August 2002
Volume 18
Number 5
How to Talk About Outsourcing - Without Losing Your Head
What does a CIO do when someone suggests outsourcing the entire IT operation?
There are still relatively few institutions today that rely on enterprise-wide IT outsourcing, as opposed to the much more common practice of microsourcing particular services, such as PC repair or network maintenance. But there are plenty of institutions where the topic arises at one time or another. This discussion is about what to do while the subject is still at the "why don’t we think about it" stage. Handling this explosive idea effectively may be one of the most challenging tests of a CIO’s skills.
The CIO is in a particularly sensitive position when the suggestion of outsourcing IT is put forward. On one hand, it is hard to ignore the CIO’s self-interest in the topic – oops, there goes my job and the entire organization I have been building. On the other hand, the CIO is precisely the one to whom the institution looks for expert advice on topics like this, questions that involve a strategic and operational insight into IT matters. Ironically, the CIO is perhaps the campus expert on the pros and cons of doing away with his or her own position.
The dedicated CIO will want to act in the best interests of the institution, but will also be concerned about the fate of those who work in IT, and may harbor strong convictions that an internal IT organization can render better service at a better price than an outside company. The CIO can act on all those instincts, and still make an important and unbiased contribution to the campus decision-making process. Handled correctly, the emergence of the topic of outsourcing can leave a campus with a stronger understanding of its IT needs and a strengthened relationship between the campus and the IT department.
First and foremost, the skillful CIO will react temperately when outsourcing is suggested. There is a tactical reason for this: defensiveness or pugnacity will effectively cut out the CIO’s voice from the rest of the conversation. But there is also a more substantive reason for taking the suggestion of outsourcing reasonably and calmly. The very fact that the subject has been raised is a signal, and the campus has to decipher the signal carefully. It’s like a lab test that comes back out of range. It could be something serious or something transient. But it’s important to identify the underlying cause. That task falls heavily on the CIO, and the task calls for establishing a careful and thoughtful dialogue. The campus that ponders outsourcing is in need of some important answers. Reasonableness and rational analysis will be essential tools for the CIO and everyone else taking part.
What does it mean that somebody whose opinion matters is thinking that responsibility for IT could best be transferred outside the institution? Does that mean that at least one person thinks the internal IT organization (and the CIO) are failing irreparably? Maybe, and we’ll deal with that grim possibility later. But maybe not.
In fact, there are some fairly innocent reasons for suggesting outsourcing. One is sticker shock. When decision makers are confronted with very large budget requests for IT, one reaction can be to ask, "Couldn’t we save money by outsourcing this?" The idea may come from examples in the corporate world, where there have been prominent cases of companies deciding to job out their IT operations.
If it is the sheer magnitude of IT costs that is causing discomfort, the CIO has the task of building the financial case better. The CIO has to make sure that the expenditures being proposed clearly match the goals of the institution. If the thirst for technology has overreached the institution’s basic needs, that needs to be fixed, and more reasonable goals identified.
On the other hand, if the uneasiness with IT costs is based on the suspicion that the current IT operation is inefficient, then that must be addressed. The cost of paying an outside company to provide IT services is necessarily going to include the actual cost of those services, plus the company’s markup, plus the management cost to the institution of monitoring the outside company’s performance. If that is really going to end up costing less in the long run than what the institution is spending now, there must be at least some significant inefficiencies in the current operation.
For instance, the institution may not have IT staff with the right motivation or skills, or IT may not be using the most efficient practices. If the CIO discovers that these are the kinds of issues that are driving the expectation that outsourcing will save money, then the best approach is to suggest that those inefficiencies need to be verified, and the cost of fixing them assessed, before the institution can compare its real current cost with the cost of outsourcing.
These are some arguments for outsourcing, and the perceived flaws in the IT area that may lie hidden behind them.
Argument: Outsourcing will make it easier to acquire highly technical staff, which our institution has a hard time doing because it is located in a highly competitive urban area (or because it is located in a sparsely populated rural area – choose one). If the problem is low pay scales, why not just raise the salary offers for the hard-to-fill positions? If there are policy problems with differential pay scales, this is something that the CIO has to work through at the top management level. If the institution is considering outsourcing, it is already thinking about big changes, and it would be sensible to consider internal structural changes that may achieve the same purposes, perhaps less expensively.
Another argument for outsourcing is that the vendor will be able to bring in specialized expertise (such as a DBA) on an as-needed basis, and that this will make the outsourcing more cost-effective than trying to maintain the same expertise on staff all the time. If this is the case being made, then the CIO should examine why the internal organization has not already made use of this tactic itself, hiring in expertise and services when that makes sense. Paradoxically, the organization that is most immune to wholesale outsourcing may be the organization that has made the most effective use of microsourcing.
Argument: Outsourcing will give the institution more control over the quality of services. The vendor will have to deliver to get paid. If this is raised, the CIO has some soul-searching to do. How could it be that an outside company is seen as more responsive than the institution’s own team members? There are some reliable predictors that point to an institution in danger of finding itself in this fix: lack of IT governance involving true participation by the user community; IT staff that believes in its own success, without regular probing of user satisfaction; technical staff making unilateral decisions because "that’s the way it has to be, for technical reasons"; IT staff who feel alienated because of the unreasonable demands of users; and, in general, an IT organization that thinks it is the only game in town, comfortable in the belief that users must accept whatever level of service it sees fit to provide. The CIO may not recognize that portrait of the IT organization, but if outsourcing is being proposed, it’s time to take a harder look.
Argument: IT is just a utility. Let’s outsource it so we can stick to our "core competencies." In an outsourcing discussion, a lot of thinking involves weighing the value statements that are implied in this assertion. The tricky part is "just a utility." Is IT more than the sum of its parts? Of course, the network has to run reliably all the time. Whether an internal or external group sees to that may not be visible most of the time. But does the internal IT organization also play a significant role in applying the power of technology to the institution’s goals? The CIO and, to a greater or lesser degree, everyone in the IT organization, should be making a contribution to the institution’s ability to make good choices about how it uses technology. An IT organization that has become "just" a technology provider, without deeper involvement in the ways the technology benefits the users and the institution, has already become an outsourcing operation itself. It is a small step from there to give the work to another group of outsiders.
Thought experiment
Maybe you have especially enjoyed this article because so little of it
applies to you. Your institution shows little sign of wanting, needing, or
thinking about outsourcing. Outsourcing is a powerful concept, however,
and can be useful as a way to bring things into sharper focus. Try this
thought experiment. Imagine that your entire operation is transferred to
an outside vendor. Try to honestly inventory the ways that things might be
different. If there are things that you acknowledge might run smoother,
move those up a notch on your list of goals for improvement. But also pay
special attention to the values that you think may be lost with
outsourcing. Those are things you should reinforce and strengthen.
Remember to showcase them, so that others on your campus learn to value
them too. JS
John Savarese is a consultant with Edutech International.
The Edutech Report is a monthly publication of Magna Publications
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