Outsourcing rules are changing and you need to be aware of these changes

Outsourcing rules are changing and you need to be aware of these changes
Image Credit: Mark Hillary

Back in the golden days of outsourcing, CIOs could just pick up the phone, get in contact with the head of their outsourcing contractor in India or China, and scale their team up or down as conditions required. However, times have changed and now that everyone is starting to understand the importance of information technology, the world of outsourcing is getting more complicated. CIOs have to understand the changes that are occurring and need to adapt.

5 Trends That Are Reshaping How Outsourcing Is Done

The world is changing and how the person with the CIO job does outsourcing is changing also. However, the ways that outsourcing are changing can often be hidden from a casual look at the industry. If you want to know what is really going on, you need to be willing to take the time to dive in deeper and do some investigating. Good news, I’ve done this for you. Here are 5 trends that are currently sweeping through the outsourcing industry that we CIOs have come to rely on.

  • Deals Are Getting Smaller: One upon a time you could hardly pick up a business newspaper without reading about some mega-outsourcing deal being announced. Well, it turns out that those days are now behind us. For the past 10 years or so, the size of outsourcing deals has been declining. Today, there are roughly 3x as many deals that are worth less than 100M than there are deals that are greater than this.
  • New Ways Of Doing Pricing: The good news for CIOs is that outsourcers are fiercely competing with each other. This means that they are all open to new and innovative ways to price outsourcing deals. This can include such things as business-outcome pricing, joint ventures, and revenue sharing deals.
  • Going Multi-Source: More and more CIOs are not allowing themselves to be tied to a single outsourcing vendor. Instead, they are spreading the work out among multiple vendors. This does introduce the complexity of managing multiple vendors who may all be working on the same project. However, so far CIOs seem to be indicating that the additional complexity is worth the reduced risk.
  • It’s All About Security: Every CIO realizes that when an outsourcer is invited to work with the company, there is the additional possibility of a security breech that needs to be considered. Adding security restrictions to the outsourcing contract is something that has started to take up more and more time when these contracts are being negotiated.
  • Cloudsourcing: Just as the arrival of the cloud has impacted how business is being done, so too has it had an impact on how outsourcing is being performed. In this model the outsourcer takes over a function of the IT shop and provides its services via a cloud-based infrastructure. The rest of the company doesn’t even have to know that this function is no longer being provided by IT department staff.

What All Of This Means For You

It goes without saying that the world that we live in is always changing. Based on this understanding, I suppose that the person in the CIO position really should not be all that surprised that the world of outsourcing is also changing.

The types of deals that are being signed in the world of outsourcing have become smaller, they use new pricing models, multiple vendors are being used, security has become even more important, and cloudsourcing has become part of the equation.

The shake out of all of these changes is that the outsourcing decisions that a CIO has to make have become even more complicated. The good news is that the new flexibility that is available in outsourcing deals means that CIOs have a better chance of crafting deals that will best fit their customer’s needs. Take the time to study the changes that are sweeping though the world of outsourcing and use these changes to reach better deals with your vendors.

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: Do you think that the changes in the world of outsourcing make outsourcing more or less attractive?

Click here to get automatic updates when The Accidental Successful CIO Blog is updated.

P.S.: Free subscriptions to The Accidental Successful CIO Newsletter are now available. Learn what you need to know to do the job. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

As the person with the CIO job, because of the importance of information technology your company expects a great deal from you. However, if you have not managed to gather the power and the credibility that you are going to need in order to successfully accomplish your job, then it’s going to be very hard for you to accomplish what you need to get done. What this means is that you need to discover how to boost both your power and your credibility…

{ 0 comments }

Is This The Death Of Offshoring?

by drjim on January 21, 2015

Offshoring As We've Known It May Be Dead

Offshoring As We’ve Known It May Be Dead
Image Credit: Vitor Lima

Once upon a time, offshoring was the answer to every CIOs dreams. It offered a great way to significantly grow the IT department while at the same time reducing the total costs of running the department. What make it even better was that somebody else had to deal with the real-world issues of managing people and the person with the CIO job could just focus on results. However, that magic never seemed to work out. CIOs are only now starting to learn to deal with reality of life after the death of offshoring…

Why The 80/20 Rule Never Worked Out

So back in the day when outsourcing was all the rage, CIOs needed to make some judgment calls. They knew that they could never outsource 100% of their IT department, but they needed to figure out how much they could offshore. The driver here was that the more of the department that they were able to offshore, the lower their costs would be and therefore the more work the IT department could accomplish for the same budget. This sure sounds like a problem that we’d all like to have!

I’m not sure where this split in responsibilities came from, but for some reason CIOs everywhere decided that if they could achieve an 80 / 20 split between offshore and onshore resources, then they would have optimized their IT department. As you can well imagine, as the CIOs worked to achieve this magical goal, the IT department underwent a great deal of change.

One of the big questions that still needed to be answered was just exactly what the 20% that would remain onshore would be doing. The thinking was that all of the development work would be done offshore and the onshore team would spend their time managing the offshore team. Great plan. Too bad things didn’t really work out this way.

