Why Do Outsourcers Deliver Better Project Performance Than Inhouse Resources?

I was talking to a CIO last week about his desire to “tune” his IT Operating Model.  I asked about the symptoms he was observing that he’d like to see eliminated through the Operating Model tuning.  His answer was one I’d heard many times – but that did not lessen the passion that came across in the dialog:

When we have a project run by one of our outsource partners, it generally comes in on-time, within budget, and meets the specifications we requested.  When we take on a project internally, none of those conditions are typically met!  I’d like to see our internal resources as capable at delivery as the outsourced partners!”

The Secrets to Outsourcer Success

I’ve found that there are several reasons for the gap between outsourced and internal project performance – some obvious, others more subtle:

1.  Outsourcers live and die by their performance – it’s their business.  They are paid for results.  This leads to several typical characteristics:

• Results are articulated very clearly – and are rigorously managed to.
• People are held accountable for results.  Failure to deliver has real consequences.
• Scope – and the client – are carefully and skillfully managed.  If the scope changes, so does the project schedule, cost and performance expectations.

Compare these characteristics with those of the typical internal resource.  Results are often vague and unstable.  The old cartoon comes to mind of the project leader leaving a room of programmers, looking over her shoulder and saying, “I’ll go up and find out what they want – the rest of you start coding!”  A caricature, of course, but one earned deservedly!  People are generally not held accountable in any real sense.  HR policies and fear of depressing morale and engagement render most managers impotent when it comes to accountability and consequences.  And scope often changes frequently as business clients discover more about their real needs and constraints.  Nothing inherently wrong with that, but schedule and cost should have been renegotiated but typically are not – unless there’s an outsourcer running the project!

2. Outcourcers typically dedicate resources to a project – internal resources in an IT organization typically work on many projects at the same time.  Even worse, they are often expected to simultaneously perform project work and service delivery work, which is often hard to predict and frequently requires an urgent response.

The productivity and quality cost of this type of multi-tasking has been demonstrated time and time again.  Ever since the Coding War Games, led by Tom DeMarco and Timothy Lister (see their wonderful book, “Peopleware: Productive Projects and Teams“) in the late 1970s, key factors that impact project productivity have been studied, illuminated and verified.  There’s a plentiful supply of data about how long it takes a project team member to “re-engage” with his project, and the consequent productivity loss of this type of multitasking behavior.

3. Outsourcers typically have projects managed by very seasoned Project Managers working to a consistently practiced and proven project methodology.

Yes, I know this is supposedly the case with in-house resources, but from my experience, it often does not hold up in practice.  Just about anyone can acquire the title “Project Manager“, whether or not they actually have the skills.  Certifications such as PMP theoretically mitigate this, but I’ve seen PMP-qualified resources somehow forget everything they learned about project management once they get into the heat of battle – presumably due to the effects of 1. and 2. above.

What To Do to Improve Inside Project Performance?

There is no magic to this:

1. Articulate clear expected results.
2. Hold people accountable, and ensure that consequences are made real – both for excellent performers (e.g., promotion, recognition, added responsibility to train and coach others) and for poor performers (e.g., performance related intervention, demotion or reassignment, termination.)
3. Manage scope.  This does not mean forcing the business client to live with a spec that may be unacceptable  – but it does mean renegotiating cost and schedule when performance needs change.
4. Recognize that most project work is a full time role – dedicate project resources and isolate them from the day-to-day demands of service delivery.

So, why don’t these things happen?  I don’t know – you tell me!

Related articles

• The Project Manager’s Hardest Task: Learning to Say No
• Developer Fired After He Outsourced His Job To China

The Decline and Fall of the IT Organization?

With apologies to Ed Yourdon for my plagiarism of his original the book title, published back in 1993, “The Decline and Fall of the American Programmer“.  (Though I don’t recall if Ed gave apologies to Gibbon for first using this line!)

For a blog entitled “IT Organization 2017” and for a management consultant who has had a very satisfying professional career consulting to IT organizations, the title of this post may seem both extreme and inappropriate.  However, I use the title not just as a controversial ‘hook’ to attract readership, but as a sincere expression of what I think is happening today – and will continue to do so.  The traditional role of the IT organization is on the decline and will never return to the importance and business value impact it had over the last 50 years.  The good news is, there is a crucial new role emerging – and for IT leaders that can envision and lead the new possibilities, I believe there’s a bright new future – perhaps brighter than the traditional IT leadership role.

So, Who Screwed Up the IT Organization?

