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You Can't Outsource Everything

You Can't Outsource Everything

Some outsourcing is inevitable. But as the former deputy CIO of Procter & Gamble learned, it's crucial to retain enough work in-house to train the next generation of IT leaders.

These days, there is certainly no shortage of debate on the relative merits or evils of outsourcing. One thing's for sure: Outsourcing will continue to increase over the next several years. An unspoken corporate lemming behaviour will continue to fuel this growth for years to come. When industry leaders such as GE, Telstra, DuPont, ANZ Bank, GM or Procter & Gamble do something, others take notice and many will follow.

CIOs cannot single-handedly reverse the forces moving IT jobs overseas. While I'd love to see CIOs come together as a united bloc to influence IT-related policy matters, the sad reality is we don't have a clear, unified voice right now. Therefore, I strongly encourage CIOs to rise above the "religious fervour" and focus on the things they can control in order to ensure the best possible outcomes for their companies, their IT organizations and the IT industry.

First and foremost, CIOs need to be proactive. Don't wait until your CEO or CFO walks into your office asking you about the merits of offshoring or "Why is Company X outsourcing its IT work?" At this point, you're now playing defence, my friend.

CIOs should proactively look at their own IT operations and determine which portions are strategic, and which are basically nondifferentiated services. The latter may be candidates for outsourcing. For example, CIOs in retailing appropriately view their customer-facing systems as very strategic and usually do their development in-house. But what about application maintenance or help desks? Do those IT services differentiate your company from the competition? I doubt it.

Ideally, the CIO's offensive game plan should evolve from the company's overarching business philosophy to focus on its true core competencies. This requires redirecting employees' energy from internal machinations to focusing only on initiatives that differentiate your business in the marketplace.

At P&G, this strategic philosophy was at the heart of the decision to outsource some of IT as well as other non-IT, back-office operations. About 25 years ago, P&G developed an internal e-mail system, which R&D used extensively to proliferate the best ideas for product development and manufacturing. In 1980, this was a strategic application. Recently, P&G concluded that internally running a world-class e-mail operation no longer creates a sustainable competitive advantage. Now the company gets that service from Hewlett-Packard as part of a large, multiyear outsourcing agreement signed in 2003.

Roughly half of P&G's IT organization was ultimately moved to Hewlett-Packard or IBM as part of the outsourcing process. Was this an easy, painless process? Of course not. There was much internal debate on where to draw the boundaries of what to keep and what to outsource. Rising above the emotional stress of the situation, we decided which roles to move by looking through the eyes of P&G's customers such as Kroger or Wal-Mart, or the consumers who buy the products. If they couldn't "see" the work or wouldn't pay extra for it, then it was a candidate for outsourcing. From there, we considered scale and natural synergies. (For example, does it make more sense to break up the ERP system and keep pieces in-house, or keep it whole and push the outsourcer to deliver further economies of scale?) In the end, P&G chose to outsource the running and maintenance of most operational systems, and all of the infrastructure services.

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More about ANZ Banking GroupDuPont AustraliaEvolveHewlett-Packard AustraliaIBM AustraliaLPProcter & Gamble AustraliaTelstra CorporationWal-Mart

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