The New Global Brain: Find & Direct Brainpower

In an article published in Newsweek, Work The New Digital Sweatshops, Jonathan Zittrain talks about how the Internet is revolutionizing tasking by aggregating global resources, termed “crowdsourcing”, similar to how aggregated computing power speeds the engines of technology companies ability to process millions of search requests every minute.

In the latter, the computers dont have emotions, rights, or shed a tear when called into action at 3AM after cranking out search results for the last 1,345 days.  The ethical dilemma, Zittain purports, is when you seemingly take advantage of a hungry resource halfway around the world to execute mundane tasks like deal with a drunk, hungry sports fan ordering a pizza at halftime.

Frankly, I see it as supreme supply chain optimization, a zero-waste global economy, that will eventually create a certain global “synchronicity” where we all continue to quickly evolve technology through global teamwork and collaboration.  The mundane task of pizza order-taking may quickly evolve into chip design for our next-generation zero emission vehicles.  There is always distribution of labor, now today we have global connectivity enabling a more perfect distribution to the right resources with the right skills at exactly the right moment.

Nothing in Life is Free

Recent announcements by Hulu and the NY Times, that their content will no longer be served up gratis to consumers, and that “new business revenue models will be ‘tested’” (ben.fritz@latimes.com) strengthens the notion that online business is still searching for the “holy grail” of revenue models, using the braille system.
Easy for large partnership enterprises like Hulu and NY Times to experiment, as they have the luxury of tweaking different business-revenue models until one eventually works.

But what about the SMB market that can’t afford to spend an exorbinant amount of time, money and resources, coming up with their ideal revenue business model?

It becomes more mission-critical than ever to minimize expenses dedicated towards IT initiatives, and the seemingly interminable changes, enhancements and scope creep elements associated with them.

Without the large IT budgets that are at the disposal of many big corporations, it’s imperative for SMB’s to root out the most cost effective, reliable, quality IT resources as efficiently as possible.
This is where the online outsourcing service provider networks will prove their weight in gold. The best, value-driven, content-rich networks that rise and prove to be the cream-of-the-crop, will surely command subscription fees, as true business-savvy consumers will gladly, albeit begrudgingly, put money into the tip jar to ensure providing themselves with the best possible IT solutions and resources….because after all, they know….nothing in life is free.

Reducing the Fixed Costs in Project Management

Sudoku puzzles teach an important lesson in project management, that we almost forget- there are fixed costs associated with every project.  In Sudoku, there are different levels of complexity – from the very easy to the excruciatingly difficult ones.  While the time taken is correlated with difficulty, it is not linear.  No matter how easy the puzzle, it takes a finite amount of time to simply fill the puzzle.  This is also true for any project.  Initial project reviews, user-buy in, planning, resource allocation, project briefing, and de-briefing after the project is completed all have a “fixed cost” component to it. While it is impossible or even desirable to eliminate the fixed costs, it will be helpful to streamline the project management process to develop efficiencies. 

These guidelines help in reducing the fixed costs associated with projects:

1. Develop a simplified project management methodology (PM-Lite).

2.  Use simple workflows (automated workflows add more benefits) using a portal approach to oversee these “small projects”.

3.  If you outsource these projects, use a set of pre-screened and pre-credentialed vendors who are specifically suited for delivering small projects.  This is discussed in more detail in this blog.

4. Set limits on the number of deliverables (such as 5 to 7).

5.  Keep the distance between each deliverable small (time and technical relationship).

6.  Set simple success criteria such as 10% within each deliverable’s costs and schedule as green, between 10% and 25% as yellow, and more than 25% variance as red.

This simple guideline should not be construed as one shoe fits all.  For example, risk management, compatibility with enterprise architecture, adherence to standards, and other project management principles also apply, but they should not become onerous and increase the fixed costs of a project. 

A note on the Fixed Costs associated with Outsourcing

Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.   The trend towards more small projects is gaining momentum, and it further reinforces the need for organizations to develop an IT governance methodology for small projects. SMB CIOs have an alternative solution in extending their resource capability using project-based sourcing.  Project-based sourcing is a convenient way to balance the need for reducing costs and maintaining core competence in-house.

