Outsourcing saves less than claimed

4/13/06 8:14:51 PM

Won't change anything

People whose reputations are on the line for outsourcing will point at this as proof that outsourcing saves money. Even if it is less than some of the most optimistic hype, it still saves money.

People who are against outsourcing will point out that this report misses the hidden costs due to reduced responsiveness of an outsourced department, communication barriers, etc. But these soft costs are very hard to quantify, so it will be easy to shoot down the outsourcing naysayers.

And outsourcing will continue. Until some other (mis)management fad takes over.

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,125

by boxley

4/13/06 8:23:45 PM

s/(mis)/(mc)/g

Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free american and do not reflect the opinions of any person or company that I have had professional relations with in the past 50 years. meep

Post #252,148

by cforde

4/14/06 1:36:34 AM

all true

and if you further assume that your IT costs are roughly 2% of your revenue, then saving 10-30% of that really isn't a big win if you're looking for some kind of competitive advantage. The question to ask is who is better able to provide the business processe? Just focussing on the costs and ignoring the benefits will skew the analysis...

Have fun,
Carl Forde

Post #252,179

4/14/06 9:48:51 AM

Assume that the truth is somewhere in between

the 50 mark and the 15 mark...lets say 20%. And IT costs are 2.5 percent of rev before you start. and you are a 10billion company.

Savings are a measley $50 MILLION.

Somehow I don't think that can be termed "mismanagement" by anyone...and a proposal with those kind of savings WILL make it in front of the CIEIO every time.

And the outsourcing being discussed in this article is NOT the "ship jobs to India" outsourcing. These are BPO arrangements where there will be onsite staff etc...I worked for a BPO provider and our "outsource workers" were all US citizens.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,198

4/14/06 12:32:14 PM

That could still be mismanagement

If you save $50 million a year, but make executing changes 10% slower and reduce revenues $200 million a year, that $50 million doesn't look so good.

Unfortunately quantifying the $200 million is hard. Quantifying the $50 million is easy.

As a current example I'd point to Sony and Blu-ray technology. Sony made the decision to outsource a lot of their blu-ray development. They are paying a real price now because they aren't executing so well, and integrating the technology into product lines (eg their playstation) is not going smoothly. I strongly suspect that if they had not outsourced that development, they would be having fewer problems. (This opinion is based on private discussions with someone at Sony. I do not know how accurate it is, but I find the claim believable...)

If execution problems cause Blu-ray to lose out to HD DVD, Sony stands to lose a lot more than anything they could potentially have saved from outsourcing.

Anecdotal evidence from people who I know who have been involved in such outsourcing efforts suggest that this is not an isolated example. I know of several bad examples for every good one.

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,205

4/14/06 1:09:41 PM

Likely that internally would be mismanaged as well, then.

Piss poor execution will happen regardless of insource versus outsource if the "host" company mismanages.

There is ZERO reason beyond crap management that would make an outsource any less effective than host employees.

Now, to your point, the fact that an outsourcing relationship can get a foothold in a company is generally due to that organization losing the respect of the management...and this is generally due to inneffective management. Unfortunately, that inneffective staff are usually the ones that end up saving themeselves by proposing the outsourcing...when, in fact, they were the problem all along (hence they screw up the management of the outsource, too)

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,209

by imric

4/14/06 1:15:39 PM

Outsourcing adds an extra layer of complexity.

You can't escape that.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,220

4/14/06 3:32:34 PM

Possibly. But not if done correctly

Again, you have to look at how screwed up the companies were before and then level of service contracted for and maintained by the outsource provider.

I am in outsource country up here. Seen HR, IT, temp workforce, procurement...even R&D (of some degree) outsourced. Some of them worked, some were less than stellar. All of it, in my experience, really reflected back on the people in charge of setting it up in the first place.

And I've seen some buffoons in charge...and you get what they know out of it. I've also seen great managers involved...and seen what it can be if done right.

The real issue is, its not often done right.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,250

4/14/06 5:21:58 PM

The right people can succeed no matter what

Their success doesn't answer the question of whether they would have succeeded better in a different environment. (Of course nothing can really answer that question...)

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,256

by imric

4/14/06 5:44:31 PM

No matter what.

You'll neet people to handle the offshore company - unless you have a company that offshores without oversight. (Hah! Talk about a recipe for disaster!)

The offshore company needs it's own management too - if they are REALLY an offshore company, and not just a branch office.

No matter what, using an 'offshore provider' adds complexity. No matter what. 'Doing it right' has nothing to do with it.

Now can it work for the company in spite of that handicap? Sure. Pretending that that innate handicap doesn't have to exist is wrong, though.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,264

4/14/06 6:06:47 PM

And I made the clarification earlier

the outsourcing engagements referenced in this study are NOT offshoring deals. They are large business process outsource engagements. EDS, IBM et al are NOT offshoring companies.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,274

by imric

4/14/06 8:29:36 PM

We also have onsite staff.

And Business Partners still have thier own additional management structure.

Or were the offices here hiring people directly, managing them here without any additional intermediate layers of management?

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,280

4/14/06 8:58:44 PM

The overall point

there are duplications of effort across corporate structures...on of those duplications is management staff. If an EDS has IT operations for several dozen corporations, they can leverage than management across all of the clients..effectively reducing the overhead and thus are able to pass savings to clients.

They also benefit from scale to procure resources...or do you think your company can match consummables pricing acheived by EDS or IBM?

There are as many benefits as their are drawbacks in number, the culture often determines the decision to outsource or not.

And if an internal staff is more effective and more efficient, (ie well run) then the business case for outsourcing the function should fail every time...but it doesn't.

So, for some orgs it can both save money and increase efficiency. For others it won't.

There is no "right" answer here.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,281

by imric

4/14/06 9:03:34 PM

But ONLy if they are unwilling to reorganize to a more

efficient structure. And then ONLy if the 'partner' they are offshoring to has a structure SO efficient that it can compensate for the added layer.

IOW, it might be of benefit if the company is so top-heavy that it's ready to fall over anyway.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,283

4/14/06 9:05:39 PM

There are ALOT of those, you >do< know this.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,249

4/14/06 5:18:52 PM

4/14/06 8:46:00 PM

Mostly agreed

However the extra complexity in an outsourced arrangement means that piss-poor execution tends to become even worse. In other words while I grant that companies that outsource have self-selected to be crap companies in the first place, the choice to outsource tends to act as a bovine laxative.

Furthermore the instant a company chooses to outsource they lose whatever institutional knowledge they had. Key people with that knowledge tend to see the writing on the wall, and go elsewhere. With the loss of that knowledge, it becomes harder to make good management choices. And outsourcing tends to be a one-way street - rebuilding internal expertise is far easier said than done.

The Sony example is particularly interesting to me because Sony is a company which had a very deep technology foundation. Blu-ray is not particularly innovative territory for them, they've successfully done a number of projects like this. They had the knowledge to do it again. But, lured by the promise of insane cost reduction, they threw that away down the outsourcing black hole.

They are having problems now that they really shouldn't be having, and if they can't turn it around they are in serious danger of losing not only the standards war, but the cash cow that was the Sony Playstation franchise. (Blu-ray problems are forcing the PS 3 to slip to next fall. Microsoft already has the Xbox 360 out. If Sony slips past next Christmas, Microsoft will own that market.)

