Leadership

Sanity check: Is IT moving toward an inevitable split between in-house strategy and outsourced operations?

As the pressure builds for IT departments to move from being a cost center to an innovation-driver, the forces of change are moving IT toward a split between strategy and operations. TechRepublic's Jason Hiner evaluates this trend and what it means for the future of outsourcing.
Last week I criticized The Wall Street Journal for its article showing users how to circumvent IT. While that piece was the cover story of an eight-page special section on technology on July 30, tucked near the back of that section was another interesting article called "What's Next for IT," which touched on an issue I have been thinking about recently and which came up again this week at LinuxWorld -- the potential split between strategy and operations in IT. In The Wall Street Street Journal article, Frank Modruson, CIO of Accenture, said, "There are two pieces to IT: strategy and operations. Ten years from now, you will see CIOs focus even more on strategy, whereas operations will be industrialized and outsourced to providers that are at market-efficient scale and have the ability to invest and attract top IT talent to operate the technology."

Steve Squeri, CIO of American Express, went into even greater detail. He said, "The days of tech leaders as relationship managers and 'order takers' will go by the wayside and they will be called upon to create and drive technology strategies that drive business capabilities. Technical architecture will become a core function of IT departments (today some of this is outsourced) as the basic architectural footprint becomes important to own, manage, and control as we begin to manage platforms and capabilities as opposed to one-off projects. I believe that project management, testing, coding, maintenance, and basic infrastructure support and day-to-day operations will continue to be outsourced."

I was thinking about this at LinuxWorld this week as I talked to IBM, HP, and Verizon about their "managed services" businesses. Managed services essentially involves a company turning over ("outsourcing") part of its IT operations to a third-party partner, and IBM, HP, and Verizon all have thriving managed services divisions.

Cliff Cibelli, who is a manager in the Verizon managed services division, told me that Verizon offers three levels of service. The first is where Verizon will take over management of a specific group of applications or services, such as the company's WAN links. The second is where Verizon will take over additional services, such as network management and monitoring, but the client's IT department will still handle all of the physical equipment. The third is where Verizon also takes over the physical network infrastructure by placing its technical staff on site with the customer.

Cliff explained that companies often move up the ladder from the first level of service to the second and then the third as they get more comfortable and confident with Verizon running part of their IT operations. He also highlighted the fact that when a company turns over the operations to Verizon, the on-site staff handle things during business hours and then the monitoring and management is turned over to one of Verizon's 24/7 command centers during "off" hours.

Sanity check

The issue of a potential split between IT strategy and operations leads to several questions: Is this split an inevitable part of where IT is moving in the future? Is this split a good thing or a bad thing for IT professionals? Does "outsourcing" mean that a lot of the IT operations jobs are heading offshore to India or China?

First, this split is certainly not inevitable. It could simply be a fleeting trend that has not had its weaknesses fully exposed, and it won't until this is done on a broader scale. There could be technology developments over the next few years that relieve pressure on IT and make it advantageous to keep IT talent in-house.

That being said, the split makes a lot of sense because it solves a number of current problems, especially:

  1. Training and retention - Recruiting, training, keeping, and retraining operational IT professionals (such as administrators, help desk technicians, and programmers) is very difficult for most organizations. Managed services organizations can focus on continually finding and developing the best IT pros. It would have to be one of their core competencies and so they would likely do it much more effectively and resourcefully than organizations who simply need these IT pros on staff to keep things running.
  2. Complicated infrastructure - IT operations are becoming much more complicated, especially as we move toward virtualization, service-oriented architecture (SOA), and an adaptive infrastructure in which resources will be scaled up and down on a regular basis. This will require new training for many IT pros as well as highly trained specialists in new areas. The specialists will likely be too expensive for most organizations -- except the really big ones -- but if they are part of a managed services organization, they can apply their skills and knowledge across more companies.
  3. Giving IT execs a strategic seat - CIOs and other IT executives are too often tasked primarily with managing the organization's technologists rather than being focused on finding the technologies that can make a major impact on the business and playing a more active role in the company's strategic direction. Instead of the company's leaders making decisions and then telling IT to find the technologies that make it work, technology leaders need to be more involved in the decision-making process on the front end to help shape decisions with the information on technologies that can best catalyze a line of action that is being considered, and possibly even open up new possibilities with information on new technologies.

From a career standpoint for IT professionals, a split between strategy and operations would have a number of implications. First and foremost, the days of old-line IT pros who resist change and build their own little stagnant fiefdom within an organization would quickly come to an end. IT pros who work in operations would be required to keep their skills sharp -- and would have the resources to do so -- and a lot more of them would be working in organizations that are purely IT focused and serve multiple customers.

More IT pros would be located in centralized command centers, but there would still be plenty that are located on site, albeit employed by a service provider and not the local company. These on-site IT pros would likely be more isolated from the other employees at the local company, depending on the company culture -- and that could be a negative thing, both personally and professionally, in some cases.

IT operations jobs would be much more competitive in an environment such as this, and there likely would not be the same kind of job security because companies wouldn't keep IT pros around during times when they didn't need them. If IT operations are outsourced with a service provider, then a company can scale up and scale down the number of IT pros it needs. Some IT pros may not work on salary but on billable hours, more like a consultant. Or they may have a base salary plus a bonus that is based on the number of hours they worked in a month.

However, this split does not necessarily mean that a lot of IT operations jobs will simply be shipped to Asia. As I've already mentioned, there will always be a certain number of on-site jobs that will require local talent. Other IT operations jobs, such as working in command centers (for administrators) and call centers (for help desk), will require highly skilled IT professionals who can work efficiently, keep their skills sharp, and provide great service.

Hewlett-Packard is currently near the end of a data center consolidation for its internal servers, going from about 80 data centers worldwide down to six. At LinuxWorld, I spoke with Fidelma Russo, vice president of HP's Adaptive Infrastructure initiative, and she said that when HP started the consolidation project, she expected to see a lot of offshoring involved. However, that hasn't been the case. It's mostly smaller, focused, highly skilled teams in various global locations, including the United States and Europe.

What do you think about IT being separated between strategy and operations? Have you seen examples of this already? What would it mean for your career? Join the discussion.

