It takes extraordinary incompetence on the part of the internal IT group for an outsourcer to be able to add a layer of management and still improve service while reducing costs.
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This inability to meet expectations has many negative consequences, among them an increase in senior management's vulnerability to an outsourcing pitch. What happens is that general dissatisfaction arising from unfulfilled expectations greases the way for acceptance of an outsourcing pitch that is actually based more on appealing to behaviors learned in high school than business fact.
The fundamental emotional appeal is that senior management can distance itself from the people who run IT by passing the burden of association with IT to social peers working for the outsourcing contractor. Because this reality is hardly an acceptable business rationale, two levels of rationalization -- cost savings and service equivalence -- are generally applied to cover it.
Of these two, it's service equivalence that's truly important and cost savings that's most talked about. The underlying issue with service equivalence is IT commoditization. Fundamentally, if your company has the same Microsoft software, the same hardware and the same MCSE skills as everyone else, then there isn't any competitive advantage in IT -- and cutting its cost by contracting a specialist service provider makes perfect sense, especially if that outsourcer also promises to do better than your own people.
That's why outsourcers almost always promise to provide highly reliable services using the very latest in Wintel gear while cutting costs. In practice, I've never met an executive naive enough to believe such obvious nonsense. After all, IT commoditization means that the outsourcer's costs can't be all that different -- and that the outsourcer's skills can't be all that different, either.
It takes, in other words, extraordinary incompetence on the part of the internal IT group for an outsourcer to be able to add a layer of management and still improve service while reducing costs.
Unfortunately, rationality doesn't stop management from signing such contracts because they're not really doing it for business reasons; they're doing it for social reasons. IT, after all, is "nerd central," something to be avoided at all costs. Thus, senior managers seldom believe either the cost or the performance claims on offer. Instead, they invoke cost savings as a business rationale while telling each other that their decision won't affect IT costs or performance because IT will always cost more than expected and deliver less, no matter who runs it.
That's totally wrong, of course, and the attitude itself signals a disconnect between top management and the flow of information within the organization, but marching on up to the executive suite and telling them to do their jobs isn't going to help you keep yours.
So, what can you do? Well, if it's not already a done deal and you have at least six months to act, the right answer might be to put yourself at risk through a combination of user education, Linux and decentralization.
I know all three are anathema to most MCSEs, but you need to understand that the more you centralize control and the tighter you lock down those user PCs, the easier the whole thing will be to outsource and the more reasonable that outsourcing will look.
To head this off, what you want to do is break IT commoditization because
that's the basis for the current "utility computing" rationale. When Scott
McNealy first used that term, it meant something about reliability and having
IT services
there when you need them. But now that term is being used as a marketing
slogan covering the abdication of IT responsibility to a third party or "IT
utility" -- and that's what you want to stop.
To see how, consider the lessons learned from 1990s-style organizational IT outsourcing; Every single one of those deal announcements should have been seen as a signal to sell that company short. Willingness to outsource IT almost always turned out to mean that management didn't value its most significant organizational assets: people and information.
In most cases, implementation of those contracts led to several years of nominal stability in the formal IT budget expense -- even while the contracts grew more holes than Swiss cheese as exceptions, special authorizations and addendums were tacked on. In most cases, however, actual IT operations started to diverge from the contract within minutes of the internal announcement as line management -- the guys who actually make the money -- set out to duplicate everything they liked about IT before, but this time without central coordination, support or budget authorizations.
Two of the best things about these subrosa IT activities are: First, they
tend to be cheap; and second, they tend to be effective. You don't get a line
manager investing in a couple of BASIC developers for SQL Server on Windows
Advanced Server if that manager can get someone to bang the thing together
using Java with Apache and MySQL on Linux. IT might care about standards, but
a line manager's attitude is usually much simpler: He just wants his stuff to
work, he wants it now, and he wants it cheap.
That attitude makes him the guy you want to work with before you get outsourced. Build those bridges strong enough, and these guys will get so heavily invested in IT that they'll stop any outsourcing proposal long before it becomes a threat to you. In effect, what you need to do is break senior management's IT commoditization rationale for dissociating themselves from IT by making IT strategic to middle and lower management.
So, how do you do that? More of the same Wintel stuff is just going to make things worse.
You have to break out of the mindset with user education, Unix and decentralization: education so they know what can be done, Unix so you can do it and decentralization to make it theirs. Do what you can, at whatever organizational level you work at, to help users make effective use of IT.
Learn how and when open-source tools like Apache or Linux simply make the most sense -- and then go tell everybody about that strategy. Volunteer to work with the nastiest, most demanding, most anti-IT user managers, and be prepared to fight your own bosses to deliver what the users want.
That's risky, but remember that user management doesn't care about commodity IT services any more than senior management does. From their perspective, the CIO is a contracts administrator who works for the enemy, standards are things that raise costs, and vendor viability reviews are excuses to waste time.
They do care, however, about getting things done. So if you step outside
the Wintel box to make things happen, they'll see a benefit -- and stop any
outsourcing effort in its tracks.
Infopia keeps Linux, cuts costs with outsourcing
Since day one back in 1999, the IT folks at Infopia Inc. have used and built their IT infrastructure around Linux and freeware. Linux fit the bill as a lean, keen operating environment for this provider of online marketing services and solutions for consumer goods retailers and manufacturers. As Salt Lake City-based Infopia rapidly grew, however, its do-it-yourself approach began to increasingly detract from its core business processes.
