TORONTO — Outsourcing to another provider may allow a company to focus on its core competencies, but some of those deals may cause more problems than they solve, said Sun Life‘s CIO.
In an Tuesday address at the CIO Summit,
Brian Gill, vice-president and chief information officer at Sun Life Financial Canada, provided his “”survival kit”” for getting through an outsourcing arrangement unscathed.
Outsourcing is not a panacea, he said, and should not be treated as such. It requires a great deal of work up front and continuous monitoring. The implications run far beyond cost savings and could have an impact on the organizational culture if an outsourcing arrangement is mishandled. Risks include gaps in people or processing, a mismatch of capabilities between an outsourcer and its client, and deals that are bad from the outset because terms aren’t made clear.
Gill said that these problems are only exacerbated when a company turns over some of its functions to an overseas outsourcer in India or China, for example. There, the role of communication takes on heightened importance, since the differences are not only organizational but geographic.
Overseas outsourcing is growing in importance due to economic realities in North America in Asia/Pacific, and it behooves managers to be aware of this trend. “”If you’re not spending a significant portion of your time on the changing landscape, you really need to go back and look at your agenda,”” Gill warned the CIOs and IT professionals in attendance.
He cited industry research that indicates that the Indian software sector added 130,000 employees to its workforce in a three-month period, and by 2005 there will be more software developers in Asia/Pacific than in North America. He said that moving jobs outside North America will become imperative to some companies in order to remain competitive.
In Sun Life’s case, said Gill, the company outsourced some of its IT overseas not to save money but to accomplish projects more quickly.
According to IDC Canada Ltd. analyst Dan McLean, offshore outsourcing is a growing business, but it’s “”far from being an established market”” in Canada. Most of the major outsourcers in India are looking to the American market first, he said, since that represents a larger revenue opportunity. “”But you would expect (the Canadian market) to grow as customers get used to the concept.””
McLean said that outsourcing firms in India and elsewhere are cognizant of the pitfalls of the outsourcing model and what makes North Americans squeamish about trying it. To counter some of the communications issues, for example, overseas firms are setting up local offices. Without a local presence, “”it makes it difficult to have that kind of close, communicative relationship. That’s one of the many big challenges of an offshore services provider.””
Regardless of whether a company outsources its IT overseas or closer to home, said McLean, “”you’ve really got to stay on top of it and establish a good, solid relationship with your provider.””
Outsourcing may be symptomatic of a growing complexity in IT, said Gill. “”We’re seeing a dramatic refocusing . . . away from the traditional places IT was driven. The technology snowball continues to roll and with every roll of that snowball, we pick up a bigger footprint.””
New technology is being added more quickly than older technology is being retired, he said. There is technology just to manage the relationship between the old and the new. “”Every year we claim we’re saving more money, but every year we spend more money,”” he said.
The elusive nature of return on investment for an IT spend “”is driving skepticism in our executive ranks like we’ve never experienced before,”” he added.
Gill reiterated that constant monitoring and benchmarking — both for outsourcing and for IT budgets — is necessary to avoid cost overruns and project failures. He emphasized the importance of employees and training them in soft skills like team-building.
“”As leaders,”” he said, “”it’s really up to us to build a culture that allows great people to do great things . . . to create a culture with a sense of urgency but without a lot of haste and waste.””