What Went Wrong With Offshoring

What might have been seen as good plan at the start of the whole offshoring craze quickly started to fall apart for CIOs. There were actually several different reasons for this, but together they’ve lead to the downfall of outsourcing as we knew it.

The first problem that the person in the CIO position ran into when they jumped into outsourcing is that it turns out that due to the importance of information technology, having IT development talent onshore within the IT department is very important. What this means is that the IT department needs to be able to react quickly to requests from various parts of the company. Just having a big development team in India is not enough, you need to have a “fast response” team on shore to handle emergencies and special requests.

The other thing that contributed to the demise of offshoring as we had known it was the arrival of agile software development methodologies. This form of software development requires teams to rapidly create code in an environment that provides them with immediate feedback. When your development team is located on the other side of the globe this can be very hard to do.

In the end, CIOs have changed their minds about offshoring their IT development teams. Yes, the cost savings are attractive. However, the loss in IT functionality is not worth the money saved. A new model in which the team is split 80 / 20 between onshore and offshore assets is what is starting to emerge.

What All Of This Means For You

As a CIO, you and everyone else is always looking for that “silver bullet” solution that will magically make all of your IT problems go away. At one time, offshoring seemed to be that solution. However, time has shown us that it is not the solution to all of our problems.

Instead, what CIOs have discovered is that as IT has become a more and more valuable part of how the company competes in the marketplace, how IT is done has changed. The adoption of agile software development methods has required retraining of offshore assets and in many cases has required offshored work to have to be moved back onshore.

Offshoring still has a role to play in every IT department. However, the most important IT work that is going to have the most immediate impact on the company’s bottom line now appears to have to be done onshore. This is going to require CIOs to spend some time thinking about what the right balance of onshore and offshore assets will be going forward.

- Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: What do you think the right percentage of onshore / offshore is?

Click here to get automatic updates when The Accidental Successful CIO Blog is updated.

P.S.: Free subscriptions to The Accidental Successful CIO Newsletter are now available. Learn what you need to know to do the job. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

Back in the golden days of outsourcing, CIOs could just pick up the phone, get in contact with the head of their outsourcing contractor in India or China, and scale their team up or down as conditions required. However, times have changed and now that everyone is starting to understand the importance of information technology, the world of outsourcing is getting more complicated. CIOs have to understand the changes that are occurring and need to adapt.

{ 0 comments }

CIOs Need To Plan Their Move Into The Cloud In Order To Avoid “Cloud Stall”

January 14, 2015

Every CIO has heard about the Cloud by now – computing services provided by a vendor that your company can lease and access via the Internet. All of the articles sure seem to indicate that moving enterprise applications into the cloud makes good economic sense and can enhance the importance of information technology to the […]

Read the full article →

How The Orange County CTO Solved His IT Problem

January 7, 2015

Joel Manfredo was the CTO of Orange County, California a while ago. When he first came into office, he discovered what most CIOs discover when they start their job: he had a lot of problems on his hands that had nothing to do with the importance of information technology. The Orange County IT department provides […]

Read the full article →

Why The Singapore Stock Exchange Problem Is The CIO’s Fault

December 17, 2014

Stock exchanges are challenging businesses to run. The people who use stock exchanges, stock traders, banks, brokers, etc. move very fast. The phrase “time is money” was invented to describe these people. They have a desperate need to be able to communicate with other people in a very rapid and very reliable way. Literally millions […]

Read the full article →

What CIOs Need To Know About (Social) Networking

December 10, 2014

As CIO you know that despite the importance of information technology, networking is so much more than just connecting servers with cables. It turns out that it has a lot to do with meeting new people and expanding your social network. This is valuable stuff. Now the big question is how to go about doing […]

Read the full article →

CIOs Need To Know: Is There Such A Thing As Safe Social Networking?

December 3, 2014

Congratulations CIO: the world that you are operating in has become a lot more complex lately. What this means for you is that you’re going to have to determine what the new rules are for being successful in this world are and how to maximize the importance of information technology for your company. One area […]

Read the full article →

How CIOs Can Get Travel Expenses Under Control

November 19, 2014

As the person with the CIO job one of your greatest challenges is to find ways to keep your department’s spending under control on top of the everyday challenge of letting the rest of the company know about the importance of information technology. One of the biggest drains on your budget can be travel expenses. […]

Read the full article →

How Can CIOs Command The Room During A Speech?

November 12, 2014

One of the joys (?) of being the person with the CIO job is that you often get asked to make speeches where you can talk about the importance of information technology. Everyone thinks that you know what is going to happen in the future and they are hoping that if they can get you […]

Read the full article →

3 Tips For CIOs To Become Better Negotiators

November 5, 2014

It’s interesting to realize just how important the skill of negotiating is to CIOs. Sure, we all know about the importance of information technology , but when you think about it, we spend a great deal of our time negotiating no matter if it is with vendors, other departments, or even members of our IT […]

Read the full article →