Moving to a more balanced view, I think that both proponents and opponents of outsourcing need to learn the basic economic theory of the firm. The fact is that companies impose internal inefficiencies, and markets impose different kinds of inefficiencies. When the inefficiencies created by command-driven companies outweigh inefficiencies created by having to negotiate every point, companies tend to shrink or break up. (Outsourcing is a form of breaking up.) When the inefficiencies of complex negotations where parties don't always keep their word outweighs the inefficiencies of corporate organization, companies naturally grow or merge. (Insourcing is a form of this.)

Therefore whether outsourcing or insourcing works better depends on the business environment, the specifics of the industry, and the specifics of your company. It is never the case that a single prescription will fit all companies in all times at all places.

But it is a pretty good rule of thumb that anything which is close to your core competence would be very, very unwise to outsource. (Determining your actual core competence is left as an exercise for the reader.)

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Edited by ben_tilly April 14, 2006, 08:46:00 PM EDT

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Post #252,257

by imric

4/14/06 5:46:04 PM

Aye.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,265

4/14/06 6:08:57 PM

Fully agree on core competence

It should never be let go.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,267

by cforde

4/14/06 6:35:59 PM

so what are we trying to optimize?

is IT a cost to be minimized?
is IT an enabler to be maximized?

where you strike the balance depends on the culture and the goals of the company.

Have fun,
Carl Forde

Post #252,297

by drewk

4/14/06 10:11:58 PM

Bob Lewis at InfoWorld actually has a good one for this

I particularly like [link|http://www.issurvivor.com/ArticlesDetail.asp?ID=556|this line] (reg required) because it's something I tried telling people for nearly a year:

How this applies to your question is that IT is a tool. If it's a tool that contributes to your business, you can calculate its benefit. If it's a tool that merely supports administration of non-core functions, it's a cost.

===

Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats].
[link|http://DocHope.com|http://DocHope.com]

Post #252,303

by imric

4/14/06 10:53:25 PM

IT is integral to almost all business processes. If you treat it as a 'just' cost center, it typically gets short shrift. I've seen too many places that think of IT as a necessary evil, that is thought of last. That brigns down productivity everywhere in the company...

IOW, IT DOES contribute to business. Every business I've seen for decades. How many businesses don't have core processes that don't depend on IT? How many core processes wouldn't come to a screeching halt without it?

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,361

by drewk

4/15/06 8:59:45 PM

I think it's perspective and definitions

If you look at a steel mill, they have lots of computer controls. But that's probably considered engeineering. The "I" in "IT" is for information after all. I would expect the guy running the mail server to be in a different department from the guy working on the blast furnace controls.

For a steel mill, upgrading the mail server would be an "IT project". That's the kind of project it's really hard to cost justify.

===

Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats].
[link|http://DocHope.com|http://DocHope.com]

Post #252,364

by imric

4/15/06 9:27:51 PM

And sales, warehousing, inventory

payroll, and communications has nothing to do with the productivity of the company?

I heartily disagree.

Once upon a time, companies could do business and remain competitive using snail-mail, fax machines and three-by-five cards, but no longer.

Like it or not IT IS core to modern business. Doing business involves far more than just producing a product.

Outsource it, and you will have added more layers of management. Outsourcing the things that aren't your core competency will lead to overspecialization. And overspecialization will limit growth.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,366

by drewk

4/15/06 9:43:59 PM

Do you have plumbers on staff?

I'm sure the office building you work in has toilets. But unless you do manufacturing that requires water, I doubt you've got plumbers on staff. You call them in when you need them.

My wife used to pull network cable. (BTW getting certified to install fiber can be lucrative, and can't be off-shored.) No company with a network can operate without it -- until they switch to wireless -- but not many do it themselves.

Right now most of IT isn't as standardized as plumbing or cabling, but parts of it may be getting close.

===

Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats].
[link|http://DocHope.com|http://DocHope.com]

Post #252,368

by imric

4/15/06 10:31:03 PM

And when IT is as dependable as plumbing

and when it doesn't require upgrading and changes constantly, then they might be in the same category.

When the technology becomes as static, the two might be comparable.

Further, does plumbing enhance productivity? Does it make staff more efficient? (beyond the obvious scatalogical comments, that is.) Does plumbing effect how productive the sales force is? How the sales force communicates with customers? Help workers to cooperate? Enter orders? Keep track of inventory, help evaluate how the business runs? Do changes in plumbing effect the very way business is done? If so, yeah, you might have plumbers on staff - at least if you wanted to remain competitive with everybody else that has plumbers on staff. Otherwise, you could always outsource to a plumbing consultant at great cost, or offshore, still adding layers of management.

No, management of information & data doesn't map well to management of waste. Or management of any physical object, for that matter.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,384

4/16/06 3:25:25 PM

It's ironic that you'd call plumbing "dependable"

Admin is only the latest of the people here to find that plumbing is a necessity that can quickly cause large unexpected expenses. Kind of like IT in that respect.

Here is a random thought for you. What does [link|http://www.aaxnet.com/|Andrew Grygus] do? Right, provide outsourced IT services for several (to the best of my knowledge small) companies. Do you think that they are likely to get better IT by doing that in house?

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,386

by imric

4/16/06 3:51:24 PM

4/16/06 3:51:57 PM

You do have a point there

when the companies are small, it may not make sense to have full time staff. Expanding on this, for temporary periods of increased demand, it makes sense to call external help in. To do it in medium sized businesses or larger though as a matter of course? As a way to 'reduce costs'? Permanent outsourced resources? I think not.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Edited by imric April 16, 2006, 03:51:57 PM EDT

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Post #252,383

4/16/06 3:12:53 PM

Example

one of the things IBM uses to leverage themselves in...PC and Support. Source, configure, maintain, recycle all laptop and desktop machines.

Is >this< core competency of which you speak...or is it a commodity portion of IT that can be leveraged?

Maintaining SAN resources is another. As DK pointed out, network maintenance is another.

None of these impact ERP resources or any other business process used by most enterprise customers to earn revenue.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,385

by imric

4/16/06 3:45:17 PM

4/16/06 3:53:13 PM

You know me better than to

take the extreme view... But - having said, that, not having someone on staff that can do PC support to some degree would be foolish. Having support from your supplier to back up your onsite staff, sure. Not having onsite staff reduces the flexibility (and response times) you have from your own people, and having staff outsourced but onsite STILL requires that extra layer of management that must be paid for. Unless you are going to say that onsite outsourced staff should be able to take requests from users without oversight? *chuckle* Watch costs shoot through the roof as users ask for all sorts of things, and make all sorts of silly support requests.

And - network maintenance doesn't affect the bottom line? Storage maintenance doesn't? If these things aren't included in the resource plan, the plan will fail. The extra costs incurred by that failure (downtime of the office, being forced to fall back to pen-n-paper procedures, loss of records, loss of contracts due to untimely fulfillments, penalties, etc) are what justify staffing. Remember, I worked for a warehouse in my first programming job. I lost that job (I was an irresponsible teenager - put a change in on Friday and disappeared for the weekend) after my actions caused the warehouse to lose orders for a weekend. Cost them the equivalent of 2 years worth of my salary in contracts. That was a 1 weekend screwup. And IT definately was NOT their 'core competance'. And that was over 2 decades ago - IT has wormed it's way into the heart of EVERYTHING since.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Edited by imric April 16, 2006, 03:53:13 PM EDT

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Post #252,396

4/16/06 9:21:36 PM

Who said anything about not having onsite staff?

