IT Commandment: Thou shalt not outsource mission-critical functions

IT Commandment: Thou shalt not outsource mission-critical functions

Summary: organizations ultimately exist as information and control processing tools, and out-sourcing IT therefore diminishes overall organizational value.

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TOPICS: Software
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My blog last Monday about moving messaging to the the Niagara based Sun pod resonated nicely with an expressed editorial interest in out-sourcing decisions with respect to messaging. Basically the issue came down to this: my blog suggested messaging consolidation on Sun using IBM's Domino software, Organizations ultimately exist as information and control processing tools, and outsourcing IT therefore diminishes overall organizational value. but the contrary position is that messaging support is a commodity service that should be out-sourced.

Sun itself seems to think a lot of IT could be out-sourced -it's part of their vision of utility computing; itself originally a throwaway comment on the need for reliability in systems services that took on a life of its own to became a marketing slogan and is now acquiring some reality through actual service delivery.

At the philosophical level the problem with out-sourcing any IT service is that organizations ultimately exist as information and control processing tools, and out-sourcing IT therefore diminishes overall organizational value.

At the practical level the argument against any form of out-sourcing is that passing information control to a third party is a lot like putting somebody else in charge of regulating your heart beat: useful in the short term if your heart is failing, but not a recipe for Olympic success.

Between those two extremes there are three sets of issues, each of which leads to individually compelling arguments against out-sourcing anything remotely as critical as messaging:

 

  1. At the top of the list are the control and flexibility issues.

    Doing it yourself may seem to cost more, but when you want something done, you can usually get it done with a minimum of hassle and incremental cost.

     

  2. Second on the list, particularly in the United States, are the responsibility, liability and trust issues.

    If your out-sourcer has ever had to admit a data loss (something that's true of all the major players) you've had the warning needed to know that their procedures are inadequate - or, at least, so the plaintiff's attorneys will be claiming when a few hundred (thousand) of your best former customers launch a class action against you.

     

  3. And third on the list are the competitive advantage issues.

    There is no competitive advantage in using the same software, the same methods, and interchangeably the same people as your competitors.

Look at all three sets of issues and two commonalities should stand out:

 

  1. Out-sourcing fundamentally depends on a failure to differentiate: if either your needs or your IT group's ability to meet those needs, are indistinguishable from those of your competitors and there are advantages to scale, then outsourcing can provide overall financial benefits because the out-sourcer basically acts as a kind of industry co-op; and,

     

  2. In-sourcing, or doing it yourself, is always a bet on your IT vision and delivery being better than the industry average. In other words, out-sourcing has a downwards averaging effect across the out-sourcer's customer base.

Think about this a bit and it should be obvious that out-sourcing can never be a competitive strategy, only a cost-cutting one. Thus for IT out-sourcing to make sense, two things must be true: first your industry must be stagnant with your operation indistinguishable from everyone else's and all the IT staff involved, your own and that of the out-sourcer, must be drawn from the same pool, use the same tools, and value their loyalty and commitment to whatever technical ideology dominates that labor pool significantly above their loyalty and commitment to you.

If you're not in that situation but someone who doesn't understand competitive advantage wants to out-source messaging, the killer argument is simply that things will go wrong, and that when stakeholders come after the organization, the out-sourcer will be comfortably outside their line of fire.

That, of course, is a very negative argument, but you can build positive elements on it by talking about remedial action - and the absence of contractual and liability based impediments to it if messaging is handled internally. Basically, there's no question on who owns the data, who has the right to examine it, or who to hold accountable with internally managed messaging -and there always is when a contracted third party's first responsibility is to assess compliance risks to that third party's own business rather than yours.

On the other hand, if you're dealing with people who do understand competitive advantage: who know that hiring the same interchangeable people with the same skills, the same tools, and the same attitudes as everybody else, eliminates the opportunity to use IT for strategic advantage, you can build a much positive argument directly on service differentiation.

And here, of course, is where ideas like moving from Exchange on Windows servers to Domino on the POD gives you a chance to offer a winning argument: present Domino on SPARC, not as merely a cheaper Exchange, but as a foundation for competitive advantage. Talk about getting the transition done, saving a few bucks, ensuring stability - and then using the tools in place to pursue things like team building, knowledge management, video switching, and expert systems support in areas like engineering, proposal management - whatever customer facing activities your company engages in. And then make the point that all of these opportunities to realize competitive advantage from IT have limited costs when you have the infrastructure in place, but are cost prohibited when that infrastructure is out-sourced.


