Gartner to CIOs: Get ready to outsource infrastructure operations

Gartner to CIOs: Get ready to outsource infrastructure operations

Summary: Gartner is recommending that CIOs develop plans by mid-2006 for offloading IT infrastructure operations to external providers. "It’s becoming increasingly more difficult to prove how retaining in-house infrastructure has an advantage over the outside," said Gartner Fellow Ken McGee.


kenmcgee.jpgGartner is recommending that CIOs develop plans by mid-2006 for offloading IT infrastructure operations to external providers. "It’s becoming increasingly more difficult to prove how retaining in-house infrastructure has an advantage over the outside," said Gartner Fellow Ken McGee. "It’s becoming such a mainstream phenomenon that you will be behind competitors if you are still trying to manage IT operations by end of the decade, so you need to make that decision soon to complete the migration by 2010," McGee added. The usual suspects—IBM, HP, EDS, Sun etc.--as well as new players focused on smaller business will provide the standardized infrastructure to serve those growing needs, with price dependent on service levels and other metrics. Clearly, it has to be much cheaper than do-it-yourself infrastructure operations and just as reliable (if not more so).

The role of CIOs is changing from leading cost containment efforts in the past year to delivering projects that enable business growth, according to McGee and Sector General Manager Daryl Plummer. "We are at a crossroad where CIOs are beginning to ask once again what is the role of CIO and IT in business," said McGee. "It's a movement from being an enabling organization to a contributing organization, signing up to measurable deliverables, such as increasing customer satisfaction by 12 percent. IT performance is being aligned with sought-after business outcomes so everybody can be on the same page." In other words, the CIO is at the big table helping make business, not just technology, decisions, and being held accountable for delivering measurable business value, not just server uptime or a portal. 

However, McGee said that only about 10 percent of CIOs could be categorized as contributing IT organizations. At the same CIOs can expect their staff and budget for internal systems will decline as fewer traditional programmers are needed and as corporate infrastructure is delivered by external service providers. McGee said that by 2009 there will be 30 percent few programmers than today, moving from code to assembly and composition. "There is a need to move away from programmers to business specialists, who understand how the pieces go together," McGee said.

Other key issues that CIOs have to face in the near term include:

When to allow non-enterprise owned devices to access corporate systems. McGee said that the next generation of chips will permit PC virtualization that makes access to corporate system from personal devices more secure.

CIOs also need to figure out when to stop investing in their current set of enterprise applications.  "Stop investing in old application infrastructure," said Plummer. "We have been spending on implementation, maintenance and upgrades for same resources, year after year, rather than investing in something that might be more beneficial." He cited SAP's NetWeaver as an example of a vendor moving from static, monolithic infrastructure to components and services--what Plummer called an agile platform that unites application logic, data and business processes.

Start investing in IP telephony and VoIP. "An absolute revolution is taking place in networking worldwide," McGee said. "We are moving away from technology-based soloutions created at the end of the 1800s into the world of IP, systems based on a common architecture. You may have bought your last proprietary PBX, voice mail or video conferencing system." IP telephony and VoIP are now safe and good enough for communications in branch offices, and can deliver 30 percent or more in TCO savings, McGee added.

Topic: CXO

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  • Outsource the CEOs instead.

    Sheesh. CEOs get ludicrous salaries and post-employment benefits we'd all want to die for. (and as more and more pension plans are being dismantled by the corporate elite these days, many more people WILL be dying).

    Indeed, when they cut middle class jobs and send them over to foreign sweatshops, one would also notice how the prices of the goods we buy do not drop a penny in price. Some even rise in price. So, somebody is pocketing the difference.

    Sheesh, it's so bad that some CEOs can screw up the company all they want - when they get sacked, their severance package would allow them to do NOTHING for the rest of their lives and they can live in the most pampered lifestyle until 50 years after their death date! This is ridiculous. Being fired is supposed to be a punishment. Not a reward.

    I say outsource those at the top. That'll bring them down to the level of those they consider disposable commodities: Their fellow American workers. (okay, this is facetious, but the very concept of offshoring is utterly vulgar. And few people won't care until a catastrophe happens to themselves.)
  • Prepare For Vendor Run Companies

    The bottom line is ... the more of your operations you outsource, the more you are at the mercy of your vendors.

    When getting things done in a timely manner requires contract negotiations, business suffers and the bottom line suffers.

    The fact of the matter is that corporations are getting dumber and dumber when it comes to their IT operations, and are using outsourcing more and more. And it's costing a ton of money because of miscommunication and vendor management issues.

    When you're losing millions per day because of miscommunication and problems with vendors, and you're on the phone with them, and you have to bring lawyers on the line to negotiate support on your contract, you know you've entered the space where the vendor's running your company, not you.

    If you rely on outsourcing, prepare for the vendor run company. Yours.
  • Conflict of Interest

    I'm really disliking Gartner more and more. Product vendors and service providers pay Gartner for better placement within a category. It's a "public secret" - everyone who deals with Gartner knows it happens and they just have to work the fact into their decision when deciding on which product/vendor to go with. Plus with the sheer number of categories available it's easy for any CTO/CIO or architecture engineers to justify a purchase. If the product they want isn't in the most obvious category it's easy enough to find another category where that product is "top of it's class".

