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No CIO a 'fatal error` for JSE

By Christelle du Toit, ITWeb senior journalist
Johannesburg, 31 Oct 2007

The JSE`s decision to reverse a major outsourcing contract highlights a number of concerns, say analysts.

Yesterday, ITWeb reported that the JSE decided to bring its IT functions back in-house two years into a seven-year contract with Accenture to update its legacy systems under an initiative codenamed Project Orion.

In a recent public announcement, the JSE said "the JSE does not expect any material impact on its financial position, or any impact on its customers or services" due to the decision.

In a telephonic interview, JSE president Russell Loubser said there would be no change to the R200 million worth of expenditure anticipated for the overhaul of its IT systems.

"Savings we make in one place will go toward additional expenses such as management time - we will probably save more," he said.

Costly termination?

MarketWorks advisor Terry White says "I can`t understand how it can have no [negative] financial impact" to reverse the outsourcing decision.

He explains that most contracts would provide for early-termination penalty fees. Additional in-house resources will also be needed to self-manage the IT functions. "I can`t see it not costing more."

He adds that the bourse`s fatal error was not having a CIO in place.

"If you outsource properly, you still retain, at the very least, a CIO, a business relationship manager, a portfolio officer, and a chief technical officer," says White. "You never outsource the 'demand` of IT otherwise you will experience a loss of control."

He points out that service levels hardly ever improve during the first two years of an IT outsourcing project. "The service for the first year or two is often the same or even worse than before. It is only later that the service levels pick up."

Absa group executive for technology Leon du Randt says: "Service delivery is normally the deal-breaker and it`s imperative that the outsourcing company makes the necessary infrastructure investments and remains current with software, hardware and continuous process optimisation, and retains talented people.

"One can outsource the utility-type functions; however, things like architecture, strategy, etc, you keep in-house. Relationships are also critical and normally it`s beneficial having scorecards and benchmarking in place."

Risk matters

Frost & Sullivan researcher Spiwe Chireka says it would seem Accenture failed to deliver to the JSE`s expectations. She says the situation raises a number of concerns that are topical in the outsourcing arena.

"There are some risks that seem not to have been discussed in the relationship to begin with," says Chireka. "One major risk factor is outsourcing to only one vendor. If you outsource to multiple vendors, you mitigate the risk."

The fact that the JSE had no CIO in place during the outsourcing agreement also raises concerns, says Chireka.

"The JSE should have had someone inside who can constantly check what is happening and check the methodology," she notes. "Here IT is a core functionality of the business and there should have been that link between the two companies."

Not alone

KPMG`s latest report on the challenges of outsourcing concludes that as many as a quarter of all outsourcing deals fail to meet expectations and one-fifth fail in any given two-year period.

The company`s UK statistics indicate half of all outsourcing deals fail within five years.

"Many businesses employing an IT outsourcing strategy are struggling with how to monitor and measure the risks, value and performance of sourcing," says KPMG.

"Executives admit knowing they should take a holistic view of IT outsourcing risks, but typically look first to cut costs and second at managing risks."

Accenture has declined to comment on the issue, referring media queries to the JSE.

Related stories:
JSE reverses outsourcing move
Technology lets down JSE

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