All Together Now…

Ask Chief Information Officer Duncan Vickers what his role is in day-to-day information systems work, and he’ll start by saying it’s not much. Vickers, who is vice-president of information and communication technology and CIO at BC Gas Inc. in Vancouver, is only partly joking.

BC Gas relies on outsourcers for virtually every aspect of its IT operations. ISM British Columbia runs network servers and associated hardware and networks, while several other companies implement and modify software. So Vickers means it when he says he isn’t concerned with day-to-day details. His real role – and it is an important one – is as a coordinator and a strategist. In musical parlance, he is a conductor.

“I try to stay out of the way of the day-to-day operations,” Vickers says. “What I’m looking at is the overall direction. I’m interested in what the outsourcers’ capabilities are, so if we decided to think about a shift, we’re able to sit down and talk to them about it – find out if they’re able to handle it with no incremental cost, or if there is an incremental cost, what it might be.”

BC Gas is a good example of how outsourcing has changed IS organizations. In the early 1990s, outsourcing was seen mainly as a cost-cutting measure. You looked for an outside contractor who could do something more cheaply than you could, you haggled over price and then you handed it over and hoped for the best. Sometimes this worked, and sometimes it didn’t. Thanks often to poorly negotiated outsourcing deals, companies found they weren’t saving money after all, and ended up disillusioned with the whole idea.

However, outsourcing lived on, and thanks to a growing understanding of what works and what doesn’t, the number of horror stories seems to have declined. The goals have changed, too.

“In the early days, we defined outsourcing as a transfer of assets and employees to a third party. At the lowest end of the spectrum you would give the outsourcer total responsibility for cafeterias or security guards and they would take responsibility for managing them,” says Les Blumberg, director of strategic sourcing for the Providence, R.I., consulting firm The Warren Co. “First we looked at outsourcing non-core competencies. As we began to move up the curve a little bit, we started to move into more complex types of services, such as information technology. Rather than viewing outsourcing as cost cutting, we now look to source somebody who has core competencies that can contribute to the strategic direction of the organization.”

Rene Boisvert, director of the consulting group project management office at Montreal-based outsourcer LGS Group Inc., says it’s important to think that way because things change quickly. “Today you may be cutting some costs, and in two or three years you may have reduced costs, but who’s going to help you do all the thinking, the evolution – all those sorts of things?”

And with technical skills in short supply, it may well work better to find an outsourcing contractor who already has the skills rather than to try to hire those people or train existing staff. As well, the need to do things faster and faster means there is little time to bring internal staff up to speed on new technologies, so outside contractors with experience in a new area have an advantage.

Vickers says one original reason BC Gas chose to rely so heavily on outsourcing, starting in the early 1990s, was cost reduction. But the focus was to “get a lot of the fixed cost off the books in terms of care and feeding of IT.” That meant letting outsourcers provide people with the skills BC Gas needed rather than having to train them internally.

Need for Governance Mechanism

By looking to outsourcers to provide skills and expertise that aren’t available internally, an organization can get more than simple cost savings out of the outsourcing relationship. But managing that relationship also becomes more complicated than simply negotiating the best possible price.

“If outsourcing relationships don’t go well, it’s mainly because of two things,” says Geraldine Fox, practice leader for sourcing services at Compass Analysis Canada Ltd. in Toronto. “One, the client wasn’t properly prepared and didn’t understand what they were getting into, and secondly, once the deal was signed, sealed and delivered, the client didn’t properly construct a governance mechanism.”

Blumberg adds that “one of the first things you have to have is a champion who has the ear of senior management in this area, and of course senior management has to understand what these relationships mean to the organization.” These champions need to be trained in the nature of alliances and strategic relationships, Blumberg advises. And it’s important to the success of an outsourcing relationship to have a good champion throughout its lifetime, not just at the beginning.

Of course choosing the right vendor is critical. There is a lot to take into account here, from technical expertise to corporate culture to size and geographic reach.

