Outsourcing

A CIO's Perspective

Oakie D. Williams

• Editore: CRC Press
• Anno: 2022
• ISBN:
  9781000162196
• Edizione: 1
• Argomento: Business
• Categoria: Information Management

As global competition grows more fierce, companies continue to look for ways to increase their competitive edge without jeopardizing profit margins. Today's corporations are starting to realize the competitive advantage that Information Technology (IT) can bring to a company. These corporations are also realizing that staying current with technology requires a great deal of effort, risk, and expense. This is one of the primary reasons CEO's are considering outsourcing as an alternative.
Written by a CIO who has successfully maneuvered through the outsourcing process, Outsourcing: A CIO's Perspective addresses the realistic expectations and the most commonly asked questions about IT outsourcing, while reviewing it's advantages and disadvantages. This text identifies key elements that can be used to assess the feasibility of securing a profitable and manageable outsourcing agreement. It provides a convincing case that even if the final decision is to not outsource, the result of the process will identify potential business improvement opportunities.

1 Why Outsource?

DOI: 10.1201/9781003076025-1

As global competition grows more fierce, companies continue to look for ways to increase their competitive edge without jeopardizing their profit margins. Today, corporations, large and small, are starting to realize the competitive advantage that Information Technology can bring to a company. These companies are also realizing that to stay current with technologies requires a great deal of effort, risk, and expense. This is one of the primary reasons why Chief Executive Officers and Chief Information Officers are considering outsourcing as an attractive alternative.

Regardless of all the positive reports you may hear about outsourcing, it is not for everyone. Companies that view Information Technology as a non-strategic function, or that have an annual Information Technology cost of less than 1% of sales, or are not willing to engage in a long-term partnership agreement will most likely not be successful in securing a profitable and manageable outsourcing agreement.

For companies that do not fit these criteria, it is most likely that an outsourcing agreement could be a viable alternative for their strategic direction. There are many reasons you may want to outsource. The reasons vary from one company to the next, but the majority of companies that already have outsourced see the major benefits of an outsourcing agreement as:

• Reduction of risk
• Center of expertise
• Taking advantage of future technologies
• Resource availability
• Information Technology professional growth
• Improved Information Technology customer service
• Cost savings

While these are just a few benefits for outsourcing, they are the areas in which any Board of Directors would be most interested. If a Chief Information Officer could effectively demonstrate that his or her company would benefit in each of the areas above, it is likely the Board of Directors would approve the recommendation to outsource. Let’s take a closer look at each of the benefits.

Reduction of Risk

With any good outsourcing agreement, the outsource provider will share in the risks. The amount of risk an outsourcing firm will agree to assume will depend on the type of contract. For example, in a fixed-price contract the outsourcing firm will assume a great deal more risk than that of a time and material contract. Regardless of the type of contract, the one common denominator is mat the Chief Information Officer will be sharing the responsibility for the future direction of the technology within his/her company with the outsourcer. It will still be the Chief Information Officer’s responsibility to ensure the technology integration with business processes within the company. The outsourcer will (within the guidelines specified in the contract) assist by introducing new technologies and the personnel with the proper skills to implement them.

A properly structured outsourcing agreement will ensure the outsourcer assumes the appropriate risk. The outsourcer will have the responsibility to ensure the systems are meeting the reliability and performance criteria, ensuring that properly skilled personnel are available at the right time, and protecting your company from the “bleeding edge” of technology.

Center of Expertise

Since an outsourcing firm’s primary business is to manage technology for clients, it is appropriate to assume they have experience with current, as well as new, technologies. Larger outsourcing firms embrace the “center of expertise” concept, in which a group of research and development technology engineers are dedicated to evaluating new products and their applicability throughout industry. The center of expertise concept is called by different names (e.g., center of excellence, skill centers, application specialist centers, competency centers, proficiency centers, etc.). Regardless of the tide, the concept is the same: to have highly specialized personnel address new technologies and provide support for existing systems. As a result, when your company decides to evaluate a new technology, the outsourcing firm can supply experienced personnel to quickly evaluate the functional fit of the technology with the company’s stated requirements. Even for the most technology-aggressive clients, it would be a challenge to find a new technology that the larger outsourcing firms had not already experienced. They most probably have a skilled workforce ready to assist their customers, regardless of the selected technology.