And why is it your assumption that an outsource provider is more likely to lead to failure than maintenance of those resources "in house".

In your example, you lost your job for a failure that cost 2 days of orders. In an outsource model, the orders may have been lost, but the revenue is reclaimed because it is very likely that repayment is part of the contract SLA.

Our PC support is handled by IBM. We have onsite staff at every major US location and several of the international ones as well. If I were to compare what I get now to what I got at ATO where PC support was in house...give me the outsource EVERY TIME.

And this is like the 3rd time I've mentioned this, outsourcing is NOT OFFSHORING. It does not require that the function or equipment even leave the building (though it scales well for storage to use someone else's farm).

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,397

by imric

4/16/06 10:14:57 PM

Failure financially.

In MY example, had I been 'outsourced' or even 'offshored' for that one instance, yeah, the contracts might not have been lost. Though that kind of problem might be more likely - putting a teen - especially one like I was - in a position of responsibility like that might be just as foolish as relying on outsourcing OR offshoring for your 'core' IT needs. Communication with the home office and all.

However - what is the cost of having an 'outsourced' or 'offshored' resource in place of local personnel? Note: Not 'price' - though that IS part of 'cost'. Relying on a company who's goals are not, and cannot be equivalent to yours. THEIR goals are always going to be to maximise the money they can make from you. Those goals might (should) intersect with yours, but that's as close as you can get. No matter what, you will end up with at least one extra layer of management. Prices might be higher/hour (outsourcing) - experience and expertise might be lower. You get what you are assigned. You might be able to complain and get personnel switched, but only AFTER problems are revealed. This DOES make 'failure' more likely. At least more costly than 'rolling your own'.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,404

4/17/06 12:55:08 AM

No more likely

than rolling your own. Like I said, been in company's where the internal people sucked. Been in places where the external people were much better.

So at least in my experience, I've seen your position not work and the position you rally against work well.

And now we're back to the beginning. If it is working well and efficiently, the outsourcing engagement will not offer savings and will likely not occur. If it is a poorly run organization and run inefficiently, it is very likely that an outsource could improve things and do so for less money. And this can be in completely "non-core" areas.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,410

by imric

4/17/06 7:09:09 AM

Nonsense.

Because the inherent disadvantage (that you keep forgetting about) is the extra layer of management.

Saying that external can suck, and internal can suck; that is irrelevant, unless you are going to say 'external is mostly higher quality and costs less'. Untrue. The price is typically MUCH higher if the people are a even little better.

So - if the people are nothing special, you have the extra layer of management; goals that can at best intersect with your company's; if the people are better than average you have all that AND a higher price.

Woo. Let's outsource everything.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,411

4/17/06 7:56:31 AM

IT is a commodity.

The smart company in 2006 treats its IT like it treats its subbies - as an organisation that provides a service. If that service can be obtained cheaper/faster/better elsewhere, it will be. There's no reason for most organisations to maintain their own IT departments; there's just no business advantage in so doing.

This reality is one of the reasons I got out, and into a job that cannot be outsourced (as it's a core competency).

Post #252,415

by imric

4/17/06 9:02:11 AM

Wait for this pendulum to swing back

As that philosophy fails. Of course, it will take many business failures before management ever admits they got it wrong, or that there is a any kind of balance.

All or nothing - put all your eggs in a basket owned managed and operated by someone else - a recipe for trouble.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,417

4/17/06 9:37:49 AM

All what eggs now?

IT's a commodity. The eggs are core competencies. They don't get outsourced. IT does.

Putting all the eggs in one basket would be outsourcing your core business AND IT AND management.

Post #252,449

4/18/06 1:08:46 AM

What you say is only somewhat true

IT is a broad field, and it is hard to generalize about it.

Let's take what you did for a start. I believe you were a system admin, administering a network with pretty much the standard Microsoft desktop stack. (Windows with Office and Outlook running against Exchange with some appropriate networking, firewalls, and anti-virus in the mix.)

No matter how important this may be to the company, it is a potential target for outsourcing. Why? Because you're administering the same bog-standard stack of software that everyone else is. An outsourced provider will add an extra layer of management, but they also get to add the fact that they do the same task at a lot of places. So they have thought up tricks, have efficient backup and installation scripts, etc. This makes them potentially more efficient at doing your job.

In short, standardization leads to commoditization. In IT as well as anything else.

Now I'm also in IT, but my job is not particularly amenable to outsourcing. My job description says "reporting", which is pretty vague. But in reality it means that I need to understand our business processes, our application, where data is captured, how it is aggregated, what custom reports have been created, etc. Given that we have an unusual business model (how many companies give away money for a profit?), this expertise is very company specific. An outsourced provider would not be able to leverage their experience with other clients in any significant way to do my job better than I do it.

In short, attempted commodization is a bad idea where standardization has not lead. Think about this before you outsource.

Given that Skip works with AS 400s, and AS 400s are not a particularly commonly chosen piece of infrastructure, I'd guess that Imric's job would be a bad one to outsource. (Unless you were planning to also kill the AS 400.)

There is always a "But..." though. And the big one here is that while it would be a bad idea to outsource me, big decisions like "outsource IT" tend to come down from people far up in the food chain. When the CEO/CIO makes a decision like that, they are not going to dive down to my level in the org chart to find out that it is actually a bad idea to outsource me or Skip. (And everyone who is losing their jobs will they that they shouldn't...) So the decision will come down and be enforced both where it makes sense and where it doesn't. (This kind of management insensitivity is, ironically, a symptom of the internal inefficiency that can make outsourcing a good idea.)

Which means that Skip gets a front row seat for the demonstration of how bad an idea it can be at the same time that Peter gets a demonstration of how replaceable he was. And someone like Bill gets a more balanced view. And in that more balanced view, it could go either way.

Incidentally I'm actually reasonably safe from outsourcing for two reasons. The first is that I work for a small suborganization that is managed separately, so an outsourcing decision is likely to be made more carefully than in a large one. And secondly I'm on the org chart in software development, which for us is a core competency. Therefore we'd be unwise to outsource it.

(Of course there is no real protection from idiotic management...)

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,412

4/17/06 8:16:39 AM

All of your argument

relies on your assumptions. Assumptions which are simply not true.

One, you assume an extra layer of management. One, it isn't necessarily there...at least not as you think it is. IBM definitely has a layer of management over outsourcing engagements. So does EDS. This "layer" is spread across dozens of clients. Can your internal IT spread its cost over 12 engagements? No. This is one of the reasons why savings exist for these engagements. You seem to think it cannot be built without >more people.< That is, put simply, crap. I've seen it done.

2, you assume that the outsource provider cannot provide better people for less or equal cost. Also crap. These outsource providers are very big and very specialized and have damned good training programs. Their people are often much better at much lower payscales because they are hired younger and trained better. What they often DON'T have is longevity...because people often take this experience and bounce to the "private sector". Take me, for example. All I did was move from the outsource into the company (same legacy company essentially, same "level" in the org...I go a raise working for the company)...