About

Jason Hiner is Editor in Chief of TechRepublic and Long Form Editor of ZDNet. He writes about the people, products, and ideas changing how we live and work in the 21st century. He's co-author of the upcoming book, Follow the Geeks (bit.ly/ftgeeks).

64 comments
llmasano
llmasano

Outsourcing IT Operations makes sense in some organisations in certain localities/economies only and it is not a solution for all organisations every where. In developed countries where wages are higher than in developing countries, it makes sense to pay less for probably a better service. But in low wages economies, outsourcing ends up being more expensive than keeping internal IT professional to man the IT operations. For us who are in the developing economies we are sometimes carried away by the developed economies' bandwagon and follow blindly (they some times sell it forcefully through conditions for financial support), without doing the maths to see if there will be any real savings and IT services improvement.

rehanz_138
rehanz_138

Usually the parts of the system of an organization that are outsourced are the ones that are "specialized". Now a days many things are considered to be "specialized tasks" which were previously considered for in-house only. Now specialized tasks such as FiberOptics, V-SAT, Datawarehose even backups are considered as specialized and thus are outsourced.

dwulkan
dwulkan

In the beginning there was Big Iron that was leased not owned and solutions were dictated. Then when mini's and desktop's came on the scene managers wanted to control it (mostly costs). The trend now is to go to Big Intellect. How long do you think managers will stand for costs beyond their control?

gary
gary

Let's face it. Companies are in business to make money. IT personnel are costs in the category "indispensable but non-productive." Outsourcing infrastructure looks good on paper but what makes you think that service provider is going to pay more for salaries, training and certification? In the real world that does not happen because they are in the business to make money too. To all of my SysAdmin colleagues, when was the last time you saw IBM, or HP hire someone with over 15 years experience? They hire the new graduates. Why? Because they are cheaper and they blindly do what they are told. Hiring someone with experience and knows what he or she is doing just does not figure in the equation.

ben@channells
ben@channells

In the UK the government over the last 15 years have outsourced more IT than any other country. the increase in costs failed projects over delivered many years late and hugely over budget. but this is by the commercial sector big IT firms. Even UK Military(MOD) out sources Apache attack chopper training and maintance to non security cleared firms. Result the choppers are still in storage unused, no training and no spares plus not used in Gulf War. Plain stupid: the UK gov paid to outsource police checks of gov staff, teachers, local council staff in an automated IT system.data entered was not checked and no cross refference (was not capable) plus the new outsourced agency had NO legal access to the database until the UK law was changed Just crazy: an upgrade to UK government secure infrastructure (??400Million) paid for hardware, managers, project leads but not the staff to design it or develop it or deploy it

No User
No User

First of all look at Pennsylvania. It's number one export is ?Young Educated Talented People.? Second look at the bulk of the IT jobs that PA has. You guessed it, they are Out source/Contract jobs. It's rare to even find PA companies advertising IT jobs. Hence the massive relocation of Talent every year from PA to somewhere else notably the Maryland, DC, VA area. Heading West on Highway 70 is nightmare on Fridays and East on Sundays. That would be do to all the folks who once lived in PA heading back and forth. Now a dose of financial reality. The companies that provide those outsourced jobs don't keep folks on the payroll when they don't have a contract for a particular specialty. You eat when they eat. That means they have a very hard time recruiting/keeping qualified staff that is not getting paid. Ergo they often use less then appropriate talent for any given job. You have Joe salesman signing contracts and Joe Sh_ts doing the work. Another tidbit is you better dot every I and cross every T. When you Out source you are held responsible for stating exactly what you want/need and also to monitor operations and contract for changes as they develop. I just couldn?t imagine the bill if all responsibility was placed in the hands of the contractors. Oh wait yes I can look at Government oh now there is a shining example. What is the deal with Outsourcing IT anyway? My guess is, Folks at the top and elsewhere don?t understand IT so they Out source. They are largely afraid to have a department which requires a knowledge/talent for which they are clueless set at the big table and take charge. If they contract then that is something they understand. If it?s all about the bottom line then out source every job starting with the top. That is where the most money will be saved and the company will benefit the most from Outsourced talent providing better results. Why not have a situation where nobody who works at/for a given company is employed by that company? That is if Out sourcing is so much better in every way.

M.Ranck
M.Ranck

Face it folks. Any process that can be easily digitized within a company will be outsourced (most likely to India). In the next 5 years or so I would expect the number of American companies doing business with India to triple and India is already ready for that. I agree with the author about the split because I am seeing it happen first hand on the operations side within the fortune fifty company I work for. The cost per employee for a given support task is so much cheaper on the spreadsheet when you transfer it overseas that virtually every company in America and Europe realizes that if they expect to survive on the global market in the future they need to follow their competitors. Countries like India have successfully built their infrastructure and are advertising to the world that they will gladly perform the "monkey" jobs that companies can't afford to have their own employees do. While first and second line managers complain with us front liners that the Indian resources do not always posses the same level of understanding and quality of service, I can assure you the top brass is and will continue to focus on the bottom line to investors. Unless a major breach of security causes companies to take a second look or the overall standard of living quickly increases in India I seriously doubt the splitting the author mentions will stop. The average Indian worker makes $200-600 a month and that is considered excellent wages by their own standards. I'd say it's going to be a while before the prices to do work in India will be on par with America or other parts of Europe. Rather than fight this inevitable trend we'd all be smart to start becoming more versatile. Humans do not like to change from the equilibrium they strive for and live within but this change is already upon us. It's time to start seeing where you can take advantage of the new markets.

randy.gleason
randy.gleason

You hit it dead on. Our company is just beginning this switch. The hard part is implementation because in the short run it will take a lot more money to run the business. In the long run with the complexities of the business our company will be better off. I must give manangement a node for understanding this as this is truly the first major effort in a long, long time, that I believe is worthwhile and will pay off in the long run.

Wayne M.
Wayne M.