Our IT Commandments:
  1. Thou shalt not outsource mission critical functions
  2. Thou shalt not pretend
  3. Thou shalt honor and empower thy (Unix) sysadmins
  4. Thou shalt leave the ideology to someone else
  5. Thou shalt not condemn departments doing their own IT
  6. Thou shalt put thy users first, above all else
  7. Thou shalt give something back to the community
  8. Thou shalt not use nonsecure protocols on thy network
  9. Thou shalt free thy content
  10. Thou shalt not ignore security risks when choosing platforms
  11. Thou shalt not fear change
  12. Thou shalt document all thy works
  13. Thou shalt loosely couple

Topic: Software

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39 comments
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  • Let ZDNet outsource their servers

    MAYBE they would work right then . . .
    Roger Ramjet
    • Tell me about it

      I never could successfully post a reply to Pauls' "Trolling for page hits" blog.

      Carl Rapson
      rapson
      • Me either and I had a good one...

        Seems the programmer didn't use proper unique indexing in his db :)

        Kinda funny for a technology site. Just a guess either way, but funny nonetheless.
        ju1ce
  • Outsourcing vs Insourcing

    Let's consider the range of services from "highly specialized" to "highly commoditized," with most services falling in the middle.

    Those are the two extremes that it can (but not necessarily) make sense to outsource.

    Highly commoditized services are services where the only differentiating trait among providers is level-of-service, and level-of-service is clearly and closely tied to cost. Iff level-of-service was clearly and closely tied to cost, then services like basic email and calendaring would fall under this category.

    Highly commoditized services, if you find one, should be provided by a traditional outsourcer.

    Highly specialized services are services where the skills and resources necessary to provide them are difficult to acquire, in short supply, and generally not required at a level that would justify developing the competency in-house.

    These are the services that should be provided by consultants. If you can find a service that's important enough to your business to pay through the nose for it, but not important enough to develop the skills associated with providing it, you should hire a consultant.

    Ok...so by my reasoning above there's very little, if anything, that should be outsourced. I think that's probably true for every Fortune 100 company and most of the Fortune 500 and even Fortune 1000.

    But there's two other questions:
    1. Would a positively differentiated service give my business a competitive advantage?
    2. Is the cost of achieving that competitive advantage both feasible for my business with a higher ROI than directly improving my business's core competencies?

    Ok, so unless I'm a SMB, there's probably not much, if anything, that I should outsource.

    So why is there so much outsourcing?

    My theory is two-fold:
    1. From the business perspective, Internal IT has conistently failed to make good on promises, so if someone is going to fail, it's better that they are cheaper and/or can be sued for failing.

    2. From the IT perspective, those darn business people never give IT the respect it deserves, so doing IT in a non-IT company is a dead-end career. It's better to work in a company where my skill is core to the business.

    In other words, IT people don't want to be outsourced, but they typically want to be the outsourcer. The reason being they don't get any respect from the business-side, because they fail to deliver on their promises. Note that I'm not saying they fail to cost-effectively deliver substantial benefits, but simply not delivering what was promised when it was promised at the cost it was promised.
    Erik1234
    • Wish I'd written that..

      and I certainly agree - thanks!
      murph_z
  • Make the connection for me

    How did you go from talking about the competitive advantages of in-sourcing vs. out-sourcing to talking about the benefits of Domino/Sun over Exchange/Windows? I won't debate the issue of whether or not moving from Exchange to Domino would provide some competitive advantage; but aren't both examples of "in-sourcing"? Where is the move from outsourcing to insourcing, which after all was the point of the blog? Why did you deviate from the main topic?

