Users shape up for insource, outsource battle

When it comes to in-house IS units competing with outsourcing service providers, the CIO of mid-sized law firm Spark Helmore Peter Beck is willing to go toe-to-toe with any vendor.

Responding to analyst claims that IS organisations will need to think more like vendors or perish as outsourcing becomes more prevalent in the next five years, Beck agreed competition has intensified.

"As a CIO or IT manager, you are ultimately competing with those that offer gratuitous advice; it comes down to credibility. I know about the business I work for better than any vendor," he said.

In a blunt assessment of the future of the IS organisation Gartner analyst Rolf Jester, said, "There are a lot of hungry vendors out there telling your boss that they are the real professionals."

Jester said IS organisations need to be more like a broad services providers and can assess the value of their unit by introducing per transaction or per user pricing.

However, Beck said this is a very contentious issue and his organisation did look at this kind of pricing.

"We looked at this, and realised that we would be taking our eye off the ball, the ball being the primary care and service of this organisation; I think the effort to do this would mortally wound some organisations that would enter into this naively," he said.

Beck outsources selectively and plans to keep strategic functions and the help desk in-house.

"Our organisation deliberately outsources only some of its tasks. However, we couldn’t have achieved what we have had we not done some outsourcing," he said.

It's not about doing everything yourself. It's about being specific to your business.'

Banyule City Council IT manager Heidi Fischer doesn't necessarily agree the IS organisation of the future will be less technical and more business orientated with IT managers largely managing contracts with outsourcing providers.

Fischer, whose council covers 20 suburbs north east of Melbourne, said IS does need to become more business oriented, but not necessarily at the expense of internal technical expertise.

"I think IT managers will be focusing on recruiting and retaining the right technical mix of staff to develop and support the bulk of IT services. Outsourcing plays a secondary role by providing specialised services (such as major corporate applications development, telecommunications and the like...) and filling the gaps," she said.

"Our customers and management are satisfied with the performance of our internal IT department. My experience has been that vendors often over-promise and under-deliver. They don't understand the diversity, complexity and most importantly, the culture of the organisation."

Eraring Energy IT and Telecommunications manager Mark Edwards has just completed a great deal of outsourcing "to the point where we basically have nothing to left to outsource".

Edwards said in-house operations are now simply managing service delivery, and making sure that contractual operations are compliant with the business.

"We couldn’t possibly outsource any more. From my point of view, the predictions being made in the IT media that state that everyone will be outsourcing in five years, do not take into account the challenges to the enterprise, which are enormous," he said.

"I can see many companies bringing IT back to an in-house department. Personally though, we are happy with our outsourcing, as we have very tight outsourcing contracts. The business and the outsourcer must work in a partnership way. It also depends on the people involved, and whether they are willing to work in a cooperative and collaborative manner."

However, when it comes to per-transaction or per-user pricing, Edwards disagrees with this formula.

"I sometimes think that the complexity of a business doesn’t support charging the organisation per-user or per-transaction. You end up with poor internal relations. People in my position have the challenge of meeting everyone's expectations within budget limitations. If we carried on these sort of practices suggested by Gartner it would breed contempt within the organisation."

For Johan Reyneke, CIO at IMB Ltd, however, his organisation is already more business focused and less technical.

"While we plan more outsourcing we will keep strategic initiatives and operational routine functions in-house," he said. w

Keeping it technical

Hawker Pacific information manager, Robert Burns, said his IS organisation is a technical group and will remain so in the foreseeable future.

The company has a mix of skills including a PC specialist, systems and comms specialist and an Oracle database administrator.

"I'm not competing with vendors but they are competing for our business," Burns said, adding that his company will outsource more in the next two years.

"At the moment we are implementing a new application system, and we will need external assistance from those with specialised skills in the new applications," he said.

For some organisations size does matter when it comes to keeping IT in-house or outsourcing.

Toowoomba (Qld) City Council principal information technology services manager Rodney Kuhn said the council's regional location limits the amount of outsourcing it can undertake.

Kuhn said more outsourcing is planned in the next two years, but it will be in more advanced technical areas although the council does want to build a stronger internal skills base.

"The three big ones we will keep in-house are desktop support services, basic systems administration and corporate application support," Kuhn said.

He doesn't agree IS organisations should think more like vendors adding: "Vendors are simply there to make money, and don’t look at value adding in your business. If we focus internally, then our business gets exactly what we want."

And per-transaction or user pricing? " I think being focused on costing at a transactional level means you lose your focus, which is supporting your business."

- What's your view on per-transaction and per-user pricing; does it work? E-mail Sandra_Rossi@idg.com.au

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