Users Weigh In on Sourcing IT Out

NEW YORK -- More and more firms are opting to outsource their servers and storage, although users at the Data Center Dynamics conference here today warned that this process is becoming increasingly difficult. Smaller firms, in particular, face an uphill struggle.

Outsourcing is clearly growing in popularity, with Nissan and the U.S. Army's Office of the Judge Advocate General (JAG) recently signing major deals with IBM and Ciber Inc. (See IBM Wins Army JAG Contract and Nissan Signs IBM Agreement.) This followed General Motors' decision to award a massive $15 billion, five-year outsourcing contract to HP, IBM, Capgemini, Compuware Covisint, Wipro, and EDS in February of this year. (See GM Goes for New Outsourcing Model, IBM Picks Up $500M GM Deal, and HP Grabs $700M of GM Biz.)

But, further down the corporate food chain, where firms lack the resources and influence of GM or Nissan, there is plenty for users to gripe about. Lance Smith, assistant system administrator at New York City's Church Pension Group, told Byte and Switch that each time he deploys a new application, he adds another level of complexity to his outsourcing contracts. "It becomes an octopus," he said. "There are more and more applications, there are and more components to the network infrastructure."

Smith used the example of email, which is shared across a whole menu of different devices. A typical organization could end up deploying three different types of software to run email across desktops, Blackberries, and Palm Treo devices, he said, not to mention anti-virus software for protection. "It's crazy," he added.

The exec would not reveal which outsourcers he uses but warned small firms not to bank on gilt-edged service from some big-name providers with extensive customer lists. "If I have a problem and Merrill Lynch has a problem, where are they going to go first? So the little guy loses out in the end," he said.For these reasons, users should get ready to play hardball, according to Smith: "You have got to be hard-nosed. You can't sit back and let the vendor come to you. For storage, I press the outsourcing provider on recovery times, quality of service, how frequently backups are done, and availability."

Chris Hansen-Crowley, operations manager at New York financial firm Lava Trading Inc., agrees that things are not getting any easier, but urged users to be upfront with their prospective outsourcing partners. "You have to lay out exactly what you want and exactly what you need," he said.

For the outsourcer relationship to produce results, communications need to be clear and goals realistic. During a presentation this morning, Stewart Hair, managing director of infrastructure services at EDS, explained that complexity was to blame for the much-publicized problems behind the vendor's U.S. Navy contract. "It wasn't because, specifically, the service levels were poorly defined, it is that we had so many of them," he said.

Hair admitted that the The Navy Marine Corps Intranet (NMCI) contract almost "buried" EDS in 2002 and 2003, alluding to the delays and cost overruns that have dogged the $10 billion project. "Finally we sat down with the Admiral of the Navy," he explained. "We needed to fix the service levels because we weren't accurately working the business together."

Outsourcing is not all doom and gloom. Other users at the show admitted that they are closely monitoring the situation at GM after the auto manufacturer took the unusual step of splitting its contract into 40 smaller projects earlier this year. "It's a defined model and it has some strength. It's going to have some mileage behind it by the time folks start looking at it," said a CIO from an engineering firm, who asked not to be named.Even Smith appears unlikely to emulate JP Morgan, which sent shockwaves through the banking industry in late 2004 when it brought its IT systems back in-house, ending a $7 billion contract with IBM. (See JP Morgan Ends IBM Outsourcing Deal, IBM Scores $5B Deal With JP Morgan, and Will More Banks Bet on Insourcing?) "There's not enough hours in the day to do everything that needs to be done," he added.

James Rogers, Senior Editor, Byte and Switch

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