Whenever a major service provider runs into financial difficulties it is undoubtedly an extremely unsettling period, not least for the workforce, customers and management. Tough decisions need to be made in very tight timeframes which often don't allow much time for strategic planning. Financial distress is one of the ever- …
"About to outsource your IT?"
Then shouldn't you be reading the FT instead of the Register?
Re: "About to outsource your IT?"
This even had the word IT in the title, so not sure about your "IT?" icon?
Re: "About to outsource your IT?"
I was hoping you'd misread the I as an F.
In charge of an outsourcing decision?
Then the chances of this person reading something on a website written by and for the type of technical, hard working and experienced staff you want to replace with someone from overseas, are few limited.
"Many of the contracts are for a government body’s entire infrastructure. Public-sector staff, together with their knowledge and skills, physical networks and infrastructure, are all transferred to a supplier, effectively locking the government customer into a relatively small number of long-term contracts.
There is nothing inherently wrong with this.."
"Outsourcing, by its very nature, involves a transfer of functions from a customer to a supplier. This can lead the customer to lose detailed knowledge relating to the processes involved in delivering those services, particularly in long-term contracts."
You don't see an inherent contradiction between those two statements at all then?
THIS! (@ AC Po 8th February 2013 12:35 GMT)
Damn! You beat me to it!
>> You don't see an inherent contradiction between those two statements at all then?
No, there isn't an inherent contradiction.
There is only a contradiction if the customer needs to have retained a level of knowledge/skill about the process - it's all about the context.
<struggles to find analogy><ahh, found it>
Take something mundane - providing fresh, clean, wholesome drinking water to staff - along with a means of washing their hands, flushing the loo etc.
It's a fairly critical process that pretty well all businesses rely on - yet they all outsource it without a second thought (mostly). If you are having a new building, you get the water company to put a nice blue plastic pipe in, if it's an existing building you're moving into then someone else will have had that done. After that, you turn on the tap and water comes out - and you don't know (or in most cases) care how that happens, how many people were needed to make it happens, and so on. You just pay your supplier's bill and get your water supply outsourced.
Same thing with electricity, gas, and waste water.
So back to IT. Some outsourcing will be (nearly) as mundane as that. Lets face it, there are "quite a few" outfits of all sized that will support a "common" Microsoft centric desktop and server estate.
Where it does matter is if your systems and processes are not common.
Back to our analogy. For a lot of waste, just flushing it down the pipe is all it needs - no problem. But if you have some manufacturing process that creates some noxious waste then you might need to be outsourcing to a specialist who will tanker away your waste to a disposal/processing site. In this case, if your chosen outsourcer goes tits up, then you need to find another one.
One of the suggestions in the article is to effectively know where the waste is going (ie who your supplier's supplier is). If your outsourcer goes tits-up, you go direct to his supplier and negotiate a contract direct with them - but you may also need to find another middle-man (ie someone with a tanker) which the supplier's supplier might well be able to help you with.
So it all comes down to what the process is. If it's something common then not knowing how it's done needn't be a problem. If it's something critical (like someone making a component that only you use, and only this one supplier makes (and knows how to make)) then it doesn't make sense to lose visibility of that process. Note that the article said "There is nothing inherently wrong with this", it didn't there "There is nothing wrong with this".
Re: Err, no
There is a difference though - 'IT isn't a department of a company, it is the company'. I seem to remember that was a quote from a long time back from a certain Bill Gates.
In other words, a company needs to own it's own operational systems; data, workflows, reporting etc etc. As a contractor myself I can fully recommend bringing in contractors to improve systems or carry out specific projects etc - but - what they do must be part of the company's systems and fully integrated via documentation, sharing, training etc.
To continue your analogy, if you change your electricity/gas supplier then it makes no difference to your operations - identical electricity and gas comes in. Similarly, if you change your catering you shouldn't have problems; food was supplied before, food was supplied after.