    Carl Rapson
    rapson
    • let me try

      1) I was pegging things to last week's blog on Domino;

      2) if you can't argue that you can do Exchange better (or for less) than the out-sourcer, you may still be able to argue that an insourced solution gives you opportunities the out-source option precludes.
      murph_z
      • OK, thanks (NT)

        Carl Rapson
        rapson
  • More security worries

    There is enough coverage of the issue of loss of customer data and consequent problems and liabilities. What I haven?t seen sufficiently covered is the danger of industrial / commercial espionage. One is not likely to put the secret chemical formula on which one?s company depends in an email, but indications of the price of a tender? Strengths and weaknesses in negotiating positions? Early drafts of share-price-sensitive news releases? Any one email may not give much away, but often a lot can be worked out by cross-referencing many small pieces of information. I would be more concerned about a rogue employee of an outsourcing firm, acting on their own initiative, seeking information to use for their own benefit whether directly or by taking it to a rival, or by blackmail. Or someone placed in an outsourcing firm by one of one?s rivals, or by another government. Rather than an outsourcing firm itself spying on one. But re security, I would worry a lot, about a lot. And in many scenarios, one would never know?
    Ross44
    • Agreed

      And more than one outsourcer has been caught inadvertently sharing customer data among competitors.
      murph_z
  • Executive expectations.

    Decision-making in IT is based on expectations about what IT can provide. IT has become a cost center, a provider of standard services, at many companies.

    A small, not especially well-paid staff can be acceptable. A larger, experienced staff can be considered bloat waiting to become lean and mean. (Terrible phrase, widespread concept).

    Because of healthcare and pension costs, as well as the attitude in the stock market affecting executive compensation, reducing staffing is a highly approved solution.

    There's a good chance the best approach for IT is to avoid attention, because the attention given can frequently be intended primarily to reduce the cost of personnel.

    So, recommending a change in basic functions, tasks not considered especially complex and unable to provide a business advantage, is an invitation to review outsourcing the current approach, or identifying a simpler approach which can be provided by an outsourcer. The cost of converting to the simpler system would be borne by the outsourcer rather than hiring consultants or new staff.

    Advising a change in a "working" system reminds decision-makers of why they were not happy with IT when it was providing functionality that did help the business. And of the efforts needed to prevent IT from restricting users too severely.

    A culture clash is possible. And alienation between IT abnd the rest of the organization can leave the way open for unexpected change. Reducing the authority of IT is always good.


    With all that said, there's a reluctance to send anything significant out of the company and for good reason.

    That's not about any sacrifice of competitive advantage. For any common functionality, the view is, there is no advantage. And it's not for mandatory recordkeeping. All the HIPAA software shows that taking away that responsibility is often considered a happy move.

    No, the two main reasons are confidentiality and the fear of service interruption.

    The bigger threat is, I think, outsourcing to people managing aspects of IT on site rather than through the internet.

    There are a lot of pressures on Unix employment nowadays. These are not as severe in the Windows realm.

    I hope the current good employment trends in IT continue. But the situation is fragile.
    Anton Philidor
    • Executive Expectations

      Dealing with IT people tends to remind me of dealing with home improvement contractors. They want to tell you all about what they're going to do as if you understand it and care, when what you want to know is: (1) Will the result be what I want, (2) When will it be done, and (3) How much will it cost?

      I'm convinced both types of people explain all these details while ignoring results, schedule, and cost because they want to be able to blaim their customers when they fail on all three accounts.

      Paul's comments about moving from Exchange to Domino are an example of that. No executive other than the CIO should care what software is being used for email and calendaring, much less operating systems and other details. Yet IT people constantly want to focus on pitting their favorite system against the incumbent system rather than focusing on delivering more value.

      How many people do you work with in IT that could answer this question: How does what you're working on give the business a competitive advantage?
      Erik1234
      • Sometimes the only "competitive advantage" is cost savings.

        Delivering value can mean saving money.

        Here are a couple of examples from Merrill Lynch:


        First:

        Snodgrass's group proposed replacing the company's Microsoft Exchange servers with a Linux-based product that would have all the same collaboration features and have a cost savings of 70 percent to 80 percent. However, for other reasons that Snodgrass wouldn't discuss, the company's executives decided to stick with Exchange but outsource the management of the groupware to save money.

        http://news.com.com/2100-1016_3-1014287.html

        This isn't what happened ultimately. But the quote is too good an example of corporate decision-making processes to overlook.


        Second:

        ... the company's mainframe programmers recognized that Web services could give the mainframe new life in the Web world. It was during a period when Merrill was laying off some 24,000 workers globally, and mainframe programmers were chief among the casualties.

        "I went back and issued a challenge," Crew says. "I said, 'OK, we just saved $2 million; now let's go see if we can save the company $20 million.'"