The center of expertise can also provide consulting services as well as hardware and software evaluations. By the very nature of its name, the center of expertise for consulting is made up of individuals highly specialized in specific fields, industries, and applications. These personnel could be utilized on a temporary basis to help solve issues and to facilitate the knowledge transfer to your company’s development and service staff.

Taking Advantage of Future Technologies

As new technologies emerge, most companies cannot immediately take advantage of them because of the cost and learning curve associated with diese technologies. Since one of the strategic initiatives for an outsourcing firm is to stay current with new technologies, they would be responsible for maintaining a high competency level in current, as well as new, technologies. As such, the outsourcer is in a position to provide experienced personnel and to assess the value of new application technologies. Since the outsourcing firm will be familiar with the new technologies, your company will spend less time, effort, and incur less risk in implementing the technologies.

The outsourcing firm will also assign an Account Manager to be the senior representative for its firm. This Account Manager will have profit and loss (P&L) responsibilities for the account. As such, he/she will be looking for opportunities to introduce new technologies within the company and generate additional business for the outsourcing firm. The Account Manager will also be in charge of the outsourcing account team.

The outsourcing account team consists of information system professionals from the outsourcing firm who are assigned to your company on a full-or part-time basis. The outsourcing account team will also be working daily with various managers and employees and be in a position to introduce new technologies where appropriate. The introduction of new technologies may or may not be within the scope of the contract, depending on how the contract is structured.

Once the opportunity for new technology implementation is identified, the outsourcing firm will most likely have the capability of implementing the technology on a trial basis to ensure the best possible solution. This again reduces the risk of your company investing in new technologies that may not be of value or meet your expected results. The larger outsourcing firms would also be in a position to introduce you to an established client who has already implemented the technology, thus providing you the opportunity to discuss the advantages and disadvantages of the new technology.

Regardless of the other reasons for outsourcing, the technology benefit is significant for companies who are on a fast pace and realizing significant growth. It is also beneficial for companies that have “lean” Information Technology budgets and cannot afford the trial and error associated with testing new technologies.

Resource Availability

As business needs change and customer demands fluctuate, the requirement for Information Technology resources will fluctuate as well. Outsourcing firms can provide additional professional resources on an as-needed basis. This reduces your cost of retaining permanent employees and/or utilizing industry consultants for short-term engagements. As a result, the outsourcer can guarantee the knowledge and experience level and ensure that the personnel is available when (and as long as) needed. Utilizing the personnel in the center of expertise areas, and the use of the help desk (or support center) concept, the outsourcing firm can often provide the necessary assistance from a remote location. The larger outsourcing firms have the ability to draw upon thousands of employees throughout the world on an as-needed basis. In the event the outsourcing firm does not have the skilled personnel available when needed, they also have the ability to contract with a third-party consulting firm to provide the necessary resources.

In a well-structured contract, the terms and pricing for this additional help will be identified so that your company is well aware of the cost for any additional assistance whether it be internal or external to the outsourcing firm.

Information Technology Professional Growth

The constant challenge that each company shares is the need to continuously challenge the internal Information Systems staff. The majority of industry today is in business to produce something other than Information Technology services. As a result, it is common to find situations where the internal Information Systems staff is not properly trained nor kept abreast of new technologies in their profession. The dilemma that faces each Chief Information Officer is how to keep the professional Information Systems staff current with technology, enthusiastic about their work, and institute a career path that will attract and retain the level of expertise required. In a time in which the competitive edge means being the low-cost provider for quality products, the training for staff personnel is often the first thing to be cut from a budget to reduce overhead costs. As a result, the Information Systems staff rarely receives the training necessary to continue to perform at maximum efficiency levels required to build a quality product and stay current with technologies.

Every outsourcing firm’s revenue is heavily dependent upon the quality of service their personnel provides. As such, the outsourcers will typically invest a great deal more in training and education per person on Information Technology training and education compared to a nonoutsourcing firm. To illustrate the value of continued education, the outsourcing firm typically will reduce its cost by re-engineering the Information Technology processes within your company’s Information Technology organization. This is done through innovative techniques and utilizing state-of-the-art tools.