But, change your IT provider and the way every single member of your workforce could be affected.
The problem with outsourcing IT is this.
You either specify in minute detail what you want; Win 7, Exchange, Sharepoint etc etc - and ask for tenders. But what's the point? Same stuff, no chance for providers to differentiate on how to provide desktops, email, collaboration. You pick the cheapest supplier who hasn't thought it through properly - they then struggle as you're not paying them enough. They then provide poor service until they go bust.
So what do you get? Years of poor service and major problems when the supplier goes under.
Or - you say to suppliers - we need Desktop, Email, document sharing, collaboration - knock yourself out with different ways of supplying this and send in your tender.
So you choose between say Win 7/Exchange/Sharepoint or SAP or Oracle or ADempier or PlanGuru . Good luck with picking which would be the best fit for your company. Normally the contract will go to the best presentation - i.e. not a technical choice but one based on a sales pitch. If you could carry out some live trials this would be best - but this rarely seems to happen.
Now you have the battle to get this huge solution implemented and used at your company. Of course, none of them are a good fit - so SAP consulatants at a K a day are need to modifiy SAP to fit how your company works.
If you're really lucky you may be able to get one of these solutions to work well enough - but - and here is an important point - you are now over a barrel. Not happy with the ever expanding cost of SAP - want to tender out and change - say change from SAP to Planguru because you've worked out it looks much cheaper. Well good luck with the switch - changing all your systems and all your technology and all your workflows and how every single member of your workforce works. The cost of the change is so huge that you will stick with the expensive, rubbish service for way too long.
So - DO NOT OUTSOURCE.
Work with your own guys - get some more staff in if you need to. So they can evaluate solutions, carry out some tests, carry out some trials. This way you can even use best of breed and not use a single solution.
An important point is this - things are always changing - new technologies, new ways of selling, dealing with customers, new platforms etc. You need to have a max and match approach - and IT staff need to be able to check out all the options. No huge, overarching do-it-all system is going to fit everything forever - or even for a few years.
For example, say you have Groupwise on Windows server, Android on phones, Win 7 desktops, MS Office, Accufund for ERP/Payroll/CRM and IIS/.NET for the company website (supplied by an outside company).
Then you decide to have better messaging. You could change Android phones to Blackberrys - and put BES on top of your Groupwise. Of course this could be trialled with a small number of users first.
Or say you realise that many users could happily use LibreOffice - again carry out some trials. Brilliant! Works fine. Massive savings on license costs.
Accufund starts playing up or starts getting expensive - look at Sage for your payroll and other solutions. That should shake Accufund up - get you a better deal etc.
See the picture - you are not over a barrel.
You could even bring currently outsourced stuff back in. Company website running slow? External supplier charging the earth for always delayed changes? Then you want a new fangled responsive (works on pads, smart phones etc) site - quote from current suppliers has way too many zeros.
Bring in a couple of contractors, Nginx proxy, Apache, Debian, Drupal and voila - much faster, much better, much cheaper. Get your own web guys to work with the contractors and learn the site. Future changes are carried out by your own in-house staff for a cheaper cost and much faster - no time wasting over contract and quotes etc.
Of course, this comes up against a big problem - changing how management works. They now have to be more hands on and to be able to work with their own staff. No more management by watching sales guys PP presentations and signing huge cheques.
Also, staff need to be valued - paid well, looked after, cared for.
And that, I think, is why we have this madness of outsourcing the fundamentals of a company - it's much easier for management. I know many senior managers are very busy and have to look any many projects, budgets, systems etc - but if they start out with the principle of doing stuff in-house they will retain control of their companies. I suggest they start by having big 'say anything' meetings - look at what existing staff are suggesting - don't get stuck with a one-size-fits-all solution. It might be harder initially to identify staff who can be trusted to run the various parts you need - but once you have them in place should be able to rely on them. Again, if any part is proving problematic, and that particular staff member is struggling they can be helped or re-allocated to something which suits them better - without it affecting/breaking all the company processes.