I’m not sure this is anyone’s ‘fault’ per se, or could have been avoided.  Rather it is a natural by product of technological evolution.  Back in the late 1800’s, many corporations employed Chief Electrical Officers.  Nick Carr gets into this nicely in his aptly named book, “The Big Switch.”

A hundred years ago, companies stopped generating their own power with steam engines and dynamos and plugged into the newly built electric grid. The cheap power pumped out by electric utilities didn’t just change how businesses operate. It set off a chain reaction of economic and social transformations that brought the modern world into existence. Today, a similar revolution is under way. Hooked up to the Internet’s global computing grid, massive information-processing plants have begun pumping data and software code into our homes and businesses. This time, it’s computing that’s turning into a utility.”

The shift from electricity as a highly specialized resource to commodity took about a decade as standards such as voltage, alternating current, plug and socket configurations, and so on were settled.  Once the standards existed, businesses could simply plug into a grid – electricity became a commodity, and the Chief Electrical Officers become extinct as the Dodo.

An Historical Perspective

The first commercial mainframe computers, the LEO were created in 1951 by J. Lyons and Company, a British catering and food manufacturing firm.  The idea of a food and catering company today designing and building it’s own computer is unthinkable!  I remember in the late 1960’s, businesses such as Massachusetts General Hospital were creating their own programming languages, data base software and teleprocessing monitors – activities that would be considered wholly irresponsible today.  I wonder if 15 years from now we will look back at the turn of this century and be bemused by the fact that typical companies of any size at all maintained IT organizations – in some cases, thousands of IT professionals – writing programs, tending help desks, and so forth.

So, What’s Happening to the IT Organization?

For many years the annual surveys of top CIO issues list business-IT alignment. It’s a noble and challenging goal – and it’s no longer the right goal! A combination of technology advances, advances in standards and architectures (mostly prompted by the Internet revolution) and the increasing IT literacy across the business means that the challenge has moved beyond Business-IT Alignment to Business-IT Convergence.

From Business-IT Alignment to Convergence

Let’s drill further into this convergence phenomenon. Today, many IT activities, including project management, information analysis, application configuration are devolving into Business Units while others are consolidating with support functions such as HR, Finance, etc.  Helping to drive this is the rapid consumerization of IT devices and services, with iPhone’s, iPads, Android devices and the like becoming an important window into business systems and information.  Further driving this is the increasing ‘IT Savvy’ and confidence with IT that business executives, line managers and workers (especially, knowledge workers) increasingly feel.  This is in part generational – people entering the workforce with high IT literacy, and in part a byproduct of people’s engagement through social media, e-commerce and so on.

From Owning to Sourcing IT Capabilities

The last decade or so has seen a shift from owning all needed IT capabilities (data centers, server farms, software teams, application development groups, desktop support, etc.) to sourcing these capabilities externally.  Today, traditional functional outsourcing is being continuously expanded, and now often includes Business Process outsourcing as well as the outsourcing of compute power, data storage, IT infrastructure, applications and platforms through the rapid rise of Cloud Computing.

Information is Becoming both Strategic and Implicit

Information is becoming an increasingly strategic asset.  There is compelling research data showing how companies are successfully embracing and competing on business analytics.  At the same time, data is also becoming implicit to business management and operations – increasingly representing what the business manages and how it manages. In many respects, the context for IT today is becoming less about IT and more about information – the ability to capture, integrate, interpret, predict, and act is increasingly the holy grail of competitive advantage – and that belongs in the business – not in a separate specialist group.

So, Where Do IT Capabilities Belong?

Now, I’m on dangerous ground, because the answer depends – on the nature of the business, IT savvyness of business managers and knowledge workers, and their vision for how they want to deploy and manage information and IT.  But, I’d argue that many IT capabilities belong in business operations.  For example:

• Business Process Management
• Business Analytics
• Project Management
• Satisfying Business Unit application needs

Other IT capabilities belong in the governance of the business.  This might include, for example:

• Enterprise Architecture
• IT Strategy
• Portfolio and Program Management

And finally, some IT capabilities should be centrally coordinated and shared. Examples here include:

• Common and shared IT Infrastructure
• Enterprise Applications

So, What Are the Implications for IT Leadership and the IT Professional?

I will save that for a follow-up post, but suffice it to say that most companies and their IT organizations are not quite ready for the shift I’m espousing (and, indeed, predicting).  And, I think it is the clear responsibility of IT leadership to help lead this revolution – ensuring that it is orderly and safe – ensuring that the business and IT professionals are fully prepared and able to take advantage of business-IT convergence.

Please join me in the next post on this topic – and in the meantime, please weigh in with your perspectives and observations.

