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Strategic Sourcing: A conversation with ITIM 2007 Faculty member Anna Frazzetto, VP of Technology Solutions of Harvey Nash and Pete McGarahan, Chairman ITIM Association. As an IT executive who has engineered, implemented and overseen application development, managed services and outsourcing / off shoring initiatives at Global 1000 as well as mid-sized companies. A leader in the IT services industry; today Anna spearheads the development and implementation of technology solutions for Harvey Nash’s network of nationwide offices.
As a member of the faculty at the ITIM 2007 Conference in Las Vegas, Nevada from November 6th – 9th, Anna will lead two sessions. Session 605 – Thursday, 3:15pm – 4:15pm: Check, Checkmate: The Game of Strategic Sourcing Session 905 – Friday, 11:30am – 12:30pm: Evaluating Outsourcing? Tips to Ensure BPO Success
Listen to the interview.
McGarahan: How should an organization approach a strategic sourcing Relationship? What should be done first? Should the organization consider a separate sourcing management office much like the project management offices found in IT organizations today?
Frazzetto: As an organization you should start by outlining your objectives. Ask yourself what you are trying to accomplish with a strategic sourcing relationship. Based on the outcome of these discussions you should develop a list of objectives and decide about the magnitude of sourcing you are planning, this will tell you if you need an individual or team that will manage the global sourcing relationship. I will spend coving the specifics of this during the ITIM 2007 Conference this November. However, some of the key areas that you should look at are; how will you be able to realize and increase your return on investment, how can you increase efficiency within the organization and how are you allowed to do more with less? And then as a logical next step, you should research and find out who are the players in the industry based on the areas that you are looking at to potentially to source. What I find is that dealing with smaller companies you will typically get a little more attention especially if you are new to the whole outsourcing type of relationship. Typically, when you deal with a niche player, they are willing to cater to your needs on a more specific level.
Another area you should involve is on the business side. The Business should be a key driver in this initiative, not just the IT, procurement, HR side of the organization. The decision has to be tied in and aligned to the businesses goals and objectives.
McGarahan: What are the right business and IT conditions for at least considering some kind of outsourcing?
Frazzetto: That’s a great question; I get this question all the time. From one perspective it is never the right time because it is obviously going to have an impact on your organization. From another perspective I feel that is always the right time to look at potentially outsourcing. I do not feel that it is necessarily tied to a calendar (beginning or end of the year) to set up these types of arrangements. Also from an organizational perspective, most companies are going through so much change within the organization that it is hard to plan accordingly if outsourcing is going to make sense during any time of the year. With that said, planning for an outsourcing relationship goes back to how will you tie it in with the objectives of the organization and the business. Some key items to look at are; what is the governance model, what is the engagement process going to look like, what is the communication plan going to look like? Your vendor should be able to come prepared with an outline to best approach based on your needs and requirements and be sensitized to the overall company objectives and how will this outsourcing arrangement help meet those goals and objectives.
McGarahan: I remember reading in CIO Magazine in terms of timing of when to look at outsourcing. CIO made a great point in that the CIO and the Senior IT leadership should never be on the defensive in terms of outsourcing where it comes down from the business as a mandate or a requirement until they really do their home work on outsourcing. They need to really understand what their internal cost, their internal core competencies in terms of skills, strengths and delivery and come up with a plan that is more of a proactive outsourcing plan, do you agree with that?
Frazzetto: I completely agree, and actually if you take a look with what has been going on in the industry in the last 12 to 18 months you notice that the new CIOs that in place come from the business side of the house more so than the IT background. I find this fascinating, because what this shows is there a marriage of sorts taking place between the business and IT. What better to than have a CIO that has business experience firsthand to be able to bridge that gap.
McGarahan: Do you feel that CIO’s are looking at outsourcing in terms of filling talent gaps? We hear daily of the IT skills shortage here in the US. It is requiring companies to go offshore and/or overseas to get the qualified workers that they need. Do feel that this is a driver for outsourcing and off shoring?
Frazzetto: This is certainly is one of the key drivers, as a matter of fact it may be the number one driver. I just recently read an interesting statistic; I believe it was Gartner that produced this stat. Last year in the US, the graduating classes had less than 9% graduating in the IT, math and sciences fields. When you look at the totals here in the US most people are in the Liberal Arts and Business fields. 9% is an extremely low number. When you compare that to other countries like Vietnam for example, over 85% of the students graduating are in the IT and science based fields. India again has a tremendous focus on IT. With the focus of IT and sciences in the Asian countries it makes perfect sense for US organization to look there for talent to fill the needs here in the US.
McGarahan: Anna, what business and IT Functions and tasks can you think be successfully outsourced in today’s environment?