Generally, as well - look to moving to open source solutions - again, it's about ownership. Want to install a training copy, testing copy etc etc - no extra license costs. Weird bug which is specific to the way you use a solution - you will be able to get someone to fix it. That is the beauty of open source - not cost, ownership.
As an example of what is possible. We've just supplied a document storage and collaboration platform based on Drupal - and the cost was almost a tenth of a Sharepoint cost estimate.
Don't do it for the money
All well and good, but after being involved in duff outsourcing projects where the main reason is money, that's why it fails as a strategy.
Re: Don't do it for the money
> duff outsourcing projects where the main reason is money
The problem with such projects is that they invariably cost less because they don't provide the same service.
So the headline cost falls, but the customer ends up spending engineering time - which is likely to have a higher hourly rate - doing the job that he expected the outsourced contract to do. And because the engineers aren't the experts in that task, it frequently takes longer to boot.
The net result is a large *increase* in costs - but because the headline figure has fallen, this seems to be a Good Thing(tm), and there only remains to be a witchhunt to find out why Engineering has become less productive this quarter...
 To seagull-management, at any rate...
Re: Don't do it for the money
In addition to the additional engineering costs inevitably associated with the project, a well managed outsourcing project that has all the CYA provisions generally involves legal and their costs make engineering costs look like a rounding error.
Re: Don't do it for the money
No word of a lie, my previous employer did this to me:
Employed as the sole IT person within the company, combing the roles of sysadmin, data analyst, application support and hardware engineer all rolled into one, part of my job also to recommend suppliers and suggest solutions that could benefit the company. Remaining IT functions were outsourced to a cloud service provider holding platinum level certificates with pretty much every vendor out there.
Boss: We're having a meeting, please attend.
Walk into meeting room
Boss: This is the Joe Bloggs Cloud Based Computing Company (real name changed, but you get the drift).
Boss: We've just signed the contract to transfer all IT services to them as they're half the cost of our current provider. You have 2 weeks to complete the transition successfully or you lose your job for failing to work to an unfeasable target that has been agreed with no consultation with the only person who actually knows anything about our current IT setup.
Needless to say once it was made clear to the new supplier just how much was going to be transferred they backed off and the transfer was put back. By 2 more weeks. And people wondered why I was happy at losing my job...
Which is GOOD !
If you think hard about the "free enterprise system" it is very much darwinistic: Random, mostly stupid ideas are invented, tested and mostly abolished after a crash/BURN. A few actually useful concepts survive this and improve the efficiency of economic activities.
So, for us skilled and reasonably paid IT/engineering people, it is very, very good to see the "slash skills and cost" projects to fail miserably. Only failure is going to teach "leadership" which concepts are actually useful. These people are very often spineless, reckless and rather shallow. They know how to manipulate people, work Excel sheets and they are determined to "succeed". The more outsourcing horror stories they hear, the better.
Or, let's put it into economics-bla-bla: the value of skilled labour will be demonstrated by more successful firms who have, for random reasons, retained skilled and well-paid workers.
Re: Don't do it for the money
It always starts off being about money.
After a few years it is patently obvious that (on larger contracts between competent, mature businesses) most outsourcing costs more than doing it in house. Rather than fess up to this, history is rewritten to justify the decision on the basis of the suppliers skills or infrastructure, or that old time favourite, that the outsourced task "isn't a core competency" for the client.
Re: Don't do it for the money
The challenge is that cost can be interpreted in a number of ways. If you simply base your calculations on the cost of providing a service, role or entire function then it is pretty easy to make a sound financial case for outsourcing. Cost needs to be calculated based on cost of providing service, reliability of service and cost to business of reduced productivity due to any drop in service availability or quality or increase in resolution time.
I guess the point here is that if you are going to outsource, make sure you have the right processes and, if required, the right tools in place to ensure you can measure the performance of your supplier and have a sound contract in place to get things put right or allow you to exit if and when service levels drop.
