Schneider Unit Outsources App Development To Keane

Schneider Electric SA has found a way to save $20 million over the next five years: The energy infrastructure company's North American Operating Division, with sales of $2.7 billion in 2002, is outsourcing application development to Keane Inc.

The projected savings will come from decreased costs for application development and support. "We believe we'll achieve at least $20 million through two elements," says Mark Bolton, VP of IT at Schneider Electric's North American Operating Division, "one being productivity that the Keane methodology and processes are going to bring to the joint engagement; the second being sheer labor arbitrage for those folks in Schneider Electric who are replaced by other labor sources in India and Canada."

The cost: a handful of jobs. Of 134 people affected, 99 will become Keane employees, doing much what they did before under new management. Some of the remaining 35 will see their jobs vanish or move offshore, while some may be hired for other Keane engagements.

While outsourcing arrangements don't always deliver anticipated savings, Atul Vashistha, CEO of offshoring consulting firm neoIT, finds Schneider Electric's target reasonable. "They are definitely leveraging a global sourcing model to get to that level of savings, but I think it's definitely achievable," he says.

The contract represents a major expansion in the scope for the Schneider Electric's six-year relationship with Keane, which now will be responsible for all of the North American Operating Division's business applications.

By handing off the utility aspects of its IT infrastructure, Schneider Electric can focus on its strategic business processes. "In the past, we outsourced our data-center operations to IBM," notes Bolton. "And we looked at that as a utility. We have now outsourced what we believe are the utility functions within application development. That's essentially what Keane took. What we have left in Schneider Electric IS are those folks that really are deeply integrated in our business processes and our decision teams."

The payoff should go beyond cost savings. At the end of the five-year engagement, Bolton expects to be able to bring new systems online at least twice as fast as it can today--with a 50% improvement in quality. Says Bolton, "We believe that the engagement will enable a very meaningful set of IT metrics that will allow us to measure productivity and IT service delivery to the business in a way that's not been visible in the past."