While outsourcing makes good sense, organizations, particularly SMBs (Small to Mid-Sized Businesses), simply maintain status quo. Either they cite lack of expertise in managing off-shore engagements or perceived quality issues to not engage in off-shoring. To a large extent, their fears are justified. Tier-1 outsourcers seek outsourcing of entire functions – not the ideal method for SMBs which seek help for specific projects.

When outsourcing the projects, the overhead gets accented as procurement and sourcing decisions have their own components of fixed costs.   The lack of a well established Service Provider network who deliver project-based off-shore solutions adds to procurement costs, often negating the benefits of outsourcing. Fortunately, web-based brokerage solutions are emerging. These solutions are built on a solid pre-credentialed Service Provider network to ensure that lower cost is not negated by poor quality.  These web-based solutions benefit both the SMB as well as the Service Provider.  SMBs benefit from low administrative costs and accelerated contracting.  They also benefit from selecting a vendor from a pre-credentialed network.  Many Tier-2 and Tier-3 off-shore Service Providers have the ability to provide niche IT solutions that match SMB project needs.

A Third Party Consolidator Approach for Small Project Sourcing

The concept of outsourcing small projects is relatively new.  Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.  In the world where outsourcing services are measured in head-count and SLAs, small-project sourcing provides a viable alternative for businesses to take advantage of global sourcing models to reduce their operational and back-office costs. It also changes the dynamics of the supply chain. It provides an opportunity for smaller service providers an opportunity to play in the outsourcing market.

The challenges with small-project sourcing from a SMB perspective are three-fold: 1. Management issues leading to gaps between expectations and delivery.  Businesses are not adept at managing global sourcing for smaller projects. 2. The sheer number of projects with a large pool of smaller outsourcers makes the job of connecting the “right” provider with the projects extremely challenging. 3. Even though the IT projects are small, the procurement logistics are still time-consuming and complex. Having a single consolidator that manages the smaller outsourcers provides an efficient mechanism to implement small project-sourcing.

Good consolidators perform due-diligence on the service provider network, match project needs to providers, and provide a dashboard to review the service levels. The benefits of having a single consolidator include improving the procurement efficiency by providing a set of reliable and pre-credentialed service providers, a one-stop procurement channel, competition between service providers and complete transparency in sourcing. Businesses will benefit by getting Tier-2/Tier-3 pricing together with a single point of control and total visibility on the engagements. While there are challenges, the cost savings can be enormous, in fact substantially higher than traditional IT outsourcing. Just in the U.S., there are over a quarter million companies who have between 100 and 500 employees. A back of the envelope estimate suggests that the savings can be in billions of dollars even if a small percentage of these firms take advantage of project based-outsourcing in their business.

ERP for SMBs

When considering ERP solutions, the key drivers are to spend sufficient time understanding the needs.  In fact, the very first question would be to assess if the business strategies are well established, and equally important, to assess whether the business processes and assumptions that drive the perceived need for a new ERP system are valid.  It is well known that a technology solution cannot fix an ailing business process, in fact, it will only make it worse.  This is important to SMBs considering an upgrade to their ERP system – if the issue is the business process, fix the process before embarking upon a upgrade.  Before embarking on the ERP system upgrade, it is imperative to assess the risks.  Risks are both intrinsic (internal operations, sales, marketing, finance, HR) and extrinsic (how they impact your customers and supply chain).  For SMBs also desiring to upgrade their ERP system, they must assess the existing software and really scrutinize whether the upgrade is going to bring the benefits that are desired. For example, one question to ask is whether a few customizations or enhancements or bolt-ins to the current software satisfy a majority of the requirements.

Assuming that there is a need for an ERP system or an upgrade exists, SMBs need to assess the true life cycle costs, benefits and risks of the upgrade.  It should be pointed out that the life cycle technology costs are but a fraction of the overall costs – the cost of implementing the change across the organization can be daunting.  A healthy bout of skepticism on the true benefits should be entertained.  More than 50% of ERP implementations according to researchers have failed to yield the promised benefits. 

Once the needs and benefits are established, from an IT Governance point of view, the mandate for an ERP system must come from the top and have complete support and cooperation of all key stake-holders.  ERP is not an IT driven, but a business driven project.  Selecting the appropriate vendor is a complex task.  It is best to bring an un-biased consultant to assess the product features against the needs to establish the degree of fit.  Simply attending vendor presentations is not adequate, as vendors attempt to change your business needs to meet their tool features.  

