Is Rogue Sourcing here to stay?

October 30, 2011

Consultants have created a plethora of adjectives to differentiate themselves from outsourcers: smart sourcing, right sourcing, strategic sourcing and the like.  Now rogue sourcing?  Before the reader frowns, I will freely confess that I created it.  Please view me as a career CIO who coined this term and not as a consultant.

To provide a bit of a background,  IT is facing the daunting task of delivering more for less. The result is that users (like marketing, finance, operations) are seldom getting their projects done by the internal IT department.  Naturally they resort to outsourcers.  A very harsh phrase to use, but rogue sourcing refers to IT sourcing by non-IT departments.  Of the many challenges with rogue sourcing, the three that kindle their way to the top are: management overhead, higher costs, and lack of a review and credentialing process potentially leading to poor delivery quality.

The way to eliminate rougue sourcing is not to outlaw it, but accept it as a weakness in the IT department in how it is managing user requests.  IT governance helps facilitate decision making across all users. This prevents IT from independently making and later being held solely responsible for poor decisions.  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, IT management will need to establish controls and processes to deliver quality technology solutions on time and within allocated budgets.

Outsourcing can actually enable effective IT Governance as it provides a scalable resource base to work in conjunction with internal IT resources.  IT can transform itself as a nimble service based organization taking advantage of outsourcing.  This will signficantly reduce rogue sourcing.

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Offshore CTO?

May 1, 2011

At first the idea of off-shoring the CTO function looked a bit difficult to comprehend.  To put it in context, IT Organizations hire a Chief Information Officer (CIO) 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.    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.

The idea of of an off-shore CTO working under the direction of a CIO to help architect and deliver a technology platform does appear to make sense, particularly in light of the fact that many technology solutions are in fact developed off-shore.  A few guidelines for successfully off-shoring the CTO services:

  1. The business drivers must be articulated on-shore by a CIO or equivalent;
  2. The off-shore CTO must be co-located with the implementation team;
  3. The off-shore CTO must provide PMO functions to ensure successful outcomes;
  4. The CTO must be fluent in the enterprise architecture; and;
  5. If the development team is outsourced, the CTO function must not be from the same outsourced entity.  This will help ensure that the CTO’s loyalty is to the enterprise and not to the outsourced entity.

Off-shoring a CTO is not necessarily undertaken to reduce costs, rather it is to help minimize the gaps between the desired outcome and the delivered technology platform. The capability of the CTO determines the success of the engagement.  Fortunately, with the large number of engagements that have involved on-shore and off-shore projects, it will not be difficult to locate competent CTOs.  Many qualified CTOs in Europe/US may themselves avail of off-shore engagements further boosting the pool of available CTO resources.


Time Sharing a CIO

February 19, 2010

For small firms, to have a full time CIO is a waste of valuable resources. Please note that the CIO who is time-shared should work and be treated as a trusted employee of the firm.  And the time sharing should be ethical  and ensure that there are no conflicts.   The CIO should play the role of an executive working with other C-level executives to develop and manage technology that is “synchronous” (aligned is over-used) with the business. It is critical that the CIO provide an appropriate governance framework that is not onerous.  In most small companies, the CIO may also have to play the role of the CTO for these firms and develop/manage the IT projects (using the portfolio approach) that is efficient, secure and provides true value to the enterprise.


Reducing the Fixed Costs in Project Management

January 3, 2010

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.


ERP for SMBs

October 31, 2009

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.


IT Governance for SMBs Desiring to Outsource

September 19, 2009

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.