Though I see the market shifting towards outsourcing, I don't feel this to be an efficient approach. One simply cannot separate strategy (thinking) from operations (doing). This was a lesson we supposedly learned during the quality revolution of the 1980s - rely on integrated teams. Outsourcing provides an additional level of indirection between strategy and operations, requiring, as noted by several above, higher commitment to communication. Although this may work in the very short term, as operations knowledge becomes lost to the corporation, the ability to oversee operations effectively also becomes lost. Refer to the ongoing difficulties of the US Federal Government in overseeing contracts as a prime example of this problem. By outsourcing operations, these duties become a commodity and are largely driven by cost rather than quality. In fact, poor quality is often beneficial to the outsourcing provider. It is much more effective to bill lots of poorly qualified staff than a single knowledgeable person. It is more profitable to maintain inefficient manual processes than automate. The separation of IT into an independent department has already lead to major disconnects between IT and business. By outsourcing IT, change requests become contractural negotiations and "scope creep" becomes the standard mantra. At a time when IT needs to be ever more closely aligned to business, we should not look to make it even more independent through outsourcing.

johnm23357
johnm23357

Well I am glad my children don't want to go into IT. They saw their old man get long term layed off in 2002 and decided that was it. My painful experience showed them that IT does not have the stability that would cause my kids to obtain a 4 year degree in any of the engineering professions. This article doesn't condone outsourcing on all of IT however the increased volatility in operations jobs, which were the only available jobs during the 2001 - 2004 depression, puts pressure on the whole job market. The author addresses IT from a purely job supply view point and doesn't look at demand at all. My children aren't alone either, many of the college students in the USA feel the same way. Why go into engineering or IT? We don't treat our engineers and programmers particularly well in this country. In this scenario they layed off at the drop of a hat.

toysarefun
toysarefun

I've been in IT for 20 years myself and continue to wonder how strategy in IT can be so difficult. I can see if IT is the foundation for your business in which case I would keep strategic functions separate from operations. IT and IT work is becoming to piecemeal, which explains why so many projects fail. The loyality of anything outsourced only runs as deep as the contractual agreements. Meanwhile my career seems to have become about 50% breaking in IT managers and training contractors.

htmapes
htmapes

I talk with several hundred companies a year about outsourcing. The approaches run the gamut from simple co-location to shedding entire IT staffs. The ones who get it realize that they need to concentrate on business not technical problems. Their choice, given a budgeted pool of permanent talent, is to bring in resources at the strategic level or at the infrastracture level. If they hire at the top end and keep the low-level tasks internal, they are marginalized at their company -- they're just guys in the basement with propellers on their heads keeping the lights blinking. If they outsource the mundane, common tasks, they give their staff an opportunity to move into roles with higher business and career value. If you think that your career at your company depends on changing tapes, patching OSs, looking at firewall logs or coding dialog boxes, you are already overpaid and are just waiting for the inevitable.

lowtimeppl
lowtimeppl

Your writer must be new to IT, or very young and wide-eyed. This strategy-vs-ops split has been around since I started in IT 20 years ago, and even then, my seniors had seen it all before. The fact is that not everyone in IT can be a strategy-setter; there has to be someone to do the donkey-work. There has always been the discussion from 'operations' staff having to the monkey tasks, occasionally shouting loud enough to be heard that they are underskilled (read: bored) of effectively routine maintenance, whilst the perceived Top Gun architects, systems development or the similar roles get all the interesting, sexy design-and-implementaion tasks. What has been identified is the monkeys cost unnecessary money for repetitive tasks; spin those tasks out to a company who set their employees' expectations from the outset and of course you'll get a cheaper service, because the outsourcer can set their rate according to demand and supply of people willing to do those jobs. It's nothing new; I left an outsourcing company 10 years ago because this was happening, and as I mentioned, it was happening 10 years' prior.

mcghome
mcghome

I think it is a better framework to work in, both for the IT Pros and the Operation IT, if done right. If there is someone involved in operations i.e. has extensive technical experience yet has enough time to spend studying and devising strategy then you hit the right mix. However if the guy making the strategy does not know how it would apply and affect the day to day operations then you the Queen of England scenario where she asks people dying of hunger, why they simply can't eat biscuits.

jasonhiner
jasonhiner

I wrote about the potential split between strategy and operations that may be coming for IT: http://blogs.techrepublic.com.com/hiner/?p=531 What do you think about IT being separated between strategy and operations? Have you seen examples of this already? What would it mean for your career?

ghuul
ghuul

For some specialized services/tasks is almost always better to use outsourcing. Of course it also depends on company size. Bigger companies could have bigger IT department so it is possible to have more specialists in team.

No User
No User

When Out sourcing to India what is the actual cost savings after you subtract the loss of business/sales from the cost savings you get from the service the beloved Indian folks provide. I think it actually costs more to Out source. So if it is really all about the bottom line then why do it? That is unless we got it wrong and their concern about the bottom line is that it sinks all the way to the bottom. Keep in mind that when you Out source on the books that cost becomes a business expense and not the cost of labor. Only a bean counter would see taking a buck out your left pocket as having an advantage over taking it out of your right pocket. Even if it's the same buck. The way that reads on the books is that they increased business expense and as a result they decreased the cost of labor. It doesn't matter if it's a wash or even if it cost more. God help them, you just got to love them. Some things make sense to Out source but most things don?t. Lets face it they just can?t handle the new kid on the block setting at the big table telling them how things are and what needs done. They are possessed with getting their fingers into everything and imposing some cockamamy scheme. As I have said many times Business has been around for thousands of years hence business owners/heads of the company (management) and with that sales and marketing then accounting was invented first old world then new world and so a couple thousand years later here comes a new kid called technology and they just can?t suck it up and find a place at the big table for the new kid. They meddle, they muck things up, they control with an Iron fist, then they Out source. They don?t understand us, our science, our culture nor our work and frankly they never will. Because of that they fear us and don?t trust us and their reaction is to viciously control IT by Out sourcing. Once again it?s a contract and they understand that which makes them fill in control and they keep the new kid standing outside of the room with the big table. I honestly feel that the company the employees and the customers would be much better off if they would just stay home and we will send them a check twice a month. How many companies must be destroyed and how many people must suffer just so a hand full of goobers can have yet another 100 million dollar mansion?

