Deutsche Post has jilted Hewlett Packard at the altar barely six months after the pair announced a seven-year outsourcing deal. At the time it was announced, the organisations said the tie-up would save Deutsche Post €1bn over the course of the deal. Around 2,500 workers were due to transfer to HP as part of the contract. HP had …
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"HP is about to become much more familiar with this sort of deal, in the UK at least, now that its takeover of EDS is a done deal."
Hmmm? Six months ago, "Deutsche Post has jilted Hewlett Packard at the altar barely six months after the pair announced a seven-year outsourcing deal.", was a done deal too.
Cart before the horse
The general rule always used to be, and still ought to be "if you outsource a mess, you will be left with an outsourced mess". Therefore, getting your house in order ought to be a precursor of outsourcing.
It is also possible to have "outsource management and add transformation" cases: in these cases the transformation will often stand on its own rights even if the management is kept in-house.
This looks as if it turns the rule on its head: "We were paying someone to tidy up our mess, but there's not enought mess to make it worthwhile". Hmm.
a can of worms which can't be shut..
You may have fallen into the trap of thinking that the driving factor for outsourcing deals is to save costs. Except in a few cases where genuine efficiencies of scale may be possible (unlikely for a giant such as Deutsche Post), it is not going to be possible to deliver the same level of service with the same people and equipment and at reduced cost, while at the same time providing a healthy profit margin for the outsourced service provider.
In reality, the driving factor is usually that the 'sale and leaseback' of people and equipment provides a large cash injection to the bottom line, which (with a bit of accounting legerdemain) can be used to make the corporate performance appear better than it really is. Result - increased share price, enhanced bonuses, improved stock options and trebles all round!
Of course, a few years down the line, when service levels have collapsed and costs have skyrocketed (repeat after me: "your request is not covered by our service contract and must therefore be charged at our outrageous daily rate"), the vultures (sorry, I meant senior managers - apologies to any vultures that may be reading this) have all moved on to the next company/sucker.
Wish we could dump HP
Instead we throw money at them, which appears to make very little difference.
From a freelancer
I look after IT for some small organisations using straightforward setups. The only things in my remit that are outsourced are a news content delivery system (linux box in a rackmount PC case that was supplied with a news service, therefore maintained, by another company) and website/email hosting as whilst I've had an email server program running I couldn't persuade it to talk to an antispam filter. I guess in brief, only outsource stuff that no-one in your organisation can do full stop, or if training would in the long run work out less economical than an external provider doing it.
Having said, that if things go wrong you can blame someone else if you outsource any service :) shame an unnamed website host won't tell me why hyperspin (website monitor) is telling me the server has been up and down like a yoyo the past few days...
Conway's Law and IT outsourcing
Any number of reasons are given, including financial advantages, for outsourcing. The speciousness of those reasons have fueled incredulous comment here and elsewhere for as long as outsourcing has been a subject.
IT outsourcing, simply put, is getting rid of IT, and replacing IT with a contract.
Why would management want to be rid of IT?
Conway's Law can be stated as "IT's products reflect the organizational structure that produced them.". That structure must include the larger organization in which the IT function is embedded.
As food for thought, I offer that IT's products, distorted by organizational dysfunction, as well as IT's attempts to overcome the dysfunction, exist as a continuous source of reflected shame and frustration of fantasy fulfillment for management. Should this shame grow too discomforting, getting rid of the shaming object is the obvious response.
Replacing IT with a contract, "running IT like a business", removes IT as an obstacle to expression of dysfunction, which could be an explanation for why nutty contract terms appeal to management seeking outsourcing. The financial rationalizations provide cover, permitting management to avoid mentioning or even being conscious of the shame driving and the hostile nature of the act of outsourcing.
While it seems possible that an IT organization could be beyond redemption, and hence that outsourcing might be the lesser of evils, that state will have been reached within the larger organization, and the above still applies.
Seems as though the only sensible reasons for outsourcing have to do with the inurement of the officers of the involved companies, the consequences of which Mr. Miller has noted above.
My pop psychology concoction is challenged by the DP/HP outcome, assuming that outcome isn't simply a sign of a continuation of negotiations, as hinted at in other comments.
Naturally, I won't give up on my creation without a struggle, so I'll leave off with some smoke-screen questions. :-)
What was the nature of the 'reorganization'? Was it limited to IT? Was IT 'punished' with headcount reduction, which reduced the financial cover, along with providing an outlet for hostility? Why were the numbers re-checked after the relationship was substantially in place? Political intrigue?