Lastly, goals. The goal of the outsourcing company is to minimize the resources used to provide the level of service required by her business partners. IF THE OLD IT GROUP WOULD HAVE DONE THIS...THEY WOULDN'T BE OUTSOURCED. All too often the IT org gets involved in fiefdoms and empire building and loses sight of the one true point of its existence, to provide service to business partners.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,414

by imric

4/17/06 8:58:05 AM

Mmmmhmmm

1. You claim it isn't there by pointing out it's there? By claiming that the management is spread out so thinly that it can't be noticed? Uh huh. Yah. SO, by that logic, if you spread one manager over 12 'engagements' (departments) management is 'still there', but then would be cost effective. Yah. No failure gonna happen THERE.

2. "These outsource providers are very big and very specialized and have damned good training programs. Their people are often much better at much lower payscales because they are hired younger and trained better." And when they 'bounce to higher payscales' they take that training with them - ore does it magically get transferred to new people via telepathy? Or are there always people in training (less effective) or do people work for free while they are training?

The fact that the people get paid less does NOT translate to less 'cost' for the company. PRICE does not translate to less 'cost' for the company - though it IS an element. Riddle me this, batman - if the outsourcer was such a good deal, why'd they put you on staff for a higher 'price', hmmm?

3. This gives the company a 'stick'. Whether they use it or not, or wimp out and turn to outsourcing / offshoring and it's inherent disadvantages rather than fix a 'sick' IT department - may be the sign that the company as a whole is 'sick'. Outsourcing won't cure it; offshoring won't cure it. Remember that the company has basically NO SAY in the hiring or firing of outsourcing / offshoring companies employees. There is far less incentive (positive or negative), the employees are less tightly bound to the company. Finally - your assertion is that the reason for outsorcing is empire-building ON THE PART OF IT. Funny - I've seen it where folks outside the department prosletyze outsourcing (and offshoring) as a way to 'cut costs' in order to make themselves look good - and then, as it fails, they blame what IT remains for the problems, thus cementing their OWN 'empire building'. To the company's detriment, I might add. YOU assert 'all too often IT gets involved in Empire Building'. I assert that this happens only a minority of the time. IT folks are usually far more interested in getting the job done than playing games, in my experience.

So if you would like to say that outsourcing makes sense the minority of the time, for sick companies, for companies too small to support their own IT personnel, or for times of great deman, OK. I'll agree. As a regular thing? As part of DtD operation? Foolishness.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,425

4/17/06 12:20:11 PM

Just simply wrong on many levels

CIO->Dr->Sr Mgr->Manager->Staff.

In this pretty damned standard org...the outsource will cut the bottom 3 and replace with outsourced staff. Now, the outsourcing company will have Dr levels engaged certainly...the "company" in this model should be able to manage the outsource with fewer.

Your continual insistance that there is a complete layer of management that makes the outsource non-competive does not mean it actually exists. It generally does not, and the reduction in internal staff to manage outsourced staff will more often offset any "additional" staff of the outsource.

And you STILL insist that a management hierarchy is MORE LIKELY to break in an outsource than it is in a traditional org. This is also conjecture and in my experience unsupportable by fact.

Generally, knowledge transfer is better in an OUTSOURCE because there is "planned obsolesence". And there are ALWAYS people in training to follow up. The great thing for the company is that these underlings are an available pool of resources that are not billed to the company, do not have a 30% benefit package payable by the company, etc. Those are costs that have to be borne and paid for out of the profit margin of the outsourcer. And before you challenge that "Aha, see the outsource costs more"...remember that it doesn't...which this study VALIDATES...just not at "published levels".

Simple payscale. The outsourcer pays less than the scale of their clients. Did I magically gain more experience by switching sides? No. Just shows that an outsource can get equal talent for less which is counter to your arguments.

Your logic doesn't follow. You've assigned "inherent disadvantages" that you have yet to prove actually exist anywhere but in your mind...and in fact you allow those to remain inherent advantages in Andrew's business case.

I'll remember no such thing. I manage an outsource engagement...and have managed outsource relationships for 15 years. I absolutely have a say in the hiring and firing of the employees on my engagements. I don't care if the outsourcing company keeps non-effective personnel...but I don't have to pay for it and don't. I've also been involved in the interview process of each "direct report" in these engagements. I've said no several times...and that person has not been hired. So this is a mythical issue you have created.

Are you operating under the notion that there is ANY loyalty left? There isn't. Change your notion.

Simply put, we have different experiences.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,501

4/18/06 4:28:30 PM

Jumping in late

But I thought you might appreciate this excerpt that I have taken from an exchange I had in an online class with a classmate (CIO of a large manufacturing company in PA).

Just a few thoughts,

Danno

Post #252,505

4/18/06 5:41:42 PM

And in line with this

while business may not survive an interuption in electricity supply very well...it is not likely to build its own cogen plant...because there are suppliers who can do this more effectively.

Telecom is another area that is being outsourced. Call centers (both foreign and domestic) are being managed on an outsourced basis. If you have ever called Orbitz about a ticket, you are not talking to an employee of Orbitz. Same goes for multiple airlines and many online businesses.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,508

by imric

4/18/06 5:57:35 PM

Nor are they likely

to deliver their own mail (with exceptions). THIS are 'outsourced'?

Tell me - does the business depend on the flexibility of their wiring? Do drastic electrical code changes occur all the time? Like standard voltage, AC or DC, etc?

Of course, if ths DID occur it would usually make sense to outsource, right? Right?

And - about your 'org chart'. You did conveniently leave out the layers of management of the outsourcing company - those above the layer being managed by the one 'in-house'. The one you show might as well be in-house. No extra people to support.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,510

4/18/06 6:10:28 PM

Keep reaching

So you are going to count he CEO of IBM as an "extra layer" of management for outsourcing.

Doesn't change ANYTHING in the analysis because even if I capitulate and allow your point to stand unchallenged, these companies are STILL managing these engagements for 15-25% less that its being done in-house...and more often that not, the business partners see increases in service levels from "their" IT department.

Tell me, if I have onsite staff and 24/7 help...and an outsource provides this at 25% less than I was paying before...what benefits do I get to having internal pc support staff? What "special things" were they providing that are not being provided to me now under the outsource?

Here's an even bigger twist...right now I have a Dell laptop supported by an IBM tech.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,512

by imric

4/18/06 6:32:22 PM

Step 1 - steal all the underwear. Step 3. Profit.

"So you are going to count he CEO of IBM as an "extra layer" of management for outsourcing."

Yup, obviously that's the only other layer of management between your PC outsource techs and outsourced natwork admins.

And it's cost, not price. I made that distinction multiple times.

Outsource companies of course, have no agenda at all that will affect their recommendations (Windows only, NO mainframe, midrange. Or maybe all IBM solutions. or whatever. THEIR goals are not YOUR goals.

And of course they are just as flexible as having your own people. Users are added instantly, there is NEVER any 'lag time' or it is ALWAYS as fast or faster than having your own people, eh? Not in my experience. CERTAINLY not in my personal experience, and NEVER in my experience in consulting/contracting shops. The customer always wants their own people trained after they get sick of it. Even if there are on-site people, the problem remains - which gets to another point.

Incentive. When you are employed by an outside agency there is always less respect for what the customer wants - until the 'extra' layer of management steps in, after the customer is already annoyed. And that's not always 'negative' incentive, either. My current boss gave me extra vacation time as a reward for my recent upgrade.

Further - more work for the outsourcer is a GOOD thing - though the cost in $$ and time increases for the victim -err- customer.

