Backyard Barbecues, IT Outsourcing and Enterprise Architecture

July 24th, 2007

It’s that time of year once again. It’s the season for those time honored back-yard barbecues. In the US the barbe season starts around July 4^th and goes straight through the end of August – culminating with my birthday party at the end of the summer - the most important summer barbecue event

Many of my neighbors and friends also have careers in Information Technology. It’s a good mix of folks ranging from line of business executives, IT executives, IT development directors and IT managers in both the commercial and the government sector.

I don’t know about you but I can only focus on small talk before I run out of things to say and end up staring at my feet in awkward silence. In order to keep the conversation going and avoid looking socially inept, I pick a topic of general interest that I pull out in case the conversation begins to wane.

This summer I have decided to focus on IT Outsourcing. In particular, I’m curious as to the status of those IT projects that have been outsourced to overseas firms. I was eager to learn from my back-yard barbecue buddies if they had been successful and what best practices they have learned. I was happy to find that my topic of choice generated lively discussions over the last two months over cold beer, hot dogs and watermelon – what more could I ask for? More importantly, I realized I was getting valuable feedback on a topic that is of interested to most of us in the IT industry – the effect of Globalization on our industries.

The primary question I asked each of my unwitting subjects was the status of their outsourced projects and if they intend to continue the trend and how their view of Outsourcing may have changed. Of particular interest to me (obviously) was how they were managing the design of their outsourced applications – the architecture. In addition, I asked my barbecue buddies what they think is the true value realized from IT Outsourcing - outside of potentially reduced costs. And for that matter – is IT Outsourcing really a cost saver?

So here are my top 10 observations from my unofficial survey.

1. Outsourcing works best for customizing commoditized elements of the IT infrastructure – the most used example was packaged applications like SAP and Oracle Financials.
2. Governance of the Outsourcing process is hard and requires full time focus. Interestingly, my executive sample cited managing to the time difference between the US and Outsourcing centers such as India and China as one of their organizations greatest challenges. One Sr. VP said – ‘work becomes a full time affair – eventually it took a toll on our people.’
3. The Outsourcing firms will do anything to get your business but once they have won the business they move the high value resources originally assigned to the account to the next business development opportunity. Constant oversight is necessary on behalf of the enterprise to ensure quality does not suffer.
4. As such most everyone mentioned that Outsourcing quality has started to suffer as more organizations leverage the practice and absorb the most skilled resources – and that stands to reason – chasing low cost labor is not a business strategy – as a result….
5. The costs have risen significantly for outsourced labor – one VP of a major IT security vendor suggested that he has moved from leveraging resources in India to those back in the US – by hiring US based college hires (programmers) his costs are almost equivalent to that of resources overseas.
6. Most financial organizations consider their It operations to be the root of their competitive edge and would only outsource those elements of their IT that do not expose their business logic.
7. Government agencies are prohibited from leveraging overseas Outsourcing or foreign owned integrators in fact recent government guidance is further restricting the use of foreign owned it vendors and integrators….however…
8. One government trend is localized Outsourcing– that is creating IT centers of excellence in low cost regions of the US. These locations are usually depressed markets like Southwest Virginia where some government contractors are lowering their costs by moving COE’s to this area.
9. The value proposition of Outsourcing tends to decline over time for projects of significant complexity and development length. As a result organizations are looking to outsource those efforts that have well defined milestones and can be effectively time-boxed. Consequently, large complex IT projects that are linked to new business strategies are being pulled back into the customer organization. Outsourcing the commoditized elements of these projects is still a common practice. However, the business analysis, the definition of the architecture, and the development of the core business processes are being pulled-back into the business or physically located closer to the home office.

And the most interesting observation I gleaned from my informal barbecue based survey was…..

1. I ended all of my discussions with a single question – ‘What is the real value of Outsourcing– outside of some cost reductions – what value was realized as the result of Outsourcing an IT development effort?” The answer was almost unanimous – The primary value to the business was realized as the result of rethinking the business. In other words, these organizations were forced to document their existing business processes and streamline the ‘to-be’ processes in order to effectively define the future business functions what would result form the outsourced IT system or application.

I thought this observation was enlightening. I began to ponder the implications – if the primary benefit realized resulted in re-architected, re-engineered business functions contained within an IT system, was Outsourcing the cause or the effect? Could a business not realize this same benefit if they leveraged an Enterprise Architecture and the skills of Certified IT Architects? Would the effective implementation of an evolutionary Enterprise Architecture strategy coupled with effective governance prevent an organizations business processes and IT systems from becoming stale. Because it appears to me the primary reason why these organizations embarked on an Outsourcing strategy in the first place (other than because it was trendy) was because their business processes had become stale and ultimately out of line with the business strategy. In my opinion Outsourcing is only triage for a dying patient if not leveraged properly – what businesses really need is to embrace a process of continuously rethinking the business from the inside out. The application of an effective Enterprise Architecture would help to prevent institutionalized resistance to change and the ability to more effectively respond to the changing business environment.

What are your thoughts?

Andras R. Szakal

IBM Distinguished Engineer

ITAC Master Certified IT Architect

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