When it last renewed its major outsourcing contract, BC Gas looked at its business and asked itself which major players could handle a province-wide deployment. Said Vickers, “That really thinned it down to four players in the outsourcing business, one of which (IBM) became excluded because they already had a partnership with one of the other players (ISM British Columbia).”

To help with the process BC Gas retained Compass, which Vickers credits with helping his group “stay on the path and see where the quicksand was.”

One piece of advice Compass gave to BC Gas was to think about more than just the candidates’ technical expertise. Companies have their own cultures, and “one of the things you should evaluate the vendor on is whether that culture will work in your organization,” says Compass’s Geraldine Fox. She admits that many business people pooh-pooh the idea that culture is important, but she maintains that when customers looking for outsourcers spend a lot of time with potential vendors, they usually start to gravitate toward the vendors with which they feel comfortable, and that is largely a matter of corporate culture.

Understanding What You Need

For the Department of National Defence in Ottawa, one of the first steps in an outsourcing plan for a Canadian Forces Base in Goose Bay, Labrador, was to define what needed to be done. Col. Bob Ryan, project manager for the Goose Bay Alternative Service Delivery Project, says people from the base itself were brought in to participate in this, to help his department “understand the lay of the land there, the soul and mission of the team.” He notes that writing what DND calls a “statement of work” needed for an outsourcing contract is a useful exercise in itself because it helps you understand what you really need versus what you’re actually doing. “Sometimes you’re driving a Cadillac and you don’t know it,” he says, and that’s one possible source of cost savings in an outsourcing relationship.

At Goose Bay, a base used mainly for North Atlantic Treaty Organization (NATO) training exercises, DND contracted out a wide range of services, including computing, networking and telecommunications as well as other areas like air traffic control and snow plowing. Evaluators were chosen from across the entire department to assess bids section by section. Because the department was seeking a large prime contractor who would have to manage many people and a large budget, “experience of like type” was a key criterion. Consulting firm PricewaterhouseCoopers and Acquisition Services Consulting Group, a U.S.-based specialist in procurement management, helped with the search.

Avoid Micro-Managing

Once a contractor is chosen, one common mistake is micro-managing the relationship, Fox says. While many CIOs have moved up through the technical ranks and are experienced at managing technology, “we would hope that the vendor could do this better,” says Fox, “because frankly, if they can’t, why would you outsource?”

There is also the danger of going to the other extreme, though. “Many people, when they get an outsourcer, think everything is now the outsourcer’s responsibility,” says LGS Group’s Rene Boisvert. “The company itself still has a responsibility. Now that the contract is signed it’s not only the outsourcer’s responsibility, it’s a common responsibility. Decisions have to be made together and normally you’re going to use management indicators to make sure the outsourcers and the company see the full picture.”

So the trick is to manage the outcomes, not the details.

For BC Gas, that means telling outsourcing personnel that “we want you to take ownership of the problem just as you would if you were employed by the company,” Vickers says. “I keep saying to ISM, ‘As far as I’m concerned, you’re my operations manager.'”

BC Gas’s relationships with its outsourcers depend on specific performance criteria, such as how long it should take to bring in a new PC and get it up and running, or how much time is allowed for correcting a problem. When the company put out a new request for proposal and renegotiated its outsourcing relationship recently, it tightened up many of those requirements dramatically. “Many of the performance criteria which were defined back in ’91-’92 and were adequate then would no longer be considered adequate today,” Vickers says.

Satisfaction Reviews

But performance criteria can never tell the whole story. “Everybody says people are key and then they go off and quote numbers,” Vickers says. To get at the story the numbers don’t tell, he explains, “as part of our ongoing attempt to keep the clients involved in the management of this process we do regular customer satisfaction reviews. Every customer interaction they have via the help desk, they provide a review of their satisfaction.” BC Gas reviews these satisfaction reports on a quarterly basis, making allowance for their subjective nature but looking for trends that could be important.

DND holds meetings three to four times a year where the prime contractor for the Goose Bay base meets with representatives from the base and from Ottawa. Designed into the contract, Ryan explains, is $1 million per year for performance bonuses. At these meetings, the contractor makes its pitch to DND officials for all or part of this money, and has to explain what it has done to deserve the payments.

