Outsourcing To Win: 4 Steps To An Effective Strategy
Here's what experts say CIOs and managers need to know to effectively manage a team of outsourcers and get the biggest bang for their IT dollars.
Next month, the U.S. government is expected to dole out one of the largest public sector contracts on record -- a $20 billion deal to revamp the telecommunications infrastructure used by virtually all major federal agencies. The project is called Networx, and to fulfill the deal contracting officials in Washington will tap a team of outsourcers comprised of some of the biggest names in tech services.
Create A Winning Outsourcing Team
1. Pick a "head coach" 2. Use standards religiously 3. Select team-oriented vendors only 4. Put balance in your lineup
It's an approach that contrasts markedly with some previous federal mega-projects, such as the Navy's 10-year effort to create the world's largest, most secure intranet, where a single outsourcer is handed the bulk of the work. The Navy awarded that contract to Electronic Data Systems in 2000. Now, however, federal officials say a different approach is necessary in an age in which outsourcing technology work means more than just handing over the keys to the mainframes, servers, and desktops.
"The team arrangement will provide us with all the components we need," says John Johnson, assistant commissioner for integrated technology services in the General Services Administration's Federal Acquisition Service, noting that the breadth of the Networx project -- it encompasses everything from VoIP installations to network security management -- is beyond the capabilities of a single vendor.
That kind of thinking is catching on with Johnson's counterparts in the private sector, CIOs at multinationals such as ABN Amro, General Motors, and Kimberly Clark. Those technology chiefs all hold sway at companies that in recent months have awarded billions in outsourcing contracts to teams of vendors in the hope of accessing so-called best-of-breed skills. "There is no single vendor who can satisfy all of our requirements... one size doesn't fit all," said ABN Amro CIO Lars Gustavsson last year, after he handed off the bulk of his IT operations to a team that includes Accenture, IBM, Infosys, Patni Computer Systems, and TCS, under contracts totaling more than $2 billion.
A recent study of the strategies of 108 global companies that externally sourced more than $1 billion in IT work in the last 10 years found that 44% of them used one service provider, compared with 56% who used two or more. Few went as far as ABN Amro, though: Only 20% used four or more service providers, according to the study, which was authored by research firm Technology Partners International.
That's likely to change as companies hand more of their critical IT functions to outsourcers. A CIO now wants enough service providers familiar with his company and its business so that it's possible to shift work among them and keep all the vendors competing for more work. "Having more providers creates healthy competition," says Gartner outsourcing analyst Kurt Potter.
Choose A Head Coach
But while splitting an outsourcing contract among multiple vendors holds a number of advantages, it also brings with it increased management challenges as vendors multiply and the number of "throats to choke" multiplies. "There's no question that it can be a more challenging environment from a management perspective," says Liz Campbell, a consultant at outsourcing advisory firm EquaTerra.
Campbell says most companies lack the necessary management structure to effectively manage a team of outsourcers. With businesses spreading work around to more and more external contractors, they need to elevate vendor management to the executive level and hire the equivalent of a chief sourcing officer, she says. "There are not a lot of individuals within a company that have the multidisciplinary skills required for that sort of role."
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