In this interview, Infopia CTO and co-founder Eric Maas describes how his company re-evaluated its IT approach and came up with an alternative that reduced IT costs by 30%. Infopia's primary offering is Marketplace Manager, an online subscription product marketing service for creating and managing product listings for merchants on high traffic online marketplaces like eBay, Amazon, uBid and Yahoo.
What's Infopia's history with Linux?
Maas: We've been using Linux since the beginning of the company in December, 1999. At first, we were using it on e-infrastructure, where we were serving up our application server, hosting a database, etc. The infrastructure for technologies where we serve our customers has always been hosted on Linux.
Could you describe your initial configuration?
Maas: We started in 1999 on shared space on another company's server. We were just using that to start our technology. We quickly outgrew that and moved to a company that hosted our applications on dedicated servers. We probably had about five dedicated servers. That setup was very inefficient.
We began leasing our own equipment: 20 servers with a Web application tier of four servers, two database servers, two e-mail servers, etc. We had a cluster of automated back-end processing servers that didn't serve up Web pages but were communicating with partners on behalf of their clients. We ran on that for a couple of years.
Why did you decide to make a change?
Maas: Our core competency is developing applications. We want to focus on application development. We don't have enough in-house expertise and resources to deal with upgrading, locating, patching, dealing with security on infrastructure.
So, we had our own in-house infrastructure, and we had to learn more and more about maintaining that infrastructure on an as needed basis when problems came up. That took a lot of time.
What alternatives did you explore?
Maas: We realized that we couldn't hire more IT staff: sys admins, DBAs, etc. Outsourcing quickly became very attractive to us. We spent a long time looking at providers of outsourcing, from co-location to a fully-managed solution.
After many evaluations, we found that we liked that Oracle (Collaboration Suite Outsourcing on Linux) not only maintained the software being outsourced but they built the software architecture. Oracle's outsourcing wrapped up many things that we needed into one service. We couldn't find that with other providers. We'd get 24X7 global support experts in every area of our infrastructure. There would be no incremental charges when we need to get things figured out or use more DBA or network resources. So, we didn't have to have an in-house full-time DBA or sys admin.
Did you have experience with Oracle in the past?
Maas: We'd been using Oracle, so discovering Oracle Outsourcing was a relief in one way. With some other outsourcers, we might have had to change databases, and that would have been a lot of work.
How did the switchover happen? How did you prepare internally?
Maas: We signed the contract almost a year ago in November and spent the next month or so planning the move. We did a lot of documentation on our systems, a lot of work with Oracle planning the infrastructure. We had to determine how many servers were needed, what we were going to do, etc.
Oracle immediately got a test environment set up so that we could begin testing out different areas or applications. So, we just started moving things over, testing them out, and we went live with Oracle Outsourcing and Oracle Collaboration Suite on March 1. It was a pretty quick transition. Once we went live, all the services we offered on our old infrastructure were now offered on the new infrastructure.
What was the impact on your customers?
Maas: There were some switchover pains that did give our clients some headaches. Our application is pretty complex. We integrate with many different points, many different partners, shipping providers, marketplaces, referral sites, accounting software platforms, things like that. Oracle worked with us to get through the complex issues that [caused those initial pains] fairly quickly.
As a provider of solutions that enable retailers -- from Fanzz to individual eBay vendors -- to market, sell and ship products, we rely heavily on e-mail to make our campaigns, as well as those of our clients, successful. Because e-mail is such an integral part of our business, we cannot afford to have our systems go down. Now, our application runs on a secure, robust, faster, more reliable platform. We've had a 50 percent decrease in downtime. Everything runs faster.
There are fewer problems now that cause pains for customers because Oracle is proactively patching, upgrading, maintaining our infrastructure. Before the move, we were always just reacting to problems after they happened because we didn't have enough time or resources to just focus on being proactive.
How has the switch to outsourcing played out financially?
Maas: We're paying 30% less now as well as receiving vastly more for what we're paying for.
What productivity changes have you seen?
Maas: We've seen significant increases -- 50%, at least -- in development team productivity. We have a small IT staff, and their primary focus should be on developing applications. However, before we moved to outsourcing, the IT staff was spending a lot of time dealing with problems on the infrastructure: the server goes down and needs to be rebooted or needs to be upgraded; there's something wrong with memory card; and things like that. After the move, we are focusing a lot more on our core competency.
Are there any down side to outsourcing?
Maas: The down side is that we could do anything we wanted before. That could be a good thing and a bad thing because we might do something that's not secure or reliable. But sometimes when we need to get certain things in place we have to get clearance, and that makes it take a little longer. It means that changes to infrastructure take longer. On the up side, experts make the changes for us and think about all the aspects and ramifications of the changes. It just takes longer, and that's not much of a down side.
What's next on the IT front for Infopia?
Maas:When we first went live, we turned on core Oracle applications -- RAQ and Application Server, Collaboration Suite and things like that. We're still turning on features as we go along. We didn't want to try and to everything at once. Over the next year, we'll be turning on more pieces. In the Collaboration Suite, we're testing our files and calendaring right now. Web conferencing is coming this fall. We're also looking at wireless e-mail access.