CIOs face worst fear: outsourcing

About 80 CIOs turned up to a conference in Auckland last week to hear how businesses can do without them.

About 80 CIOs turned up to a presentation in Auckland last week to hear how businesses can do without them.

The IT elite listened attentively to the presentation of Craig Waterhouse, commercial manager at the Farmlands Trading Society, as he talked about Farmlands’ experience in IT outsourcing over 15 years.

Waterhouse was one of the speakers at this year’s CIO Conference, held at the Carlton Hotel last week, attended by about 120 people.

Farmlands is a rural co-operative, boasting 16,000 members, 200 staff and a $265 million annual turnover. Waterhouse says it chose to outsource its IT requirements 15 years ago, before the term “outsourcing” had been invented.

“We had nothing inhouse, so it was pretty simple — everything was going to be outsourced,” he says.

By outsourcing, Farmlands avoids some of the problems that arise with an IT department, such as creating internal conflict, forgetting who the customer is and being self-serving, Waterhouse says.

Successful management in standard company structures result in specialisation, leading to disparate efforts and a lack of involvement, he says. “Our branch staff can tell us where we should be involved in IT — and they do.”

The advantages of outsourcing include faster response times, established service level agreements, access to a larger group of IT talent, a clear cost of IT and access to developments of other outsourcing users, Waterhouse says. He also believes outsourcing results in a better understanding of deliverables: “We establish the priorities.”

He describes successful out-sourcing as a partnership. It’s important for the CEO to be “heavily involved”, expressing the outcomes the organisation wants, and the company structure must allow for feedback from all levels of the organisation, he says.

Despite the co-op’s views on IT, Farmlands recently reconsidered its decision to outsource when it became apparent the server and thin-client systems in the branch offices were nearing their use-by date.

A consultant was hired to help review the IT strategy, and opinions were sought in the co-op and outside. Eventually, Waterhouse says, the company decided to drop its Unix systems and adopt Linux.

A major reason was cost: choosing Linux avoided both the upfront costs of a Unix system and the “ridiculous” licensing costs of Windows.

Waterhouse is particularly scathing about Microsoft’s ongoing licensing plans, describing them as “blood money”. He encourages CIOs to look for alternatives such as StarOffice and Sun’s upcoming Linux desktop, Project Mad Hatter.

“We have a choice whether or not we should pay,” he says. “We need to continue to take steps to reduce the total cost of ownership. This last round of Microsoft stuff [Software Assurance] is ridiculous.”

One thing that didn’t change was Farmlands’ use of outsourced IT; Napier Computer Systems remains the co-op’s IT partner.

Waterhouse does, however, offer some hope for CIOs worried their jobs might disappear with outsourcing.

He says CIOs’ experience with systems and people make them good candidates for a kick upstairs. “There’s probably a place for more CIOs to be CEOs.”

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