hercules.gunter
hercules.gunter

Outsourcing is not an either-or proposition. If a company need a specialised resource or service for a short time each month, it cannot really justify keeping that resource idle most of the time - outsourcing a shared resource is a natural fit. You'd expect to pay more per unit of time, but less overall. If a company needs a specialised resource or service all the time, then it must surely make sense to buy and maintain its own. Cost per unit of time should be lower than a service which is hired intermittently, but overall cost should be lower. Outsourcing a service which is needed constantly and saving money would mean paying a lower rate per unit of time. It has aptly been said: if you pay peanuts, you get monkeys. Side-effect: if you hire your outsource from one of the poor countries, you're importing poverty. It seems to me unavoidable that if a country disemploys its locals, it's reducing the money available to locals to buy its services. This looks to me like a recipe for a downward spiral.

jk2001
jk2001

Being an programmer/IT guy myself, I tend to agree on the basics, but you're failing to see some upsides. Someone has to manage these outsourced relationships. Ultimately, the more outsourced services a company consumes, the more they need an in-house person to manage it. It's kind of like IT itself - it grew with the growth of off-the-shelf software. Once companies could use cheap network operating systems and software, companies that leveraged this new capital grew, and the need for specialized labor to manage these assets emerged. If this trend isn't tapped out, then the job outlook is not so gloomy. Also, you can't do everything over the phone. Sometimes, the phone techs will take the easy way out, and tell you to configure the system into an unsecure, but usable, state. Sometimes, IT people with remote access will do the same, because they don't know the configuration of the internal network. The network is still changing the marketplace for IT. We have to adapt. What more IT people need to do is join into guilds and unions, to collect real workplace data, and conduct some real trend analysis from a worker's perspective, apart from the IT-press-pundits, who aren't as independent or analytical as we need. Armed with real information, we can educate the public and lobby for national policy changes that help us.

Mr_Sprouts
Mr_Sprouts

"Simple" risk management! I believe the "Split" will continue but the results will be painful. The lack of communication between provider and customer because, their agendas are different. Alignment of IT with business directives continues to separate. Unless you tie your business performance to the amount paid to service provider, the customer will eventually lose. The provider is another business with the objective of maximize profits. I've been in the situation where our company and another company, serviced by the same provider, needed the same limited expertise from the provider but, since we were a "smaller" customer, we had too wait.

drowningnotwaving
drowningnotwaving

Sorry WayneM but there are thousands of examples where your underlying principle is not correct. One that immediately springs to mind is Cisco. This was originally a manufacturing company. Now, all their manufacturing is outsourced (or certainly the great majority). On the other side of the equation are companies such as Flextronics. This is a giant global company who most of us in the general population have never heard about. Their very existence is completely based upon outsourced manufacturing. That is what they do. Now, when you talk about the bond between strategy and operations, there are not too many closer than a manufacturing company and the products that it manufactures, distributes and markets. On that basis, I'd suggest that the IT operations component of a company's infrastructure pales into insignificance. The risks that you discuss are totally real but all can be managed. I'd suggest that the risks you describe already exist in most internal IT infrastructures and are usually poorly managed on both the business and IT sides anyway. Remember, one of the (many) drivers for outsourcing is the US's focus on quarterly performance of public companies, and in particular the ratios of revenue-per-FTE, and EBIT-per-FTE. A company's expense line may or may not actually improve with Outsourcing but that is not the only important factor. As long as the FTEs are not on the balance sheet, the analysts will give better performance ratings.

nqunhua
nqunhua

I have to totally agree with you on the part of poor qualitly being beneficial to the outsourcing provider. I can not tell you the number of times in my 20 years of experience in IT that I have seen companies outsource projects where milesstones aren't met, deliverables weren't even close to requirements, etc.. Instead of getting rid of the outsource company and hiring a different one, their contracts are renewed because "too much time and effort have already been invested to turn back!". Ridiculous! So what incentive do oursourcing companies have to actually finish the job? None! When they finish the job there's no more money so they drag it out as long a possible. They hire inexperienced, untalented people so they can pay them as little as possible. They do the minimum amount they have to do for the maximum amount of money. Outsourcing is not the answer.

Ron McNew
Ron McNew

Thanks for putting the discussion in this light, John. A few weeks ago, I had a couple of kids ask me what they should do for a career "when we grow up". I found that I couldn't look them in the eye and counsel them to aquire _any_ skill - I've seen too many get deemphasized, right-sized, off-shored, outsourced, or outright replaced. I finally told them to try as many different activities as they could, and to keep track of them; especially keep any awards, certifications, or degrees that look good on paper, but not get stuck on any one thing. That way, when the time comes, they might recognize an opportunity when they see one, and know whether or not it was something they could do well, and be able to switch to the next one ASAP. The question of why anyone in their right mind would want to become a technologist is an important one, but it won't affect next quarter's bottom line, and will not be addressed until it does.

Tony Hopkinson
Tony Hopkinson

You won't have one if the only value you have is 'changing a tape'. The concentrate on business bit I take issue with though, all too often it's concentrate on a short term reduction in cost. It's not just the spanner turners that are being sacrificed to the profit demon, but the people who designed the spanners, the nuts and the concept. Where is the machine that needs it tape swapping, when does it need doing. Which tapes are involved in the swapping process. Who needs to be imformed if the job goes out of whack, what are the consequences of it not happening. If the third party in it's efforts to appease the profit demon, sacrifices your profit, who will spot this consequence before some clueless MBA who once wrote a macro signs off on it?

jasonhiner
jasonhiner

Outsourcing is nothing new and the split has been happening at the companies that outsource part or all of their IT department. However, it has always been the exception to the rule. I'm talking about the split between in-house strategy and outsourced operations becoming the standard model for organizing an IT department.

jasonhiner
jasonhiner

have a level of technical competence and to take the time to understand how things work in operations, and to establish two-way communications that are regular and effective.

