services. Then he stepped back to let a talented lieutenant run the show. Liberated from operational worries, Infinger was free to focus on the company's future, an occupation he finds more congenial than day-to-day management, and a pursuit he believes is more aligned with his unique talents.

"I got my time to work on the strategic and be creative," he says.

When E P Rogers, vice president and CIO of the Mony Group, looked the millennium bug in its beady little eyes, he realised it made financial sense to outsource Mony's Y2K remediation effort. So he threw himself into the project. He contacted potential providers. Once he found his outsourcer, he devised a budget and set up project timetables and a reward system for meeting goals. Then, after the contract was signed, he met with his staff monthly to go over progress reports, making sure goals were being met.

"Our Y2K effort was nearly flawless," says Rogers proudly, "and was delivered below industry averages for cost per line of code." Two CIOs. Two approaches to managing outsourcing relationships. Both big picture, but one relatively hands-off, the other very much hands-on.

"I play a prominent role in vendor management," says Rogers. In his view, a CIO has to. In fact, in his view, it's an executive obligation. "Not just the CIO," says Rogers, "but the whole management hierarchy must understand the possibilities technology offers. You have to know when vendors blow smoke - because they do. You have to get how to marry it all up with the business."

Although Infinger and Rogers have different management styles and different skill sets, they both recognise one important truth: no matter how it's done, outsourcing contracts must be managed by combining people skills to create the relationship with the vendor and then setting up structures to sustain it.

This is the mandate for all CIOs today because outsourcing is here to stay.

A CIO's Gotta Do What a CIO's Gotta Do

"I am convinced a majority of IT shops today will be outsourced by 2005," says Sam Albert, president of IT industry analyst and management consulting firm Sam Albert Associates in New York. "People are interested in their core business, and with IT being so labour-intensive, they just don't want to bother if it doesn't push that business forward." According to The Outsourcing Institute (US), this year alone the outsourcing market is expected to exceed $US400 billion. And now that the ASP market makes outsourcing increasingly available to small and midsize companies, virtually every organisation will have the means to shop out non-core-competency functions in the future.

Although careful vendor management may seem a no-brainer now, it wasn't always that way. "Five years ago, a manager called me after his boss said, ?How are we doing with our outsourcing project?'" says Frank Casale, president and cofounder of The Outsourcing Institute. "The manager said, ?I dunno. We outsourced it'.

"As more and more organisations outsource," Casale continues, "the risk to the organisation is significant if IT doesn't have people or groups to manage those relationships." Poorly managed outsourcing can drain budgets, creating the equivalent of an IT money pit.

Management starts from the beginning. "When the ink dries on the contract," says Casale, "it's old." Casale has watched the CIO role change over the past 10 years and says it's crucial for modern CIOs to keep tabs on it all - from requests for proposals to careful contract negotiation to handling the inevitable day-to-day problems that crop up. "CIOs need to get beyond the old days of ?Me client, you supplier'. Those days are gone," says Casale, who advocates for more of a partnership model.

So what skills does it take to manage outsourcing? And can a CIO do it all?

It Takes Two

Rajan Srikanth, a director in the San Francisco office of Mercer Delta Consulting, believes there are two discrete sets of leadership skills necessary for success in outsourcing management. One set, which belongs to what he calls the mythic leader, includes the ability to articulate, communicate and persuade. These leaders possess a charismatic ability to connect with employees and vendors on a personal and emotional level. The mythic leader becomes the physical embodiment of the whole company, incarnating the organisation's goals and values in his own body, representing the business's future in his own person. He is a psychological touchstone for his employees; they feed off his energy. His aspirations become theirs, as do his fears. And once the connection between the leader and the company is made in the minds of both employees and vendors, the CIO is able to point everyone in a common direction.

After the mythic leader articulates the vision, such as spinning off mainframe computing or desktop maintenance and deciding which vendors will do the work, processes need to be built to sustain that brave new world.

This is where Srikanth's second leadership type - the operational leader - comes in. "Operational leadership creates the appropriate processes to stabilise the organisation and make it perform as efficiently as it can," says Srikanth.

When it comes to managing outsourcing relationships, that means setting up incentives and penalties. In order to establish procedures and then see that they are carried out, the operational leader needs a firm grounding in the technology. She needs good negotiating skills, and then she needs to be something of a hard case to make sure that promises are met and products are delivered.

In our brave new world of interdependent systems, outsourcing relationships can reach new orders of complexity, providing challenges for even the most detail-oriented operational leaders. For example, J P Morgan and Company, a global financial company based in New York City, assigned the contract management role for its Pinnacle Alliance to Mike Gotimer, vice president for sourcing management. The Pinnacle Alliance is made up of Andersen Consulting, ATT Solutions, Bell Atlantic Network Integration (BANI) and Computer Sciences Corporation (CSC), which together manage about a third of Morgan's annual IT needs. The work includes mainframes, networks, desktop and some applications development. The idea behind the alliance is to tie the four vendors and Morgan together from an operational delivery standpoint. Contractually, CSC is the lead vendor and Andersen, ATT and BANI are subcontractors, and all of them operate under Gotimer's sharp eye.

