Vendor Relationships

Justifying IT expenditures: Outsourcing isn’t always the answer

Accountability, budget constraints and cost of provisioning services – these are all issues that CIOs hear about when presenting IT budget numbers. “Why does this cost what it costs?” and “Can’t we outsource some of these functions?” are both questions that you’ve likely encountered when justifying expenses to your bosses.

The Naked CIO argues that outsourcing and offshoring IT projects isn’t necessarily the right move to make. In fact, he thinks it may cause more problems than it could potentially solve:

“Cost-based models drive a wedge between business and IT and this type of services-based arrangement makes business alignment more difficult.”

Keeping a project agile through a grass roots-style approach is, in his opinion, the route CIOs should go.

From where I sit, this makes the most sense. When contracting an outside company to do the dirty work that you need done, improvisation and adaptability is necessarily curtailed. In most cases – unless a contract is reworked – the company tapped will produce what you ask for and deliver it, hopefully, in a neat box with a bow on top of it. But project parameters are often subject to change and having the flexibility to address new needs is key for a CIO, not to mention IT on the whole.

I’ll give you a real-life example. A friend of mine works for a large hardware company whose name you would know if I mentioned it. Half his team is stationed abroad in the Middle East, and the other half is located right here in the Bay State. Because of cultural, religious and time zone differences, the half of the team that is abroad works on Sundays, while the Massachusetts-based cohort does not. Changes in his project are often subjected to approval from managers on both side of the Atlantic, and just getting a simple OK can be an ordeal. My friend has occasionally been called into the office or forced to work on a Sunday afternoon to sync up with his team, while the foreign contingent sometimes takes conference calls in the late evening local time.

The company has an internal instant messenger client that, in theory, should allow team members to speak to each other when they are all online over the course of the day. Yet still, my friend’s project has been delayed numerous times. Some of those delays are because of the problems inherent with developing a new product. But to think that the location differences and the limited communication doesn’t play a role into the delays is just naive.

Now translate that to your organization. My friend is working with co-workers who, albeit in a different country, draw their paychecks from the same source, teleconference regularly and communicate daily. When CIOs outsource a project, a direct line of communication is often lost. I doubt that when you have a question about why an application or piece of hardware isn’t working properly that you get to speak directly to the programmer who designed it or the tech who built and maintains it. My friend does. He still experiences delays and setbacks.

It might look well and good on the bottom line when a CIO produces numbers that cut costs because an outside contractor is doing the majority of the work cheaply. But what those numbers often time don’t include are the cost of delay in rolling out the project due to communication snafus and the cost of ironing out wrinkles that always seem to appear.

Have I got a solution for you? No, I haven’t – but if I did, I’m sure I’d be making the big bucks advising CIOs on how to keep projects in house without driving up costs. But ultimately, when you go to the bigwigs with the purse strings, you have the option to tell a couple of different stories. One involves up-front platitudes about the lower cost, while hidden snags lie around the corner. The other involves using the staff whom you’ve likely hired, whom you trust and with whom you can speak directly to develop whatever solution your company needs.

The question is really: Which are you going to tell?

If you only knew the power of the dark (green) side…

Disaster? Destruction? Trailer park slums in Alabama? The flooding of a major U.S. city? While the rebuilding effort of New Orleans continues, the city’s Chief Technology Officer, Anthony Jones, is making it easier for the residents of the city to apply for and receive grants.

According to a recent press release: “Following the devastation of Hurricane Katrina in 2005, the City of New Orleans was able to streamline business processes for grant applications and contract management from 45 days to 10 days and 90 days to 10 days, respectively.”

Using business process management (BPM) — and with a small staff, some of which fled the city — Jones changed the way IT services are delivered in New Orleans after the disaster.

Want to catch a presentation of BPM and hear Jones’ account of post-Katrina New Orleans? Happen to live in the Colorado Springs area? Or maybe, like us intrepid reporters at CIO Symmetry, you own a Lear jet and feel like a jaunt to the mountains? Check out the  CIMA Spring Conference April 16-18.

Reflecting on Katrina has me thinking about other trends and issues that have been bubbling around the minds of midmarket CIOs and in the IT world for the past couple of years. Apparently, Datamonitor just got hip to green IT.

A report from Datamonitor — which, incidentally, will only set you back nearly $1,900 — is predicting that CIOs will have an upswing in interest in green IT in 2008. Well, duh. And duh. And duh again.  Not to be presumptuous, but the staff of SearchCIO-Midmarket.com has been big pimpin’ when it comes to green IT for a while now. If you really want to see the most comprehensive coverage of the issues that fellow midmarket CIOs are encountering with green IT, please, for everyone’s sake, check out our (free) resources.

There’s one final interesting bit of news that I thought would be worth relating here. EWeek Mid-Market is reporting that vendors are cottoning on to the power of the midmarket by listening to companies’ demands:

“As of late, these [midmarket] companies have become a major focus of the IT vendor community because collectively these types of companies now spend more on IT than companies that have over 1,000 employees.”

Oh … ok. That sounds like good news for the midmarket CIO. I’m not saying that you’ll be able to hold Big Blue over a barrel and beat lower prices out of it like dust from an old rug, but it does sound like vendors are starting to listen.

Before you know it, vendors will understand the power of the midmarket side!