Tony Hopkinson
Tony Hopkinson

The King Of France's squeeze, and it was Let them eat cake" Though others have stated it was another Marie, or perhaps even the Loius himself and "Let them eat pastry" Anyway you look at it the only thing english about it iss the mis-translation. Good point, bad allegory

jayaramachandran
jayaramachandran

Yes, I do see the reflection of the same in my stream of work. This is also encouraged due to cultural differences and the individual capabilities in a region. But this is a trend we did have for quite many years in terms of consulting and services and slowly we are moving towards redifining the same as IT solutions and IT services delivery. Surely proving to be a roadblock for me since am a strategist stuck in an offshore location.

hillman.d
hillman.d

I have worked in many areas of IT--tech support, programming, web development, consulting, etc. I was also part of the military at one point. What the numbers folks fail to realize is that you can't commoditize people without regard for how they really contribute, just like you can't commoditize large sections of IT operations at will. Our director and bean counters tried to save money by handing over some of our operations and databases to a third party consulting company against IT's wishes. After two years of struggling, our IT group was handed control back again. Why did we revert back to IT operations having control? The consulting company was robbing us blind and doing some really crazy stuff. They were giving subcontracts to their friends without considering how it would affect our business. The backup plan they suggested for a couple of our servers was overly complicated and cost us a lot more than it should have. Hardware, databases, operating systems were also bought based on who the third party was in bed with. Not only that, since we were downsized to nothing, we couldn't handle what the third party gave us without hiring more people. Hiring more people involved training , etc. We then had to go through what the third party did with a fine tooth comb. It was a mess. Four years later and we are still recovering. Our HR and customer service systems have never worked right since then. Fact: people don't care about data until they don't have it. Another fact: the people responsible for accurate, reliable data should be put above politics. Since IT operations is responsible for that data, they shouldn't be treated like a stray dog on the days that all hell isn't breaking loose. As they say in the military, without beans, bullets and bandages, you lose the battle. We learned that lesson the hard way. The people that provide the beans, bullets and bandages to your front line people should never be outsourced. The lines of communication between the two should also be very good. Trim the fat if you have to, but never the muscle.

rclark
rclark

We are outsourcing our software to a 3rd party, (Not Overseas) but still outsourcing. We will outsource the project management for the implementation to a group out of Chicago. But strategy and direction remain in house as well as operational support for the hardware. Software support will be split with 1st line to the vendor, with onsite help from in house staff. We arrived at this point because it is not cost effective to manage system change in our legislative envioronment. The vendor can spread that cost over 1500 installs. We have to do the same thing with one install. Up to now, we have done it, but the changes keep coming. And those changes are required by law, not just market forces. We have those also, but they can be delayed and worked in. The legal requirements have to be done by government deadline. So we are outsourcing. With outsourcing we will lose a lot of flexibility, some safety, and some tactical advantages. With it, we will gain standardization, additional support resources, change management, and stability. I don't agree that the outsourced company always only has a few experts. We found a company that has a solution to the revolving door and keeping talent. If you are interested, google "Meditech" and you'll see both the good and bad of doing it their way. Job satisfaction is in direct inverse proportion to length of service. Their way is not fair to everyone, and they don't care. They still have 1/3 of the market and are relatively stable. So it works for them.

No User
No User

"IBM, HP, and Verizon all have thriving managed services divisions." If it?s solely about huge multinational companies aka "investments" with 1000's or more people that is one thing but for a company in the U.S. or any single country a lot of the statements that you quoted fall apart or just don?t make sense. In fact the closer the locations of a company are together the less it makes sense. To Out source in house work to a source that performs that work outside the company is going to be limited to remote access. You can have Help Desk performed in India but unless they have a magic carpet they can?t perform tasks that require a physical presents. As far as Help Desk goes you can do that anywhere and support multiple companies no big deal there. I can see remote offices having service Out sourced when it makes more sense then having IT folks and others fly to Tim Buck To and back every time they have a need. Now a days you have companies getting flipped like pancakes. So with the rush to incorporate all the new parts and jettison the unwanted parts I could see Out sourcing those processes and for that matter all the IT jobs since the companies are so volatile that the jobs are much closer to being a temp job that anything else. I just don?t see much room for it in companies that are long term bed rocks of their community where jobs can span many years and even decades or small and mid size companies and companies with offices in relatively close proximity. If the company has a lot of IT diversity then it will be difficult to find an Out source company to handle everything. They only want to deal with companies of a certain size they will only accept a minimum amount of revenue if you don't meet that standard they are not interested in doing business with you. Imagine having servers managed by one company and workstations by another. You will have one to your right and one to your left pointing their fingers at both you and the other guy. I would like to point out the service companies mentioned have many different divisions and divisions with in divisions. They get highly specialized and restricted. We had one for an ISP and managed firewall and of course they supply our T1 lines and various other telco lines. First of all the ISP is a different division from the managed firewall which has present some serious challenges to us over the years when one division feels that the other is at fault and leaves to us to deal with it. They can't say anything that could be viewed as stepping on the others turf. Second we have Cisco Switches and Routers and they both sale them and the Cisco warranty support. Of course it?s 2 different divisions. I figured that I would get a quote for new equipment and for a warranty support contract on existing equipment since we already had a relationship. Wow what a trip that was. First off our Rep changes about 3 to 5 times a year and we often are not notified who the new Rep is and given the contact information. So to find out who it was at the moment was quite the challenge. Then I found out how micro managed everything is. One item per division. Then I found three people need to get involved just to get a warranty support contract. You have a sales person for that product then a person who keys the serial numbers in and a go between with Cisco. I needed to talk to all three often via the Rep. They don?t communicate well with each other let alone the customer. Needless to say I decided not to buy anything from them. I just could not imagine having them manage our T1 lines and Cisco equipment. We took the firewall in house when we went with the MARS security system. We did Out source configuration and installation of the equipment but it will be managed and serviced in house. I can get training as we go while having the system in place. I could not imagine Out sourcing management of our T1 lines Routers, Switches and Security to those folks (Yes I know but it needs said twice). We have them for ISP and telco, we have to have somebody for that. As I have said some things make sense to Out source but no where near the scale mentioned. You can do one time deals and things that are needed and in house can't get to and odds and ends that in house is burdened buy. My point is I think the article needs to define Operations with a fine tooth comb. Exactly what is it? If you think that everything except for one or more big brains who make the decisions are going to be Out sourced dream on. We have software that interfaces with a vendor in real time and the vendor does most of the support but the software manufacturer gets involved at times and we provide some and that is Operations. How would you Out source our portion? It's performed on the fly. Are the IT jobs they refer to that are left in house merely dealing with the 800 pound Gorillas that everything gets Outsourced to?