Implementation of ERP, is significantly more complex.  Most recommend an incremental approach as opposed to the big-bang to mitigate risk. Again, the critical aspect is having the business units manage the deployment, with IT just playing the role of a facilitator.

Forgetting small projects?

IT tends to focus on infrastructure and applications that are strategic and mission critical to the enterprise.  Small projects that may be of potential value to business can get lost in the prioritization shuffle. 

There are challenges faced in procuring and managing small projects.  Most Fortune 2000 firms have good governance around procurement, but these processes are ideal for large projects.   The term “small project”s is relative, but for most Fortune 2000 firms, projects under $250,000 can be deemed to be small.  To a large extent, existing procurement practices are quite onerous for a sourcing a small project.  IT management is also challenged and seldom do these projects make it to the CIO’s radar. 

To alleviate these difficulties, it is critical to develop special governance around small project sourcing.  Measures should include developing a short list of providers who are specifically suited for small project sourcing.  Fortunately, the web has led to a whole new generation of providers who have the expertise, the proper methodology in developing and delivering small projects.  Many of them aggregate as a network of providers to give the benefit of one-stop procurement and total visibility into the complete life cycle of the project from sourcing to delivery.

Off-Shoring on the rise for Small to Mid-Sized Enterprises (SMBs)

A survey of more than 200 IT organizations found that among small and midsize organizations that outsource at least part of one IT function, the percentage using offshore service providers rose from 14% in 2008 to 24% this year.  Ref: http://www.computereconomics.com/article.cfm?id=1499

There are many reasons for this:
1. SMBs are seeking to reduce costs.
2. There is a better supply chain of off-shore service providers who cater to SMBs.
3. Traditional offshore providers are doing a better job selling to SMBs.
4. Web-based provider networks are gaining momentum.
5. The recession led to a pent-up demand for IT services.

Web-based brokerage solutions will readily facilitate off-shoring for SMBs. These solutions are built on a solid pre-credentialed Service Provider network to ensure that lower cost is not negated by poor quality.  These web-based solutions benefit both the SMB as well as the Service Provider.  SMBs benefit from low administrative costs and accelerated contracting.  They also benefit from selecting a vendor from a pre-credentialed network.  Service Providers get inexpensive access to the SMB market.

IT Governance for SMBs Desiring to Outsource

IT Governance helps align IT activities to best meet SMB’s business requirements.  Most Governance methodologies start with alignment at the top.  This is a reasonable approach for all organizations where the traditional involvement of board-level executives in IT issues was to defer all key decisions to the company’s IT professionals. IT governance helps facilitate decision making across all stakeholders. This prevents IT from independently making and later being held solely responsible for poor decisions. 

From a IT Governance standpoint, Small to Mid-Sized Businesses (SMBs) differ from the larger firms in two important aspects:  One, they are more nimble and need flexibility, and second, they tend to focus on shorter-term issues.  For SMBs, the guiding principle is to deliver value to the business without injecting onerous controls that stifle productivity.   To achieve it, the IT Governance framework should provide complete transparency on IT activities and make it simple for users to make, monitor and prioritize IT requests.  In order to achieve transparency, SMBs will need to establish controls and processes to deliver quality technology solutions on time and within allocated budgets.  From a management perspective, it is critical to effectively allocate and track resources and costs. 

Outsourcing can actually enable effective IT Governance as it provides a scalable resource base to work in conjunction with internal IT resources.  To make outsourcing successful, the outsourcer’s governance framework must work seamlessly with the SMB’s IT Governance.  Mismatches in the Governance frameworks is one the principal causes of outsourcing failures.  Although mismatches can be best reduced by adopting a common process-centric framework, it is far from easy to implement common processes across two organizations.  A less expensive approach is to identify key risk areas in the process and establish clear mitigation strategies.

Outsourcing 3.0

Outsourcing 3.0 will lead the way for organizations to build and manage technology efficiently.  Traditional outsourcing (Outsourcing 1.0) was initially very successful as outsourcers learned to deliver IT solutions with the appropriate Service Level Agreements (SLAs) using attractive pricing models.  Outsourcing 1.0 was all about negotiating intricate, multi-party agreements which were very time consuming. Following the ignominious collapse of several major outsourcing deals, IT services providers and customers alike have had to revise their approach to the entire outsourcing business.

