Reversing outsourcing

Reversing outsourcing

Summary: Fundamentally most outsourcing contracts substitute tweedle dee for tweedle dumand it should be no surprise, therefore, when interchangeable people and technologiesproduce interchangeable disasters.

TOPICS: Outsourcing
A few years ago I blew an interview at Gartner Group by refusing to give them the answer they wanted to hear about outsourcing. The question was along the lines of: "What analyses have you done to help clients understand the financial benefits of outsourcing?" I said first that there usually weren't any, and second that very few out-sourcing decisions were ever made for financial reasons. They said goodbye.

They weren't interested in hearing it then, because that's what they were hiring to sell: name brand financial justifications for out sourcing decisions. I wonder, however, if they wouldn't have a lot more empathy for my position today because the next wave of outsourcing consulting is going to focus more and more on terminating existing contracts and bringing IT back in-house.

The big driver on insourcing, of course, is exactly the same thing that drove outsourcing: dissatisfaction with IT services. The real outsourcing sales pitch is that it lets senior executives put a positive spin on firing the IT department without forcing them to face their own responsibilities for IT. Insourcing decisions have exactly the same basis: it's just that the target isn't the internal IT group, it's that same group working for the outsourcer.

Thus yesterday's CNET headline: Sears ends $1.6 billion deal with Computer Sciences isn't the first and won't be the last. Fundamentally, most outsourcing contracts substitute tweedle dee for tweedle dum and it should be no surprise, therefore, when interchangeable people and technologies produce interchangeable disasters.

So what can you do? Simple: don't be tweedle dum. Focus on reducing the upward flow of user complaints about the quality of IT support  -- but remember that expectations set by the perfect systems on television dramas like NCIS, by IBM's ads, or even just the latest oxymoronic Sunday supplement on secure wireless, cannot be met.

One totally cynical option I've been growing fonder of lately plays directly to the biases induced in executives by the contradictions between what they're told by the mass media and what they're told by user management. What I do is argue that adopting open source applications on Unix (usually Linux on x86 or Solaris on SPARC) will produce monetary savings at the cost of some reduction in service quality.

I'll argue, for example, that it's cheaper to convert a building full of Microsoft Office users on Windows XP to OpenOffice on Linux or Sun Rays than to upgrade them to the latest PCs and licenses -- and then humbly shuffle my feet while letting them force me to admit that doing this will require the users to give up some of the productivity benefits they'd get from the power and flexibility of the real thing.

The higher the executive level, the better this pitch seems to sell. The only catch, really, is that both halves of it are lies. On the cost side, I always try to spend every nickel available on getting the biggest, clearest, monitors, and the fastest servers, I can while getting rid of every switch on their network. As a result, the cash benefit usually disappears, but so do user complaints because the quality of service goes up quite dramatically. With 19-inch Sun Rays and SPARC servers, for example, reliability approaches 100%, the virus threat disappears along with the weekly upgrade traumas afflicting PC users, and  things that take a long time on PCs, like loading a big e-mail file, become virtually instantaneous.

Ironically, this process is just what that Gartner guy wanted me to swear allegiance to: just done backwards. They think they're paying for some cash savings by giving up functionality, but actually get a breakeven on short-term cost, a tremendous improvement in service quality, and the opportunity -- just by keeping their hands off -- to get productivity gains and operating cost savings over the longer term.

Topic: Outsourcing

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  • So true, so true

    Outsourcing is just plain dumb. If it made any sense, then the companies that utilized it would be touting its benefits - NOT just the companies that are selling it. IBM Trivoli has the same story here - it controls EVERYTHING for you is the sales pitch, but ask for success stories and you get . . . dumb looks.

    As for SPARC servers and Sun Rays - most IT departments have little control on the SysAdmins, and the QOS you get is dependant on the skill of said SysAdmins. The arbitrary decisions made EVERY SINGLE DAY by these admins follow the Butterfly Effect - where a small change in one area causes a large problem in another. Until standard practices are employed, and "vi" is taken away - SysAdmins will prevent 100% uptime . . .
    Roger Ramjet
    • If that's all you're asking

      I'll tout the benefits. My CIO, like most of his managers, has been around for several decades. We know from firsthand experience that building an empire, a mini-CSC inside a company whose main products and services is a completely different line of business, is a loser. Today's business environment demands value and agility from its IT - the ability to move quickly to exploit new technologies, to scale up and back to meet project demand, without going through hiring and firing cycles, to replace departing staff with no gap in coverage, to move underperformers to some other environment, etc. I've got one neck to wring - the outsourcer's - rather than being dependent on an HR department that doesn't understand IT, how to recruit and train this specialty area, a procurement shop to buy different stuff than it has set up with regular suppliers. We don't try to do FEDEX's job (I could put somebody on a plane every time I want to send a package) and we don't try to do an outsourcer's job. We stick to our business.

      Addmittedly, I pay more on an hourly basis, because the specialty IT shops pay higher salaries than inhouse IT, but I get a lot more for the hours I pay for. I'll put my shop up against an inhouse empire builder any day.
      • False dichotomy

        [i]I'll put my shop up against an inhouse empire builder any day.[/i]

        You make as though the only two options are a centralized in-house IT empire and a centralized external IT empire. There are certainly advantages to centralization for IT, and some services (such as network infrastructure) work best that way.

        On the other hand, both options put IT services and decision-making at great remove from the businesses that they support. I will argue that it's that very distance that leaches the value out of IT services.

        Try putting the services [b]closer[/b] to the business and you get much more benefit. Not only do you have much better service, but the expected inefficiencies don't seem to materialize either, perhaps due to relative intangibles such as morale.

