Business Technology: Sometimes, Letting Go Can Really Pay Off
So what is the current state of the thinking about outsourced services? In this economy, it seems kinda weird to think of any sector as "booming," but I'd venture to say that while the money right now might not be gushing from customers out to service providers and outsourcers, there's a great deal of interest in and discussion about the relative merits of letting someone else do the stuff that they're really good at so that you can focus on the stuff you want to get even better at.
For example: ChevronTexaco CEO David O'Reilly recently told stockholders that the merger of the two energy giants is almost complete and that the new company is "operating today as one company with common systems, policies, and practices," according to an online InformationWeeknews story published last week. As part of that IT-intensive integration effort, ChevronTexaco had planned to save $1.2 billion by merging back-office operations and IT systems. But the company now says it's on track to almost double those savings by wringing out a total of $2.2 billion during the process.
At the heart of that improvement is the ongoing combination of separate SAP systems that each company used when the merger started in 2001, and the potential payoff is one that ChevronTexaco had originally hoped for but couldn't, before the fact, guarantee. So back when the two companies began the integration effort, they realized they needed outside expertise. Enter IBM Business Consulting, which is overseeing the merging of the SAP systems. And the engagement could run much deeper for IBM, which has joined BearingPoint Inc. as "one of ChevronTexaco's preferred providers" of services, according to our story. Over the next two years, IBM and BearingPoint will work separately or jointly on projects that focus on IT-driven processes.
In the wake of the telecom collapse, Bell Labs ... has seen its research budget cut to about $115 million from $350 million, leaving the renowned facility a symbol of declining corporate support for "pure" research.... These cuts, combined with five large business divestitures, have shrunk the labs' pure-research staff to just over a third of its 1996 level, and narrowed the labs' focus to projects directly related to telecommunications products.
-- --The Wall Street Journal, May 23
For example 2: In another managed-services story reported online last week on InformationWeek.com, Merrill Lynch & Co. outsourced large parts of its network security to VeriSign Inc., which our George V. Hulme described as "a relative newcomer to the growing managed-security services-provider market." (See informationweek.com/940/merrill.htm) Hulme spoke with Merrill chief information security and privacy officer David Bauer, who offered this rationale for the deal: "It's all about being the best that you possibly can be. ... It's not just about data, it's about intelligence. And with intelligence, you can make better decisions."
That parceling out of responsibilities allows businesses to focus on what are to them higher-value objectives and issues, VeriSign CEO Stratton Sclavos told Hulme. So in an ideal arrangement, while the service provider is dealing with the details that are its speciality, the customer can "focus on the process optimization required to reduce the overall risks to their organizations."
And that, Bauer told Hulme, is precisely the type of concentrated effort that Merrill Lynch wants to pursue. "I'm a big fan of this risk managed approach," Bauer says in the story. "Now we can take the data and do risk analysis against it, and act on it."
For example three: Optimize, InformationWeek's monthly magazine of business strategy and execution for CIOs, will devote its June issue to this subject of when and how to most effectively deploy outsourcing and managed services. One of Optimize's findings: "Business-process outsourcing has emerged ... as the fastest-growing sector within IT services" (optimizemag.com).
At this rate, we'll soon see a new title: CMSO. Or, to those not in the know, chief managed-services officer.
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