        In late 2000, Crew formed a strategy team to develop the Web services initiative. The group set out five requirements:

        1. Mainframe programmers would not need to learn a new programming language like Java to create Web services.

        ...

        Of vital importance was that the platform not require changing application code on the mainframe or impede its performance in any way. Those applications were tried and tested, and tinkering with mainframe applications can be like opening a can of worms, because of their complexity and the likelihood that the programmer and the knowledge behind the code are no longer around.

        http://www.baselinemag.com/article2/0,1540,1924602,00.asp

        And why are the programmers and the "knowledge behind the code" no longer around?

        Yup.

        Web services are being created using cheap tools through a browser. The idea, not unusual, is to get the information out of the mainframe and use it for (simple, preset) reporting.

        So here innovation has been rejected in favor of cost savings. Executives are happy, and the layoffs have been justified in that they're getting better services from fewer people.

        What could be better than that?
        Anton Philidor
        • Competitive Advantage vs Cost Savings

          While a cost savings will make you more competitive I don't think a cost savings alone qualifies as a competitive advantage.

          A competitive advantage has to either improve your core product/service or significantly less expensive - so much more that there's no way for your competition to match it and no way your customers will buy from your competition if they don't.
          Erik1234
          • You're not disagreeing.

            You wrote:
            A competitive advantage has to either improve your core product/service or [make it] significantly less expensive - so much more that there's no way for your competition to match it and no way your customers will buy from your competition if they don't.

            That "significantly less expensive" condition is the same as a cost saving.

            And one of the most significant changes in IT in recent years is the absence of improvements in processes and products from new software.
            That's a more general statement than it should be, but it does communicate a widespread sentiment.

            And here, Mr. Murphy's discussion concerned some basic functions, of the sort unlikely to be substantially different from place to place or product to product. He did set himself a difficult problem, give him credit for that.
            Anton Philidor
      • Difference between IT and IS

        Executives want to hear a lot more about what their information systems are going to do for them. The good ones I meet (attention to deal is a common factor) want to understand the relationship between software/apps and their business processes. They want to see prototypes of systems, before they buy but are fedup of technical jargon and (the type of marketing fantasy that they hear in) product demos. So to me its about explaining functionality fully, accurately, in the context of cost, and without getting into technical issues. For this reason, I might canvas opinion about any change of mail server to check I'm right in any assumptions about functionality.
        Fandorin
      • Expectations

        >Dealing with IT people tends to remind me of
        >dealing with home improvement contractors. They
        >want to tell you all about what they're going to
        >do as if you understand it and care, when what
        >you want to know is: (1) Will the result be what
        >I want, (2) When will it be done, and (3) How
        >much will it cost?

        If this your general opinion of IT people, I can see why you would have problems. Mutual respect is needed for multible groups to work together effectively. As for your questions:

        1) Disconnects here generally result from poor planning by one or more parties.

        2) Most delays here are caused by poor design. Unfortunately, design time is the first thing to get cut due to the desire to have something to show.

        3) Good design + good planning = low cost in general.

        >I'm convinced both types of people explain all
        >these details while ignoring results, schedule,
        >and cost because they want to be able to blaim
        >their customers when they fail on all three
        >accounts.

        The "IT always wants to blame the user" is an old, tired argument and certainly is not a universal truth. Responsibility for a project's success is shared among all participants.

        >Paul's comments about moving from Exchange to
        >Domino are an example of that. No executive other
        >than the CIO should care what software is being
        >used for email and calendaring, much less
        >operating systems and other details. Yet IT
        >people constantly want to focus on pitting their
        >favorite system against the incumbent system
        >rather than focusing on delivering more value.

        Well, I don't know what world you live in, but I've found that executives (and especially their assistants) often do care what particular brand of software is used to do various things. I've had to explain many times why we were using software X instead of Y to do job Z. This was especially true for newly arrived executives who had used software Y somewhere else.

        >How many people do you work with in IT that could
        >answer this question: How does what you're
        >working on give the business a competitive
        >advantage?

        Anyone in IT management should be able to provide and answer to that. I certainly could. On a general note though, what % of people in any company could give an answer to that question?
        mosborne
        • Executives and IT People

          "Well, I don't know what world you live in, but I've found that executives (and especially their assistants) often do care what particular brand of software is used to do various things."

