By Stephanie Overby

part 5

Clean House Before Outsourcing

If the success rates and benefits of transaction relationships have you wondering why you don’t just outsource everything that you can characterize as extractable, beware. There is a potential trip-up. Emphasizing transaction relationships can make a company less innovative with its IT architecture. In the short term, transaction outsourcing can help a company clean up isolated processes, but in the long term these deals may actually reinforce application silos in a company, according to the CISR-CIO research.

This potential problem makes the need for enterprise architecture planning even more important for companies engaging in transaction relationships, Ross says. "We think of a transaction as a smallish piece of IT that the vendor ought to be able to provide value on," she says. "But that can be dangerous. Until companies have cleaned up internal processes, outsourcing transactions is going to reinforce silos. And that can make your internal architecture messier and messier." Over time, a weak enterprise architecture could inhibit a company’s ability to respond to changing market conditions.

Cinergy could have fallen into that trap. Before CIO Gaines’s arrival in 2002, the company had commenced a transaction relationship with DBA Direct to do database administration for its commercial energy business unit only. At the time, Cinergy IT was decentralized, with each of the company’s four business units operating autonomously. The DBA Direct deal "worked reasonably well and served its purpose," Gaines says. "But there was not a lot of visibility into it. It was filling a rather specific need in that business unit, and it wasn’t scalable."

When Gaines took the reins, he was charged with centralizing IT for the $4.7 billion company. One of his first acts was a review of Cinergy’s entire IT service delivery model. He also looked ahead to future needs. "We had an opportunity to get into some new emerging technologies, but that would require incorporating an enterprisewide data warehouse," he says. Gaines knew he did not have enough internal expertise to tackle that job.

Gaines began to look at outsourcers. He liked that DBA Direct had experience with his company. "The database work they would be handling was complex, and they were already managing a highly reliable database for us," he says. So he hired the vendor for database administration enterprisewide. DBA Direct started with the company’s Oracle databases. And as Gaines continued to centralize IT, the outsourcer took responsibility for most of Cinergy’s databases.

By reexamining the outsourcing relationship with DBA Direct and expanding it as part of a larger enterprise architecture strategy, Gaines avoided the silos that transaction outsourcing sometimes produces. The vendor has also proved valuable working directly with Cinergy’s other outsourcers, with whom Cinergy cosources much development and maintenance of applications that in turn rely on database functioning and availability.

By Stephanie Overby

part 4

Clean House Before Outsourcing

Steinbach funneled his energy into streamlining processes on the Summit end, such as learning that he needed to declare an emergency to HP sooner in the process rather than waiting and hoping a storm might take a different path. Today, he says, he spends very little time on the relationship with HP. And the more he’s stepped back, the more they’ve stepped up. When the hurricanes started up again early this summer, the vendor was calling him rather than the other way around. "They’re totally in tune with us and what we need now," Steinbach says.

But while transaction relationships tend to be hands-off from a day-to-day management perspective, it can be valuable to revisit these relationships to see what can be improved. And because client and vendor needs and expectations are often in alignment, outsourcers are often amenable to making the arrangement more effective because what they learn may help them serve their entire client base better. Steinbach, for example, has made changes to his contract with HP four times, adding equipment to their backup site or addressing methods of improvement. "They’ve been very flexible with us," he says. "And we weren’t expecting that."

The suggestions for improvements can sometimes come from the vendors themselves. Of course, the outsourcer has its own motives, such as cost efficiencies, for making such advances, but given the nature of transaction relationships, these can work out well for the customer too. For example, under its original contract with International Finance Corp., ACS had been providing onsite help desk service during work hours in IFC’s Washington, D.C., office. At night, a single ACS employee took a pager home to handle off-hours problems. It worked out OK, and there were no major complaints. "But frankly," says de Poerck, "the service was dependent on the ability and commitment of that one person."

Nine months ago, ACS approached de Poerck with a proposal: ACS could now offer 24/7 help desk support to IFC for the same price. The reason? ACS was now able to transfer off-hours calls to its Bangalore office. De Poerck had significant experience with offshoring application development and maintenance to another outsourcer in Chennai, and was game. After a pilot, he signed up.

