In Outsourcing, Size Matters

Management is the key to making outsourcing pay, says eWEEK Executive Editor Stan Gibson.

Smaller is better. thats the lesson we should draw from the EDS-Navy outsourcing contract, which EDS chief executive Michael Jordan last month freely admitted had gone bad. As eWEEK has chronicled since its inception, the monster EDS-Navy deal has been plagued by trouble. Now the Securities and Exchange Commission is looking into the $6.7 billion deal in an effort to understand EDS accounting practices.

Why would it be a surprise that an agreement of that size would not live up to expectations? When General Motors acquired EDS two decades ago, the idea was to gain efficiency by working more intimately with a single large outsourcing provider that handled a vast array of IT needs. It didnt work. What GM got instead was a deadly diet of unwieldiness and exclusivity.

Having disgorged itself of EDS in 1996, the automotive giant has been heading in the exact opposite direction. As reported in eWEEK last year, GM corporate CIO Ralph Szygenda now seeks to break up outsourcing contracts in as many pieces as possible to create a competitive market among outsourcing providers.

Now comes further corroboration for this approach. In her report "Predictions for Outsourcing in 2004," Gartner analyst Linda Cohen said the trend for outsourcing deals is toward smaller agreements with specific business objectives: "Providers have to move to a more focused set of delivery capabilities in a more focused set of industries."

For IT executives, it means dealing with a number of specialized providers. "Its the multisourced environment," Cohen said. "The key is in how you manage it. The reality is that were not going back to internally supplying IT functions."

Although the outsourcing trend may seem to mean less work for IT execs, the opposite is true. Working with multiple providers requires a deep knowledge of your companys business mission, as well as negotiation and management skills in dealing with outsourcers. "Outsourcing is hard work," Cohen said.