tonoohay
tonoohay

Having been around when corporations were a too tight on the inside and micro-management ruled the day, this seems logical in a business where ROI rules. When the term, "desaster recovery" became, "BCP" (Business Continuity Planning) it was a top-down process and in most of my experience has been for Audit purposes only. It is going to be that the seperation will happen, just timing and org. changes need to be signed off on. But, if the two units don't have some solid purpose mandated by the BCP bible, this could lay down really slow and tedious response to planning and execution when it is needed most!

david.murphy
david.murphy

I read the article with interest having seen a number of outsourcing contracts come and go. The one thing that is clear to me in all my experience is that outsourcing companies never attract top IT professionals and if they do it's an incredibly small percentage. Instead they pick up cheap resources generally treat them like slaves and expect to have staff turnover to rival the England Managers job! (that's football, not soccer by the way!!! I don't care what Beckham says :-)) Outsourcing companies are not interested in attracting the best IT staff, they are interested in their bottom line and the cheaper the saff they can put on site and get away with it, the better. After all they have shareholders to feed. So all that happens is that the operation service declines, the outsourcing contract is not renewed and the services are then insourced, things get better for a couple of years until management think that it's costing too much and since the pain of the outsourcing has been forgotten mostly companies are dragged straight back in and the cycle starts again.

jk2001
jk2001

There's always a lot of stuff to externalize, and a lot of stuff you have to DIY. The more strategic IT becomes, the more you have to insource talent, not outsource. Outsourcing is like buying off-the-shelf software -- a lot of tech, for cheap, probably standardized, but it's not exactly what you need. You have to adapt your operations to the software. Likewise, you have to adapt to outsources a bit, and they to you. Eventually, if you outsource enough, you have to decide on whether you hire a specialist to manage all that stuff, or you outsource even that work. If IT is strategically important, then you obviously have to insource that, or lose the competitive advantage. It's like a small business using some accounting software. As you grow, you eventually need a bookkeeper and accountant both outsourced. Then, you have to insource the bookkeeper. Eventually, you may need to insource the accountant. Then, you may again need to hire outsourced specialist accountants to augment the internal staff. It necessarily goes back and forth between needing expertise quickly, and needing to have control over strategy (and organizational stability). It seems to be the same with IT - always shifting. In fact, it seems to be the same with everything - companies and organizatiosn have a mix of internal and external workers. They need this mix, just as you need a balance between change and stability.

t_c
t_c

In the 20 years I've seen the outsource model appoached umpteen different ways. I've seen very cyclic models where the mantra was outsource, and then turned around to in-source or repatriate the jobs, then back to outsourcing (offshoring, etc.), then back, etc., etc. Bottom line seems to be if it's a long-term permanent full-time work, insource it. If your environment is very process heavy with lots of Project Management overhead (a.k.a. paperwork), new people take a long time learning how to get things done and this too should be insourced. Now we're finding with the close tie of Problem Mangement funneling into Change Requests, etc. that one unified work group seems to be a more efficient model with less 'hidden' costs.

bnikita
bnikita

Yes, thats true. Though outsourcing IT operations will reduce cost for all the known reaosns,it will however bring stingent application of laws such as DPA as well. Many organisations have no outsourcing clauses as well as they dont want non employees to deal with their confidential information. So to what extent, will outsourcing go is still a question?

Tony Hopkinson
Tony Hopkinson

Split operations and strategy, admin and maintenance, hardware and software. In house software and product, management and implementation.. Doesn't matter, given you can find someone to provide the service, you can outsource any part of it. Whatever you do, you must keep some competent people in place to manage and facilitate the service in house, otherwise the third party will ream you in order to increase their profit. Worse still in many cases, they can make it extremely expensive to go elsewhere or to reverse the decision. What would happen to my career, nothing, my current employment might change, but that's hardly a new thing is it?

woomyse
woomyse

I've worked in situations as you've described in the verizon example; The problem is that too often, the only persons who can provide the strategy ARE those in operations/support. These people who really know the systems are those who live in it every day, and had input in the design and execution of the Strategy/Infrastructure/Network/Application. So, what will happen is this, for example: Suppose a backup fails at 2:30 am; the overnight lackey at the monitoring centre will call the person who is 'ON CALL' i.e. the person who spent his whole day the in the server/network room, battled his way home, had dinner and snuggled into bed to be woken by a pager buzz/phone call at 3:00 am that says "The backup failed...What should we do? The only thing you can do is try to go back to sleep and deal with it in morning when you get to work. While you are begging for sleep to overtake you, wonder out loud why management bothered to outsource in the first place if all the documentation in the world is not read by the 'Outsource Team'. I would be very dubious to have the provider managing my WAN Links; it is too easy to borrow bandwidth from here and put it over there behind the customers back. I know of one situation where we have caught telco providers doing this red handed even IF they are not charged with support of the WAN link... Strategy and Operations go hand in hand; it is a feedback loop that managers/Supervisor's and VP's will ignore at their peril. How will you know what strategy to follow if you do not know your tools and how they work in various conditions, including adverse ones? CIO's who are 'hands on' with staff do not have enough support in the first place. Separation of stategy and operations leads directly to commoditization of IT. Organizations forget that the WHOLE organization has a role of input and feedback from IT and VICE VERSA. Programmers, it is a high value ticket and you may have no other choice but to outsource that.

drowningnotwaving
drowningnotwaving

One can only surmise that these would be around restrictive policies, telling companies what they can and can't do. What outsourcing practises are acceptable and defining those that are not "in the public interest". Is this what you are seriously considering? If I've read it incorrectly, can you please expand on the ideas in your note. If I've got it along the lines you are suggesting, then who'd actually make those decisions?

ragskl
ragskl

This is the kind of thinking /mindset that results in laid-off IT staff looking for work in an era that is passing them by. The real answer to deal with this situation is to upgrade your skills & CV so that you remain competitive in your area of specialisation. Companies are expecting do have IT services that are lower then using inhouse staff - because the rewards are far greater than the pains of managing an IT workforce. IT staff who think that outsourcing will fail because vendors cannot provide the same kind of service are in a self-denial state and in line for redundancy and the dole line.