The Outsourcing “Partnership”

Communication is critical, Boisvert says. “The worst thing for a customer is to feel that it has no control,” he explains. “So the key thing for the outsourcer is to inform the customer about what is going on and keep him posted. When you really get a partnership, that will be simple.”

That word partnership comes up a lot when you talk about making outsourcing work. It’s an over-used and sometimes meaningless word in business and the IT field today, but in this case at least, some people can offer meaningful definitions.

In a partnership, Blumberg says, “you really need to engage in something beyond a cost-cutting environment. You want to identify all the areas that will make the pie grow bigger for both companies, not just cutting costs. The client should look to the outsourcer not just for cost reduction but for innovations in areas where they are needed.” He contrasts that approach to what he calls “aggressive sourcing”, in which the goal is to push the outsourcing contractor for lower prices based on the promise of more business or the threat of losing business.

Fox at Compass puts it very succinctly: “There should be no us and them,” she says. Many people say you know you have a good outsourcing relationship when it’s difficult for an outsider to tell who works for the customer and who for the outsourcing contractor, because they all work together as a team.

Managing Multiple Outsourcers

Getting it all to work with one outsourcer could be challenge enough, but what about multiple outsourcers? Any parent will tell you that dealing with one child is nothing compared to supervising a group of them, and in some respects outsourcers are no different. And yet many companies are less and less inclined to outsource everything to one vendor. The growing number of companies that use more than one outsourcing contractor face a daunting task: keeping the lines of responsibility clear and avoiding the finger-pointing problem, in which every contractor tries to blame a problem on someone else.

Vickers says BC Gas has largely avoided that problem because of its lengthy experience with outsourcing. “We do have weekly operational meetings where operations manager Tony Daly gets together with all of our partners to make sure these things surface very quickly and get discussed.”

Blumberg of Warren Co. says forming a “small board of directors” and committees with representatives of each organization – including your own representative – is a good way to keep on top of potential problems and keep lines of communication open. This structure should be “co-created” by the customer and the various outsourcing contractors, he adds, rather than imposed from above.

Defining roles clearly will go a long way toward eliminating finger-pointing, and is almost essential if you are going to work successfully with multiple outsourcing contractors. “Selective outsourcing works best if you can draw a box around the service and say this is the entire service,” Fox says. Failing that, it’s important at least to make it clear where the lines are.

Hiring a Prime Contractor

Another way of avoiding conflicts is to name one prime contractor who is responsible for everything, including work performed by other contractors. This is what DND did at Goose Bay. Ryan says this approach was necessary to avoid finger-pointing. “We have one person who has the mandate to get this entire site running,” he says. Bidders for the Goose Bay contract had to bid on all of the work, using subcontractors as necessary. Ryan admits that meant DND could not choose the very best in every area, but instead had to look for the best overall package. Another possibility is to choose separate contractors and then hand one of them – or another company altogether – responsibility for managing the relationships.

Blumberg warns that even if you hire a prime contractor “you still need to maintain some understanding of what’s going on. You don’t necessarily want to abrogate all your responsibility for knowledge; you want to make sure knowledge is still being transferred back into your organization.”

And even though they talk about good outsourcing relationships being like marriages, consultants also stress the importance of always making sure you’re still getting a good deal. Outsourcers “need to demonstrate that their cost structure is line with the marketplace,” Blumberg says. “You need to monitor that as well through appropriate measurement and analysis, and competitive benchmarking. You should require that as part of your outsourcing agreement.”

If a CIO can do all this successfully, outsourcing relationships can bring a company access to skills and resources that it could never provide internally, and outsourcing contractors can become valuable members of a team that doesn’t stop at the boundaries of one organization. And the CIO, instead of getting bogged down in the day-to-day details of IT infrastructure, becomes more of a manager of this portfolio of outsourcing relationships, concerned more with long-term strategies and lining up the resources necessary to achieve them.

Grant Buckler is a freelance writer specializing in information technology and IT management. He is based in Kingston, Ontario.