Re: Which is GOOD !
The jobs retained are poorly paid and overseas. Always. NEVER based in the UK.
What we have is UK tax payers paying millions to a small number of companies who then keep 80+% for a rich few individuals while spending the other 20% on some under paid paupers in India, China and Mexico
This means that UK tax payers are paying millions to train foreign people in skills we are rapidly losing in the UK (no work means no interest, means no future - who now trains to be a coal miner or steam engine mechanic). The end game is probably less than 10 years distant when there is no UK IT expertise left.
Re: Don't do it for the money
Some oursourcing contracts can work very well, especially if they replace failing IT/IT support in an environment where it is hard to drive change.
The problem in my experience lies in customers putting bad outsourcing contracts in place where they neither have considered and allowed for potential negative outcomes nor put controls around costs.
The one "advantage" the Government has for outsourced services is that it can take over the Service Provider if they fail.
While not entirely a bottomless pit, they have the finance available and don't have visible shareholders who are looking for a profit.
unfortunately not true
As part of the governments screw the Brits agenda it is outsourcing through almost exclusively foreign companies. Mainly owned by the US. The US department of 'defence' spends more than we do on aggressive arms - in fact it spends more than the next 20 countries added together. Those that aren't owned by the US are owned by the French - who still have aircraft carriers.
The UK is so buggered it is no longer in a position to do anything at all about anything. This is not a Labour caused problem or a Conservative caused problem - they are both a crowd of incompetent idiots. The problem is caused by the continued idle culpability of a nation of people who are never going to get off their collective backsides to vote for someone new far less do something about the people we have now. For fucks sake we have a buffoon who doesn't know how a piggy bank works running the economy backed up by a guy who has never had to do a proper job, buy a house or anything in his entire gold plated life
Am I the only person who misread the photo as "Sony, we're closed"
The time of CFOs overrulig the CIO on service delivery is coming to an end.
A comparatively small article, actually. It does not mention service level requirements, agreements and actuals, service continuity management and business continuity processes.
We don't need to wait after the horse has bolted, the service (read income) is lost already when there is a service degradation.
What we have to realise is that there is no "outsource and forget" anymore: since IT operations are equivalent to the business operations, business continuity planning needs to be in place to cater for service degradation already! If the business capability lies in the combination of IT with business, then It cannot be a cost centre anymore. It is a profit centre.
Would you outsource a profit centre? The time of CFOs overrulig the CIO on service delivery is coming to an end.
I think we need to see companies like the LSE (who outsourced their development to Sri Lanka) to properly fold until your wisdom will sink in.
But I agree with your general notion - IT is indeed the core activity of more and more companies and they can be better than the competition if their IT is better staffed and run than the competition.
Outsourcing a false economy ..
The inefficiencies introduced cost more to the business than any percieved financial savings.
Re: Outsourcing a false economy ..
To be honest, many small companies don't have the financial and human power to properly run beasts like Lotus Notes, Exchange, Active Directory or Network Intrusion Detection. This kind of "standard" services and and should be outsourced, so that IT people can focus on business-specific IT processes. E.g. the ERP system should support the specific requirements of a business and run smoothless while the email system can be "run of the mill" and sourced externally (not necessarily gmail, though).
Too many IT departments are overwhelmed with standard stuff and can't help the core business to have an edge. That's why sometimes IT is seen as a burden, not as a strength.
Re: Outsourcing a false economy ..
Why can't you find someone to run a mail server for you? The problem is that Exchange and Active Directory have become huge bloated beasts. The asnswer is to use other, leaner solutions.