        I suspect that if we were to escape from the monolithic-IT meme, we'd find that:

        * some IT services (purchasing, say) work best centralized to someone with good volume economies;
        * some IT services (e.g. routine administration) work best attached organically to business units;
        * some IT services (e.g. infrastructure) work best contracted on job-by-job basis, with retainers for emergencies;
        * some others (e.g. custom applications) require in-house staff for continuity supported by contract work for bubbles;
        * etc.

        These huge one-stop-shop contracts with EDS and the like are so extreme that IMHO they're bound to fail, and the same goes for 100% go-it-alone operations. A little moderation may well be in order.
        Yagotta B. Kidding
        • Did you read the post above?

          Statement was "outsourcing is just plain dumb." This is what I was responding to. Don't put me in a box I won't fit in. Your comments are quite correct.

          Actually, the bottom line is that ousourcing, like any corporate endeavor, has to be managed. CIO magazine regularly carries case studies, and unmanaged outsourcing or inhousing yields the same result - disaster.
      • Dumb is as dumb does

        "Today's business environment demands value and agility from its IT - the ability to move quickly to exploit new technologies"

        This is the problem! Company "F" for many years exploited the "latest and greatest" technologies - and then we realized that many of our IT systems were "one in a rows" or one-offs. Every 6 months we were creating a new project on different hardware/software! Needless to say, chasing the latest and greatest is NOT the way to do business.

        "We know from firsthand experience that building an empire, a mini-CSC inside a company whose main products and services is a completely different line of business, is a loser."

        When you outsource your intellectual capital, you become dependent on the outsourcer. Sears found this out, as did GM and EDS before it. R&D and management functions should belong to the company - you can outsource (or agency in-house) most of the rest.

        " I've got one neck to wring - the outsourcer's - rather than being dependent on an HR department that doesn't understand IT"

        One throat to choke is attractive for upper management folks, but it comes at great cost! Employees that know they could be kicked to the curb tomorrow, will usually bail first. The outsource company has to deal with these issues and they WILL affect you.

        "I'll put my shop up against an inhouse empire builder any day."

        I wouldn't call Company "F"'s IT department an "empire builder", but I would take your challenge. IT is an intregal part of a corporation - having large impacts on SOx and security, while enabling the business functions. When you HAVE to make your own specialty software yourself (who makes a program that models airflow through a radiator?), you need your own IT shop.
        Roger Ramjet
  • Service

    Frankly, the best IT service I ever saw was back in the day when we actually had local admins attached to the project teams. The total user/admin ratio was actually quite high, but the service was stellar.

    My own interpretation of this is that when the admins are sitting next to the users, having lunch with them, playing basketball with them in the morning, and generally identifying with their needs they:

    a) Don't need to waste time over and over getting background information
    b) Are in a position to act proactively rather than reactively
    c) Learn where the PEBKAC problems are and act appropriately
    d) Really, [b]really[/b] want to help because they're part of the team.

    Since then, our IT support has been showing the classic pattern: costs rise with the distance from our operations while quality of service declines.
    Yagotta B. Kidding
    • That's exactly right.

      Having the sysadmins work directly with, and therefore for, users instead of Systems is one
      of the things I recommend as part of the Defenestration process.
  • Not convincing

    Its a narrow view. If it was not profitable, GE, AMEX would have not outsourced 10 year back when cost was not a pressing problem. It is one of the sourcing option, and currently is most lucrative.
    • I am convinced

      You have a strong point in that we must learn what works and what doesn't. What are the drivers that allow outsourcing to work in specific companies/industries. We must say good-bye not to outsourcing as a business practice, but to the notion that profitability for one entity does not mean we can do a like kind ROI and see the light.
  • The pendulum swings.

    What? Has the outsourcing bubble burst? Have we learned that there are sone things you just can't send overseas? Or was it just the fact that the CEO's, CIO's and other top management people failed to see the big bonuses that I am sure were at stake over being able to reduce the IT expenses. Or maybe it was the language barrier, after spending twenty minutes trying to tell someone (that has just started 'English as a Second Language') that you have a problem, the sound of a thick southern or New England accent doesn't sound so bad. Information has become the staple for business. More business means more information. IT departments need to be optimised, not outsourced, and the company(s) that figure that out are going to be hard to keep up with. And the company that figures out how to market those kinds of services will stand a very good change ot making it big. We can keep IT on our home shores, but to do so will mean some reorganization of the way corporate people think, and the way corporate IT departments are run. Watch for leaner, meaneer and more productive shops to pave the way.
  • What Comes Around Goes Around...

    This article repeats EXACTLY what Ive been saying about this whole argument about IT in the US. Being a US programmer and seeing US demand for my skills climbing back again pretty fast this year on job sites, "whats old is new again", and I knew it would be. The reason is simply that YOU CANNOT EVER UNDERMINE IT in any form....its a complex and now essential component of all sorts of business processes and profit centers. These CEO's and CIO's that continue to make these broad sweeping assumptions, that they can layoff what I consider highly skilled and trained, essential US IT innovation teams with cookie-cutter Indian programmers that dont care about their business beyond what some poorly built conferencing US management team gives them, now know what they knew back in 2000.....or should now begin to know.

    Im not one of those to believe that this new global economy is not real and that more and more grunt work will and should move overseas. Im just shocked at any "study" or "survey group" (ie Forrester and others) would think that such a model would last long. IT is the most complex and yet essential component of businesses now, and its insane to attempt to transfer that for both security resons as well as quality and innovative reasons to a 3rd party on the level thats been occuring, and especially based on "cost concerns".

    Out here in Texas we have an old saying in business that stands true today and I have used in my business. You can have my services "Good, Fast,and Cheap"....but please pick two. Its impossible to give all three.