Outsourcing changes the chief information officer’s world more than you might think. Especially now that outsourcing has expanded beyond the basic mechanics of running data centres, the CIO becomes less concerned with technical details and managing staff, and more concerned with strategy and relationship

management.

Research firm IDC Canada Ltd. in Toronto projects strong growth in the Canadian outsourcing market this year, with as much as $500 million in new spending.

John Foreman, vice-president of corporate marketing at outsourcing and consulting firm CGI Group Inc. in Montreal, says the emphasis is also shifting to outsourcing applications and business processes. “”It’s not just providing the MIPS at the cheapest price,”” he says.

That kind of outsourcing means senior information systems people are less concerned with the operational details of their data centres and can focus more on business strategy. “”Understanding business processes has become more important relative to technology,”” says Foreman.

Ron Babin, a partner at consulting and outsourcing firm Accenture Inc. in Toronto, says CIOs with outsourced organizations need negotiating skills, some communications and marketing know-how and “”hard-nosed analytical financial acumen.””

Just ask Nabil Kraya, chief information officer of Infrastructure Canada. Set up at the beginning of 2000 to support municipal infrastructure projects, the unit of the federal Treasury Board chose outsourcing for the flexibility it offered.

Kraya supervises 15 internal IT people. For most development and operational support he depends on a contract with CGI. With IT largely outsourced, Kraya says his role is more inclined toward business than IT.

“”I don’t need to worry too much about the nitty-gritty details and the nuts and bolts of how you configure a workstation,”” Kraya says.

This is not to say outsourcing means IS executives needn’t understand technology. “”They still have to be strong on the use of technology, and insightful, but they do have to have stronger relationship skills,””  says Foreman.

CIOs like Kraya must also spend more time finding the right outsourcing partners — a task that becomes more critical when an organization hands over mission-critical applications — and managing those relationships. Kraya says one of his most important roles is maintaining his organization’s relationship with CGI. “”We’ve established a very close relationship at the executive level,”” he says.

Some CIOs are ready for their changed roles, some aren’t. CIOs are getting better at business issues, and executives from non-IS backgrounds are getting better at understanding IS. To help that trend along, Foreman suggests companies emphasize executive exchange.

“”Going through the IT shop should be part of the career path of more executives,”” Foreman says.

And the reverse is also true, according to Kraya. “”Every CIO should have had some experience in a business environment, in a procurement environment,”” he says.

One of the country’s biggest natural gas producers says there’s no hot air behind one of the IT industry’s newest buzzphrases: business transformation outsourcing.

BTO is a merger of business process outsourcing and business process re-engineering touted by giant international technology and consulting companies such as IBM, Accenture and Cap Gemini Ernst & Young.

Called by one Meta Group analyst “”appealing, albeit somewhat nebulous, concept,”” BTO goes beyond traditional outsourcing of a service, such as hosting a call centre, to offering guarantees of improving a customer’s business processes.

It’s a new field, but one which Don Brilz, a vice-president of BP Canada Energy Co. responsible for the company’s business transformation outsourcing arrangement with IBM, says could have a huge impact on the multinational company.

“”In terms of efficiency, it could be monstrous,”” he says. “”Radical is a better word.””

The oil and gas business is a volatile one. The price per barrel of oil can range from $9 to $37. “”We live with that volatility,”” says Brilz.

BP has no control over the supply-and-demand aspect of the industry. “”Therefore,”” says Brilz, “”it’s critical to focus on the controllable parts of your own business.””

BP wants to implement a flexible cost structure for its outsourced IT — matching the ebbs and flows of the business with its outsourced consumption. It’s a radical departure in the negotiation of an outsourcing contract.

The key is variability in service provision, mimicking the supply-and-demand volatility of the industry. As business varies, so does the amount of service provided, both in terms of the number of employees and the data centre functions used.

The arrangement began three years ago as a traditional outsourcing deal with British-based BP PLC for services, with IBM operating a three-floor data centre in BP’s Calgary office.

Since then the relationship has turned what Brilz calls a “”journey”” into business transformation.

“”We are beginning to discover areas of opportunity where IBM can add value by doing things differently,”” he says.

For example, IBM told BP Canada its process for recovering losses from partners (Brilz won’t name them) wasn’t good and suggested a revenue-sharing project within the existing contract.

Getting a handle on BTO can be a challenge. “”You don’t write a business transformation outsourcing contract,”” says Brilz.

“”You write a relationship contract for a provision of service.””

BTO is not without its risks, he adds. BP has realized contract management could have been done better, and it lost some skills needed to keep an eye on IBM’s work.

“”We lost expertise maybe deeper than we should have,”” he says.

There’s also the vulnerability of being one of IBM’s earliest and biggest BTO customers. That IBM data centre at BP Canada has since expanded into one of IBM’s delivery points for outsourced finance and accounting services to North American companies.

That’s one reason IBM is willing to negotiate BP’s flexible cost structure. In theory, if IBM controls the data centre and labour, the company can reassign resources to another customer facing a spike in business during a BP lull.

IBM has a number of delivery centres focusing on specialties such as customer relationship management, human resource and procurement applications, centres which it says help drive down the IT cost of outsourcing. Think of it as a system of labour arbitrage.

BP is looking for the centre to have more customers so it can share in those savings. “”The economies of scale haven’t materialized to the level we expect,”” Brilz says.

Meta Group analyst Stan Lepeak calls business transformation outsourcing “”an immature work in progress.””

“”The history of business process re-engineering has never been great,”” he says. Combined with business process engineering, the mix could be too much for some companies.

“”I buy into the concept,”” Lepeak says. “”But there’s a lot IBM and others have to learn about process excellence. They’re going in the right direction, but the marketing and messaging is running far ahead of the actual capabilities.””

— with files from Martin Slofstra

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