In-Depth

Don't Outsource Oversight

• By Jack Vaughan, Rich Seeley
• May 31, 2001

Others agree that outsourcing application development, as well as implementation, maintenance and data center operations, may eventually change the role of IT departments in major corporations. But one job that may not be outsourced is oversight of the outsourcers.

Gartner analysts have stated flatly that management of outsourcing "cannot be contracted out." In the end, it is the responsibility of in-house project managers.

The view of Meta's Lepeak is also supported by Joel Henderson, who manages application outsourcing at Sun Microsystems, Palo Alto, Calif. At Sun, there has been a tenfold increase in the practice in the past year.

"I think there need to be people at the parent company, like Sun, who are both executives and technical enough to vet their consultants to make sure they are delivering what they say they are delivering," said Henderson. "Are the systems truly reliable? How do you know? Is the security truly bulletproof? How do you know? The company needs to have somebody doing due diligence on the outsourcers. That's the key."

And as those with experience in outsourcing will tell you, that is not easy.

One way to keep outsourcers' feet to the fire is by negotiating contracts where the vendor is subject to performance reviews scheduled to coincide with key deliverables. Gartner, for example, predicts that by 2003 companies will be including business value metrics in 70% of contracts with outsourcing vendors. Meta Group is also prominently pushing the idea of IT metrics.

Research has indicated that failure to supervise outsourcing services providers with contractually established performance guidelines, including both specifications and timelines, is a disservice to the company and the contractor. When neither defines metrics to show that the job is getting done, an unhappy relationship is likely to ensue.

Certainly, the Web is a driver. In many cases, it has recast the role of in-house IT.

One Web start-up close to this activity is Art Technology Group (ATG), Boston. While its business is shifting more to software server sales, the firm cut its teeth providing cutting-edge Web development expertise to well-known Fortune 500 firms. ATG's initial area of expertise: Java server technology.

The reasons such firms turned to ATG is simple, said Robert Brazile, engineering manager. "You have several problems today. Things move very quickly," he said. "You almost don't want the expertise in house -- if the developers have [cutting-edge] expertise, they're targets for others to hire. You can hardly hold on to people." And, Brazile added, IT increasingly wants to focus on business issues, using technology as an enabler.

"Naturally, you want to build enough expertise internally to control the site after it is built," he added. In effect, one might say ATG is transferring server development expertise to its customers. For ATG and its highly placed customers, the focus these days is not just on Java, its on highly scalable Java-based customer relationship management servers -- an area in which there are few experts, be they inside or outside the organization.

But take heart, IT! The latest new skill requirement -- XML -- is "fairly straightforward," said Brazile, and not likely an area that will require tapping outsiders.

For e-business, said Michael Jannery, vice president of marketing for Marlborough, Mass.-based Gradient Technology, "IT is going to outsourcers, to systems integrators. This is because they haven't got the time to learn all the new skills required." What this means for long-time distributed system specialist Gradient, which is focusing these days on its networked security services prowess, is a greater emphasis on the system integrator channel.

Strategy du jour

As skills needed for outsourcing have become more specialized, so have the strategies employed by Fortune 500 firms seeking the greatest benefit from the practice.

For example, Detroit-based Ford Motor Corp. practices what it calls 'managed sourcing'. To steal a slogan from another automaker, it is not your father's outsourcing strategy.

Managed sourcing does not outsource the baby with the bath water. Rather than turn over all of IT to an outside vendor who then does everything from application developing to routine maintenance, companies like Ford are selective about what they let out of the building.

"What they're doing is breaking it into chunks of outsourcing, either based on specific skill areas of companies or based on
areas that they don't consider their core capability and they think somebody else can do better for them," noted Phyllis Recca, executive vice president of Worldwide Professional Services at Compuware Corp., Farmington Hills, Mich., which does outsourcing of application development for Ford.

"In Ford's case, they are saying, 'We want to keep the business analysts who understand the automotive industry and Ford Motor Company. They're going to be Ford employees and they are going to help work with our users to help determine new strategic applications,'" she said.

Companies like Ford, said Recca, see the outsiders as capable of quickly pulling in different skill resources based on technology changes. Meanwhile, business analysis remains a core capability.