The glorious fail inherent in outsourcing is the inability to react to real time structural reorganisation. Once you're locked into a contract for five years by commissioning wonks with very little clue about the rapidity of change, particularly regarding the volume kit and minor details like bandwidth and security, you're cooked. The contracts tend to be based on a perceived SLA which may look sooperdooper future proof on day one, but by the end of year three, the value you get from the contract is rapidly tipping towards the point where recriminations and QA issues become increasingly commonplace. Once you reach year five, there's a choice of two evils. Throw the contract out to tender again and spend six months fighting your legal team to introduce some common-sense safeguards, or repeat the dose and extend a decrepit contract with an inevitably higher fee. Meanwhile, your staff have to make do with a disinterested and further outsourced service desk, who haven't got a clue what you're talking about until you've escalated to a server team. Fine if you know the guys who have some stompy boots in that regard, but absolute hell if you're just someone who needs a database to work in order to meet your own SLA.
For the finest examples of such brilliant short termism, see: Local Government and any Ministry.
I am working for a globo-corp with massive revenue/profits and they use "external" personnel quite heavily (50% and more in IT and R&D functions). The "external" people mostly work like "real" employees and sit close to the "real" ones and are closely integrated into corporate structure. They are effectively employees hired through a subcontractor, but stay for years on the same job. They can grow specialist expertise and are actually proud of what they do and have emotional attachment to "their" products/(sub-)systems.
Quite smart of the super-corpo, actually. They get employees who work properly and can get rid of them without doing the dirty work (as specified by law), should the financial figures ever tank (has not happened in the last five years, outlook still quite positive - China buys German stuff).
I do think this approach is moderately humane and everybody appears to be moderately happy with it. But it certainly is not much cheaper than hiring these people directly. All they save is the cost of getting rid of surplus employees in time of crisis.
And don't forget - the contractors get reasonably well paid so that keeps them happy, hard-working and loyal. The important point is to pay the permanent staff decent wages as well.
How many mandarins does it take to reverse-park a caravan?
The unfortunate paradox is that the government believes that it needs to outsource because it doesn't have the management talent to manage IT in-house. The reality is that you require better management talent to manage an outsourced service than to manage the same service in-house. Managing an in-house service is like driving a car. Managing an outsourced service is like towing a caravan.
Many things are wrong with the situation.
a) No new companies are allowed into the cozy arrangement - the bidding rules for work totally preclude that. It doesn't matter if your new company is stuffed to the gills with people who have delivered exactly comparable government contracts before the company hasn't so it can't (makes damned sure no new blood). If somehow you did manage to get around that (which is impossible - I've tried) - there is a backup, if you want to bid you must have been in business at least 5 years with accounts and all the rest to prove you aren't ever going to fail...
b) The few large corporations that are supplying the UK government contracts are mainly foreign and use foreign labour (look to the NHS computer system written by Indians for an overseas company). Thus not only does the knowledge move away but more importantly so does the money. Spend a pound in the UK and someone has to provide some goods or services in the UK, so has a job in the UK, so pays tax and doesn't claim benefit. Spend it abroad and someone else benefits. Worse, you have to tax (borrow is just tax in the future) the UK and thus reduce the amount of demand, and therefore the number of jobs in the UK economy.
Add this IT mess to the fact the Army buys its uniforms from China, its lorries from France or Germany, its guns from Austria and its bullets from South Africa, a navy that buys its equipment from Sweden and the USA, an airforce equipped with foreign planes (mainly American), a police service that will buy any car as long as it is not British, councils who have a long term Mercedes Benz culture, and even the ministerial cars are German or Japanese(with the exception of the PM - and only the PM) and even a royal family that bought the royal wedding china from China and not the potteries and you can quite easily see why we have 30+% unemployment, and only about 20% (of the working age population) who have a full time job in a private company.
The fact that the government wouldn't be able to function anymore wiithout foreign help because it has stupidly killed every industry the UK ever had (including IT) is a minor irritant compared to the fact the economy is now properly in total and utter melt down and beyond any form of recovery - ever.
For most medium to large organisations.....
......wholesale outsourcing of your I.T. is effectively outsourcing a large part of your core business.
I.T. is now VITAL to any medium or large organisation.