The Five Minute CIO: James O’Donnell

2 Aug 2013

Pictured: James O'Donnell, BestSoft Consulting

Outsourcing presents many more options for the CIO now that the mentality of keeping everything behind the LAN has disappeared, says BestSoft Consulting’s director.

What continues to makes outsourcing a popular business strategy, and where does technology fit into that?

Outsourcing is the big industry trend. It was always the case for certain industries: managing your money was outsourced to the banks and financial institutions, legal requirements were outsourced to the law firm, pensions were managed by the fund managers. Now with improved communications and a global approach to business, more and more commercial activities are being outsourced locally and internationally. The IT and especially the software industry are an obvious opportunity given the portability and the arrival of the virtual cloud environment.

What are the benefits of outsourcing?

The advantages of an outsourcing approach are obvious. In many cases there is access to more competitive resource rates, flexibility of resourcing, allows core function focus, delivery of industry best practice, replace fixed costs with variable costs to name a few.

What new or existing opportunities are you seeing from the software outsourcing model?

In the post-recession global economy, the issue of outsourcing comes more sharply into focus than ever before for a lot more companies. In the bad times many have scaled on their resources: staff, facilities, hardware and so on.

Now with an improvement in the marketplace and orders runway beginning to lengthen, [CIOs are asking] what approach to meeting the new requirements is the best?

Hiring new resources is a costly process in the short and long term. So, taking advantage of the wealth of outsourcing opportunities makes a lot of sense in the short and long term.

What’s driving the outsourcing trend among smaller firms?

These new entrants to the outsourcing community are looking for more value and more standardisation as they don’t have the resources or expertise available internally that larger corporations have to manage the working of the outsourced projects. They are – in many cases – looking for smaller, more stable, long-term partnerships as opposed to the very large Asian undertakings.

What are the wins for those types of companies?

The obvious win is to get production on a project up and running quickly without the need to source an internal team or the need to provide physical infrastructure. Equally, if the requirement is for high-end specialist services that are to meet a short-term need, this suits the outsourcing approach.

What role is there for cloud computing in an outsourcing arrangement?

With the broad acceptance of the cloud approach, there is also more comfort in many businesses with a shared, joint services approach to application development, which reduces further the costs leading to an improved service for all.

The mentality of keeping everything behind the “LAN” wall has disappeared to a large extent. Improved, more cost-efficient methods of communication also mean that the virtual team is available at least as readily as an in-house set of resources and may be subject to less internal dispute and power play.

What are the challenges?

The challenges are obvious. With outsourcing, the ability to deliver is handed to a third party. The IP of the project is also in the hands of a third party to some extent. The level and ability of the service provider is dependent on the team that are put in place. All of these are challenges and everyone has heard the horror stories.

However there are ways to mitigate these challenges. The CIO should ensure that all possible steps are taken to ensure the risks are reduced. Some are relatively easy to impose.

How should a CIO go about mitigating the risk?

Ensure the service provider provides relevant references, in other words references from customers which are of a similar scale. Companies like Microsoft and Oracle can outsource by providing an army of PM’s to ensure control of the project is enforced but this is not always feasible for every company.

Always ensure you get comparable tenders from a number of companies to ensure you can do a comparison not solely on price but other factors which give you a good insight to the ethos and commitment of the supplier as this is hugely important going forward. Factors such as areas of service offerings and capabilities, management style and procedures, existing customer profiles and business outlook, flexibility and stability of their approach are just a few to consider when making a decision.

Establish a relationship with an outsource provider and test the process with a bite sized non  critical undertaking to evaluate how efficiently it works prior to committing the company to  more substantial relationship.

Ensure that the legal and practical safeguards are in place to protect your IP and the actual project collaterals. Ensure that milestones are set and met for handover of the deliverables for that phase.

What aspects of a project should a company outsource?

With the current cloud-based environment and the opportunities for electronic communication, there’s no aspect of any software project that can’t be outsourced. All aspects of the life cycle from programme and project management, project specification and design through the build phase and deployment phases into the support phase – all can be readily outsourced for most state-of-the-art projects.

Deciding on what part or all of a project is to be outsourced is a matter of looking at the business drivers for demand, non-utilised internal resources, key personnel available to manage the relationship and the availability of suitable vendors.

In your experience, are Irish companies aware of, and prepared for, what’s involved in outsourcing?

Our experience in Bestsoft is that there is a big sea change in the past few years. This may have been encouraged by the lead of banks, airlines and government departments putting business-critical applications online, or perhaps it is with the ‘cloud’ experience and opportunity.

But there is a general acceptance of the principle of outsourcing as a way to deliver value and advantage without the need for an internal army of industry gurus.

Our experience is that the most worrying aspects prior to an engagement are often the least problematic in reality and that the unanticipated issues are sometimes the ones that cause most difficulty.

A huge advantage for medium and large company management is that the outsource opportunity with the maturing of the cloud options means they are free of some of restrictions of the internal IT which have been a millstone around the necks of many companies’ management in the past.

Is outsourcing always the best option?

Outsourcing has gone through many flavours over the years. Obviously there are organisations where this approach will not work for very fundamental reasons: these may be that they need to keep complete internal control for a multiplicity of reasons; they need to have continuous transparency on the progress of the project with complete accountability on costs, and so on.

Even for these companies, there is still an opportunity to undertake a more tailored approach where certain parts of the project can still be outsourced. But the key management of the process for compliance and control is managed internally with the IP fully protected.

What do you think the future will be for outsourcing?

Like so many non-IT related tasks, it will become the norm to hand these tasks over to experienced external teams. This is a natural progression and with the cloud paradigm now the normal, this process is easier than ever. So it will continue to make sense to look to this approach.

However, the current trend of ‘full’ outsourcing is meeting with a certain amount of resistance from business stakeholders who lose a certain amount of control of the process and union and worker representatives who worry about the employment opportunities.

Also, the slowdown in the northern economies with the increased costs associated with previously low-cost economies means the race to outsource everything may be coming to an end. Instead the partnership approach – where expertise not available internally can be accessed but ultimate project control and responsibility remains internally – seems like a model that will be more favoured in the future.

Gordon Smith was a contributor to Silicon Republic