Six years ago, Calgary-based ATB Financial was busy building its banking business. “”Not enough time and attention was spent on some of the operational aspects,”” says Mark Ripplinger, senior vice-president and chief information officer. Solution: outsource “”the bulk of the operational environment””
to IBM Canada Ltd.
It worked. Last fall ATB renewed the deal for five more years. Yet ATB isn’t as quick to outsource new IT requirements today as a few years ago.
“”Over the past number of years we’ve begun to develop some core strengths,”” Ripplinger says. When the bank lacked resources to do many things in-house, outsourcing made sense. It still does for some things, but as ATB develops new lines of business with associated IT needs, “”we are tending to insource as many of those as possible.””
When John Wegener became vice-president of information management and chief information officer at St. Michael’s Hospital in Toronto late in 1998, one of his first problems was the hospital’s network.
“”It would crash daily and people couldn’t do anything,”” Wegener says.
St. Michael’s chose Getronics Canada Inc. to design and build the local-area network within its in-patient facility and the wide-area network linking that building with seven others over a six-kilometre radius. For four years Getronics has managed and supported that network. Wegener says it has worked better than expected. The companies have an excellent relationship, he says, and total cost of ownership is lower than if St. Michael’s had done the work itself.
So is Wegener a convert to outsourcing? Yes and no.
“”I would never outsource my core applications,”” he says – referring to clinical applications. An outside contractor might help develop or fine-tune such an application, but for Wegener, relinquishing control is out of the question.
On the other hand, one major reason St. Michael’s turned to Getronics to build and maintain its network was a lack of necessary skills in-house.
“”To adequately maintain a network requires a high level of skills, but you only use them occasionally,”” Wegener says. “”How do you attract these folks, and then how do you keep them busy enough with other things to justify having them there?””
A one-sentence answer to the question of when to outsource and when not to might boil down to that. Outsource when you lack the expertise – and can’t easily acquire it – in-house, but don’t outsource what sets you apart.
DRILLING DOWN TO THE CORE
Not everyone agrees with this point of view. Ripplinger says there’s nothing wrong with outsourcing core functions if you control the strategic direction.
“”It’s somewhat akin to saying I wouldn’t climb on an airplane unless I was piloting it,”” he maintains. If you choose the destination, you needn’t be in the cockpit.
One major Canadian law firm is considering outsourcing its entire IT function. The firm’s CIO – who asked not to be identified because he has not yet told staff about the possibility – says outsourcing offers savings and simplifies management.
“”It becomes easier to manage the relationship as opposed to managing all the details,”” says the unidentified CIO. Conversely, “”we do believe that some of the things that we’re doing technically are allowing us to have better relationships with our clients.”” Would outsourcing reduce the firm’s control of those things, or free the CIO to focus on strategy while someone else handles mundane details? The firm will probably decide early this fall.
When Ontario’s Ministry of Tourism and Recreation wanted to build a system for tourism businesses to update information in the ministry’s online database, it quickly became clear the job couldn’t be done internally. The ministry had neither suitable Web-hosting facilities nor expertise to build the system quickly, says Nabeel Hamdi, senior research officer in the Tourism Branch.
So, the ministry turned to Internet Light and Power Inc. of Toronto to load data into an Oracle database, build a Web interface, design security provisions and host the system. ILAP already had the technology in place, Hamdi says, so it could do the job much more effectively than in-house staff could have.
Hamdi says he would look to internal IT staff first, but if skills or facilities are lacking in-house, he would outsource.
The Calgary Board of Education wanted to replace an aging library information system, but “”in the public sector we have a difficult time coming up with the large up-front capital investment,”” says Gerry Vankeeken, technology support service unit manager. The board turned to a partnership of Fujitsu Consulting, Bell Canada and Sagebrush Corp. Using data-centre facilities provided by Bell, Fujitsu Consulting will run the new Integrated Media System under a five-year application service provider (ASP) contract.