And forget about easily switching to 'punish' the outsourcer. It's bad when an employee walks and takes knowledge with them - get rid of your outsourcer and it's like having an entire department walk. Documentation - no matter how good it is - is not good enough. You have to know the people you are working with - who can be relied upon, who is all BS, who actually knows what's what in the company AS WELL as all the processes, etc. It will take time, precious time, to get your 'new department' up to speed.

As I said, outsourcing might be good on a permanent basis for a 'sick' company; it might make sense for small company, and in a medium to large company during periods of great demand - but as a 'normal' thing, healthy? Not really.

Reaching, Bill?

Hardly.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,542

4/18/06 11:56:24 PM

Come on Bill

While I see many of the points you are making and agree with most (I did seven + years as a consultant/outsource resource), there is something that needs to be said. Taking these classes and re-evaluating the industry, the current American bizness climate absolutely sucks and I have a feeling I have a clue as to why.

You have represented the outsourcers well. I used to do a summary when called into clients. The primary reason that I found in all my time as a consultant for using an IBM Global Services (nee ISSC) was the access to resources it provided. We never, NEVER, saved the client any money. We backloaded every contract and I was billed out at $210 an hour for five years on one contract. The company couldn't hire me directly without paying a huge, huge, contract buyout. The entry level people I brought in were billed out at at least $90 per hour. But I digress. If you needed a Citrix expert, you called Corporate and one was there in a few days. You needed a Cisco magician, you called them in. This was the benefit of outsourcing and you paid dearly for it.

We just came out of a recession and accountants have been exhaulted back into the role of "decision maker" in most companies (like at the end of every recession) and this explains most of the short sighted decisions being made in corpse America currently. I think you may understand that I have a little trouble with your debate with Imric regarding outsourcing being about saving money. The folks who are saving money (and not the ones who are paying dearly for expert resources like the example above), are off-shoring to countries who have people willing to work for next to nothing (at first). I don't know about you, but I just read "The World is Flat" and I am a little disturbed that millions of US tax forms are processed in Bangalore for H&R Block. I'm sure the Indian workforce is competent, but think about how fucking lazy we are as a culture that we not only can't do our own taxes, but the companies that do it for us are too cheap to pay for it.

The "core" issue is good as business continuity is important and you need to maintain a core staff of technologists (not monkey fuck ass clowns parading as technologists who got into this field in the 90's when it was the field to be in to make gobs of money) who know why the systems went in, why the services are the way they are and all the other political/technical reasons why the datacenter exists. This gets into something even more insidious (and I don't find fucking Dilbert funny anymore) - many of those bits and bytes lying around and being mismanaged by group after group of MFACs represents the life's work of many of the people in the organization, past and present - even the smart ones that actually designed the product/s or marketing campaigns that made the product successful. Not only are the IT people devalued in these types of analysis, but also the people in the other departments whose life's work is stored in these datacenters. In all my years as an outsourced "resource", I never felt any ownership of the data. I was a second class citizen in every place I worked and my only allegiance was to the $ and to doing a good job to keep making the $. That's okay. That's business. But its also kind of fucked up when you really think about it.

This gets to what I believe is the core issue. How do you motivate someone, beyond $, to excel and innovate when they are a second class citizen? It's okay on the macro level to say we are all replaceable and interchangeable, but its not really true. To have excellence, people have to feel that they are a part of something bigger than themselves. They need to feel important and that what they do is important. This is Leadership 101. You and I are Gen Xers. We are mercenaries in the workforce because, (more motivation 101) "you get the behaviors you reward". We are the first generation where the cards have been dealt very poorly (since prior to WWII).

Bill, I know you. I know you are a survivor and play the cards that are dealt to you. I am too. I don't really have a problem with what you are saying but you don't have to sound so "joyful" about defending the business model. It really doesn't bode well for your or my children. We need to stop being so damned academic and analyze the real bottom line, we're fucking selling out this country for song. The Baby Boomers still are the "me" generation and many believe that hearses have luggage racks. We are simply enabling them.

Just a few thoughts,

Danno

Post #252,569

4/19/06 9:37:20 AM

Sigh

Good points EXCEPT you are back to what everyone else is doing. Offshoring is NOT OUTSOURCING.

I was working as an outsourced worker (in an engagement that saved 18% of 1 billion spend) to the company in the first 6 months (Documented and tracked..and it equated to 500% ROI). I DID NOT MOVE TO INDIA TO DO THIS!!!!!!!

No it was not IT. Yes it was an outsource. My immediate manager worked for the client company. There was one "extra person" in this model who was offset by the client company getting rid of 3 sr managers (net 2 down at that level...and our savings did NOT include their headcount savings). Additionally, our team of 9 replaced 14.

If I sound "joyful" about the model then you are reading something in. I am saying simply that the model WORKS for some, and the article that started all this PROVES that it works to the tune of at least 15+%.(contrary to the claims of 50+% was its "negative twist"

Is it for everyone? NO it is NOT. Skip has obviously worked in some well run departments and with some companies that rely on DP/IT as core functions. I have worked largely for mfg companies where they simply are NOT core (regardless of your arguments to the contrary, skip). A poorly run outfit in an environment like that is ripe for BPO (please don't make me remind you that this does not mean MOVING TO BANGALORE...sheesh).

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,571

by imric

4/19/06 9:43:15 AM

Without IT, the business will fail

or at least fail to compete.

Outsourcing is less efficient than in-house, and outsourced companies are less aligned with client desires.

If the company is already sick or dying, and unable to change and adapt, then sure, go with outsourcing. Like someone requiring dialysis is outsourcing a kidney.

'nuff said.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,576

4/19/06 9:52:36 AM

You continue to make a blanket statement that is not true

This is NOT a universal and it is completely dependent on the structure of governance built into the agreement. In addition, the fact that companies are actually saving (documented in the article) simply disproves it.

Its this universal >assumption< on your part that keeps me responding.

And outsourcing doesn't mean "getting rid of"...so the "without IT the company will fail" is unwarranted. (true possibly, but unwarranted in this discussion)

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,582

by imric

4/19/06 10:13:27 AM

4/19/06 10:16:30 AM

Mmmhmmm

It is less efficient - and it does mean more layers of management. You are supporting more than the workers provided to you. Otherwise, you have hired those workers directly and that's hardly outsourcing, is it.

So - unless my oft-repeated caveat is true, and you have a company with inefficient management that for one reason or another will not change, this IS true. No matter what, you are supporting the outsourcing company. IOW, if the company is sick, or needs temporary help, or is too small to support full time staff, outsourcing might make sense. Otherwise, it's foolishness.

Further it is absolute TRUTH that outsourced resources do not have the same incentive to react that in-house does. THEY DON'T WORK FOR THE CLIENT COMPANY. They work for the outsource provider - and that will always be FIRST. The workers are always at at LEAST 'one remove'. Ignore this fact all you like. It's still true.

These are NOT assumptions, Bill. They are logical truths. They are observed fact. They are reality.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Edited by imric April 19, 2006, 10:16:30 AM EDT

Expand All History

Post #252,590

4/19/06 10:50:57 AM

Re: Mmmhmmm

These are bold statements and it behooves you to provide evidence over and above repeated assertions.

Post #252,596

by imric

4/19/06 11:18:44 AM

Unless more management = more efficient

Unless supporting more employees means lower cost, especially when you could hire them yourself -
Unless having workers that are at one remove from the companies goals are more responsive -

There's no need.

