You put your left leg in...

Outsourcing is not a new concept. In fact, it was first mooted in 1776 as a means to cut labour costs; 231 years later, outsourcing is still being touted as a way to manage costs. Whether it achieves this aim and its other goals depends on a number of factors, but more on that later.

Today's CIO has a number of outsourcing options at his or her disposal. This CIO also has a concurrent number of ways and means to squeeze the maximum out of the provider for the minimum 'fair value' possible.

Outsourcing is split into three "towers or service stacks", says Accenture outsourcing lead John Bell: applications outsourcing, infrastructure outsourcing and business process outsourcing. The latter includes non-core functions like procurement, finance and accounts, HR, contact centres and so on.

CIOs can opt to outsource all or none of the above. They can outsource each particular tower to a different provider or send all three in one direction. Should they opt to outsource all three, they can maintain only the staff needed to manage these contracts and relationships, or they can appoint an aggregator to issue the tenders, evaluate the deals and run the contracts on their behalf.

We did a R1 billion, 10-year deal with Safmarine last year.

Chris Kelway, business development executive, IBM SA

Says Internet Solutions' Ermano Quartero: "The trend in corporates is to create a single services aggregator function, keeping key resources internally to manage the vendor rather than sending all staff to the outsourcer."

Xerox business services GM Rabin Ram agrees: "One essential difference today versus a few years ago is that many big clients are looking for end-to-end solutions that encompass the entire IT infrastructure. There is a trend towards trying to combine it all into a single IT outsource solution, albeit with one aggregator plus subcontractors."

Says Quartero: "In my view, we will soon see companies acting as independent aggregators - as a project company, not a service company, with the legal function to handle SLAs, the likes of PricewaterhouseCoopers, Ernst & Young, Deloitte and so on. Corporates looking to outsource will go to them and sign a contract with them, asking them to be the aggregator and go out and find outsourcers. The JSE, for example, has gone that way, while the Reserve Bank has retained that function in-house."

This approach has its benefits, but is dependant on the CIO being willing to give up his or her entire department and the majority of the company's IT staff. Not all are willing to do so, for various reasons. That aside, having a single aggregator means one head to roll and one individual to point fingers at when things go wrong. This head will also have to deal with the inevitable shifting of blame game that ensues when multiple contractors are involved in a deal.

As Quartero points out: "Having multiple vendors means you can play one off against the other [in terms of getting the best value out of the deal] and you don't have one vendor dictating the company's ICT strategy."

Outsourcing isn't a right or wrong decision. It needs to be driven by management.

John Bell, outsourcing lead, Accenture

This new type of outsourcing arrangement - termed multi-sourcing by Gartner - is having a significant impact on the industry. The length of time taken to put out RFPs, evaluate bids and appoint an outsourcer (or coalition of providers) means outsource contract periods are getting longer.

Says IBM SA business development executive Chris Kelway: "We did a R1 billion, 10-year deal with Safmarine last year. The reason we got it to 10 years was that the client had done the research with its parent company and research organisations. The view they got is that infrastructure is an area they should never need to worry about, that they should give it to someone and they should run it to eternity with a good value proposition.

"We're also talking to SAB. For the first time, they're looking beyond three years. We think we will see more of this because the tender process to renew these contracts is six to nine months - and can be longer. This is a significant period, so the companies would rather engage in a longer contract and put safety mechanisms into the contract, allowing for longer periods with [perceived] fair value."

Whichever route the CIO chooses, whether the venture succeeds is dependent on a number of factors. The most critical, naturally, is the level of service provided by outsource providers. Says IBM's Kelway: "A general mistrust in outsourcing has been brought about by the failure of outsourcers to deliver beyond the basic service level agreement [SLA]."

Delivering the basic services, he asserts, is no longer adequate given the global market in which South African companies have started to compete since 1994.

"We looked at the market from 1998 when we signed the first deals, through to 2004. We realised we were not addressing our clients' needs, nor building the right relationships in the business and not helping our clients' IT organisations integrate with the business," he adds.

Conversely, the client's attitude to outsourcing is also crucial to the success or failure of such a venture. Says Accenture's Bell: "I think where organisations miss the boat is that they adopt an outsourcing strategy, which is then converted to a transaction that says, 'I am going to outsource a piece of my business'. Just because a service provider has failed to deliver doesn't mean the client should throw the baby out with bathwater and in-source it."

Bell points out there are well-documented cases of failure, but equally so there are cases of success. "So companies adopt an outsourcing strategy, the provider fails to deliver, chaos ensues, etc, etc. Fundamentally," he states, "outsourcing has been adopted as a strategy; whether it's right or wrong isn't up for debate. Rather engage another provider that has had success in that space.

"Outsourcing isn't a right or wrong decision," he notes. "It needs to be driven by management. If management buys in and works hard to make it successful, it will be. If they don't buy in, then don't do it. In cases where we've had successes, there is a clear commitment from the senior management team, not middle management, which often tries to derail this stuff. Commitment from the C-suite gives the platform for success. Where the decision is pushed down the organisation, that's when the potential for failure exists."

This is all really good news for CIOs who are becoming increasingly involved in the business, necessitating a better and more efficient way of managing the technology. Provided the commitment is there, the opportunities certainly are too. If correctly managed, an outsource relationship has the potential to become a long-term partnership that delivers above and beyond the scope of the SLA.