02 Mar IT outsourcing remains on the horizon as companies focus on core business
Madison, Wis. — Craig Schiefelbein has a warning for chief information officers: By 2007, 80 percent of IT sourcing decisions could be made by lower-level business executives. The CEO of Paragon Development Systems, an IT company in Oconomowoc, said CIOs will have to work to stay involved with the business side of their companies on decisions of outsourcing vs. insourcing.
“That’s a big change in a really short period of time,” he said. “If you want to change that, then get involved with the business side of the organization. It’s very, very important to recognize the importance of business alignment.”
In a presentation on Wednesday at the Fusion 2005 CEO-CIO Symposium, Schiefelbein asked a handful of essential questions about where to focus when looking at whether or not to outsource IT services. Companies should ask these questions of themselves, Schiefelbein said, in order to figure out what to outsource and what to keep within the company itself.
“The [companies] that are doing well have a very clear vision for their IT organizations with sourcing as a component of it,” Schiefelbein said. “Organizations that don’t have a clear vision, their IT organizations, with sourcing as a part of it, are forever fulfilling past expectations.”
Where do you excel?
Schiefelbein’s first question was, “If all services can theoretically be outsourced, in what must you excel to drive the business?”
Successful businesses at the CIO level, Schiefelbein said, can focus on four or five things that drive their businesses. “The list of 13 is gone.”
“You should keep to the things where you think you have real competitive advantage,” said Michael Knetter, dean of the University of Wisconsin-Madison School of Business. “One of my colleagues, Paul Peercy, is fond of saying that if a person works in an area where it’s not possible to become the leader of an organization, that activity should be considered a candidate for outsourcing. It’s not really a part of the core competency of the organization. I think it’s fair to say that you can debate whether or not that’s the right litmus test, but it should definitely be a large determinant.”
Schiefelbein also asked CIOs to think about what, if all their services were being sold externally instead of inside the company, their competitors or peers would buy.
Once businesses have a focus of four or five things in the IT sector in which they want to excel, Schiefelbein argued, these should become what competitors would purchase. Since few can be best at everything, businesses should concentrates on developing clearly discernable skills that will fulfill business requirements.
Sometimes, he said, removing the emotion from the decision requires thinking as if you were starting from scratch. Apart from that, he outlined many of the factors that drive companies to outsource, or stop them short.
Many companies shy away from outsourcing IT because of high predicted costs, while others move to outsourcing IT in order to cut costs. Overall, Schiefelbein compared IT outsourcing to a recent night he’d spent in Vegas: Companies, he argued, must fit in somewhere along the spectrum of “playing to win” and “playing not to lose.”
The business side of companies expects the ‘play not to loose’ precautions to be taken, making sure not to spend more than revenues bring in, whereas the IT side ends up playing to win.
“You’ve got to be comfortable with those threats in order to get the benefits,” said Kevin Kenealey, Director of investment firm Mason Wells, on Schiefelbein’s list of IT outsourcing deterrents.
What happens next?
Outsourcing doesn’t take care of itself, Schiefelbein said – a company’s sourcing needs management as well. PDS does work for CUNA Mutual, an insurance company, and Schiefelbein pointed to that organization as an example of sourcing management.
“We use PDS to manage our hardware – basically, our desktops and laptops and all of that,” said Rick Roy, CUNA’s chief technology officer. “It’s a great example; it’s what they do, they do it well, they do it at a competitive price, and it’s not something we want to spend time on. It’s a good example of using a sourcing strategy to drive the business benefit to everyone.”
Outsourcing remains on the border: Some flock to it, some stay away, and it’s certainly not for everyone.
“The final decision on who you hire is not likely something you’re going to outsource, unless you have a high level of comfort level with who you’re outsourcing to. If it’s a people intensive business, maybe HR is not something you want to be outsourcing,” Kenealey said.
“It is, in terms of benefits, oftentimes being able to do something at a higher service level at a reduced cost, and taking it from being a fixed cost to being a variable cost,” he said. “Where my business goes up and down, the cost goes up and down.”