John Morrissey

Wednesday, 28 December 2005 06:26

Outsourcing success

In the past, only larger companies used external service providers (ESPs) to provide temporary staff with specialized skills, to develop custom software, or to assume responsibility for functions or departments, such as payroll or information technology.

Times have changed. As competition heats up and firms in many industries consolidate, small- and mid-size companies must compete with larger organizations, and must cut costs and streamline operations to remain competitive. Outsourcing certain business processes (i.e., application development and maintenance) allows mid-size companies to gain the economies of scale — and cost savings and efficiencies — formerly available only to large firms.

How do you select an external service provider? What are the critical success factors and potential pitfalls of outsourcing?

It’s about relationships
A company’s approach toward outsourcing ultimately determines the engagement’s success or failure. If approached as a finite transaction, the engagement will experience difficulty. This situation occurs because firms rush to hire someone to solve a problem, or because price is given too much attention at the expense of a clear understanding of needs, expectations, abilities, and roles and responsibilities. As a result, the outsourcing relationship is fraught with misunderstanding and contention.

In contrast, when approached as long-term relationships, outsourcing engagements are more successful. Taking this approach, firms not only evaluate vendor bids, but they examine and understand the entire problem, from beginning to end. They determine specifically what they need from the engagement and what abilities and value the vendor can contribute (beyond technical skills). They document roles, responsibilities, critical success factors and metrics first, and they evaluate price last.

Know yourself first
Early on, examine your needs. You must clearly understand what you need before you can explain it to prospective ESPs.

What is the desired end result — a new software application? A three-year agreement to have some or all IT functions handled by an ESP?

How will you measure success? What metrics are most important? Be specific.

What is your organization’s tolerance for risk? How critical, visible and time-sensitive is the project?

What roles and responsibilities do you see for the engagement? The ESP can’t operate in a vacuum — it must have your time and commitment to review deliverables, make decisions, or provide subject matter experts.

Once you clearly understand your needs, document the desired results, measures of success, responsibilities and expectations. Use that as the basis for evaluating ESPs.

Look beyond price
For each prospective ESP, document its strengths and weaknesses. Often a firm’s particular weakness may not be an issue if your firm is strong in that area, or if that weakness is not relevant to your needs. Knowing each ESP’s strengths and weaknesses will help you objectively evaluate vendors, and will help you understand and prepare for potential pitfalls or risks.

Ask the ESP for the names of other clients in your industry, or clients who had a project similar to yours. Do those clients still work with that provider? Why or why not? Is the relationship strong? Is it a long-term relationship?

Evaluate the entire package of abilities and value the vendor can bring to the engagement. Outsourcing involves many different skills and expertise, not just technical skills. For instance, project management skills are critical, as are technical and communication skills, responsiveness and flexibility, and industry expertise.

Involve your IT department
Be sure to involve your IT department. IT departments have significant experience negotiating maintenance contracts and can ask pertinent questions you may have overlooked.

Regardless of the ESP you select, remember that long after the project is complete, you will forget about $10,000 saved. Instead, you will remember the overall experience — the vendor’s skills (or lack thereof), capabilities, responsiveness, attention to detail, ability to deal with unexpected problems, flexibility and results.

John Morrissey is vice president and area director of CIBER’s Philadelphia office, and can be reached at (610) 993-8100 or at jmorrissey@ciber.com. CIBER Inc. is a global IT consultancy which builds, integrates and supports mission-critical business applications. Visit jmorrissey@ciber.com for more information.

Friday, 30 September 2005 10:04

IT in the driver’s seat?

It’s budget season — time to review revenue, expenses, forecasts and actuals to plan for 2006. As you prepare next year’s budget, you may ask, why are information technology initiatives so costly? Why can’t I see a concrete benefit from this investment? Why should I invest more in IT, given other funding demands?

Mistakes of the past
Information technology departments everywhere are haunted by the past: was the Y2K threat real? How did the dot-com boom get out of hand? Too many projects were overpromised and underdelivered. Companies invested heavily in technology before truly understanding it, and before having a sensible, realistic forecast of the results and benefits it would provide. Technology investments were made to increase capacity and gain competitive advantage, but also to just to stay current. Technology drove decision-making.

The results were disastrous — the e-business bubble burst in 2000 and left companies with excess capacity, unproven technology, no discernable benefits and ongoing support costs. Decision-makers learned that, to win project approval, technology advocates would inflate projects’ expected benefits, minimize cost estimates and avoid discussions of risk. This led to a deep-seated skepticism of technology and to heightened scrutiny of technology investments. Now, in today’s economic climate, IT departments must be competitive, fiscally responsible and have the ability to show quantifiable results. IT has been kicked out of the driver’s seat.

How did we get here?
In short, for many people, the power of technology was either misrepresented or misunderstood, sometimes both. For example, technology does not have the power to create new markets; however, when deployed properly it can provide quick, intelligent and broad access to new client prospects. On its own, IT doesn’t save money. But if used effectively, it can provide significant savings opportunities.