Sigh. If we only knew. Perhaps some intrepid IT reporters will dig further.
Outsource The Processing, Outsource The Profit
IT has moved from backroom accounting and reporting to operational systems in just about every line of business. Outsource your operations and you are left with a management shell that has to pay the vendor his profit from yours.
The usual argument is that the outsource vendor can perform the function more efficiently and less expensively. Which the vendor can only accomplish by paying their people less and having less reserve capacity.
Do you really want your mission critical functions being run less qualified staff on bare-bones systems? You don't, so you will end up amending your agreement over time in ways that drive your costs up to where they were before, plus paying the vendor his profit.
Not to mention, once you have committed to an outsource vendor, the cost of breaking that agreement and returning the function inhouse can be prohibitive. It is common in my experience for the first contract to be quite reasonable, and then for the new term contract to be high enough to recoup the vendor loss on the first contract and then some.
"Once you pay the Danegeld, you will never be rid of the Dane." Those considering outsourcing would be wise to consider what became of Ethelred The Unready; (poor Ethered, who took advice from his era's top management consultants).
The only time it makes any sense to outsource a function is if you regard the function as having no possibility of profit, and as a fixed cost of supporting the profitable part of your business.
@ Chris Miller
Absolutely spot-on. That's the most concise explanation of the "benefits" of outsourcing that I've ever seen.
Of course, in Australia, and in certain govt departments, you can add the factor of certain "relationship management" techniques (*koff*kickbacks*koff*) and the amazing coincidences when a govt dept outsources, and then the IT manager/CIO who signed off on it "retires" a few months later. Then another 5 years down the track, the new CIO signs a very exxy contract with a large software vendor who promises (and assures, via "relationship management") that all the legacy v4.0 equipment (that was allowed to be run into the ground) will be upgraded with "no problems" to the new v7 equipment.. but at least support will be in-house again to cope with the complete shambles that project creates.
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wish we could dump 'em too
but the muppets at the top just roll over at let HP implement some half backed undocumented desing for the entire enterprise, stuffing us for years to come...but it saved money now, so thats good.
Hmmm , now where have I heard that before , and along with the key problem of out sourcing is that you also lose total control of your IT security and principal backup of key data critical areas. This means you have to rely on the cheaper outsourcer to provide both the qualified staff/training in a high turnover environment of both with zero staff loyalty factor to boot at a highly reduced cost as training erodes all profits ,which n turn means more and bigger holes opening everyday to lose all that confidential data as well !
Some one once said the initial Indian/Bangladesh call centres whilst highly appealing for the first five years the third five year contract is a real killer price wise and effectively no cheaper then if you had run the show for the past ten years on your home turf as they have you now by your gonads and in the mean time these centres leak critical confidential business data worse then a sieve !
As a certain socialite would surmise "stupid is as stupid does !" !
DP suddenly realised that outsourcing services to HP now means outsourcing to EDS. Bet that was a wake-up call...
Some of the wisest comments I've seen on El Reg are in this thread (obviously with the exception of two doses of Grahamanfromarse's usual piffle).
So what needs to be done to get the message through to Them Upstairs?
Spoken like a true philistine, AC. Try harder please, [Brain in Gear and then Speak] as you are holding up your Progress.
Been with HP, got the HP mug ... and left
I did a 6 month contract with HP as a Technical Author and Documentation Consultant in Newcastle (guess who was the client). HP are the ONLY (as far as I know) global company without an electronic document management system of any kind. They still stored their docs in hard copy ... and had NO off-site backup for them. $105bn turnover and I asked for a few measly thousand bucks to remedy the situation. NO WAY. I gave up as, in the end, did my ProjManager and HIS ProjManager.
There are a lot of timeservers in HP with little or no idea of what they're doing and anyone who wants to improve anything is just sidelined. The situation is now conflated by the takeover of the one company which has screwed up more IT systems than any other. Oh dear ... sorry, Nancy.
Paris - cos she has more idea about organising things than Nancy.
Don't poke the animals, they Byte
Don't tell me, Anonymous Coward of Wednesday 6th August 2008 08:56 GMT, let me guess.
You're a sad plant from an apology of an International News Corporation who have lost their way?
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