Frazzetto: Interesting question, from one point I truly do think that anything and everything can be outsourced. However, I am a firm believer that you have to have to have the right plans and processes in place as I outlined in a previous question to insure that you a successful outsourced arrangement. I also think one of the key drivers is to really determine what the intensity and the frequency of interaction that there is with the end user. I think that’s the key indicator that highlights good candidates for outsourcing versus not outsourcing. For example, if you look at application development, there is very little end user interface, therefore that makes this are a prime candidate not only to outsource but to look at from an offshore perspective. But now let’s compare something like help desk support or customer service support. This is very end-user focused, you might not consider off shoring in this case but ore of a hybrid solution, where you might want to outsource but you also might want to keep it within your facilities. In this case you would receive the benefit of outsourcing but you could focus on process improvement and the people side of the house. But again, it is important to look at this in detail as you are examining outsourcing from the business and IT perspective.
McGarahan: Do you think when a company outsources or off shore’s a function or task that is very customer facing that they do not understand that function or task in terms of what it can do or what it capabilities are?
Frazzetto: I have found that it depends on who is making the decisions. If you look at it from a financial perspective, customer service for example you say, gee do we really need to have all this facility cost, it would be so much more economical for us to be able to look at outsourcing or off shoring this function to another country. But the key thing to remember from a technology and people perspective is these decisions may have impact later down the road.
Dell for example years ago decided to offshore all of their help desk and customer service and within a year they had to pull a lot of that functionality back in to the US. The deciding factor early on seems to be clearly financial which clearly makes all the sense in the world. However, when you look at the impact to the business there needed to be a balance between what should have been off shored and what should have been done in house. Ultimately that decision made years ago was reversed.
McGarahan: A lot of companies that were early adopters received a great deal of negative press when it came to them outsourcing functions. There have to be some success stories out there in terms of companies that have done outsourcing or off shoring right and really reaped the benefits from it; can you give us one or two?
Frazzetto: One thing to consider is when you look at these companies that have taken these functions back in house we have finally learned some valuable lessons. There are different flavors of outsourcing as far as what makes sense from a function perspective to look at either off shoring or outsourcing. I can name several companies like Discovery Channel, Honda and MSN NBC that I know have very successful not only outsource but also off shore some of their application development and testing environments. What the key was, they were able to carve out a perfect niche of what made sense to off shore.
One key of course is the lessons learned around communications plans. You are dealing with countries that can either be 10 to 14 hours from a time zone perspective, therefore you need multiple ways of communicating between the vendor and the your internal organization.
McGarahan: Cultural differences can be a key factor in the success (or failure) of an off shore relation. Are there ways that a company can help bridge that gap?
Frazzetto: One of the things that I often talk about (when looking at an off shoring arrangement) it cannot be 100% off shored. There needs to be a level of onsite presence whether it is one person or a rotation of sorts. We have clients that we work with that rotate the team members every three months; this makes the team feel a part of the organization. You will see benefit from a deliverable and turnover perspective if the team feels like they are part of the organization. Communications again is very important, remember that you are dealing with countries where English is their second language. Sometimes the quick phone call does not work; you should have multiple channels of communication in place. Last but not least, you should have clearly defined roles in place as far as the engagement and governance model. What are the paths of escalation, who communicates to who, how is information shared, how does the client access data?
If you think about it needs to be a win, win type of situation for both organizations. The best marriage is if the outsource provider feels part of your organization. AS I said, I have been doing this for 17 years and the successful projects that I have seen have always been when both organizations feel that there is a mutual benefit not only for the vendor but for the client as well.
McGarahan: Sourcing is supposed to make an organization more flexible and responsive, do you agree with that and do you have any examples
Frazzetto: When you talk about flexibility it is important to consider how you approach the relationship from the beginning. When it comes to the contract you should separate it in to two areas, you have the master services agreement which has your usual language in it (Terms and conditions, protection clauses), and your statement of work (SOW) for that project. At this point the SOW becomes a business driver. It is very important to find out in the contractual phases how flexible to change your sourcing vendor will be. I have seen with some vendors that it is always easy to increase services but not so easy to decrease services.
McGarahan: What makes a successful sourcing vendor?
Frazzetto: During my session we will discuss a top 10 list, but a few top ones that come to mind. Of course competency is key, you want to make sure your vendor can actually do the job. Methodology and approach to delivery and price. These are given items. My top three are turnover rate and stability of the workforce. Smaller projects can be much more venerable versus larger projects when it comes to turn over. The second would be availability of resources; can they do a two person or a fifty person deal? Of course a lot of the bigger players in the industry don’t like dealing with some of the smaller projects. Lastly the flexibility of services, do they have the breadth of capabilities to do off souring, on shoring, near shoring, consultancy services can they provide you this kind of support and flexibility?