Discrete Manufacturing – a better metaphor for Project Based Outsourcing

December 31, 2008

Drawing upon age old concepts such as discrete manufacturing versus process manufacturing for IT outsourcing may seem farstretched, but if you examine closely, it reflects the current trends in outsourcing. Discrete manufacturing varies from process manufacturing. Wikepedia defines discrete manufacturing as building something for a specifc order. Examples include cars. The resulting products are easily identifiable and can be scaled up or down and the processes tailored to match the complexity. In process manufacturing, the products are undifferentiated, for example oil.

Traditional outsourcing was initially very successful as outsourcers learned to deliver IT solutions with the appropriate Service Level Agreements (SLAs) using attractive pricing models.  It was all about negotiating intricate, multi-party agreements which were very time consuming.   This was based on the process manufacturing model – keep producing quality software at low cost.  However, as the use of IT became more distributed in the organization, and the role of IT transformed from just the back-office to being strategically important to the organization, the need for specific niche solutions has become more relevant.  As organizations desire more niche and project oriented outsourcing, discrete manufactring serves as a better paradigm for IT outsourcing.

The emerging markets have many Tier-2 and Tier-3 outsourcers who specialize in niche-solutions.  An example of a nice-player would be a firm in developing social networks to enhance customer base for home healthcare software companies.  Such niche players embrace the principles of discrete manufacturing where they clearly develop a customized solution to meet a specific outsourcing project request.  These niche players are increasingly gaining importance in Small to Mid-Sized Businesses (SMBs) seeking project-based sourcing help.  Deploying processes that are specific to each niche-solution, these credentialed service providers reduce the risk of outsourcing. After all, apart from cost savings, risk-free sourcing is the most important tenet of IT outsourcing. 


Chief Information Officer (CIO) Or Chief Technology Officer (CTO) or both?

December 29, 2008

In general, the Chief Information Officer (CIO) is responsible for ensuring that the organizations information technology investments are aligned with its strategic business objectives. For most Fortune 2000 companies, the CIO has become the the architect of building and managing technology assets that meet the business requirements. Many CIOs come from a business background and lack the hands-on-skills in architecting solutions.   To help alleviate this gap, often a Chief Technology Officer (CTO) was hired to support the CIO.  While the CIO was the big boss in most organizations, technology-centric firms gave more credence to the CTO.

Large firms can afford the luxury of having both the CIO and CTO.  Small to Mid-Sized Businesses (SMBs) rarely have the luxury of affording two executives.  As outsourcing to emerging markets gains momentum, there is less need for having two executives.    Many CIOs lack the technical skills to build contemporary IT efficiently.  Conversely, many CTOs lack the business skills to build a technology portfolio that best matches the organization’s needs. 

What SMBs need is a hybrid between a CIO and CTO.  Rare as they are, there are individuals who have this unique ability to build the state-of-art technology enveloped in a project portofolio that is carefully prioritized and aligned to match the organization’s strategic plan.  These hybrids are effectively Chief Information and Technology Officers (CITO).  The critical word in CITO is and.  A good CITO has the perfect balance between expertise in developing technology that is driven by business, but built on a platform that is effective to meet the current and future needs of the organization.

Outsourcing Versus Sourcing Out

December 27, 2008

Recent events have turned most businesses towards survival and retaining market position. IT executives have followed suit. New projects are scarce even in recession proof segments such as healthcare. IT is facing the daunting task of delivering more for less. Outsourcing, particularly to emerging markets looks attractive, but employee preseveration often takes precedence.

Outsourcing, in particular, conveys quite explicitly the need to eliminate captive IT resources, not particularly politically attractive with the market exploding with unemployed resources. Consultants have created a plethora of adjectives to differentiate themselves from outsourcers: smart sourcing, right sourcing, strategic sourcing and the like. These fall under the category of “sourcing out”.

Sourcing out as the name implies covers the entire gamut of sourcing a specific function, project or even task. Understanding the true difference between “outsourcing” and “sourcing out” will facilitate breaking the grid-lock between the need to preserve human capital and reduce cost. Niche consultants find it easier to identify with companies who may be contemplating “sourcing out” a project or a task within a project. A good example of a niche player is a service provider specializing in healthcare software validation services with expertise in FDA CGMP regulations targeting the medical device manufacturers. The successful niche players also serve their markets better by being nimble and flexible in handling projects of different sizes. Traditional outsourcers will find it difficult to compete with these niche players. After all, elephants need a lot of room to dance!!

Is IT Outsourcing Green?

December 25, 2008

Before we address the question in view, what is Green IT to begin with?  Is it just saving power or using power more efficiently?  Wikipedia defines Green IT as using computing resources more efficiently.  On the surface a company that outsources may reduce usage of computing resources in their premises.  However, outsourcing transfers the “computing needs” from one organizational entity to the other.  Therefore this appears to be a zero sum gain as far as the environment is concerned.  

I favor the argument that outsourcing is green.  The simple reason is that outsourcers leverage computing resources and the utility infrastructure across many clients.  Besides, many offer computing capacity from hardware that is designed to consume low power.  If outsourcing is green and companies can actually save money, why are a majority of SMBs (Small to Mid-Sized Businesses) not subscribing to the outsourced model? 

The reason is the perceived risk of outsourcing.  What is needed a good supply of outsourcing consultants who have success in bringing highly credentialed outsourcers with expertise in Remote Infrastructure Management (RIM) to help SMBs outsource their data center.  Hosted e-mail solutions have emerged as the low-hanging fruit driving SMBs to outsourcing.

Is Micro-Sourcing Working?

December 23, 2008

Traditional outsourcing was initially very successful as outsourcers learned to deliver IT solutions with the appropriate Service Level Agreements (SLAs) using attractive pricing models. It 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, micro-sourcing came about as a natural step. Micro-sourcing was not about SLAs or multi-party agreements, but transactional sourcing which often required taking the initiative and delivering very successful but non-repeatable results. Smaller engagements were often outsourced through marketplaces. Micro-sourcing was heralded as the panacea to organizations, or for that matter, individuals who sought technical help for very small tasks. However, for micro-sourcing to work, there is the need for structure often missing in pure market places. The dilemma is clear: micro-sourcing does not have the skilled brokers who engineer the engagement. An evidence of this drawback is the reluctance of Small to Mid-Sized Businesses (SMBs) to outsource their IT functions.

The new trend is project-based outsourcing using a blended model of on-site program managers and off-shore development resources. This approach retains the metrics and structured processes of traditional outsourcing combined with the identification of specific pre-credentialed service providers who can collaborate and provide true value to the outsourcing organization. The three ingredients required for project-based sourcing to succeed are: 1) a sophisticated sourcing process 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.