Some companies claim they can do it all. Need an application that does X, Y and Z? No problem, they can do everything, and bigger and better than anyone else.
But not everyone wants to be a jack of all trades. Some companies realize the limitations of their capabilities. And where their expertise
ends, they enlist the help of outsourcers.
That’s why the Canadian Pacific Railway (CPR) outsources the maintenance of applications that it doesn’t want to develop the expertise for in-house. Nine years ago, it outsourced the maintenance of some legacy apps to RIS and a year ago, decided to outsource its mainframe infrastructure to IBM.
Everything wasn’t running smoothly when CPR was looking after its revenue maintenance apps in-house, says Allen Borak, vice-president for information services at CPR in Calgary.
“”At the time, we were having a lot of operational problems with some of our existing legacy applications, and we didn’t have good change control processes, we didn’t have good tools to manage versions, and so on. And just in general, I would say that part of our business wasn’t well managed.””
Because CPR’s core competencies rested elsewhere, it decided to outsource the application maintenance to RIS because this was its core business.
“”We were looking for someone who could come in with some expertise and take this part over and basically make the headaches go away.””
And that’s what happened, Borak says. It also left CPR free to concentrate on what it did best.
“”I think, like most large companies, our focus in IT was on developing the new stuff, rather than supporting the existing stuff,”” Borak says.
This has the added bonus of making things more interesting for CPR staff, who would much rather spend time working on developing new projects than doing maintenance and support, he says.
Don’t waste energy
Peter Forte, manager of IT purchasing at CPR, agrees that it was best for CPR not to waste its energy on tasks not critical to its business.
“”Sometimes we outsource to gain expertise that we don’t want to develop in-house. Secondly, we will outsource because it’s technology we no longer wish to maintain.””
The first step to determining whether or not to outsource IT is to determine if it’s critical to the core business, says Graham McFarlane, a certified management consultant and a director at Western Management Consultants in Calgary.
If an area, such as application management, isn’t critical to a company, and it’s considering outsourcing, then it should next determine whether it has the ability to become a best-of-class performer in that area. Companies should get benchmarking firms to come in and determine how they stack up against those who do that part of the business best. If a company underperforms — as CPR did in application management — then it should decide whether or not it’s worth it to gain those skills.
CPR, however, has outsourced the management of applications it considers critical to its business, Forte says. It outsourced the management of applications used to manage its train yards because the suite it acquired ran on Sybase technology, something it didn’t use internally.
“”We didn’t want to dilute our technology base,”” he says. “”We didn’t want to to go through the whole gauntlet of coming up to speed on a new database engine and new development tools. So we hired that expertise.””
Because the application was critical, CPR took extra care with the governance structure surrounding the outsourcing deal, Forte says.
This is something companies often forget when outsourcing IT to a third-party, says Shawn McCray, a partner for the sourcing management practice at TPI in Houston, Tex.
“”The major thing people overlook is that they have to continue to manage the outsourcer on an ongoing basis. Some companies think they don’t have to worry about anything anymore. But you don’t outsource leadership.””
Companies must also decide whether they want to outsource everything to one vendor or selectively outsource different parts of their business to best-in-class vendors. There are pros and cons to both approaches, McCray says.
When outsourcing everything to a prime contractor, you have clear accountability and only one relationship to manage, he says. However, the prime contractor may lack specialization in some of the areas they are taking over, he says. Also, a company might feel “”like they’re in a captive situation.””
With a selective outsourcing approach, companies can outsource to best-in-class providers, McFarlane says. However, there are more relationships to manage and there’s always a concern that the different vendors may not learn to play together nicely. “”You can’t segregate the services completely. There is usually some overlap.””
