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Colosseum Builders, Inc.
Custom Software and Software Consulting
Located near Exits 14 and 142 in New Jersey.
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Colosseum Builders, Inc.Custom Software and Software Consulting |
What the Analysts Are Not Telling You About Offshore OutsourcingPresented by John Miano University of Pennsylvania Wharton School of Business Technology Conference February 24, 2004, Pennsylvania Convention Center, Philadelphia Pennsylvania One of the great things about events like these is they give me a reason to dig Bartlett’s out from the bottom of my bookcase and throw out tired old quotes. But first, there are two reasons companies feel the need to go offshore. The first reason is that IT costs are out of control. IT wastes an incredible amount of money and in most organizations IT is the corporate laughing stock. My experience has been the more profitable the company, the more money IT seems to waste. The second reason relates to the first reason: Most IT organizations are mismanaged. When I think of IT management, a famous quote from Desiderius Erasmus immediately comes to mind: “In regione cæcorum rex est luscus.” In the land of the blind, the one-eyed man is king. Let me illustrate that maxim with two questions. Question one: How do you create computer systems more efficiently? That question takes someone with experience in software development to answer. Question two: How do you find lower-paid programmers? Anyone who reads InformationWeek can answer that one — In other words, someone who knows just a little more about IT than the rest of the executives in a company; a one-eyed man. But keep in mind lower paid programmers do not mean cheaper software development. The thing I found most humorous about IT management is how it chases fad after fad served up in trade magazines. In a frenzy, we moved applications from mainframe to mini... From mini to Unix. From Unix to NT From NT to Linux... ... for no better reason that that’s what the magazines said everyone else is doing. Let me go back to Bartlett’s. This time to George Santayana. “Those who cannot remember the past are condemned to repeat it.” I would like to give you, especially the students out there, a history lesson. Let’s go back fifteen years ago to 1989. That was the year the outsourcing boom started. First a company called ENRON and then, more importantly, a company called KODAK announced they were going to outsource their IT operations to vendors, including the one I worked for at a time. This started a frenzy in the trade press. [FIGURE – “Kodak’s 1989 outsourcing deal shifted the way CIOs looked at their work.”] That year, the head of IT at KODAK was named information chief of the year by CIO Magazine. The trade magazines were filled with inflated claims of outsourcing savings made by vendors and consultants. Meanwhile, those of us in IT service firms were bleeding those suckers dry with our consulting fees. [FIGURE – “Kodak Made Outsourcing Acceptable”] Even last year the trade magazines were celebrating how Kodak made outsourcing acceptable. But let’s have a little reality check. What happened in those 15 years? We all know about ENRON. [FIGURE – Chart of KODAK’s stock price.] And KODAK, the one that started it all, is struggling to stay afloat. KODAK’s stock price isn't doing too well. KODAK was left behind in digital and has squandered its lead in print film. It now leads in nothing except outsourcing. [FIGURE – “Half of All Outsourcings Fail”] I dug this item out of LEXIS. It says half of all outsourcings fail. During all those years of outsourcing stories you never would have picked up the failure rate was that high. All we heard was how wonderful outsourcing was. Think about that one-eyed man when you consider a practice with a 50 percent failure rate received general acceptance in IT. Does any of this sound familiar today folks? Then we had outsourcing. Today we have offshore outsourcing. And we have the same gang of vendors, consultants and trade magazines giving the same old baloney. And the most common reason we see companies give for offshore outsourcing is “Everyone else is doing it.” Let me briefly point out a few things to consider about offshore outsourcing that you aren't going to read in the trade magazines. First of all companies don't share their bad news in public. You’re not going to read about the company that had to spend a hundred million to bail out of an offshoring disaster. Second, the savings clearly are exaggerated. If half of all outsourcings fail, why would offshore outsourcing be doing any better? Third, you have to specify down to the smallest detail. What you put down on paper is what you get. If companies created project specifications with enough detail to offshore to begin with, they wouldn't be having the problem of runaway project costs. Fourth, when you outsource, all the knowledge built up on your IT department becomes the outsourcing vendors’. Fifth, round-the-clock development is pure baloney. Laugh when you see that claim. Six, what about data security? When you've sent your data overseas and someone at your offshoring vendor steals your customers’ credit card numbers’, what are you going to say to that jury? Finally, what is your backup plan? • You had your IT people train their replacements. • You fired your IT people. • Your outsourcing is a disaster. • The people who convinced you to go offshore went to other companies at the first sign of trouble. • You have no backup plan. • You’re in deep trouble. I’ve seen it folks and it’s ugly. Let me finish with another tired quote from Bartlett’s that sums up offshore outsourcing. This time Lawrence Peter Berra. “It was déjà vu all over again.” **** |
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