These are NOT bold statements at all, Peter.

Have you not been reading?

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,600

by boxley

4/19/06 11:26:06 AM

branched outsourcing costs more (new thread)

Created as new thread #252599 titled [link|/forums/render/content/show?contentid=252599|branched outsourcing costs more]

Post #252,630

4/19/06 2:42:04 PM

That clears that up, then.

Just saying "well, it's common sense" or "it's obvious" isn't evidence.

The people in question could well be a lot cheaper if they're externally hired, so yes, hiring more people could cost less.

Your point about responsiveness is interesting but probably moot in this age of zero company loyalty.

External management may well be more efficient.

My request for actual evidence instead of assertions stands.

Post #252,635

by imric

4/19/06 3:15:50 PM

*shrug*

I could say 'every instance I've ever seen' and you could counter with 'every report written by someone to justify the outsourcing decision'.

If you would like to believe that IT is a replaceable commodity, and that outsourcers are the only safe future, I'll not argue.

I believe - that while you may be right - that IS the way business is going (at least for now) - that this is a foolish, short-sighted fad that is bad for most businesses that indulge in it. Larger places full of stagnant management cultures may derive benefit from outsourcing - that doesn't mean it's a good or effective way to go. They see dollars (or pounds) on a spreadsheet and act like that's the cost; they see numbers of employees and figure that = 'effectiveness'.

I've heard not one argument to dissuade me - even a little - from my opinion on this matter. I've seen too much. Call me jaded.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,637

by boxley

4/19/06 3:28:08 PM

you havnt even attempted to address my branched reply

Post #252,642

4/19/06 5:36:54 PM

Skip, YOU haven't been reading

Read [link|http://z.iwethey.org/forums/render/content/show?contentid=252449|http://z.iwethey.org...?contentid=252449] and respond to that. Please.

Outsourcing can be good. Outsourcing can be bad. There are principles that you can use to identify which case you are in. Anyone who takes an absolute position on the topic - which you're doing right now - is certainly wrong at least some of the time.

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,647

by imric

4/19/06 6:02:13 PM

On the contrary!

There just wasn't much to say to your post!

And my view isn't really absolute.

I've said there are times when it make sense - especially temporarily, in times of stress for the company and/or the department, when the company is too small to be able to support IT staff of their own...

But - the idea that outsourcing provides efficiencies that can't be achieved by the companies that purchasing outsourcing services? PERHAPS outsource providers might be necessary to remain competitive - if the knowledge is highly specialized/arcane (and not transferred or transferrable). This does NOT fit with the assertions I am dealing with - that IT is a commodity that should be outsourced when IT isn't the 'core competancy' of a business. That there is no 'performance hit', no negative side effects of having outsource workers working for 'another master'. That bottom line price is all that matters.

And as to your scripts to make 'bog-standard' stacks of software more efficient? I have my doubts that any such generic scripts could make a company more efficient than scripts designed to meet the specific business needs. It could be, I suppose. I've never seen it, though.

I guess the idea of IT being a commodity might be natural if all businesses were exactly the same, if business itself were a commodity - if there were no value in having a business that could differ and distinguish itself from it's competitors. If the only business advantage was to be exactly the same as the competition.

I just don't see that as being the case, though.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,651

by boxley

4/19/06 6:28:38 PM

look at SAP, Oracle Financials, PeopleSoft

their model requires the business to adapt to them, so business financials become bog standard and the only method to distinquish business a from b is quality of provided service.
thanx,
bill

Post #252,653

by Another Scott

4/19/06 6:53:45 PM

There's stuff like Sarbanes-Oxley too...

Post #252,688

4/19/06 11:50:50 PM

A new employee is coming Monday...

How long does it take you to set that employee up?

Among other things you'll need a new computer with all necessary software, personal account, email address, phone number, etc. The work involved is pretty standard and doesn't vary a whole lot between businesses. Also most of the grunt work can be automated.

If someone has efficient procedures and the right automation this will take a lot less time for that person. If someone has inefficient procedures and there are a lot of round trips until that employee has the right thing, it can take a lot longer.

An outsourced provider can amortize the cost of building that automation and procedures over more workplaces, and therefore should be able to provide the service for less. They obviously won't pass along the full savings. But they can have enough to pass on something. (In this study, an average of 15%.)

This is an example of how your Unless supporting more employees means lower cost... can be wrong in an IT example. An efficient outsourced provider needs fewer employees to do the same job because they are better at that job than your internal group was. Needing fewer people translates into being cheaper.

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,725

by imric

4/20/06 7:33:56 AM

1 hour. Our procedures have it set up the day before.

It's ALWAYS ready when the employee sits at his desk on Monday. It IS automated. Even though different departments have different software, different levels of PC are given to different employees (decided by who's job can use 'older' PCs, who needs a laptop, etc. etc). Separations are handled the same way. We are always improving our scripts, procedures, and applications, too. IT is not static, a simple product to be purchased.

And if your internal people won't do it, get new people who will. They ARE there, obviously - the outsourcers have 'em, right? Scripts and automation are more effective and produce more when customized for the company. Having good people working for your company is a business advantage. Outsource workers do not work for your company - they work for the outsource company.

I'm sure outsourcers can provide adequate service. They might look better on a spreadsheet. This is not the whole story, however.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,753

4/20/06 10:39:09 AM

If you don't have good procedures and people...

is it better to hire an outsourcer or develop the people and procedures?

While it would be great to be great at everything, companies can't realistically do this. If the company is clueless about IT, and their management is clueless about IT, and IT simply isn't a core competency, then developing that competency will take a lot of time and energy. (Time as in years. And by the time they get there, they're likely to be behind the current state of the art.) Time during which that company will (as you've rightly pointed out) be at a competitive disadvantage vis a vis competitors who do have basic IT working better.

However a company whose IT is suboptimal doesn't have to take this path. Instead they can hire an outsourcer who is better at IT than they are. 3 months later they can have good enough IT that they no longer have the competitive disadvantage. People's computers will work, email will be up, backups will be taken. It won't be cheap, but it will be cheaper than what they are currently doing. It won't be the best possible, but it will be better than what they are currently doing.

This makes sense, and not just on the spreadsheet.

The key point is that it is always theoretically possible for a company to do stuff for itself better than an outside company can, but it isn't always realistically practical to do so. If your problem is amenable to standardization, then that gap between theory and practice is the wedge that can make outsourcing make sense.

Cheers,
Ben

I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

Post #252,648

by imric

4/19/06 6:02:14 PM

4/19/06 6:02:35 PM

....

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Edited by imric April 19, 2006, 06:02:35 PM EDT

Expand All History

Post #252,597

by Another Scott

4/19/06 11:23:38 AM

They're using different definitions of efficiency.

There's efficiency in terms of price (which may or may not be related to cost - "my team is cheaper"/"my team gives better long-term value to the company"), and there's efficiency in terms of speed (output per unit time - "my team delivers on time"), and there's efficiency in terms of output per head ("my small team does a better job for the company than a cheaper army of workers in the Sahel"), and there's efficiency in terms of flexibility and nimbleness ("my team can do anything and do it on time and under budget"), and maybe a few more.