Painting by Joseph-Noël Sylvestre: The Sack of Rome by the Barbarians in 410

Why Is Outsourcing So Problematic?

I had another one of those CIO conversations today – you know the ones:

We’ve spent the best part of the last year trying to unwind from an outsourcing deal gone bad!”

I think it is a terrible indictment of the outsourcing industry that I hear many more such outsourcing horror stories than I do success stories.  To be sure, the success stories are out there, and inevitably garner less attention that the disaster stories, but I get really tired of hearing from CIO after CIO about some good outsourcing decision, often to a supposedly reputable global outsourcing provider, gone bad.

Let me open by saying I’m a believer in outsourcing – performed intelligently and selectively.  What do I mean by that?

1. I don’t think you should outsource all your IT.  I can’t think of a great analogy, but to me that would feel like outsourcing your nervous system – brain included!  You might argue that as long as someone else does that for you, and does it well and cost-effectively, that’s ok – you have bigger things to focus on!  That might have been a valid argument 10 or 15 years ago for some industries, or some companies, but today, information and IT are so pervasive and critical to business, you just can’t outsource your brain!
2. I do think you should outsource what you can – stuff that you understand well enough to be able to manage and control your external sourcing relationships.  This is not just a question of economics (it’s not always clear that the economic benefits are truly there, though they often are – at least, for a while).  It’s a question of management bandwidth.  I do think there are high value IT activities that you need to focus on (such as opportunity discovery, business innovation) so if you can take the lower value (but critical) activities (such as basic IT infrastructure, data center operations) “off the table”, then you open up management bandwidth to the higher value stuff.

So, Why the Volume of Outsourcing Horror Stories?

There’s a wealth of good advice out there on how to “do outsourcing right” and consultants who specialize in helping you select the right vendor, negotiate the right deal, and manage your vendor relationships effectively, so I won’t try to second guess those sources.  But let me tell you what I see in the horror stories I come across.

1. Vendors often oversell their abilities in the rush to win a deal.  “We really want to focus on your industry, and we need a flagship customer, so we’ll make you a deal you can’t refuse!”  Sounds good, and, perhaps, an offer made with sincerity.  But I’ve seen several such situations, where the vendor sold the deal, and maybe one or two others, but failed to really break into the focused industry.  After a couple of years, they exit the industry, and the stranded customers shift from favored reference account, to an unfortunate legacy – with service quality levels to boot!
2. Vendors sell their expertise – people who have “been there and done that!”  Sounds good, but after the deal is done, the vendor is scrambling to find qualified people, and you find yourself training people who don’t even have the skills you’d have hired!
3. Vendors sell their processes – CMMI Level 5 and ITILv3.  And yet, once the deal is signed, they seem to be making it up as they go along!
4. Vendors sell you ‘the power of their firm!’  “You will have access to the thousands of IT professionals who are at the cutting edge of global IT practice – we will be your IT innovation engine!”  In reality, I’ve never seen that work effectively.  Yes, they have the experts, but somehow, once the deal is done, you don’t get sufficient access to them, beyond the occasional “fly-in” to do a presentation.
5. Vendors sell you ‘knowledge transfer.’  “You will learn from our leading practices and CMMI Level 5 capabilities.”  While this sounds good in theory, I’ve rarely seen it work in practice.

What’s been your experience with outsourcing?  What has exceed your expectations?  Where have deals fallen short?

(Image courtesy of Intelligence interculturelle)

Business-IT Maturity and Smaller Businesses

 

Someone sent me an email about my blog and the small business in which she works.  She wrote, “Level 2 sounds like my workplace.  It drives me insane that we have no in-house IT person. I feel that any business over a certain size should have at the very least a part-time in house IT person.  I think it is very difficult for a smaller, less ambitious business to ever reach a ‘level 3’ collaborative mindset without IT support.  Businesses like that don’t have the resources or the ambition to get truly quality IT support, so I think the relationship with support becomes a lesser (and costlier) version of in-house support.  I know the mindset at my workplace is that we are only paying when we have a problem, but not only do we often have problems, we are also only troubleshooting, never innovating, so we’re not only paying too much to maintain the status quo, we’re also failing to exploit a lot of growth and quality.  Drives me crazy!”