Wayne M.
Wayne M.

For me, the inability to separate strategic from tactical seems to be a given, but I can decompose that into some lower level assumptions. 1) Tactical decisions must be made in line with strategic goals. 2) Tactical directions must be interpretted through an understanding of the strategic goals. 3) Strategic direction must be based on what is tactically possible and feasible. I am not saying that outsourcing is impossible to do well, but that it is quite difficult to do well and the answer is not rely on SLAs and management controls. Probably the most widely discussed manufacturing outsourcing arrangement is the Toyota production system. Toyota is well known for its high degree of integration with and knowledge sharing with its key suppliers. Toyota has been successful due to its emphasis and coupling strategic and tactical issues. I will also heartily concur that most businesses and their IT departments fall woefully short of this level of integration. The decision to outsource IT is largely based on the current poor alignment between IT departments and business. The belief is not that outsourcing will improve IT services, but rather that IT service cannot get much worse and we might save a few direct dollars as well. Communication and information sharing are keys to any business and these are the areas where IT is supposed to provide benefit. Few companies are actually leveraging IT for business benefit and that trend is unlikely to be improved by outsourcing IT. Better integration of IT and business is what is needed.

Tony Hopkinson
Tony Hopkinson

You can separate who implements a strategy, given that how they implement is understood or documented. Why and what though is the bond you speak of. I guarantee Cisco don't ring up PartsRUs and ask for a new model of router to sell. They simply don't assemble the things. They have to define what they want, understand what that means, source suppliers who can do it, make sure they have done it... Outsource IT, catering, snail mail what ever you like, you must have control over what you want and what you are getting, otherwise you'll get what they want to give. I know all this sounds really obvious, but apparently not in IT.

CG IT
CG IT

most Companies that use Network Operations Centers (NOCs) have contracts that are restrictive in what the company can or can not change and how that change takes place. The ability for a CIO to take advantage of new technology becomes a lot slower process because they outsourse their day to day operations. the NOCs must review the plan and whether it will fit with their day to day operations, whether they have skilled personal to implement the change. Then provide pricing. The Company may or may not be able to afford the change. Most NOC contracts are long term. So what the split really does is create a slow moving entity simply because the CIO can't tell the IT department to make the change. The whole change process is far more complicated involving contract changes with subcontractors etc. The IT field has become far more specialized which in turn creates many more jobs. But with that specialization comes inherent risk that those one hires can only do their specialized job.

SomewhatSmart
SomewhatSmart

If an organization sees the need to separate strategy from operations, they need to examine the leadership in both groups. As a operations leader, I would not allow myself to be shut out of the strategic loop. As a strategic leader, i definitely want my operations people to know the company vision. As for outsourcing, the providers often speak of a poolof talen that they have, but in reality, they keep a few experts around and fill the rest with novices. That is how they make the financials work.

MrRich
MrRich

Good points... The main thing is that Outsourcing to an external organization brings significant internal costs in oversight. Speaking as a former Outsourcing manager, our strategy was never to reduce the customer's cost. It was to show a significant ROI at the onset (win the sale), and to charge back to make up for it later on. From the perspective of the corporation, outsourcing was a power play to reduce employment in IT - and to centralize IT across the divisions. It also looked good to stockholders. But, it was a disaster to operations. A shell game overall. Its all about the benefits costs...

jayaramachandran
jayaramachandran

I do agree with you. Over a period of time it will be difficult for the strategist to know what they need to strategise on if they are away from that technology. How does the management tackle this??? Currently am being informed directly or indirectly to give away my solutions to the strategists so that they can implement it and I do find this to be affecting my Intellectual Property rights!!! And moreover its a defacto to consider the offshore units as cost saving operational centres...but I would definitely like to know what should the resource do when he is in a position to provide solutions but then not allowed to implement the same??

drowningnotwaving
drowningnotwaving

... techies are the 'dime a dozen' Outsource the shit out of them. Much cheaper in the long run. Service level agreements make for a nice night's sleep. If you don't think IT ops is a commodity already then just wait for the earth-shattering news. I can run a large and sophisticated operation, warehousing, shipping etc and all I need is a network and internet access. I can buy them on the street corner. The Yellow Pages has thousands of them and, guess what, not all of them are useless. Trick is, as always, finding a good one and making sure you all have the same idea about what is required and what they are going to deliver. IT Ops delivers on strategy in the same way that the receptionist and switchboard operator do. Vitally important roles to the company, but at the end of the day they just do a reasonably basic job in response to delivering upon the strategy. Now a programmer - that's different. That's strategic.

jasonhiner
jasonhiner

it can work if you have people in strategy who take the time to learn what operations does and establish strong two-way communications. That's an absolute necessity in a split setup. It requires people in strategy that have a strong technical aptitude. That being said, I appreciate what you're talking about. You have highlighted one of the real risks in making a split between strategy and operations. Thanks, Jason

jk2001
jk2001

It's virtually impossible to prevent many kinds of outsourcing, due to the non-physical nature of much of IT work. So, traditional tariffs won't work. By "national policy" I mean that some types of technology R&D, and even deployment, would be given tax advantages, or people would be given free education to enter a field. I suspect there are things that can be done on the legal end of things. The real issue is that the research reports need to be produced by neutral parties, and then translated and summarized into plain language, written from a working person's perspective, for regular people to understand. Without real information, people can't make rational decisions.

Tony Hopkinson
Tony Hopkinson

mistake. Outsourcing does not make the pains of managing it go away. That function you have to retain. If you don't manage it yourself, it won't get done!