All management isn't equal. Presumably, e.g., $xx B/yr IBM Global Services contractors working for XYZ Corp have more layers of management than employees of $10 M/yr XYZ Corp do. It doesn't mean that the overall efficiency of the management of the contractors is worse than for internal employees. (E.g. IBM's management may have implemented processes that let them spread the management over more people more efficiently.) If XYZ Corp cans their IT people for IBM Global Services but keeps their same management structure that they had for their team, then I'd guess they're probably adding management inefficiencies. But it probably depends on the individual case.

They're both making good points, but they're not agreeing on what the terms mean so they're talking past each other.

My $0.02.

Cheers,
Scott.

Post #252,607

4/19/06 12:32:20 PM

Stop trying to spoil my fun :-)

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,619

by imric

4/19/06 1:09:46 PM

And mine! :-D

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,592

4/19/06 10:58:37 AM

Before this right shifts anymore

In the immortal words of Rodney King, "people, can't we all just get along?". I just want to say that outsourcing includes off-shoring. You are staffing personnel from an outside source - "out sourcing". You are correct in pointing this out.

My apology to Bill for reading too much into his posts (and I did put quotes around the "joyful" word). I think that the distinction between outsourcing and off-shoring was blurred from the original article. I understand that distinction as do you. The key issue to this discussion (IMNHO) is does the outsource add value or save money? Either way enhances the bottom line. As this article suggests, it does save money (in a static analysis) but nowhere near what the hucksters that market IT services (read Infoworld lately? Notice that SOA is just shy of SOAPBOX). As you have pointed out, many other variables are not included in these types of analysis, including morale and motivation.

The idea that IT is a cost center (to me) is completely irrelevent and dangerous given what resides in the datacenter. Everyone in an organization is a "cost center". The idea that a department is a revenue generator is arbitrary and merely an accounting convenience. At least this is how it is supposed to work. The idea of soft dollars versus hard, recurring costs, etc. They are all accounting conveniences.

So where does that leave us? You and Bill are debating an issue that I've already come down hard on your side with. I've labled most of corporate America MFAC anyway. They are starting to reap the rewards of a system that forces 3 month thinking. I also suspect that we (IT guys) are catching the backlash from all the mid-level managers we "downsized" when we flattened organizational structures with email, ERPs and scheduling software (Skip, it,s real).

What's even more ironic and sad though is that jobs like accountant are already being off-shored as they are perfectly suited to being outsourced. When I finish my CEO-algorithm, I'm going to right-size those bastards too.

;-)

Just a few thoughts,

Danno

Post #252,595

4/19/06 11:10:29 AM

Too true

wish I could offshore senior management :-) I'd be way more productive.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,594

4/19/06 11:07:58 AM

No they aren't. They are oversimplifications

They ignore the simple fact that an outsource provider can provide efficiencies not available to the host company. It is NOT like for like. It is NOT a necessary fact that 100 people in a client would be replaced with 100 people in an outsource...even if the host company is operating at 100% efficiency. These efficiencies are based on scale, scale that the smaller host company can NEVER acheive alone. You assume that the level necessary to offset the "added management" offset this, which is disproved by the savings numbers given in the article.

So, your "logical facts" are unsupported by the "actual numbers".

And the "client company" dictates the structure of the outsource. And those outsourced workers must satisfy the client or they will go away. So while you may have a point in saying that they must serve 2 masters, it is NOT a logical conclusion that the goals of those 2 masters are necessarily not aligned.

The observed facts and realities, at least those referenced in the article, disagree with your obvious logical truths. These deals are providing financial savings (an obvious and aligned goal of both parties). It has not been determined and cannot whether those companies receive increased or decreased levels of service. In my personal experience, I see better service from the outsource provider that I use now compared to the inhouse service I received at both my prior employers. Another point that seems to be contrary to your logical conclusions.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,602

by imric

4/19/06 11:29:51 AM

Straw men marching?

"These efficiencies are based on scale, scale that the smaller host company can NEVER acheive alone."
So hiring a hundred people is cheaper per person than hiring 5? For the same experience? You get volume discounts on human beings (from the manufacturer maybe)? Individual salaries aren't based on, well, individuals?

Stuff and nonsense. If you disagree, and can find volume discounts on humans, I want proof. Evidence.

And - the savings numbers? I never said that it is always wrong - just that the companies it makes sense for are already sick and/or top-heavy. Remember? A healthy company would have no need of outsourced resources, save temorarily, in times of stress. Or if they were too small.

And your experience would seem to contradict mine directly. Of course, I have seen it from both sides as well - as you know. You know my opinion is long standing. Remember my laughter about being part of parasitic organizations?

Save that you admit you have worked for 'sick' companies.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,606

4/19/06 12:30:16 PM

You are off your rocker

IT is NOT PEOPLE. Its a corporate service that has deliverables to its business partners. Efficiency is measured on how many people AND OTHER RELATED RESOURCES it takes to meet those deliverables. (period).

Noone, not even me, is talking about 1 for 1 personnel costs.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,617

by imric

4/19/06 1:03:08 PM

And what delivers that service? Robots?

Not yet.

Who handles support problems?

Who takes requirements and turns them into programs? Reports? Deliverables of any kind?

Who administers the systems?

Oh. RESOURCES. Not PEOPLE.

Sorry. My bad.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,634

4/19/06 3:09:46 PM

Maybe

People manage resources. People are part of the entire set of resources. They are not all of the resources. Others are servers, pcs, software (both owned and licensed), infrastructure, documents, processes, etc.

But you know this.

When I ask for a daily sales run, I am not handed the programmer with the information printed on his forehead...though sometimes I may wish that he had been sent through the impact printer :-) How I get this is irrelevent to me. Who runs it is irrelevent to me. What server, database, OS, reporting package is used is irrelevent to me.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,636

by imric

4/19/06 3:25:31 PM

As long as you get it in a timely fashion,

With accurate data, and for a decent price. No argument. You shouldn't have to care.

That doesn't mean that the means to those goals is unimportant. Or an interchangeable commodity. Or that it might not be best not to keep IT processes and resources in house, and in the hands of the company. It just means that you don't need to know, personally.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,638

4/19/06 3:44:17 PM

Ah, we've taken the first step, grasshopper.

You're close. The department that is IT is measured in cost to provide those deliverables that the business partners expect.

There is no other value that can be quantified. Dollars for services rendered.

So while you have raised valid concerns about what may happen in an outsource (loss of control, mismanagement, intellectual capital loss, misaligned goals)...the true end is this...

If an outsource can deliver that report to me more cost effectively than an insource...then you have no argument. And this article validates that in the engagements they studied, you have no argument.

You may consider this "short-sighted". Unfortunately for you, this is also how it is in the real world. Its not a pendulum. It will not swing back, so don't wait for it.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,641

by imric

4/19/06 4:52:00 PM

Cost <> price.

The fact that it will not fit easily into an Excel spreadsheet does NOT change that fact. Businesses that indulge in outsourcing based soley on a overly-simplistic bottom line of a spreadsheet will end up incurring costs that will hurt them competitvely.

