eWEEK technology editor Peter Coffee and eWEEK Executive Editor Stan Gibson recently sat down (virtually, anyway) with three members of eWeeks Corporate Partner Advisory Board to discuss outsourcing—how its changing both in terms of perception and practice.
The Corporate Partners in attendance were Kevin Baradet, chief technology officer of the Johnson Graduate School of Management at Cornell University, in Ithaca, N.Y.; Tom Miller, senior director of IT at FoxHollow Technologies, in Redwood City, Calif.; and Francis Rabuck, president of consulting company Rabuck Associates, in Philadelphia.
Where are you getting your work done? So many options have opened up in terms of the acquisition of capability in the form of network-resident services and third-party providers of Web services, as opposed to things that you would have previously done with code that you either had to write or deploy on-site.
And, at the same time, there have been a number of untoward events, like the bombings in Mumbai, India, and the disruption of transportation from London because of terrorist threats.
We wondered whether these and other things have caused organizations to re-examine the economics of deploying remote resources, both human and otherwise.
Are you making more use or revised use of outsourced development talent and hardware and software capability?
Miller: At this time, we outsource very little. Were a midsize business, and we really focus on our closeness to our internal customers as we develop products. So we try to do very little outsourcing at this point.
And when we do outsource, cost is not the key business driver for us; rather, its a skill set that we cant replicate internally here, and, due to timeliness, we need to have an outsourcer assist us. And that outsourcer could be through many different forms, whether its a direct outsource agreement or its a professional services engagement or something else.
Id like to look at the top and the bottom of the specialization ladder there. Are there things youre outsourcing that you dont really think of as outsourcing because theyre such low-level services? Im thinking of something like e-mail or firewalls.
Miller: The only things we do outsource that are part of a service for our tiering for security are anti-spam and anti-virus. Its a no-brainer.
We actually see messaging as integral to the way we operate. Our messaging system has to be very robust. And, for compliance reasons, we have to be careful of how we use our messaging system.
You talk about outsourcing of those security services as a no-brainer. Is that a changing perception, or did you feel that way years ago?
Miller: I felt that way years ago. And its limited security. I wouldnt even use the word “security,” per se, because [anti-spam/anti-virus] is a managed security operation. Its really something thats more of a commoditized item.
But when we do deal with outsourcing arrangements, we focus on, as I said, not just the costs as a business driver but what would it cost to replicate those systems internally, as well as what type of disaster recovery/business continuity we would have to add on to any systems we deploy that will be less expensive and easier to manage externally.
On the flip side, when we deal with outsourcing companies, we always look at things like exit strategies. We look at their time-to-respond issues. We look at quality metrics. We look at their fee structure. Because theres a certain set of core fees that they charge, and then any time you want to do anything beyond that, you feel like youre getting nickel-and-dimed.
You talked about compliance considerations. Have you found that the need for certifiability and transparency of process leads you to pull more things inside, where you can get a close look, or to put them outside, where youre dealing with people who have made it their core competence to do things in a certifiable and, say, Sarbanes-Oxley Act-compliant way?
Miller: We use a Ceridian system for HRIS [human resources information system]; for payroll; and, coming up, for time and attendance. Ceridian can provide us with a quality hosted environment for a less expensive cost than we can do, plus, theyre SAS 70 [Statement on Auditing Standards No. 70]-compliant. So, when our Sarbanes-Oxley auditors come in, we can give them the SAS 70 reports and show them that there is full confidence that this hosted provider is in full compliance with Sarbanes-Oxley regulations.
You talked earlier about the need for specific skill sets driving your outsourcing. Was compliance the skill set you were talking about, or were you talking about more specialized technical skill sets?
Miller: More specialized technical areas and business areas. For instance, to manage a bioinformatics application internally, instead of building up a large bioinformatics staff, we can work with an outsourcing arrangement where we have that expertise externally and bring it in on a consulting or contract basis. This allows us to get a project completed in a very timely manner versus having somebody who will be on staff and have to wait until theres a need internally. So its a better way of managing resources because we can do it on demand as opposed to a resource sitting idle.
What are some of the other areas in which youre finding that you need that kind of on-call capability?
Miller: When we do validation of some of our key quality systems. Right now, being a midsized business, to have sort of a hybrid validation technical writer in-house doesnt make sense. So thats an area that we contract out periodically during the year. We have that person come in with full skill sets—and knowledge of our company, since theyve worked here before.
Kevin, I know youre working in an area where the phrase that Tom used earlier, “internal customers,” is close to the top of your mind all the time. I know you have a lot of constituencies to satisfy. Are you finding that outside resources are a more or less effective way to do that?
Baradet: It depends on the service. For example, we have a need for Web conferencing. But we cant predict when we are going to need it, and we are not staffed to provide 24/7 support, so we go with Raindance [now Intercall] and some of the other companies that provide those services. When theres a problem, you call their 800-number.
This increased reliance on outside providers must create a lot of administrative work. Are you finding that your existing contract administration and procurement people are able to pick up the vocabulary and skill sets they need to work with these technical providers? Or do you find that you have to become more involved in monitoring the administration of these agreements?
Miller: Theres high involvement from the IT department. The procurement department knows how to do the standard procurement activities and some basic monitoring. But when it comes down to a technical arena, they dont have the expertise or skill set to do it.
Are you working on a knowledge transfer to free up some of your time here?
Miller: Not really, since this is so specialized. We havent really thought it would be viable. In some areas, though, weve been a little more successful, such as the outsourcing of HR and payroll. Since those are driven by the business units of the organization, theyre the ones that have the knowledge of the application environment.
Kevin, do you find that your days are involving more contract administration and less technical firefighting?
Baradet: Yes and no. A university, in aggregate, is a pretty large business enterprise, and we do have a very large purchasing department. So, generally, when contracts come in, they go to the purchasing department, which vets them against standard university terms and conditions. But, as far as the vendor delivering on the technology aspects—for the really specialized stuff—I have to take a look at it and sit on that check if a vendor hasnt made a milestone.
Rabuck: I think that outsourcing is a huge issue for small and midsize businesses. For a smaller company, setting up, for example, an e-mail system can be a huge undertaking. And I think that software as a service has matured.
Weve been talking with some companies that are trying to find low-cost corners of the United States and Canada to set up operations. Does where work is done matter at all? Would you rather have it done in West Virginia, say, than in India?
Miller: Well, I think its helpful if work is done within two or three time zones, for communications and collaboration.
You mean within two or three time zones, as opposed to eight or 10?
Miller: Yes because it becomes so much more difficult to have communications. Within two or three time zones at most, we can have near-real-time collaboration.
We also were wondering whether energy costs and the desire to keep data center costs down are leading to more companies exploring more off-site resources.
Miller: Were bursting at the seams in the building were in, and real estate options are something that we keep in mind. But space is the reason that weve widely adopted blade server technology. But blade servers also bring the curse of energy costs—the costs to cool them.
Rabuck: Ive seen a lot more interest in AVL [automatic vehicle location] and GPS—the tracking of everything and anything.
So, youre finding that the higher cost of vehicle fuel is elevating the cost-effectiveness of devices designed to minimize the number of miles your trucks have to drive and so on?
Rabuck: Yes, and using monitoring capabilities to make sure that theyre, for example, not going out of a certain region and to maximize the deployment for ad hoc calls. If a call comes in and you know where your trucks are at that moment, you can pick the shortest route to get the job done.