For Vankeeken, the deal means predictable costs for five years, and he expects those sum to be lower than what running the system in-house would have cost. Would Vankeeken outsource other IT functions?
“”There’s probably not much we wouldn’t consider,”” he says.
Not everyone feels that way. Mike Cuddy, CIO at Mississauga, Ont.-based Toromont Industries Ltd., does little outsourcing. He questions the savings, saying managing outsourcing agreements is time-consuming, and warns against “”outsourcing the problem.”” IT departments must solve their own problems, Cuddy says, though “”I might consider hiring an outsourcer to execute the strategies and solutions I felt were required.”” Also, “”while we have not outsourced anything of significance, I’d say that as a general rule I have been disappointed with the expertise provided by external suppliers.””
Organizations that have bad experiences with outsourcing deals are usually reluctant to
discuss them, but the bad experiences exist. What determines when outsourcing works and when it doesn’t?
“”You have to establish the parameters,”” says Hamdi. “”You have to establish what you want very clearly.”” And that’s a matter not just of service-level agreements but of knowing what to ask for. “”We also learned that the company would do exactly what you want,”” Hamdi says. “”So if you hadn’t thought about it, well then, you wouldn’t be happy with the result.””
MEETING OF THE MINDS, CULTURE
But a truly successful outsourcing relationship takes more.
“”In many ways it’s a meeting of the minds,”” Wegener says, “”in terms of, ‘We’re not in it for the short run, we’re in it for the long run, so it doesn’t matter if we have to come here and do this one little thing.’”” Wegener says the SARS crisis in Toronto’s hospitals last year showed him how strong St. Michael’s relationship with Getronics was – isolation requirements forced the hospital to run new cables in a hurry, and “”Getronics didn’t charge us one bloody cent for that.””
“”It fundamentally comes to cultural alignment and relationships,”” Ripplinger agrees, “”and that’s all about people.”” If the outsourcer’s people think more like employees of the client than employees of the outsourcing contractor, he says, the relationship will probably succeed.
Is outsourcing’s future offshore, all the time?
Many businesses are gun-shy about offshore outsourcing. But that could change.
When polling firm Ipsos-Reid surveyed about 600 Canadian businesses earlier this year, 88 per cent said they would not send business process outsourcing work offshore, and 32 per cent said they want to keep development jobs in Canada.
“”We feel that this is probably a temporary response to a political situation,”” says Lise Dellazizzo, vice-president of information technology at Ipsos-Reid. Concern over offshore outsourcing’s impact on jobs has made the idea sensitive.
Sapient Corp., a consulting firm based in Cambridge, Mass., says in a recent white paper that offshore outsourcing will keep growing. But Sapient also argues that outsourcing can’t be all offshore, all the time.
“”This is only effective when the right components of the engagement are onsite, such as local requirements generation and engagement management. Otherwise, clients will face a major reduction in quality and control, which can easily negate the benefits of reduced labor costs.””
Dmitri Buterin, president of Toronto-based Web development company Bonasource Inc., claims sending work offshore saves 20 to 30 per cent. Bonasource has an office in Moscow, and developers there do most of the coding while colleagues in Toronto work with clients to design Web sites.
An engineer who commands a $100,000 salary in Toronto might cost $25,000 a year in Moscow, Buterin says, but the savings aren’t as dramatic as that suggests because of the cost of dividing work between two hemispheres.
The eight-hour time difference means Bonasource’s workers here start their days early while their Moscow co-workers stay late, and Bonasource relies on phone calls, e-mail, conference calls and an online activity log to keep things running smoothly.
On the other hand, Buterin notes, the time difference also means staff in Toronto can meet with a client in the afternoon, pass work to Moscow and be back in the client’s office the next morning with a full day’s progress to show.
Still, distance sometimes obstructs working relationships.
“”Some of the best innovations come from a developer and line of business manager working side by side to redesign a process with the help of new IT,”” says Mike Cuddy, CIO of Toromont Industries Ltd. in Mississauga, Ont. “”I don’t see how this high degree of integration is possible with an offshore arrangement.””