And it WILL swing back, when delivery dates are missed, dollars are spent on additional resources to compensate, infrastructure is mismanaged and not fixed in a timely fasion, when the agendas of the outsourcers are foisted off on the clients, etc - management will get tired of it. After going through a few different outsource providers, and dabbling in offshoring, they'll get it. This madness may take a long time to play out, as people are rarely willing to admit mistakes. It will happen, though. (Again, except in companies that have fundamental problems or resource/budget constraints - those that NEED to 'outsource a kidney via dialysis')

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,649

4/19/06 6:03:32 PM

I have a hard time agreeing with any of this

as long as there are companies that continue to do this and put themselves in a competitive cost position amongst their peer companies. The rest of your rant is assumption you treat as given (missed deadlines, reduced service, additional resources et al)

If industry benchmark says company X spends 2.25% on IT and via an outsource company Y reduces that number to 1.75%, then they have, in that area, given themselves an extra .5% margin which they can use to price their services/wares at more competitive offerings to their customers...or simply to earn more profit.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,678

by imric

4/19/06 10:43:42 PM

So dollars are all. The spreadsheet is king.

YOUR assertion.

Outsource everything business depends on then. Everything is a commodity, interchangable, right?

The price you pay is always on the spreadsheet, the number of employees used = productivity.

After all if outsourced employees 'save' you money by charging 1.75% instead of 2.25%, it must be just as effective, as flexible, and as aligned with your business goals as employees you hire yourself, given that salary levels are the same, and that an outsourcing company has additional overhead (additional management).

Right. Whatever.

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,700

4/20/06 12:44:05 AM

Not everything.

But good portions of IT are. And in those cases, like it or not, the spreadsheet does become king (because thats what management and the shareholders look at)

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,724

by imric

4/20/06 7:09:38 AM

roundandroundandroundandround

Imric's Tips for Living

Paranoia Is a Survival Trait
Pessimists are never disappointed - but sometimes, if they are very lucky, they can be pleasantly surprised...
Even though everyone is out to get you, it doesn't matter unless you let them win.

Post #252,511

by tuberculosis

4/18/06 6:22:57 PM

Plants

"while business may not survive an interuption in electricity supply very well...it is not likely to build its own cogen plant...because there are suppliers who can do this more effectively".

If a function is core - you might outsource it - but you'd be crazy to rely on one outside source exclusively.

My employer purchases electricity from the big utility company. My employer is also fully capable of generating enough electricity to keep the servers humming should the utility company fail to deliver. Ditto the fiber networks interconnecting the data centers.

Does this make sense? Down time is measure in thousands of dollars per minute. Its core and the cost is dead easy to justify. I believe the generation capability leased BTW, but this is a financing detail as it is a dedicated resource.

Its not "do I outsource?" Its "how to I measure the risk of losing that capability vs the cost of providing it myself". Its always different.

The important question is "how do we tax foreign goods and services to allow US citizens to remain competitive"?

Post #252,521

by drewk

4/18/06 7:43:00 PM

No it's not

The important question is, "Why are companies in other countries able to beat U.S. prices by so much?" If it's because[1] of lesser workplace-safety or worker-rights protections, it seems reasonable to insist that products sold or services offered in the U.S. be produced under comparable conditions.

[1] Yes, I'm making an assumption.

===

Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats].
[link|http://DocHope.com|http://DocHope.com]

Post #252,562

4/19/06 9:06:01 AM

If we are talking about offshoring, you are right.

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,660

by drewk

4/19/06 7:51:40 PM

True

===

Purveyor of Doc Hope's [link|http://DocHope.com|fresh-baked dog biscuits and pet treats].
[link|http://DocHope.com|http://DocHope.com]

Post #252,560

4/19/06 8:59:53 AM

And one more time.

Outsource DOES NOT MEAN Offshore.

You can outsource to an offshore..but that is NOT what the article was talking about. It was talking of large scale BPO. This occurs in many places and with many functions. Most of these engagements are IT, but there are A/P, Credit, HR, Recruiting (as a subset), Purchasing, Manufacturing and others.

And it is about risk. And for most (certainly not your company), the server farm hosts an external website, erp processing and data storage. Downtime in these of a few minutes to an hour is an inconvenience and not a loss of revenue (customer service and phone sales offer a call back when the system comes back up).

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,662

by tuberculosis

4/19/06 9:10:16 PM

Where did I say offshore?

I was just pointing out that - if it matters enough to you - you will generate your own electricity - process your own water, or whatever it is you can't afford to be without.

Post #252,666

4/19/06 9:34:32 PM

Re: Where did I say offshore?

Thought it was implied by

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,672

by tuberculosis

4/19/06 10:08:14 PM

Ah - well that is the crux of the offshoring problem

but the rest was meant to point out why people choose to outsource/inhouse what they do.

Post #252,701

4/20/06 12:45:24 AM

Understood...

but it was something like the 5th post that had an offshoring reference...so I was getting punchy :-)

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,538

by broomberg

4/18/06 10:37:18 PM

Me too

My old boss called me today.

He has a problem with his outsourced data center.

Note: The data center is physically 50 feet from
him. But his company canned the MIS directer and
outsourced the entire functionality.

He seems to be having a performance problem.

He has an EMC SATA based SAN. His Linux system
is FC attached to it. The outsourcing firm
replaced a Linux server with another one, supposedely
identical hardware, but upgraded the OS. Went from
RH 2 to RH 3.

His processing got SLOW.

The outsourcing firm said he was imagining it. That
it must be his application.

They then found out the ne server had 1GB, not 4GB like
the original one. Fine, they upped it, got a bit faster.

But it is still MUCH slower than the old one.

The array IO rate dropped from 90MB per second to 1MB
per second.

hehehehehehehehehehehehe.

hahahahahahahahahahahahaha.

He has no say concerning the outsourcing. He has no pull.
His server is 1 of 20 or so, and the rest seem to be OK.

Wrong time to be making waves. The people who made the
deal with the outsourcer have the political pull, saved
a bit of money, got rid of a few employees.

Who cares if his department is tanking, not their problem.

He might limp along like this for a few months before key
deliverables are missed. Maybe then he'll grow a spine
and do something about it. Or maybe he'll find a new job.

Post #252,563

4/19/06 9:12:03 AM

Or maybe youhave the data

to challenge them and a spineless manager that created the situation in the first place.

Yes, he made his own bed.

I've had similar situations and phone calls to the "appropriate" people have always resulted in quick action.

Of course, my baseline experience is certainly with an organization that I would term as "sick".

If you push something hard enough, it will fall over. _{Fudd's First Law of Opposition}

[link|mailto:bepatient@aol.com|BePatient]

Post #252,129

by Another Scott

4/13/06 8:45:09 PM

If it doesn't work, do more of it.

Naah. It just means you need to offshore your procurement and contract management people.

[image|/forums/images/warning.png|0|This is sarcasm...]

Cheers,
Scott.

Post #252,544

4/19/06 12:07:30 AM

The sign isn't appropriate

Many of our X-rays/MRI's are read and tax forms prepared and accountants doing the bookkeeping are "virtual teams" in Bangalore. Sarcasm only works if it's preposterous.

Just a few thoughts,

Danno

Post #252,557

by Ashton

4/19/06 6:09:12 AM

Hola Danno!

Might I respectfully suggest that, when the preposterous is a frequent part of a day's press conference.. perhaps a more extreme test for the efficacy of The Sign is required?

Trouble is.. can only think of ludicrous ... monstrous?
These don't seem quite Enough, though.

No wonder there's so little satire about, eh?

\ufffdYour Planet\ufffds Immune System Is Trying to Get Rid of You.\ufffd
-- bumper sticker suggested by Kurt Vonnegut

Post #252,568