Improved Information Technology Customer Service

It is often said: “The value of our products is only as good as our customer service department” The same is true for Information Technology. Having a great customer service relationship is as important as the quality and cost effectiveness of the products being produced and maintained. As with most professions, the systems being developed by Information Technology today are becoming more and more sophisticated and complex. At the same time, the knowledge level of the user community is increasing but not at the same rate. Therefore, it is imperative to establish and maintain an excellent help desk (support center) to provide a point of contact for the user community. While larger companies have an existing help desk, the outsourcing firm can often improve the effectiveness and response time through utilization of highly skilled technicians and appropriate tools. For companies that do not have a help desk, the outsourcer can either implement one on site or utilize their existing centralized help desk.

A properly structured contract will insist that the outsourcing firm utilize a state-of-the-art help desk function. This assumes that the outsourcing agreement includes transitioning the Information Technology employees. Regardless of the size of the contract, this is an area in which outsourcing firms do extremely well. They have the means, capability, and knowledge to establish and operate a first class help desk function.

Cost Savings

While most companies show significant reduction in cost when outsourcing, it should not be an automatic assumption. Many other factors contribute to the cost and savings of an outsourcing agreement:

1. Aggressiveness of the current Information Systems staff
2. Company size
3. Current Information Systems budget
4. Strategic direction of the company
5. Size of the Information Systems staff
6. Current computing architecture
7. Telecommunications business partners
8. Current hardware and software suppliers
9. Hardware and software maintenance agreements
10. Lease and contractual obligations, etc.

While outsourcing firms can provide a savings in many areas, the primary reason for these savings is their ability to take advantage of economies of scale. Since outsourcing firms are providing the same type of service for literally hundreds (and sometimes thousands) of customers, they are able to consolidate data center operations, which provides lower overhead costs on a per-customer basis. They are also in a position to receive deep discounts from hardware and software suppliers because of their annual volume of business. The larger outsourcing firms also provide the added benefit of acting as your aggregator for telecommunications networking and cost reduction. Again, this is due to the size and volume of business resulting from the consolidation of multiple clients.

Another area in which outsourcing firms can provide savings is within the Information Systems organization itself. The personnel in the information systems organization typically spends the majority of their time maintaining and re-engineering applications for their company. It is often said, “Information Systems organizations have automated all functional areas within their companies...except their own.” Rarely is the process re-engineering focused on the Information Systems organization. Outsourcing firms apply state-of-the-art tools and lessons learned from hundreds of accounts to improve the process flows and efficiencies of the Information Systems organization. Doing so results in improved efficiencies and cost reductions. This is the only way an outsourcing firm can realize a savings in Information Systems personnel costs. Generally speaking, the rate of pay for their employees is higher than that of the client to which they are outsourcing. As a result, they must, and quite effectively do, increase output and efficiencies to control their personnel costs.

While diere are no guarantees, a general rule of thumb is that, as a result of outsourcing, your company should realize a 10 to 30% Information Systems-related savings over a 10-year period. The trend in the Information Systems industry points to a higher percentage of savings in the higher Information Technology budgets. Companies with very lean Information Technology budgets (less than 1.2% in sales) will find it difficult to realize a savings by outsourcing. Even when there are no cost savings, outsourcing may still be the best solution for the company. Cost is only one of many factors on which to base the decision to outsource. For example, a company may have an overwhelming need to take advantage of advanced technologies and will be willing to pay a higher price to achieve that goal.

A fact to remember is that while there are many advantages to outsourcing, it is not necessarily the right decision for all companies. Each Chief Executiv...

Indice dei contenuti

• Cover
• Halftitle Page
• Title Page
• Copyright Page
• About the Author
• Acknowledgments
• Contents
• List of Illustrations
• Introduction
• 1 Why Outsource?
• 2 Developing an Outsourcing Strategy
• 3 Forming a Partnership
• 4 Request for Proposals
• 5 Proposal Evaluations
• 6 Contracts
• 7 Negotiations
• 8 Personnel Considerations
• 9 Transitioning
• 10 When To Use Consultants
• 11 Partnership Management
• 12 Summary
• A Glossary
• B Sample Service Level Agreement
• C Request for Proposal Table of Contents
• D Outsourcing Contract Outline
• E The Disaster of an Improperly Managed Partnership
• Index