Cha-Cha Change Coming To IT In The Form Of Outsourcing?

by drjim on October 7, 2008

Shell Just Outsourced Most Of Its IT Department - Are You Next?

Shell Just Outsourced Most Of Its IT Department – Are You Next?

I just happened to run across an interesting article in Baseline magazine awhile back that pointed out a very interesting trend in IT that just might impact all of us. The good folks over at Royal Dutch Shell (the world’s 3rd biggest oil company) have just announced a massive outsourcing deal with EDS/HP. They appear to have gotten rid of just about all of their IT shop – lock, stock, and barrel. If they can outsource their entire IT shop, why can’t your shop be outsourced completely also?

We like to talk about how to go about aligning IT with the rest of the business so that IT can play a strategic role in the company’s success. Well, if you outsource all of IT that’s not going to be happening any time soon! Shell appears to have gotten rid of the parts of IT that have nothing to do with being an oil company. The following description of just exactly what is being outsourced comes from the press release about this deal:

The activities in scope of outsourcing include designing, building, maintaining and operating the IT infrastructure, and cover the desktop and laptop computers, the telephone and handheld devices, the shared servers for running the applications that support business processes, the storage for data, and the networks and bandwidth for data and voice transmission. The infrastructure services enable Shell companies to use applications that support their business processes and goals, and enable staff and contractors for teamwork across the enterprise, whatever their location, including offshore sites and some of the world’s most remote areas.

What this means for folks in IT is that all of the day-to-day IT effort of keeping the network up and running has been outsourced. No need for DBAs, help desks, or Cisco certified folks anymore.

The Shell CIO, Alan Matula, has told the press that the real objective of the outsourcing deal was to allow the company to focus on its core business operations. Hmm, that does not sound like good news for those who work in any part of IT that can be considered to not be part of the “core”!

Although this is just one deal, and it’s being done by a multinational firm so the impacts won’t be felt in just one country but rather in multiple countries, I still think that this is a big deal. In effect, Shell said “enough is enough” to increasing IT costs that sure didn’t seem to be providing any bottom line value back to the company. Oh oh, now that one big company has done this, what’s to stop everyone else from doing the same thing?

I think that we are seeing the natural progression of outsourcing. Companies have now become so comfortable with what it means to outsource a function and the firms that they outsource to that they are willing to outsource any IT function that is not a part of what makes them competitive in their market.

This is now and will always be a role for the part of IT that is developing the competitive tools that a firm needs to leap-frog its competition. Google’s search engine, Ebay’s auction platform, and Pixar’s design tools will always be developed by in-house IT staff because they define the company. However, all the rest can probably be done better by someone else.

This means that CIOs are going to have to get better at managing outsourced operations because they are still responsible for the results. Additionally, IT managers are going to have to learn how to work with outsourcing shops in order to complete the projects that they have been given. It’s a brave new world out there: get in, buckle up, and let’s go!

How much of your IT operations have been outsourced so far? Are you planning on outsourcing more of it? What parts of IT would you say are mission critical to the rest of the firm? Do you manage differently now that you realize that parts of your operation may be going away? Leave a comment and let me know what you are thinking.

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{ 2 comments… read them below or add one }

Outsourcing Resources February 9, 2009 at 8:32 am

Outsourcing has been on the steady increase in the last decade. Many are losing their jobs to outsourcing companies and individuals especially because outsourced services are cheaper. This is the sad truth.

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Dr. Jim Anderson February 10, 2009 at 10:40 am

Hmm, I agree with you that outsourcing has been increasing in the past few years; however, what you seem to be missing is that there is an interesting trend that has just started to take place – insourcing. Bloated, inefficient processes were originally outsourced to save money. However, over time the effort required to manage the outsourced activities along with the efficiencies put in place by the outsourcer now allow the firm to take the process back over in order to provide personalized customer care. I guess this just shows that eventually everything comes around again!

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