Analyzing The Outsourcers
Customers say they want reliability, trust, skill, and value from their outsourcers. And they give Hewlett-Packard top marks.
Ah, the start of a promising courtship, the dreams and hopes for a happy future together. Then the first (then the second and the third) disagreement surfaces, and the reality of melding backgrounds, ideals, and goals looks so complicated.
So it is with the continuing love affair between corporate America and the outsourcing companies that run their business-technology systems. But surprisingly, this long-running, sometimes stormy romance is doing better than most marriages. Two-thirds of companies say their outsourcing experiences have met expectations, according to 700 business-technology professionals in InformationWeek Research's Analyzing The Outsourcers study.
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As in love, the perfect mate might not be the beauty queen. We asked customers to rank their satisfaction with their outsourcers, and the best-known names in the business, IBM and EDS, don't top the list. No. 1 is Hewlett-Packard, a company some consider a sleeping giant among outsourcing providers because it's better known for hardware, followed closely by Sprint and Accenture. The differences separating the companies were fairly close, with the exception of one: WorldCom, which ranked a distant ninth.
Alas, few of these unions reach the level of bliss. Only 8% say their outsourcing relationships exceeded expectations, and one in five says they haven't lived up to expectations. On a 1-to-10 rating scale where 10 is extremely satisfied, most scores ranged between 6 and 7. Respondents are most impressed with outsourcers' industry knowledge, range of services, reliability, and skill, which all averaged 7.5 or higher, but less impressed with cost/value (6.8), innovation (6.7), and strategic advice (6.6). Customers want a company that's reliable, technically skilled, and able to save them money. They're less worried about an organization delivering strategic advice and innovation.
Even as they rank outsourcers' performance, these business leaders know they're the ones responsible for making the relationships work. Executives experienced in outsourcing tick off a few keys to success, including detailed service-level agreements, realistic commitment of management time, and accurate cost-saving estimates. And it's almost always going to be tougher than expected. "There's absolutely no doubt that if you're entering into an outsourcing environment, it's going to take more time than you imagined," says Keith Morrow, CIO for convenience-store chain 7-Eleven Inc. "You could do it with a hands-off, laissez-faire approach, but you'll double your costs." The greatest dissatisfactions from these relationships are that they take more management time than anticipated and they don't live up to performance expectations.
Nearly half of the respondents underestimated the amount of management time their outsourcing deals required. "When companies turn to outsourcing, their initial idea is that they're going to go in and hand over everything," says Tim Wilson, senior analyst with consulting firm Enterprise Management Associates. The level of involvement varies, but executives experienced in successful outsourcing deals say it's vital to stay directly engaged.
Continental Airlines Inc. CIO and senior VP Janet Wejman, for example, wants to maintain frequent contact with EDS, which has a 10-year, $1 billion deal to run Continental's data center, network, and legacy systems. To do so, she's had to make it clear to EDS managers that they must let her know, directly and immediately, of any major problem -- no matter what time it happens. "The outsourcers were originally confused by the fact that if any airport IT system goes down, I want to know about it," she says. "If an airport goes down in the middle of the night, I want them to know that I'm awake. If they think I'm sleeping, they'll think they've got more time to fix the problem." Such expectations need to be spelled out at the start of the relationship, with an understanding of how the outsourcer's action will affect the amount of time CIOs spend managing the relationships. When EDS appoints a new account manager for Continental, Wejman needs to spend time making sure that person understands things such as when it's necessary to make the midnight phone call. That's why it's written into the contract that the airline must be involved in EDS layoff discussions, so Wejman can tell EDS executives which people the airline values most highly.
The outsourcer's staff should be viewed as part of the team and their skills allocated to get the job done, Nextel CIO LeFave recommends.
LeFave also spends time educating the CEO and CFO about the contract and what to expect -- both good and bad. "As much as you try to prepare yourself, within the first year of an agreement you're going to find things you didn't expect," he says. "So conditioning people for that is very important."