Articles Home

Outsource Services! Great Idea for the CIO

Joe CIO has a great money saving idea: Outsource the whole set of computer services for the company. What a brilliant career move for Joe. He guts the IT group, loses control of data central to the company's survival in exchange for a few quarters of higher returns until the renegotiation of the outsource agreement. Or maybe an unanticipated technical advance, like a web server becomes needed. Well too bad, not covered by the agreement.

Now the company is hosed, the outsource vendor holds the company hostage for excess fees for horrible service, stagnating the IT capabilities of the company that is rigidly receiving service at a level and type negotiated before. But what does Joe CIO care? Joe moves to another company before the meltdown, showing how he slashed IT costs for a year and how he can work this 'miracle' for the new shill. Or maybe Joe now 'consults' for the outsourcing vendor. Brilliant guy that Joe.

EDS, big five consulting firms and other outsourcing firms move data, people and hardware off site and basically hold the company hostage. There is no competition in such agreements, it is a monopoly franchise that is complex to set up and difficult to switch to another vendor.

The trick is that the parasite kills the host slowly to maximize return.

One company, when changing to a new business system, had the outsourced vendor of the old system refuse to release the metadata of the old business system. Not covered in the agreement. The data from the old system was supplied in two choices. Printed reports or as ascii text reports on huge piles of floppy disks, no data map. No specific agreement to supply the data in any format, it was up to the outsourcing vendor. The change over to the new business system took four years instead of one year. The old outsource vendor collected fees the whole time.

Another company wanted to do a data analysis project on labor and payroll data that was outsourced. Too bad, not covered in the agreement. The data and metadata were not supplied, only the contracted reports. The fees that would be charged for a simple data dump would cost far more than the anticipated benefits of the analysis. The same company wanted to compress report data when transmitting it from the off-site outsource company back to the company, saving bandwidth by a factor of ten. HAH, they had a choice, huge WAN network bandwidth capacity upgrade fees or massive costs to add "compression software", both not covered by the contract.

An engineering group in a company outsourced Pro-E libraries and parts lists. When the manufacturing group needed an analysis for materials and manufacturing orders, guess what happened. Not covered in the agreement. The outsource vendor negotiated to do the project, for huge additional fees, but the vendor was not very experienced in manufacturing and the analysis schedule was behind by two years.

So how does the wily veteran CIO negotiate an outsource agreement to avoid these problems? Well, you can't. Your company and its lawyers are experts in widget making or whatever. You are negotiating with a vendor whose expertise is to get your valuable information systems and extract all your money. Who has the position of power and all the experience in such agreements? Well, if you cannot see that, then you should be fired. If you do not control the information systems and data needed by the company to survive and compete then your company is dead. But most CIO types do not give a rat's ass about a company. They will gut the IT systems and run.

Outsource Services! Great Idea for the CIO

Other articles on Software Engineering and Project Management