Coke CIO rules out outsourcing benefits

Coke CIO rules out outsourcing benefits

Summary: Coca-Cola Amatil chief information officer Peter McNamee claims companies which outsource large projects effectively surrender any chance of lowering costs.Citing industry debate over the cost benefits of the practice, McNamee believes outsourcing comes at the expense of improving in-house skills, which might reduce those costs over time.

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TOPICS: Outsourcing
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Peter McNamee, Coca Cola Amatil CIO Coca-Cola Amatil chief information officer Peter McNamee claims companies which outsource large projects effectively surrender any chance of lowering costs.

Citing industry debate over the cost benefits of the practice, McNamee believes outsourcing comes at the expense of improving in-house skills, which might reduce those costs over time.

"This whole relationship between the 'keep the business running' costs, and the process improvement costs, is a key issue that you've got to address," McNamee told attendees at the IT Financial Management conference in Sydney.

"I reckon when you outsource you basically set a cost line for a whole function. And the whole reason why the outsourcer is in business is that he doesn't make any money for the first two years of the contract, but then he uses technology, and process improvement internally, to make that profitable transaction. And that's what you've given up," he said.

Process improvement costs could be staff training or projects like server consolidation, which lowered fixed costs and made the business more profitable, according to McNamee.

"So you really have to get onto this bandwagon, which is taking infrastructure and commodity services down constantly ... you've gotta get on the bandwagon of saying today we can use technology to our financial advantage."

Coca-Cola uses a 'process improvement' framework for its technology department, whereby services are constantly evaluated and refined, in order to improve. The company "doesn't believe in outsourcing", according to McNamee, saying "you shouldn't be relying on suppliers to do your major projects".

This year the department halved its contractor numbers and hired around 40 internal staff, according to McNamee. The company has a total technology staff of 300.

Consultants were "too bloody expensive, and they don't know your business well enough", McNamee told ZDNet Australia in a telephone interview.

He offered two examples of how the focus on in-house skills continually lowered costs.

"We paid eight cents two years ago for all local calls. Today we pay four cents per call in Australia. Your telecommunications should be 50 percent today of what they were two years ago. If someone in your IT department's not driving it, you're not building capacity for process improvement."

"So do your PCs cost you 20 to 30 percent less today than they did two years ago? If they're not, someone's not doing their job. You've gotta drive down the cost of infrastructure to create capacity and headroom for process improvement," he said.

However McNamee did not rule out outsourcing on a smaller scale. Hosted services, for instance, could be used to manage infrastructure which wasn't crucial to the core business, and help focus internal resources on competitive functions, he said.

"Whatever happens you've got to have a 'near one core' application. I don't care whether it's SAP or something else. But ... functionality, you don't want to invent. You better have it from some external organisation that's going to innovate.

"I don't want to hear about IT people working on accounts receivable, or debt collection, or audited cash processes. That's not where you differentiate yourself from the market.

"You can build your core competencies around the services layer," he said.

Topic: Outsourcing

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  • whoa - this guy deserves credit

    Because he told his pencil neck accountants that the day of one-week in advance number crunchers are over. I would NEVER have expected that Coca-Cola would have trailblazed this sort of bust out of the mold thinking, but more power to them. Contractors are a joke, and the joke is on every corporate manager that let their narrow minded accountants run their companies for the last 3 years. Case in point - look at the follow the crowd management morons at Sun Microsystems, who have downsized from 50k employees to today's count of less than 10k since just 2001. IMHO, upper management should be replaced with contractors across the board...
    anonymous
  • Fundamentally agree with this story where an effective process improvement frame

    Where organisations' have not established an effective process improvement frameworks then they can stagnate! Much of my work over the last 10 years has involved lighting fires underneath lazy employees' and realising a potent structure where Authorities, Roles and Responsibilities are well defined and agreed. Business processes can flow from this point.

    Where an organisation is 'out of control' ie does not have the culture or discipline to establish and follow process, then outsourcing / contracting business functions and / or services can provide a window of time for the organisation to get their act together if they so wish!!!
    anonymous