CIO: Balancing value and risk key to outsourcing

Used correctly, outsourcing can be one of the vehicles for enterprises to weather the current “IT storm,” according to one CIO.

Brian Gill, vice-president and chief information officer for Sun Life Financial Canada made these comments during Tuesday’s CIO Summit held in Toronto. IT is experiencing a “credibility challenge” of sorts, Gill said.

According to Gartner Inc., 30 per cent of IT projects, once started, never come to a fruitful conclusion. Fifty-one per cent of those same projects exceed budget by 189 per cent, and provide only 74 per cent of the original stated functionality.

What this means, Gill said, is IT execs are feeling the pressure to demonstrate return on investment (ROI) – and outsourcing is becoming a way to achieve results.

Sun Life in particular decided to conduct outsourcing overseas, a decision made primarily to complete its projects more quickly, and not necessarily to reduce costs, Gill noted.

Just last spring, an IDC Canada Ltd. report revealed that a number of Canadian executives are more willing to partner and share both the risks and rewards with IT outsourcers. As well, reducing costs – while still important – is no longer the driving force behind a company’s decision to outsource services.

The study, entitled Outsourcing: Shared Risks and Shared Rewards, was conducted for Accenture by IDC Canada from December 2002 to January 2003, was a snapshot of Canadian executives’ perceptions toward outsourcing.

According to the report, not only is outsourcing about saving money, in many cases outsourcing clients expect the vendor to offer more in the partnership than just reducing costs.

Nearly two-thirds of respondents (64 per cent) said they consider a service provider’s willingness to share some risk when selecting an outsourcing company.

By 2005, the number of software developers within the Asia/Pacific region will exceed the numbers in North America. In order to remain competitive, shifting jobs overseas will be something that CIOs will have to take a close look at, Gill added.

But outsourcing isn’t a cure-all, he warned.

Ultimately, Gill said successful CIOs will avoid cost overruns and out-of-control projects by staying on top of things – project tracking is key, he added.

The risks are real when dealing with outside providers for outsourcing, according to Gill. The most common points of failure include a disconnect of objectives between an enterprise and the outsourcing provider, poor service quality, and cost overruns, Gill said.

Benchmarking plays a role in reducing costs, discovering new best practices and delivering value. And don’t downplay the importance of culture within an enterprise, he added.

It’s about “empowerment, without anarchy,” Gill said. “Our job is to create the right culture in which our people can succeed…your people are your greatest asset.”

– With files from Allison Taylor, IT World Canada