There was an interesting story on the front page of the U.S. Print edition of today’s Wall Street journal, the Business & Tech section. The article is called, Why GM Hired 8,000 Programmers. The article suggests that 2 year ago GM had ended a $3bn IT outsourcing deal. Now the firm has built and deployed some innovative commerce-driving web site solutions to differentiate itself in the market. These innovative solutions were built by the now “in-sourced” programmers hired by GM. Note too the CIO is no newbie but none other than Randy Mott, firmer CIO at Wal-Mart. At Wal-Mart Randy was leader during a period of great innovation in retail and consumer goods, namely what became CPFR.
So what do outsourcing agencies say about this story?
A couple of points and questions come to mind as I read the article.
- What is the main value proposition for outsourcing? Is it cost cutting and efficiency or is it innovation?
Outsourcing is a great way to access highly repeatable services. The provider stays in business by scaling repeatable work. If it were one-off work offered then the costs would skyrocket and the service provider would have to change business models.
Equally working with outsource companies often ends up being a discussion more around service level agreements and terms and conditions. And this before you get to define the new requirements. In contrast with your own resources, you just issue a new edict.
- What role does a strong, effective CIO play in this decision?
A strong CIO that understands the business and how information and technology (they are different!) changes the game. They ‘get’ outsourcing and put it in its rightful place. A CIO that plans on making a successful career based only on outsourcing tends to be short lived: it will focus on cost cutting, not innovative investment for growth.
I believe outsourcing makes sense for that work which does not provide differentiation or innovation. I believe it can free up funds. But you should try to sell the resulting new investment along with the cost savings- at the same time. And you need a leader, not a pacifier.
On reflection I think the question, “can you outsource innovation?” is the wrong question. I think you can use outsourcing to help fund innovation; and some services offered by outsourcing vendors can be consumed in some innovation. But the idea that a core business differentiation or innovation can be outsourced is hard to accept, for anything but the shortest amount of time possible.
PS a little known secret related to CPFR: The original CFAR pilot with Warner Lambert (now Pfizer) used EDI transactions – there was no hint of using real-time messaging via the Internet at that time. I know – I was the one that asked the question publicly of the pilot presenters at Benchmarking Partners.
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