InformationWeek
Defining The Business Value Of Technology
November 16, 1998
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About 80% of HP's integration business involves HP equipment, says Doug Chapin, general manager for operations services. But he says that shows a natural inclination rather than bias. "Objectivity is raised as a discussion topic by customers," Chapin says. "Obviously, if asked, we would prefer HP, but we will do as a client asks and install another vendor's products." That HP has an advantage over other vendors in terms of knowledge about HP products and HP's technology direction is, he says, "a benefit for clients."
Dennis Benner, VP and CIO at Fluor Corp., an Irvine, Calif., construction and engineering company, says he isn't bothered by consultants who favor certain technologies or products. "In most cases, they will have more expertise with some products than with others, and there's a natural bias to move in that direction," Benner says. "That's fine, as long as that bias doesn't interfere with the goal of the project."
One huge potential pitfall--and one that's difficult to guard against--is when an integrator or outsourcer merges with or is acquired by another company in the midst of a service agreement. That happened to Fluor. The company hired outsourcer SHL Systemhouse in September 1996 to provide help-desk services, network management, and desktop support. But after the deal was signed, SHL was acquired by MCI, which itself agreed to be acquired by British Telecom. After the BT deal fell through, MCI was bought by WorldCom.Each of these developments jolted SHL, now MCI Systemhouse (MCIS), and jeopardized its ability to meet the contract requirements, says Benner. What began as a promising partnership has decayed into a legal dispute. In late August, Fluor filed a breach of contract suit against MCIS, claiming it failed to provide services required under the agreement. It came weeks after MCIS had sued Fluor for breach of contract, claiming that Fluor provided inaccurate information about its telecom infrastructure, computer network hardware, and the call volumes handled by its help desk. Because of this, MCIS says, costs were higher than anticipated.
MCIS claims Fluor refused its requests to negotiate an adjustment to the agreement to account for the higher costs unless MCIS agreed to expand the services it provided and give up its right to be Fluor's exclusive IT service provider. MCIS formally terminated the service agreement in April.
Both suits are in the preliminary stage. Benner, who says the MCIS claim is "completely without merit," says SHL's change in ownership has a lot to do with the problems that ensued. "The company we signed up with was quite different from the company that defaulted at the end," he maintains. An MCIS spokesman declined to comment on the dispute.
Hunter College's Rubin says companies that are considering hiring integrators and outsourcers should be on the lookout for possible mergers. "Customers should demand contractual terms with escape clauses to account for business changes of the provider," he says. "You have to foresee these scenarios."
Important Criteria
When companies do make the decision to go outside for IT help, what attracts them to a particular service provider? In the InformationWeek Research survey, IT managers rate reliability and trust as the most important criteria.
"I can't think of anything more important in these relationships," says Granger of Furr's Supermarkets. EDS people assigned to Furr's warehousing project have worked as if they're part of his own staff, he says. For example, when Furr's discovered in the middle of the work that it had left out data elements needed for invoices sent to stores, changes had to be made in programs--and that meant extra work for EDS. But rather than challenge Furr's, Granger says, EDS was agreeable to doing the needed work, which he considers a sign of their reliability and trustworthiness.
Hazen of Granite Construction places just as much importance on the trust factor. "I recently interviewed people for a project. One group came in and they didn't even want to focus on the specifics of the project the way I wanted to," he says. "They just wanted me to bring them in and do the job. I saw it becoming nothing but a perpetual consulting engagement."
Stephen Sprinkle, managing director of service lines at Deloitte Consulting, says Deloitte negotiators ask potential customers if they will trust the firm in all aspects of the service agreement. "In one case, a prospective client said he didn't think so, that he was suspicious of consultants," Sprinkle says. "I recommended that he not hire us. He didn't, and I think we were all better off."
IT managers say other important selection criteria are customer service and responsiveness, overall performance, quality or talent of consultants, technical or functional expertise, industry-specific expertise, a firm's overall reputation, and price.
Another factor governing the selection process that has nothing to do with quality or cost is culture. "We start by comparing the culture of our company with that of the integrator, and ask, 'Is this a company we can work with? Will it be flexible and easy to do business with?'" says Fluor CIO Benner. Once Fluor is convinced an integrator or outsourcer will be a good match, Benner says, it then looks hard at the service provider's credentials.
The most common service requested of the systems integration-outsourcing companies is application development, used by two-thirds of the survey respondents. Other popular services include PC support and procurement, year 2000 remediation, network integration or management, data center management, Internet hosting, help desk, ERP integration, and extranets.
When asked why their companies turn to outside IT help, managers give different reasons depending on the type of project. For instance, in the areas of network integration, Internet hosting, and extranets, the most prominent reason is the lack of IT staff experience needed to pull off these undertakings. Also high on the list: the need to have IT staff focus on core projects, a lack of manpower, the benefits of knowledge transfer, and cost savings. For enterprise applications initiatives such as year 2000 code conversions and ERP software implementations, the most common reason for hiring a service provider is lack of manpower, followed by lack of IT staff experience and the need to focus on core projects. With internal systems work like systems management, PC support, and help desks, the top reasons are lack of manpower, cost savings, and lack of IT staff experience.
Notice the recurring theme: the IT skills shortage.
"We have to bring in outsourcers and systems integrators for major projects because we don't have the staff to do it ourselves," says Granite Construction's Hazen. The construction company has hired Compaq for PC and server maintenance and smaller integrators for projects such as an intranet and a wireless information network for its field workers--in addition to its work with PricewaterhouseCoopers for year 2000 product evaluations. "The market for people is very thin," Hazen adds, "and it's very difficult to keep people. Our IT staff is trying to run the day-to-day business. It can't take on these large projects."
But even the service providers are waging a fierce battle for skilled workers. Historically, service providers recruited directly from business schools and developed talent, says Tracy Lenzner, president of Lenzner & Associates, a Williamsville, N.Y., executive recruitment firm that specializes in placement of IT professionals. But with the growth in demand for IT services, integration and outsourcing firms are looking to hire more experienced people. "They can't grow them as fast as they need them and therefore look outside," Lenzner says.
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