IT outsourcing has proved disappointing for many
companies, failing to live up to the promises of the business case
or deliver the expected return on investment. But good management
can turn it into a success, as Liz Warren discovers.
A lot of the time, says Lee Ayling, managing director of the IT
advisory team at IT and business transformation consultancy
EquaTerra, "IT
outsourcing has failed to deliver because organisations don't
have the right retained capabilities to manage the contract.
Managing a supplier to do things for you, instead of doing them
yourself, requires a lot more investment in relationship
management, governance and the softer side of IT management."
The success with which an in-house team can be restructured to
provide the right retained team to manage an outsourcing deal often
depends on the maturity of the CIO and whether they've been through
outsourcing before, says Hans Muskens, director of transformation
outsourcing services at IT and business services supplier
Logica.
Muskens adds, "People in the traditional IT department tend to
be more technically oriented and can't always provide all the
relationship skills you need when outsourcing. A CIO who has been
through outsourcing before will understand up front what extra
skills they need to bring in."
Some roles won't change, of course. Forrester Research's
framework for the retained team in an outsourcing client suggests
that the roles of CIO, technology research, strategy and planning,
and enterprise architecture will remain largely unchanged.
Other existing roles that will still be needed but will involve
different responsibilities include relationship management for user
groups, quality management, security and risk management, and
procurement and contract management. The organisation will also
need to staff a program office which can oversee new initiatives,
although the project office providing day-to-day project management
is likely to become the domain of the outsourcer.
Fewer staff required
Roles that will no longer be needed in-house, or where far fewer
staff will be needed, range from application management,
integration and installation, to data and knowledge management,
helpdesk and server and network support. Finally, a completely new
role that does need to be introduced, says Andrew Parker, a
vice-president and research director with Forrester Research, is
supplier management or
supplier
relationship management.
Ayling suggests companies can typically grow the right in-house
team from among their existing employees for 60% of these roles.
However, for the remainder, bringing in new blood may be essential.
"Outsourcing requires a real change in attitude among senior
managers, and you need managers who've managed in that environment
before and understand it," he points out.
Ayling continues, "One of the key challenges is to retain enough
strategic capability that you don't abdicate responsibility for IT,
while avoiding micromanaging your outsourcer and therefore failing
to transfer enough risk to your partners in terms of letting them
choose how to deliver the service."
Sourcing and supplier management are the two areas where
companies most often need to bring in expertise from outside. For
instance, Eversheds, which outsourced an IT department supporting
4,500 users to Computacenter Services in 2007, hired new staff with
skills in contract and supplier management, since the ability to
manage a deal of this size and complexity didn't really exist
in-house.
It also brought in new staff on the relationship management side
who could not only work with business users to understand their
needs but then translate those needs into requirements for the
outsourcer.
Shortage of experienced people
What companies must be aware of, Parker warns, is that "in new
roles such as supplier management there is a definite shortage of
experienced and effective people in the job market." That means
many firms will have little choice but to train and grow such
expertise internally. Ayling suggests a stop-gap measure while
in-house staff get up to speed can be to use interim managers or
consultancies.
Heads of IT should also pay as much attention to discussing
future prospects with the retained team during the transition as
they give to reassuring staff transferring across to the
outsourcer, says Malcolm Simms, formerly IT director of law firm
Eversheds. Simms is now a director of Konetica, which he co-founded
to make use of the expertise gained at Eversheds to provide
outsourcing to other law firms.
At Eversheds, where around 80 IT staff were outsourced and 120
retained, Simms sat down with staff staying in-house and explained
not only how their current role would change on outsourcing but
what completely new opportunities would exist that they might be
able to move into straight away.
In the longer term, companies need to think about the career
paths they offer to existing staff. Simms argues that "you need to
create two or three grades in each role so that junior staff coming
into the in-house team can see a career path." Many companies will
already have grades for junior and senior business analysts, but
Eversheds also created four senior project management roles from
among the ten project managers it retained.
Ayling suggests that another tactic you can use to provide
career development is to cycle staff round each of the key
functions in the retained organisation.