    Who gains from all this outsourcing - Gartner. They advise companies to outsource which makes the service partners who constantly pay for "product reviews" to jockey for better positions which in turn increases Gartners cash flow. Meanwhile the companies outsourcing their internal support, hardware, and development get poked in the ass by service contracts, lawyer fees, sky rocketing costs from the vendors, and staffing headaches due to brain drain and loss of moral. It's not all the pretty picture that Gartner wants to sell.

    Even funnier is that Gartner is trying to sell the message both ways. It's all spin. Outsourcing is good it will drive down costs - Outsourcing is not as good as you think, you won't save as much as you want, but service satisfaction will be up. Why?
  • change is inevitable ...

    My understanding is that a company needs to outsource the production of "commodity" items and "insource" the value-added items that distinguish it from others.

    As time, and open-source and other forces continue, old "proprietary" parts of the IT world will continue to be commoditised and new areas will open up for "value added" IT.

    As most companies don't specialise in IT itself ie their real business is doing something else, it makes sense that they'll outsource IT operations if it's just a commodity if they can.

    Of course, trying to be consistent with what I've said above, they'll still want to hang on to the IT parts of their business that have been "value added" ... just my thoughts
    • But you have to be careful

      You have to be careful about it, though. No system that provides vital information that might need to be updated and reports provided immediately should be outsourced in such a way that it becomes cumbersome to do it. In addition how much of a company's proprietary information runs through an outsourced system? Should internal IT be restructured in such a way as to become a value added system? How do you account for which systems are really cost centers and which contribute? In addition it should be recognized that DOING BUSINESS HAS A COST. There are always going to be parts of a business that might not directly produce revenue but are just as necessary to a business running smoothly as any other part. Get real. Gartner and the people who believe all of this live in some kind of fantasy world.
  • Gartner Shouldn't Be So Confident

    The nature of Gartner's business is to generate revenue predicting change in the future. CIO's need to keep this in mind as they sift through the regular predictions for change - and determine which predictions of change ring true.

    This one does not.

    Yes, there are times to outsource. However, blanket statements like these almost always address only a part of reality.

    My litmus test is simple. Outsourcers are in the business of being profitable. So, if the outsourcers do not have massive economies of scale, and if my IS group is talented then I am confident that I can provide better service than an outsourcer. One key is: do you ever have one off's and unplanned changes? Talented, well-managed internal infrastructure groups will always be more nimble to change and will give a better price/value proposition for support.
  • White space and social capital

    While it might make sense for the CEO of a company to hire outside expertise in recruiting and evaluating a CIO, and maybe the next level of IT managers or the CEO's IT-Ovesight Board, I'm skeptical that outsourcing the rest of the staff is a good business decision.

    If you can't control your CIO and in-house staff, why on earth would you think you'd have more control of the out-house staff?

    The key term coming into the literature is "social capital", as a basis for everything from agility to quality to adaptability. Social capital is what fills the white space on your org chart, and is the collection of relationships and experience that hold your people together and help them operate as a team. It's the social relationships that are actually what make or break the success of management decisions, along with deep knowledge of your particular business world and partners.

    On paper, and looking at job descriptions, you can replace senior staff with green-card-kids (which is for sure what your vendor would do) and the number you get multiplying headcount times salary is a lot lower.

    In practice, you may be replacing a team, that you can control, with a collection of individuals, that you can't. In any serious competition, collections of individuals, even collections of hot-shots, are disasters. Teamwork is everything. Teamwork, however, takes time and rooted-ness to grow. You can't buy it or rent it.

    If your own team is a disaster, find a vendor who understands teams and hire them to fix yours, instead of replacing yours. Fire your IT oversight board and have your chosen vendor help you restaff it with competent advisors. Then at least you won't lose the thousands of person-years of experience in your own particular world.

    But, all that's theory. Best bet - find some customers who've outsouced and, 5 years later, swear by it that it was the best thing they've done and would do it again, no questions ask.
    My bet is, your golf buddies will swear AT it and tell you it didn't help, and made things worse.
  • The Outsourcing Band-Wagon will lose its wheels

    "mainstream phenomenon that you will be behind competitors" - Oh, I thought the best way to get ahead of competitors was to innovate and not follow.

    "It?s becoming increasingly more difficult to prove how retaining in-house infrastructure has an advantage over the outside," - It is VERY easy to see that outsourcing costs more, your users are not the ONLY customer,
    • cont'd

      Sorry - hit enter and it submitted - cont'd ---- and the people doing the work for you will NOT be intimately familiar with the specifics of your corporation or corporate culture.

      Whatever - if we become a "nation of waiters and waitresses" (not sure what song that is from) serving the CEOs, CIOs, and CFO's - they darn well better tip well !!
  • RE: Gartner to CIOs: Get ready to outsource infrastructure operations

    Awesome!Indeed, when they cut middle class jobs and send them over to foreign sweatshops, one would also notice how the prices of the goods we buy do not drop a penny in price. Some even rise in price. So, somebody is pocketing the difference.
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