Tony Hopkinson
Tony Hopkinson

it will work. However you won't get that intial saving, that guarantees a new chair somewhere else before it all goes nipples up. Outsourcers, who will now be expected to meet some very specific and long term criteria, will see their margins reduced, don't have much scope for cost reduction, so prices go up. At the moment outsourcing mostly seems to be about low hanging financial fruit. There is no future in this, not for the service providers, not for the consumers.

drowningnotwaving
drowningnotwaving

... I reserve the right to copy that title at a time far in the future. Yes, I agree with your points. Hopefully within the bounds of language differences that is what I have been trying to say. I am not actually for or against outsourcing. I am for what works best for a company in their circumstance. To suggest outright that Outsourcing is, on balance, the 'worse option' is simply and demonstrably incorrect. And I don't think I am drawing a long bow by saying that is exactly what a number of people have suggested. The "bonds" of which I speak are the implicit ties suggested by WayneM in his discussion of the need to keep strategy and operations tightly coupled. It seems to me that, in arguments [i]against[/i] outsourcing, smart and experienced people say things that other people use as the very basis [i]for[/i] outsourcing!!

Tony Hopkinson
Tony Hopkinson

You cannot keeep operations out of the strategy loop or vice versa for that matter. Operations is a real time implementaation of a strategy, coming up with one that can't or shouldn't be implemented is stupid, when all it would take to highlight any problems is two people who know their aarse from their elbow , having a chat. For some reason best known to dickhead beancounters, IT outsourcing is different. It's no different to getting in any other third party. Someone on 'your' side of the fence has to know the requirements, make sure they are met, make sure they stay met and above all make sure the service is still saves 'you' money, which was the only reason to do it in the first place. This is the bit that is not happening. I've watched helplesly as third party providers took the absolute urine out of their customers, because they knew they they had them by the nuts. Just utterly simple things like writing very expensive to maintain software and then selling it to someone who didn't know the difference. Can't blame the third party, it's just a good short term business strategy and everyone likes them don't they?

simphiwe.mngadi
simphiwe.mngadi

Our outsource model based on our complex IT infrastructure where most our resources are focused on our core business functions and information management and ONLY outsource IT operations.

drowningnotwaving
drowningnotwaving

the phrase: "[i]Without necessary controls you are doomed[/i]" ... that is such a 'catch-all phrase' that it can be applied to any aspect of any business. The opposite remains as true: [b]With[/b] the necessary controls I can reduce my operating overhead and focus on the business at hand. I said it was a commodity, which I believe it is. I didn't say it would be successful without due care and responsibility.

Tig2
Tig2

further, those "necessary controls" are more commonly including things that are more difficult to measure- like customer satisfaction. I can pound any company's statistics into the ground. And that is all they are showing me with up-time/down-time monitors and calls resolved SLAs. When the lion's share of the down-time happens during my peak hours, or calls resolved means that the tech hung up or transferred the ticket, they are showing me that they can't get the job done. There are times when outsourcing is a good thing. There are times when it isn't. It really is just that simple.

simphiwe.mngadi
simphiwe.mngadi

SLA and SLC does not necessarily make for a nice night's sleep. Handing over your IT to an outsource company constitute a very huge risk for your organisation and/or your customers. Without necessary controls you are doomed.

drowningnotwaving
drowningnotwaving

Your comments are so generic that, whilst they have an emotional pull, upon examination they offer nothing. ANY supplier of ANY service to ANY client runs the risk of inappropriately matching their individual motivations and rewards for their own team, versus the day-to-day or periodic needs of their clients. This is nothing new. Indeed, it is the basic business plan of millions of companies in thousands of industry sectors in every country around the world. To say that this is something scary and that needs to be thoroughly planned and executed is 100% correct. To think that there are not thousands of organisations who have the proven capacity to do exactly that, is naive. And, on top of that, there are millions upon millions of individuals who work in these companies. For want of a better word, they simply [b]care[/b]. Some of them, perhaps like you or me, actually always try to consider the customer's needs first.

woomyse
woomyse

What would you do? It seems you reap the benefits of our various opinions... To quote Wayne M. if I may; "Should Not Separate Thinking from Doing" What would you do Jason?

jk2001
jk2001

Small organizations can't afford the communication overhead of using outsourcers (unless the outsourcer is a single point of contact who takes care of all the IT issues). It's better to have an all-purpose in-house person to take care of IT, development, strategy, and training. If it's not someone dedicated to the task, then someone paid to do it part-time.

MrRich
MrRich

Sounds like the Outsourcing version of the Peter principle. 'Promote people to their appropriate level of incompetence.' Been there, done that. Now I work for a small non-profit. Public companies pay better, but it just doesn't make sense to Outsource IT here. I am the solution to the problems caused by having too many consultants in house.

SeasonedsysDBA
SeasonedsysDBA

"...if you have people in strategy who take the time to learn what operations does and establish strong two-way communications." All the communication in the world with Operations doesn't help if the players are not focused and committed to the priorities and goals of the company they are supporting. In a well run company, these individuals get recognition and reward for going beyond the call of duty when they recognize and stop threats that directly jeopardize the company's bottom line. These company's also provide incentive to behave in a manner that improves the company's bottom line. Outsourced support people are focused on keeping their overall personal "measures" looking good across all customers so they can keep their job and (hopefully) rewarded for outstanding measures. If you were in the position of an outsourced operations person, what would your priorities be? For that matter, would you even know (or care) about anything beyond the measures being place on your own head? How close can those measures be defined and redefined to match what is really important at the moment for each individual company? The counter argument is; "We align the outsourced operations priorities by defining company's service priorities and establish measures to enforce it with penalties if they don't meet those measure". My response?; Good luck keeping those measures defined that so that it actually has any meaningful influence on support behavior, while your company's priorities change in a dynamic competative business environment. Think of it as the "IT Outsourcing Uncertainty Principle". (My apologies to Heisenberg.)

monicaz
monicaz

I agree with both of you and I've experienced this as an employee and a business owner. Day to day operations are just that - they continue the operations the way they are currently. I find they have no time, nor have it allotted to their daily schedule, to come up with ideas for the future well being of the organization. For my business, which is a technology provider, we rely on new innovative technology to drive our offerings and our strategy. We, as owners, are technical, yet have the need to outsource technical functions such as programming, to external sources. We cannot outsource the friendly faces our customers see each day. We become project managers ourselves though, so I don't see that as being a viable outsourcing solution at this time either. It's the tasks that one would assign in a development or system admin project that can be, as long as we have a project manager on staff. We are a smaller company. I was in consulting for 10 years and found mainly big corporations were willing to hire us for the staff on a project, but felt safer to have their own in house staff manage the direction and the projects.

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