You also need to think about how you bring junior staff on board
now that many of the traditional entry points into IT - helpdesk,
server and network support, and programming - have been passed to
the outsourcer. Ayling thinks organisations that have outsourced
need to cast their net more widely when recruiting than they have
in the past: they need to be willing to take on people who have
previously worked on the supplier side, for instance, or to bring
in people with a finance or general procurement background.
However, Parker thinks attracting new staff to a smaller
in-house team over the longer term shouldn't be an issue. "The new
type of IT organisation has many attractive career openings," he
points out. "They're simply different from what exists with a fully
in-house operated IT group, and everyone involved in the
recruitment process needs to understand that and adjust their
behaviour accordingly."
Muskens adds that staff will increasingly join the IT department
from junior roles in other areas of the business, as the need for
detailed technical knowledge decreases and commercial skills become
more important. In fact, Parker suggests, organisations should make
the IT function one of the core departments where high-performing
young managers must spend time during their career development.
"Activities such as sourcing and supplier management,
relationship management, strategy and planning, procurement and
contracts all have very strong business components, and need not be
restricted solely to individuals with pure IT qualifications," he
confirms. "Putting these activities in the career path of more
general managers brings more talent into play, and also builds
contacts and communication across the gulf between IT and business
that many companies have traditionally suffered from."
Case study: Steamship Mutual
When protection and indemnity association Steamship Mutual
outsourced its technical infrastructure support to IT services
provider Wirebird around three years ago, the key roles it needed
to retain in-house were those of system architects.
"Our system architects identify what is needed going forward
from an operational perspective to support our business in
providing a full range of marine liability insurance to members in
the commercial shipping industry," explains Roy Hutchinson,
Steamship Mutual's operations director.
"They then work closely with Wirebird to understand the
implications of those new applications for the infrastructure, and
to determine how the infrastructure needs to be developed to
sustain an organisation that generates annual premium income of
$250bn and employs around 150 staff in four offices worldwide,"
adds Hutchinson.
Retaining these system architects was one half of the challenge.
The other half was to bring in additional contract management
capabilities to ensure Steamship Mutual effectively manages both
ongoing operations and any variations to the contract.
This is key because, in addition to supporting any new
applications required by Steamship Mutual, Wirebird is also able to
propose its own suggestions for developing the infrastructure, with
the aim of cutting costs or improving performance and sharing any
cost reductions equally between client and outsourcer.
Moreover, having initially kept application development and
database management in-house when transferring infrastructure
support to Wirebird, Steamship Mutual has more recently begun
nearshoring some application development work to a company in
Poland.
This has again altered the composition of the in-house team,
this time in favour of business analysis, requirements definition
and project management rather than coders.
Top tips for creating your in-house team
- Start thinking about the roles you need in your retained team
as soon as you start developing your business case for outsourcing.
The structure of your in-house team will have a huge effect on your
ability to manage your supplier, as well as represent a significant
ongoing cost.
- Create a lean in-house team so that you don't duplicate roles
in-house and in the outsourcer. The business case for outsourcing
can quickly evaporate if you retain too many people.
- Make sure the roles in your in-house team are focused either on
what you as an organisation need to do to serve your own customers
or on managing the outsourcer. If they are not, you need to
question whether you need those roles.
- Think about what skills your existing staff already have, and
be prepared to move them into new roles, even if you'll also need
to retain the role they are currently filling.
- Be prepared to look for the skills you need in places where you
haven't traditionally recruited IT staff, such as suppliers,
finance staff and procurement professionals.
- Review your in-house team every time you change the outsourced
services you're buying, to make sure you continue to have a team
that meets your needs.
- Keep the in-house team motivated by moving them round into
different roles or switching them between dealing with routine
operations and dealing with tasks involving change, such as
performance reviews or the introduction of new services.
- Consider short-term job swaps between your staff and the
outsourcer's staff. It can be a very effective way in building
relationships as people get a taste of "the other side" and work
with a wider range of people from the other company.