Today, these points seem very simple and obvious, however, in the late 1990s and early 2000s, technology professionals and business executives alike gave technology the wrong seat in the boardroom.

The road ahead
IT still plays a very important business role. Under the guidance of an IT department, technology should support the goals and objectives of business, not drive them.

When used properly, IT enables sales growth, accelerates the product development cycle time, increases manufacturing productivity, decreases cost and aids in quality enhancements. Imagine trying to communicate without voicemail, e-mail, wireless Internet and conference calls. Imagine trying to expand marketing reach today without using the Internet and Web-based technologies. Imagine providing responsive customer service without technology.

How should you optimize your IT budget and planned technology investments? The answer is to keep everyone focused on your business.

  •  Determine the direction, goals and initiatives of the business first, and then investigate how IT can help achieve those goals.

  •  Understand your organization’s appetite and capacity for change, prior to investing in a technology solution.

  •  Require every project team to articulate their anticipated business impact.

  •  Describe projects as business-change projects, not IT projects.

  •  Insist that a business unit lead the business change project, rather than the IT department.

Lessons learned
Y2K and the dot-com frenzy taught us that technology is not a business driver. Instead, the IT department is a business partner, and technology is a tool to help achieve business objectives.

In order to optimize the use of technology as part of your business plan, make sure you understand how it aligns with your most important business goals.

Bill Hazelton is vice president and regional director for CIBER in Michigan and Wisconsin. Reach him at (248) 352-8650 or whazelton@ciber.com. CIBER Inc., founded in Detroit in 1974, is a global IT consulting firm that builds, integrates and supports critical business applications in custom and enterprise resource planning (ERP) environments. CIBER’s Detroit office is one of 60 offices in the U.S. and one of 80 worldwide. Visit http://www.ciber.com

Wednesday, 28 September 2005 07:48

IT in the driver's seat?

It’s budget season — time to review revenue, expenses, forecasts and actuals to plan for 2006. As you prepare next year’s budget, you may ask, why are information technology initiatives so costly? Why can’t I see a concrete benefit from this investment? Why should I invest more in IT, given other funding demands?

Mistakes of the past
Information technology departments everywhere are haunted by the past: was the Y2K threat real? How did the dot-com boom get out of hand? Too many projects were over promised and under delivered. Companies invested heavily in technology before truly understanding it, and before having a sensible, realistic forecast of the results and benefits it would provide. Technology investments were made to increase capacity and gain competitive advantage, but also to just to stay current. Technology drove decision-making.

The results were disastrous — the e-business bubble burst in 2000 and left companies with excess capacity, unproven technology, no discernable benefits and ongoing support costs. Decision-makers learned that, to win project approval, technology advocates would inflate projects’ expected benefits, minimize cost estimates and avoid discussions of risk. This led to a deep-seated skepticism of technology and to heightened scrutiny of technology investments. Now, in today’s economic climate, IT departments must be competitive, fiscally responsible and have the ability to show quantifiable results. IT has been kicked out of the driver’s seat.

How did we get here?
In IT’s defense, the results of technology investments can be difficult to measure. Rapid technological changes mean that the typical capital investment write-off period of three or more years is too long — that’s an eternity in technology-time. So proving IT benefits and the need for further investments to managers accustomed to thinking in 3 to 5 year spans is difficult.

In addition, while some IT benefits can be quantified, many cannot. However, these unquantifiable benefits are critically important, even though a clear understanding of their value may not be evident at first. So it’s important to take a broad view when evaluating IT benefits. For instance, the IT project’s ROI may seem terrible, but how did the project affect customer retention, brand reach or new alliances?

Second, it’s nearly impossible to clearly identify up-front all of the integration costs involved in an IT project. Often a technology project will affect more business entities in more ways than originally thought.

IT does play an important business role — it’s the backbone of business productivity. Imagine trying to communicate without voicemail, e-mail, or cell phones. Clearly, IT is critical.

The road ahead
How can IT and the rest of the business continue the journey, without leaving someone by the side of the road? Keep everyone’s focus on the business.

  • Decide the direction, goals and initiatives of the business first. Keep technology considerations focused on the business impact and goals.

  • Describe projects as business-change projects, not IT projects.

  • Ensure that the business-change project is led by the appropriate business unit, rather than IT.

Lessons learned
Y2K and the dot-com frenzy taught us that technology is not a business driver. IT changes too fast, the investments are too big and the effects are too pervasive for technology to determine which direction the business travels. Instead, include the IT department as a business partner, and use technology as a tool with which to drive toward business goals.

In other words, let information technology ride shotgun. IT can still have a front-seat view and help navigate the best path forward. Just don’t let technology get behind the wheel.

John Morrissey is area director of CIBER’s Philadelphia office, and can be reached at (610) 993-8100 or at jmorrissey@ciber.com. CIBER Inc. is a global IT consultancy that builds, integrates and supports critical business applications in custom and enterprise resource planning (ERP) environments. CIBER has a local office in Philadelphia, which is one of 60 U.S. offices, and one of 80 worldwide. Visit http://www.ciber.com