Morgan associates work side-by-side with vendors (some onsite, some offsite), keeping a close watch on what gets done and how. Does this careful, detail-intensive approach work? According to Gotimer, "It works because you have day-to-day management and constant communication." Morgan and CSC put measurements in place for all jobs, with performance penalties applied if goals aren't met.

The operational leader's work falls into three categories. She must first create the outsourcing structures, such as Gotimer's Pinnacle Alliance. She then builds processes, spelling out who does what, setting up contracts, defining how policy and direction are set, and creating a process to monitor the vendor's performance, as well as that of internal associates. Finally, she must make sure the performance is in line with strategic objectives. "It takes a leader skilled at technology," says Srikanth, "and in managing and delivering projects." But she also needs good people skills to handle the inevitable problems that crop up between the organisations, problems that need to be thrashed out one-on-one with the principals. To do this, she has to be able to connect with the vendor, all the while representing the company.

All these skills needed, all these responsibilities. It seems like a lot. It is a lot. What's a real, not a mythological, CIO to do?

Look Ma, No Hands

Since he joined Raytheon in 1997, Infinger has been busy. he implemented an SAP ERP project to standardise business practices, a PeopleSoft project to manage payroll, a companywide network that standardises everyone's LAN and WAN needs, and e-business initiatives associated with Raytheon's marine, aircraft and other components of its aerospace/defence businesses. In addition, he completed Y2K remediation - all the while shrinking the IT budget he inherited by 35 per cent over three years. Infinger is a classic example of Srikanth's mythic leader, possessing the ability to point everyone in Raytheon's IT units toward a common goal.

Infinger's particular skill set might be more difficult to acquire than the operational one because successful mythic leaders have something that can't be acquired through books, training, debugging software or organisational meetings: passion.

When Infinger came to Raytheon, it was a jumble of assorted aircraft, construction, commercial electronics and other divisions, each with its own IT department, all cowboys blazing their own trails. In addition, Raytheon had recently acquired E-Systems and the Defence Electronics Business division of Texas Instruments and merged with Hughes Aircraft.

Infinger's charge: make sense of Raytheon's diverse and splintered IT needs and bring them all together.

To build an IT team in line with Raytheon's goals, Infinger took all high-volume transaction work - help desk, desktop and data centre - and centralised them so that all report to the same place. Then he made the decision to outsource these functions. Because the person who would run this area could make or break his vision for Raytheon's future, he looked carefully for a leader. He chose Flora Vance, one of Raytheon's IT leaders, now a vice president of operations and infrastructure, who had a track record of delivering projects on time and on budget.

What skills does Vance bring to Infinger's operation? She can organise, set schedules, manage the people and get the work done. In short, she has operational leadership skills. She also has previous experience outsourcing with the same vendor, CSC, which would take over Raytheon's data centre, help desk and network design/engineering functions.

Vance even adds some mythical ability. She learned to focus more on the relationship with CSC than on the nuts and bolts of the contract. "The relationship must be in place first. Details follow," says Srikanth. "It's like Ronald Reagan said about a missile treaty with the Russians: trust, but verify."

Srikanth applauds Infinger's decision to join his mythic leadership with Vance's operational genius. It's tough, and probably not profitable, for a mythic manager to try to transform himself from a passionate change agent to a careful process manager. In Infinger's case, handing off tasks unsuited to his visionary gift maximised his effectiveness.

The Process Pros

If mythic leaders are driven by personal experience, knowledge and chutzpah, operational leaders are challenged by a need to set up and monitor complex internal and external processes.

"Outsourcing is a longer-term commitment than a consulting relationship - more like a marriage," says Peter Bendor-Samuel, president of Dallas-based Everest Group and CEO of the Outsourcing Centre. If consulting is the dating scene of the business world, outsourcing must endure for better or worse. These relationships will prosper, he says, if care is applied. "You can dump the girlfriend," says Bendor-Samuel unchivalrously, "but not the wife - it's expensive and painful."

Keeping the marriage going requires that the CIO make demands and let the vendors sink or swim. "At first, CIOs tried to be friends with the vendors, which didn't work," says Bendor-Samuel. "They used friend-ships to maximise profits at their own expense." But CIOs cannot afford lengthy honeymoons. Vendor relationships must be managed through institutional vehicles such as service-level agreements - and common sense. Call it tough love.

Can a CIO develop both his mythic and operational sides? Mony CIO Rogers believes one person can do it all - or most of it.

"Not that long ago, a CIO could be successful if he was charismatic or very technical or had people skills," says Rogers. "I think it's changed tremendously. You can't have one element. If you only have one, you won't survive long."

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