Comdex panel: Outsourcing creates divisions in the enterprise

LAS VEGAS, Nev. — The increased outsourcing of enterprise IT departments is pitting the “geeks” against business managers, according to a panel of experts at Comdex Fall 2001.

A flurry of mergers and acquisitions (M&As) in the corporate sector, coupled with the consolidation of data centers were identified as the driving forces behind the outsourcing market at a conference session called “IT Outsourcing: Can it REALLY Deliver the Bacon?” Moderator Gerard Kane, director of Trustmark Programs at industry group CompTIA, said outsourcing represented a US$26 billion opportunity last year, and forecasted market growth of US$44 billion by 2005. Government, communications companies and process manufacturers are the key verticals where this growth will occur, Kane said.

But the panelists agreed that the outsourcing boom is also creating a slew of management headaches as agreements become more complex. In some cases, outsourcing is also introducing more tension in enterprise environments between IT managers nervous about their jobs and business managers looking to cut costs.

“Geeks take great pride in being right all the time,” said St. Paul, Minn.-based Occam Group Ltd. president Ken Barnhart. “Business (managers) don’t care if they’re right or not, as long as they are saving money.”

The culture clash represents a challenge far greater than most technology hurdles, according to David Henry, the chief technology officer for Little Rock, Ark.-based Alltel. Alltel provides outsourcing to banks and telcos, but before he joined the company Henry said he sat on the customer side of the table, where insecurity was hard to escape.

“I used to have a conceptual problem with outsourcing because to me, it meant that I was a failure,” he said. “It took me a while to see there were benefits to the model.”

Though there are some possible cost reductions and workflow improvements associated with outsourcing, many enterprises don’t see these benefits, the panelists said. This may be because outsourcing is often confused with contracting. Sid Stephen, the vice-president of application portfolio management with DMR Consulting, said the best definition comes from Turning Lead into Gold: The Demystification of Outsourcing, by Peter Bender-Samuels. According to this definition, contracting refers to an agreement whereby the buyer controls the process but employs a third party to manage the process. In an outsourcing agreement, the outsourcer controls the process and brings that to the buyer’s environment. This is probably best demonstrated in the M&A segment of the market, where a conglomerate hires an outsourcer to take over the IT department of a company it has recently acquired. This may be necessary, Henry said, in order for the acquired company to effectively make the transition to an IT management style more like that of its new corporate parent.

“It’s like the IT department is this immune system, and there are all these M&As and other anti-bodies being hurled at it,” said Mark Tuomenoksa, chairman of virtual private network provider OpenReach in Woburn, Mass. “In some cases you may be handing over the complexity but not necessarily solving it.”

Mickey Bland, an executive with value-added reseller Comark Inc. in Bloomingdale, Ill., said outsourcers could also help enterprises manage technology transitions as products die out or need to be replaced. But he said there was a limit to how far the relationship could go. “We really prefer the idea of co-source versus outsource,” he said. “We don’t feel we can get close enough to the customer to really replace the IT department, though in some cases we do end up becoming their purchasing department.”

In most cases, one outsourcing company will not be enough to handle the diverse needs of an enterprise company, the panelists said, and this is leading to even more complexity as corporations juggle several providers. Henry suggested that one company be appointed as the “prime” outsourcer who would help manage the other firms, while Barnhart said his company has been asked to help coach its customers on managing other outsourcers.

As companies mull over their choices after the request-for-proposal has been put out, Bland said the outsourcer chosen needs to have a good history of partnering with other firms. “We all need to be able to play in the sandbox,” he said. “You don’t have payroll control over the people doing the work, but you get access to this enormous labour pool.”

Tuomenoksa agreed. “We’re not necessarily providing new expertise, but we’re taking over the non-core tasks,” he said. Though a good outsourcing relationship should allow IT managers and CIOs to focus on more long-term technology planning, Stephen said they may need to develop more business-related skills. “I did a study on a provincial contract up in Canada on the top qualities of a CIO,” he said. “We came up with nine, and of those nine five had to do with contract management and procurement. That may be a good place to spent on the weekend or at night school.”

Kane said the leading areas of outsourcing in the future will be network operations, desktop management, application management, help desk, disaster recovery and business process.

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