January 10, 2000

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Reinventing The CIO:
Outsourcing Adds Complexity

By Chris Murphy

ore businesses are choosing to outsource IT projects, and that's adding a new level of complexity to the CIO job.

Scarce staff resources, shorter time-to-market demands, and the Internet are among the factors fueling growth in outsourcing. Forrester Research predicts that E-business services--the fastest-growing area of outsourcing--will jump from about $20 billion this year to nearly $50 billion in 2002. How well CIOs manage those relationships will significantly affect the success rate of outsourced IT projects. "They have to learn to communicate and plan with their partners like they do their own staff," says Charles Ansley, president of EDS's U.S. outsourcing group.

Top executives at companies of all sizes are realizing the importance of outside relationship-building skills in CIOs. Janet Kraus, CEO of Circles, a startup in Boston that supplies businesses with incentive gifts and services for employees, says finding a CIO who can manage a new outsourcing contract is her main goal.

Kraus tapped IT services firm Breakaway Solutions to run Circles' core database. She's searching for someone with the knowledge and experience to manage the relationship with Breakaway, pick the best technologies, and build and inspire a development team to create Web applications. "I'm looking for someone with a real vision for where the technology is going," she says. "They have to be able to say, when Breakaway comes in with a $40,000 solution, 'It shouldn't be that much.' "

Outsourcing can help reduce internal IT management responsibilities, but it puts considerable pressure on CIOs to get the most from the companies providing contract services. Consider the $20 million-a-month outsourcing contract the National Association of Securities Dealers, which owns the Nasdaq and American stock exchanges, worked out with EDS.

The 10-year contract, called NasTech, ranges from support for 5,200 desktop PCs to automated alert of irregular and potentially illegal stock trades. In a move to cut costs, it also called for about 350 NASD IT staffers to be re-employed by EDS. Though the new EDS employees are doing the same jobs at NASD, business managers immediately became more critical of the performance of what are now contract workers--which puts more pressure on CIO Gregor Bailar to ensure that workers are meeting NASD's requirements. "It raises the bar, which is a good thing, but you have to be prepared to manage that," Bailar says.

What's more, Bailar says he's still responsible for ensuring that the NASD-cum-EDS employees are happy at their jobs. In addition to incentives based on hard numbers, such as maintaining system availability, NASD pays fees to EDS based on responses to job- satisfaction surveys and improved training levels of NASD-assigned workers. "We consider how we make the customer account that workers want to be on in EDS," Bailar says. "If it's the Siberia of EDS, the great people will go somewhere else."

Bailar adds that communication skills are critical for CIOs considering outsourcing. For example, Bailar says he must convince business unit and IT managers to invest in the outsourcing relationship, rather than view EDS as a short-term visitor. EDS's Ansley says CIOs who are successful at outsourcing focus on strategy, not operations. The CIO must set performance expectations and communicate business needs with the outsourcing partner.

Others say CIOs need to expand their views on what is possible through outsourcing. Kenneth Bohlen, CIO of Textron Inc., says companies have generally taken a "big is better" philosophy to outsourcing, moving large, equipment-intensive functions such as data warehousing outside the company. Yet that may be just the kind of function a large company can run more efficiently in-house. Instead, CIOs may want to focus outsourcing efforts on retaining outside talent that can provide sparks the company can't generate internally. Says Bohlen, "Maybe what you want is a Steve Jobs in the garage, or a university study program, providing that kind of creativity."

Illustration by David Guidera

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