De Poerck says that the impetus for the change was the looming end of the multiyear ACS contract, which the World Bank requires IFC to put up again for bid at the end of a contract period. If ACS could offer IFC extended help desk service for the same price, perhaps it could outbid all comers. Regardless, "now that we have that team in Bangalore, there’s a level of performance and processes that weren’t in place before," de Poerck says. "We’re getting a lot better service."

By Stephanie Overby, CIO

part 3

Learn to Let Go

When it comes to transaction relationships, management is best when it manages least. Client interference with how the vendor performs the process will increase costs and undermine benefits for both parties, according to the CISR-CIO study. But letting go of the day-to-day management can be difficult for CIOs.

Summit’s Steinbach is ultimately responsible for the Florida data center that supports 125 of the company’s 300 customers. It houses 1.2 million bank accounts and processes a million transactions a day. If the data center goes down, Steinbach goes down. In 2001, Steinbach decided it would be easier and cheaper to outsource disaster recovery services. But that left him dependent on an outside organization to keep things running come hell or high water (or high winds). He was confident in his selection of Hewlett-Packard to do the work. But still, "my biggest concern was a lack of control," he says. "If you’re doing it yourself, it seems like you have more control over it, and you feel much more comfortable about it."

So when the transfer to HP took place during the summer of 2002 (a quiet hurricane season in the Atlantic), Steinbach eased his mind through testing. He purchased two extra days of testing beyond the six days included in the deal, and after each test he attended the postmortem, during which HP figured out how to further streamline the backup and disaster recovery processes. It was a learning experience for client and vendor alike. With each test, HP performed better. And after each test, Steinbach loosened his reins a bit more. "I felt it was important to take that extra time the first year to make sure we knew what we were doing," he says. "I became more familiar with how their facilities were laid out and with their staff. And they became more familiar with us and our business."

But 2004—dubbed "hurricane summer" down south—was a test of a different sort. Steinbach declared three emergencies at the data center that year, but by that time he was comfortable with standing back and letting HP handle it. The vendor provided monitoring and remained on standby throughout Hurricane Frances, a Category 4 storm that made landfall close to Summit’s data center. HP even agreed to leave its backup systems on for the remaining months of hurricane season in case more storms hit, without charging Summit more. That solution "saved both parties a lot of time and effort and turned out to be a great plan," Steinbach says.

Steinbach funneled his energy into streamlining processes on the Summit end, such as learning that he needed to declare an emergency to HP sooner in the process rather than waiting and hoping a storm might take a different path. Today, he says, he spends very little time on the relationship with HP. And the more he’s stepped back, the more they’ve stepped up. When the hurricanes started up again early this summer, the vendor was calling him rather than the other way around. "They’re totally in tune with us and what we need now," Steinbach says.

But while transaction relationships tend to be hands-off from a day-to-day management perspective, it can be valuable to revisit these relationships to see what can be improved. And because client and vendor needs and expectations are often in alignment, outsourcers are often amenable to making the arrangement more effective because what they learn may help them serve their entire client base better. Steinbach, for example, has made changes to his contract with HP four times, adding equipment to their backup site or addressing methods of improvement. "They’ve been very flexible with us," he says. "And we weren’t expecting that."

The suggestions for improvements can sometimes come from the vendors themselves. Of course, the outsourcer has its own motives, such as cost efficiencies, for making such advances, but given the nature of transaction relationships, these can work out well for the customer too. For example, under its original contract with International Finance Corp., ACS had been providing onsite help desk service during work hours in IFC’s Washington, D.C., office. At night, a single ACS employee took a pager home to handle off-hours problems. It worked out OK, and there were no major complaints. "But frankly," says de Poerck, "the service was dependent on the ability and commitment of that one person."

Nine months ago, ACS approached de Poerck with a proposal: ACS could now offer 24/7 help desk support to IFC for the same price. The reason? ACS was now able to transfer off-hours calls to its Bangalore office. De Poerck had significant experience with offshoring application development and maintenance to another outsourcer in Chennai, and was game. After a pilot, he signed up.

De Poerck says that the impetus for the change was the looming end of the multiyear ACS contract, which the World Bank requires IFC to put up again for bid at the end of a contract period. If ACS could offer IFC extended help desk service for the same price, perhaps it could outbid all comers. Regardless, "now that we have that team in Bangalore, there’s a level of performance and processes that weren’t in place before," de Poerck says. "We’re getting a lot better service."