Rethinking outsourcing

Three-and-a-half years into a five-year IT outsourcing deal, Sprint Canada’s CIO Serge Babin has had enough time to reflect on the pros and cons of outside help. In the end, a combination of factors may tip the scale in favour of bringing much of Sprint’s IT back in house.

In 2001 Sprint’s parent corporation, Call-Net Enterprises Inc., signed a $70 million deal with EDS Canada Inc. to have EDS manage Sprint’s data centre, LAN, desktop support and 24/7 helpdesk.

Babin said the two key drivers for the deal were cost savings (the business case assumed a 15 per cent savings and it has been achieved, Babin said) and the desire to broaden the available skill sets at Sprint’s disposal. At the time of the deal Sprint’s data centre was running mostly IBM Corp.’s AS/400 servers. As the company moved to more Java-based development projects it lacked personnel to handle the Java tasks, he said.

“[The deal] was a way of retooling the skill sets on the IT operations side by outsourcing it…and I think five, 10 years ago the skill sets were scarce,” he said.

Regardless, Sprint entered into the deal with a hint of trepidation, deciding not to hand over the keys to the castle. Though EDS would come in to manage aspects of the network, asset ownership would remain with Sprint.

“The reason why I wanted to own the assets, although from a business case perspective I don’t think it would have made a big difference in the cost savings, [was that] it gave me options at the end of the five-year deal,” Babin said. If Sprint chooses not to renew the deal, the telco will be able to bring things back in house more easily because the telco still owns the assets, he explained.

Keeping some control

Gordon Haff, a senior analyst with Nashua, N.H.-based consultancy Illuminata Inc., says Babin made the right move in hanging onto the IT assets. “There is a reduced level of control (with outsourcing). There is the feeling that if you own it you control it.”

“One of the challenges with outsourcing…is if you outsource everything including the capital, including the assets, it makes it a much tighter relationship and a lot tougher to get it back (in house),” Babin said.

Haff isn’t surprised Sprint decided to move cautiously. “As is often the case when something is touted as a panacea to the world’s problems (as outsourcing was), the reality is found not to be quite as wonderful as the brochures said it was going to be,” he said.

But one real plus to Sprint’s EDS deal, and an unexpected one at that, has been the reduction in helpdesk calls. As is the case at most companies, IT help often operates in an ad-hoc fashion, where tracking actual cost is extremely difficult.

“Prior to the outsourcing, people would call [a colleague] and say, ‘Can you do this for me?’” Babin explained. ”It was a challenging first 12 to 18 months (explaining to our employees) that the way you got things done wasn’t to call Bill [for] a favour.”

“Now it’s $50,” Babin said. EDS charges Sprint based on a per incident or per ticket request.

Employees learned that there was a cost for requests for IT help, he said.

Helpdesk calls fell from 5,700 in January 2002 to 1,789 in March 2005, he said. To help reduce calls Sprint populated its Web site with helpful hints on how to use a variety of office applications and remote access tools, and directed employees to a tip of the month.

Layering on complexity

But from a project management perspective outsourcing added an unintentional layer of complexity, Babin said.

Sprint has always done a lot of its own application development. Today it has about 140 developers who create everything from new billing applications to network surveillance software. But getting some new applications into production became too complex, Babin noted. Previously everything was done entirely in house, but with the outsourcing deal portions of a new application launch — like testing it — required scheduling the event with EDS even though the employees were physically at Sprint’s site.

In the end, the solution was pretty simple. Babin just requested a change in the reporting process. The employees are still paid by EDS but Babin dictates their workload. Early on in the deal Babin and Sprint’s executives also had an epiphany. The corporate LAN was more core to Sprint’s business than previously thought.

“We felt two years ago that (the connections were) so strategic to our network — as we connect our LANs to our WANs — [that we should run] all of that,” he said.

Sprint now runs the LAN.

There is one aspect of running a company, though, that Babin would willingly hand off in a flash: the end-to-end management of Sprint’s 2000 desktops. Right now EDS manages the machines but Sprint owns them. He said if he could pay around $500 per year, per machine, and have them refreshed every three years, he’d outsource them entirely. But even that can have a downside. Owning the assets gives Babin the leeway to increase refresh cycles from, say, 36 months to 48. Keeping a machine an extra year saves money. “And we have done that; we have pushed the limits of our assets quite a bit,” he said.

Sprint is still analyzing its EDS deal and whether it makes sense to continue with the current agreement, amend it or end the relationship, Babin said. Rogers Communications Inc. recently reached a deal to purchase Call-Net. This may have some impact on Sprint’s ultimate decision, though it is too early to tell.

Haff has some advice for those looking to enter or renew a long-term deal. “I think there should properly be a lot of hesitation about signing…a very customized (contract) over…let’s say a ten-year and maybe even a five-year outsourcing contract.”

A lot of new technology is coming down the pipe such as new software delivery models like utility computing and Web services, he said. So if a company decides to enter a long-term deal then the flexibility to rework the contract to reflect likely technological changes may be the most important part of the contract, he said.

At this point, Babin isn’t committing to any definite plan.

”My team today is working on a plan of options…(and) we’ve had some preliminary discussion with EDS,” Babin said.

“My thinking right now is that we are looking at what [co-operation] we can have with(in) our own organization and seeing if it is more realistic to just do it ourselves,” he said. “I think that is where we are at.”

QuickLink: 056090

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