Under pressure, sometimes things erupt!

Under pressure, sometimes things erupt!

Pressures on a modern CIO are both the same and different from those they faced a few years ago. The environment is more complex as old organizational pressures, such as having to show financial gains on a quarterly basis, are merged with new twists such as having little pricing power.  Solving complex problems in a complex environment provides a fertile ground for developing solutions and myths.

Myth: “Everyone is using sourcing to affect their balance sheets and income statements; therefore, so must we.” CEOs or other executives have been continually pressured for financial results and “educated” the press, conferences and friends to implement options that then might not fit.  These pressures are the same ones that cause the implementation of orphan technologies.  While the exploration of options is a good idea, execution without understanding all potential ramifications is trouble (this concept will be explored in greater details in later myths).

Continuing with this myth from an even more basic level, “everyone is doing it so should we!”   This sort of pressure did not make sense when you were a kid. Why should it make sense now? Today’s business environment exposes IT organizations to many pressures.  Peer pressure is generated by many sources. A critical pressure typically unmentioned is a whisper campaign created by those looking to gather support for their actions (more an early adopter tactic).  Couple that with trade publications extolling the virtues of different sourcing models. The topic of outsourcing is hot.  The majority of large firms are using mixtures of sourcing methods that include tactics such as creating their own shops in developing countries, joint ventures and/or selling their personnel.  As one slides down the gradient describing organizational size, both the participation rate and the number of available options seem to fall.  Not everyone is using varied sourcing models, but many are. Can a CIO fail to act and risk allowing competitors to capture a competitive advantage where one exists or not.  Decisions driven by a need to keep up with the “Jones” are fraught with danger.  The steady flow of returnee’s is anecdotal evidence of decisions that may have been less than perfect.

A corollary to the “Everyone is doing it” myth is the Jerry Springer phenomenon.  The loudest and most controversial positions draw the most attention.  Attention acts almost as gravity will to draw focus and action.  Unfortunately, due to the Springer effect, focus is drawn to myths and legends rather than mere boring facts.  Combine this phenomenon with peer pressure and decisions can easily be made based on anecdote.  At the very least, this corollary serves to prove that there is a lot of variance when outsourcing stories are compared.

Myth:  “The ROI of outsourcing will improve the bottom line in perpetuity.”  This is slightly over the top. The impact of large scale outsourcing on an organization is an open question. Obviously, there are benefits to outsourcing IT work.  The benefits for individual actions do not, however, extend forever.  The changes engendered are slowly subsumed over time in the same manner processes pick up extraneous steps as they age.  The process becomes addictive, and additional sourcing options must be considered to keep the trajectory of the cost curve going in the right direction.  The problem becomes the ability to recognize when enough is enough.  Paul Strassmann has published several articles based on studying corporate balance sheets that show a negative long- term impact on companies.  This area requires further study.  Balancing short-term financial goals with the long-term health of the firm is just good business.

Myth:  “The business of IT is to create functionality; business culture does not really affect how work gets done.” Culture has many definitions; however, at the root they describe how people interpret information, how they interact and communicate.  These are the nuclear components of any project.  How is it conceivable that difference in how interactions and communication occur would not affect the outcome of work?  Most experienced IT professionals can remember projects where success or failure hinged on the definition of a single word in a single requirement.  The ability to connect, to communicate is central to delivering something a user might need.

Myth:  “Our IT providers are our partners.”  This myth can be the most insidious of all of the myths we will explore.  The term partnership is an oft-tossed-about term in the sourcing arena (covering outsourcers, staff augmentation firms and COTS package providers).  Creating a partnership requires commonly held goals, sharing of risks and rewards. These alignments are rare.  True partnerships evolve and are not created in an atmosphere of lowest cost bids or single-project sourcing.

You know you have achieved more than a contract when it becomes hard to distinguish that more than one organization exists.  An excellent example of a partnership is the IT relationship at Dow Chemical.   The relationship was the direct reflection of the people involved with implementing and interpreting the contract.  Starting with aligned goals, adding a dash of consistency of management personnel and time is a recipe for creating a partnership.

Myth: “Outsourcing lessens the need and cost to comply with regulatory control measures.” After the excesses of the 1990s, numerous new regulatory measures have been formulated to safeguard the fiduciary responsibilities of corporations.  Information technology plays a central role in implementing many of these regulations.  Sarbanes Oxley is the poster child of these regulations.  Recently, there was an undercurrent of discussion that outsourcing might be a tactic to diffuse the cost and responsibility.  The consideration is false, in a recent conversation Sarah Jane Sanders, a SOX consultant indicated:

“Anyone who is subject to SOX, outsourcing to avoid implementing SOX controls, and which does not require the service provider to provide, test, and prove compliance, is asking for trouble.  If you are outsourcing to contract out the compliance effort and paying someone else to do what you ought to, there’s a level of risk inherent in the choice of service provider.  Are you outsourcing to be compliant or to align yourself with someone who will assist you in cooking the books? Even if you outsource, you have to exercise controls over the service provider, and the service provider has to ensure and prove that their controls are adequate to protect your corporate (financial) integrity.”

On a parallel note, the added cost of tracking regulatory directives will require your sourcer to build a larger infrastructure to handle compliance or a consolidation sourcer to effect economies of scale (smaller firms may not be able to absorb the overhead changing the cost basis).  Both infrastructure and consolidation will change the cost basis, which the outsourcing was based on in the long run.

Untitled1Outsourcing has been used as a tool for organizations to manage many factors ranging from cost containment to capacity management.  The use of sourcing as both a tactical and strategic tool is not a short-term phenomenon.  Time and the accumulated experiences of many have lead to the accumulated lore based on opinions, facts and urban myths.

Outsourcing is a double-edged sword.  Even though sourcing has become a political hot potato, it is a tool for managing demand, a balance sheet or as a last resort a means to make short-term numbers The topic has it share of proselytizers.  Regardless of why an organization decides to consider OS, they need to go into the process with their eyes open.  In this highly charged arena, it has become difficult to determine what is true or merely opinion (and more importantly whether knowing the difference matters).

Most of the myths that have evolved around sourcing options are constructed upon individual grains of truth.  Unfortunately, many grains of truth have been wrapped in hysteria or marketing spin, swelling them to many times their original size.  Sifting through this morass by applying the correct level of due diligence is important when deciding on how to source your IT activities.  Failure to perform the necessary due diligence is a failure of fiduciary responsibility.  Five meta-categories of myths will be used to isolate and expose the myths of outsourcing:

  • Theory of More – Sourcing options are a tool to get higher productivity, faster time-to-market, better quality or some combination of the three.
  • Laws of Determinism – Higher levels of process or discipline will lead inevitably to a specific outcome of sourcing decisions.
  • Impact of External Pressures – Business pressures spawn specific types of sourcing decisions and can be addressed either through strategic or tactical sourcing decisions.
  • People As An Asset? (Can I Sell Them?) – People and organizations are highly intertwined in  both the sourcing decision process and chances for success.
  • Been There, Done That! – Each sourcing scenario is based on a set of beliefs and a willingness to address risk however each is very different.

Understanding the myths within each high level category and will provide you with a means to winnow through the chaff into a set of actionable truths.