As organizations desired more niche and project oriented outsourcing, Outsourcing 2.0 came about as a natural step (analogous to Web 2.0).  Outsourcing 2.0 is not about SLAs or multi-party agreements, but collaborative rich mutually benefiting business arrangements, one that often requires taking the initiative (at higher degree), delivering very successful but non-repeatable results.  Smaller engagements were often outsourced through marketplaces such as eLance and Guru.  More sophisticated engagements required skillful brokers who engineered these engagements. The key drawback of Outsourcing 2.0 was the lack of repeatability and metrics.  An evidence of this drawback is the reluctance of Small to Mid-Sized Businesses (SMBs) to outsource their IT functions. 

Outsourcing 3.0 (analogous to Web 3.0) relies on semantic searches to identify niche outsourcers who best fit the objectives of organizations desiring to outsource projects.  It retains the metrics and structured processes of Outsourcing 1.0 combined with the identification of specific outsourcers who can collaborate and provide true value to the outsourcing organization.  The three ingredients required for Outsourcing 3.0 to succeed are: 1) a semantic search engine to link project needs to the appropriate outsourcer; 2) a highly collaborative workflow to ensure that the engagement process provides best value to the parties involved; and; 3) a knowledgeable network of brokers who understand information technology and outsourcing.

The Benefits of Remote Infrastructure Management for SMBs

Frameworks such as ITIL have developed guidelines for strategizing, designing, implementing and managing IT Infrastructure that provides best value to businesses.  While the guidelines were designed for Tier-1 firms, they are also applicable for Small to Mid-Sized Businesses.  Ignoring the Fortune 1000, there are 17000+ companies who have between 500 and 10,000 employees.  Let us call these companies Tier-2 companies.  There are probably 200,000+ companies who have more than 100 employees but less than 500.  Let us call these Tier-3 companies.  A challenge Tier-3 companies, and to some extent the Tier-2 enterprises, face is the lack of economies of scale.  If they do not have a outsourced environment, they require systems administration expertise, network management, helpdesk, maintaining the server farms, and maintaining the user devices (PCs, laptops, PDAs, etc.).   One easy way to gain economies of scale is to outsource, particularly off-shoring to leverage the lower costs. 

According to Stephanie Overby (CIO Magazine: Outsourcing: The Pros and Cons of Offshore Remote Infrastructure Management dated: March 18, 2008), the services that can be off-shored are:

Service                % that can be off-shored

Network Services                80%

Internal Help Desk              75%

Servers                              70%

Maintenance                       60%

Administration                    35%

End-user Devices               15%

While the degree of off-shoring can vary for each enterprise, Stephanie’s insightful article points out the need for a blended model – a combination of on-site expertise backed by Remote Infrastructure Management (RIM) services.  Cost savings are a result of three factors:  1)  labor arbitrage, 2) shared services including SaaS, cloud computing, and, 3) shared expertise.  The best example of labor arbitrage is off-shoring.  Large outsourcers such as IBM, Infosys, and Wipro have provided these cost benefits to Tier-1 companies.  In the past five years, many Tier-2 and Tier-3 outsourcers have provided niche RIM services.   Cloud computing has helped reduce infrastructure costs.  SaaS (Software as a Service) has gained momentum helping companies pay for services actually consumed.  Shared expertise is another strong benefit as outsourcers provide a multitude of expertise that would be very costly to in-source.

Savings can be significant.  Typical savings for e-mail hosting and support can amount to over 100% , over 200% for remote server monitoring, and over 50% for applications monitoring and support. 

In addition to cost savings, RIM offers a much higher level of service.  For example, outsourcers can provide 24-7 support far more economically than in-sourcing.  Another significant benefit of using outsourcers is the ability to provide higher availability of services on demand.  RIM is a proven model for managing IT Infrastructure.  In the past these benefits were limited to Tier-1 firms managing large data centers.  Recently, the growth of highly qualified and credentialed Tier-2 RIM providers makes it easy for Tier-3 enterprises to take advantage of off-shore partners.