          I didn't say executives don't care. I said they shouldn't care. The fact that they (NOT their assistants) care so much is a reflection on the lack of trust between them and IT.

          "The "IT always wants to blame the user" is an old, tired argument and certainly is not a universal truth. Responsibility for a project's success is shared among all participants."

          Very, very true. Users intentionally avoid answering certain questions, especially about the real objectives for a system, hide anything beyond the "happy path" of their personal processes, and intentionally do countless other things in order to avoid the work of rigorously defining what they need. We all retreat into the details of our disciplines when we want to hide.

          I think the most false characterization of IT is that it is somehow different from other departments. IT suffers the same problems as every other organization within a larger company.

          "Anyone in IT management should be able to provide and answer to that. I certainly could. On a general note though, what % of people in any company could give an answer to that question?"

          You see my point. Hardly anyone can, and most of the time when they can they are wrong.

          The bottom line is that it doesn't matter whether the current situation is IT's fault or whether the "business" shares in the responsibility. IT is the one being sent to India, so it's in IT's best interest to fix the situation.
          Erik1234
    • IT has become a cost center

      And this is the issue, as long as IT is viewed as a cost center it will never get any respect. The business side doesnt see the value add of the IT staff. Example from me is the CLAIM's System we have, well since it doesnt bring in money, it has a small budget and mgmt doesnt see the need to increase it. Now if you are a real customer to the company and you have to go through all the pain to make a claim and get paid, you may think to go somewhere else with your hard earned dollars. It's hard to put a dollar figure on this type of loss, well until you notice you have way fewer cutomers.
      mrlinux
  • Outsourcing can be a competitive advantage

    Paul Murphy?s IT commandment regarding not outsourcing ?mission critical functions? is absolutely wrong. Here is why:

    He states 3 arguments against out-sourcing:

    control and flexibility
    -------------------------

    He wrongly assumes that if you do it yourself, you can always do it with less hassle. Apparently, he has never dealt with internal IT departments. They have already finished your project and are either on the next major release for another division?s needs or are busy playing with some leading-edge development tools so that the developers do not get stagnant in their industry value.

    This assumption is also based on the fact that the IT service provider (out-sourcer) does not respond to needs. That is not true for the best organizations. We run a SaaS system and are extremely responsive to our clients? needs, down to giving them a specialized list of their data when a unique need arises.

    responsibility, liability and trust
    -------------------------

    From my many years in business, I have learned one important rule: Contracts are only needed when the organizations are ready to do battle ? period. Until then, the relationship between the champions of each organization is what will drive the needs and responses. So these issues are part of the relationship, not the contract.

    Again, Paul must not remember what it is like within organizations themselves: internal politics, division heads working their way up the corporate ladder, and the concept of allocation of scarce resources. All of these issues within a company are enough to keep an internal IT department from meeting the needs of the business. With an IT service provider, at least you have a contract to fight over!


    competitive advantage
    -------------------------

    This is where Paul is completely off the mark. To say that you cannot be competitive when you use the ?same software, the same methods, and interchangeably the same people as your competitors? is absolutely wrong.

    Have you been watching the Olympics? Skiers, skaters and all other athletes HAVE to use the same equipment and play on the same field, yet somehow there are some awesome champions that emerge.

    And look at NASCAR ? again, another example of how the equipment has to be within such minute specifications that you could argue that there is no reason to race. They all have to use virtually the same car, right? And just like football, basketball and baseball, a player on one team may not play that well, but when traded to another team can become a superstar. Did the other team have better bats or balls?

    NO. And the same thing is true in business. It is not the tools you use, but *how* they are used to run your business. IT services are but one tool. Jim Blasingame, the Small Business Advocate (www.smallbusinessadvocate.com), published a great quote in his newsletter this past week:

    ?Once upon a time, businesses hired people and then purchased tools to support them. But in the 21st century, the most efficient and profitable companies leverage technology first and hire people to support the technology.?

    I could not have said it better. Thanks, Jim!

    Paul makes one final bold statement: ?it should be obvious that out-sourcing can never be a competitive strategy, only a cost-cutting one?.

    I hope I have shown how wrong that statement is. Not only have I proven the points above, but we live it every day with a growing business that does allow our clients to use our on-demand services as a true competitive advantage, even while some of their competitors may use the same online services.

    Paul C.
    Paul C.