Outsourcing Tips from a Midmarket CIO

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One of the first things I read this morning was what Rob Enderle learned from the ITBE Midmarket CIO Forum in Orlando, which wrapped up last night. I also attended the event and, like Rob, was impressed by all of the information sharing going on among the attendees. In addition, many of them generously shared information with me.


From Don Tennant's panel discussion, I wrote about an idea used by Linda Hughes, CIO for courier services company BeavEx, of creating profit-and-loss statements for every application in her company, a move that won fans among business executives and helped the IT department focus its strongest efforts on apps generating profit for BeavEx.


Mike Vizard mentioned lots of good ideas in his presentation, including one used by Citibank, hosting an annual "IT Fair" during which IT personnel demonstrate technologies for business folks to help them identify possible use cases. "Taking [business executives] out of their box and showing them different ways to approach things, using technology, is part of your job," he said. I also wrote about some lessons learned by CIOs in their deployments of VoIP and Google Apps. And I'll have more coverage coming throughout this week.


A theme that emerged in several of my discussions with these CIOs of midmarket organizations is that many of them prefer to work with vendors closer to their own size rather than giant companies. Chris Montoya, director of information technology for El Paso (Texas) Electric, spent several months vetting possible service providers when he decided to outsource his organization's service desk, infrastructure, application support and asset management. After looking at providers of all sizes, including the giants, he chose Houston-based Dyonyx because he felt he'd get more dedicated attention. And he does, enjoying "a direct line to the CEO and president."


Dyonyx also offered a model that cut down on unexpected cost overruns. Dyonyx staff are stationed on site and work on El Paso Electric projects for a flat hourly fee, said Montoya. If El Paso Electric develops a need for more specialized skills on a short-term basis, it can obtain them at a "reasonable, fixed cost" with no renegotiation. In contrast, he said, larger providers tend to layer on lots of incremental fees for any work not spelled out in original contracts. He said.

If you're a midmarket company, you can't really afford to get nickel-and-dimed like that.

Montoya chose to work with a single provider to foster a closer partnership with Dyonyx and to encourage a high-level view of his company's strategic objectives. Many experts agree a single provider generally works better than a multisourcing model for large-scale, transformation projects like El Paso Electric's initiative to migrate from a legacy mainframe environment to a distributed infrastructure and virtualized server environment.


In the first two years of El Paso's partnership with Dyonyx, it has redesigned and upgraded its entire network; implemented Tibco middleware, a Net Apps storage-area network (SAN) and single sign-on authentication; and migrated from Novell to Microsoft's Active Directory, with an Oracle customer and billing system rolling out this summer. El Paso Electric has trimmed its IT operating expenses by 20 percent.


Montoya said it would have been prohibitively expensive to hire full-time staff with some of the specialized skills it needed for these projects. While most of the hands-on technical tasks have been outsourced, reducing El Paso Electric's internal IT staff from 52 to 12, many remaining staffers are involved in more process-centric activities such as gathering business requirements, project management and resource planning.


Montoya did consider parceling out some functions such as the service desk, but he decided the "very vanilla" service desk offerings of many providers wouldn't work well for El Paso Electric's complex application environment, which includes more than 130 desktop apps including relatively unusual ones such as CAD programs.


Organizations must be careful to retain ownership of their strategic direction for IT, while outsourcing providers serve as facilitators and contribute best practices, said Montoya. Another key to success, which I've mentioned frequently in my prior posts on outsourcing, is to carefully review processes before outsourcing them. Montoya said El Paso Electric created swim lane diagrams for every process in the organization and spent time with Dyonyx to answer questions such as when and where handoffs would occur. Said Montoya:

If you throw outsourcing around a bad process, you're going to fail.