There is a lot of wisdom in her comments – most certainly for smaller businesses, but also for large companies with ‘small thinking’ about IT.  The notion of outsourcing selections of IT services is absolutely fine – perhaps even essential to reaching high Business-IT Maturity (a good topic for a future post, methinks!)  But, I strongly believe there are some aspects of IT that cannot be outsourced without giving away the farm.  There are IT services that are purely “keep the trains running and the lights on” kinds of things – back-up and recovery, preventive maintenance, bug fixes, updating computers and networks, and so forth.  These are services that can be fairly easily outsourced.  There are other services that are about finding and fulfilling opportunities to use IT for business value – solving business problems, if you will.  The “fulfilling” aspects of these services are relatively easily outsourced, but not so the “finding” aspects.  For this to work well you need either or both of:

1. Business-savvy IT professionals working closely enough with the business to really understand the business problems (or the business customer’s problems!) and the opportunities for IT to solve them.
2. IT-savvy business professionals working closely enough with the IT folks (whether in-house or outsourced) to really understand the business problems (or the business customer’s problems!) and the opportunities for IT to solve them.

Small (or small-minded) business can rarely afford path #1 above, so they have to go down path #2.  The conundrum is, how did they get to be IT-savvy?  Ultimately, this is a function of business leadership.  In today’s information- and technology-intensive world, I don’t think you have a right to be a business leader without both being IT-savvy yourself, and being determined that the other business leaders also become IT-savvy.  The one thing you can never outsource is your responsibility to your stakeholders (your customers, employees, owners) to understand and fully leverage information and IT for advantage.

My emailer’s message is telling – by under-investing in IT, they are in a vicious cycle.  IT does not work properly, therefore IT is an evil to avoid, therefore we should spend less on it.  As I like to say (though not an original quote!) – businesses get the IT they deserve!

Are Your Vendor Partners Holding You Back?

 

I’ve been talking lately to CIO’s about Business-IT Maturity as part of the Reaching Level 3 multi-company research I am leading.  A recurring theme has come up enough times for me to believe it’s not an aberration. 

Several CIO’s have said to me something along the lines of, “We have several major business partners (providers of hardware, key systems software, enterprise applications software, networking components, major outsourcers, and so on), and we are finding that while they ‘talk a good game’ about Enterprise 2.0, Web 2.0, and all the ‘next generation’ stuff, when it comes to their people on the ground, the ones we work with day in, day out, they really don’t get it.  I’d say, not only are they not helping us move up the maturity curve – they are actually holding us back!”

On the one hand, I’m actually not surprised by this,  I’ve worked with several clients over the last few years who partnered with one of the major outsourcers ‘to help bring some technology innovation’, among other reasons they looked to outsourcing.   In every case, while the other reasons for outsourcing generally worked (for example, taking out costs, taking stuff off the balance sheet, gaining supply flexibility), the hope for ‘increased innovation’ never did.  I’m not saying, it cannot work – I am saying, I’ve not seen it work.

One the other hand, it’s a terrible indictment for the IT vendor industry.  There is a large gap between what they understand as ‘the state of the art’ and what resources they actually bring to bear on their (sometimes major) clients.

So, a couple of things – first, be sure that your vendor partners (those suppliers with whom you have a relationship you consider to be ‘strategic’) are not holding you back.  Second, please let me know your experiences – either supporting the contention that the major vendors are holding you back in your business-IT maturity journey, or refuting that contention.  I’m not looking to name names, although if you want to single out firms that represent either side of the case, feel free!

Did You Accidently Outsource Your Enterprise Architecture?

I’ve referenced Enterprise Architecture several times in this blog, and see it (or lack thereof!) as a common “sticking point” (see, for Example, Enterprise Architecture and Level 2 Sticking Point) as it’s one of those things that does not naturally “grow” out of less mature practices (IT Architecture, for example) but takes a different twist (bottom up to top down, and inside-out to outside-in, for example).

I’ve found myself in conversations with a couple of clients this year who struggled particularly hard to grasp what I meant.  I then discovered that when they had shifted to SAP as their major Enterprise Software package, they had essentially said, “Whew!  Now we are going to SAP, we can just adopt their IT architecture and stop messing with all that stuff!”  Essentially, they had “outsourced” their IT Architecture, which had the unfortunate side-effect of masking them from the distinctions between Enterprise and IT Architecture, such they had therefore essentially outsourced their Enterprise Architecture. 

I am describing a couple of extreme cases I came across this year, but in reality, I think this phenomenon is not uncommon.  I’m all for outsourcing selectively, but it is essential to take care not to accidentally outsource important management disciplines along the way!  To push my frequent analogy of “crawl, walk, run” a little too far, it’s as if the crawling baby, about to make her first tentative walking steps, is intercepted by a parent with a push chair who says, “Baby, you don’t need to walk – let mummy push you wherever you need to go.  One day, you’d be able to run everywhere, and be pleased that you saved your feet!”

Let me take this opportunity to wish my readers Happy Holidays, and a Healthy, Prosperous 2008!