Drawing the line
- 01 March, 1998 12:01
One of the great sources of corporate mirth in recent times has been the "revolving-door" story - which has IT professionals leaving organisations with hefty redundancy packages, only to walk straight back in the door as consultants and outsourcers.
On the surface of it, doing things this way makes no sense whatever. Why give an employee a big wad of money to keep doing exactly what they've been doing for the last 20 years? Then, slightly below the surface, it starts to make sense. Why keep in-house what you can farm out to specialist outsiders geared to leverage economies of scale to keep costs down?
But somewhere beyond that perception of the good sense in getting outside help, it gets complicated. While consultants - or outsourcers - are there to help internal IT staff get the job done, things can get tricky if each party wants to "call the shots".
However, essential to the success of maintaining a healthy relationship between the IT manager and an external consultant or outsourcer is the understanding of who's in charge, according to Michael Young, formerly with pay-TV operator Australis and now group IT director with Arnotts.
"It's essentially a business agreement, the result of a normal business process. As such, it's a case of he who pays the piper calls the tune. Whoever's giving the outsiders their mandate is ultimately in charge, and it's ultimately incumbent on an internal representative of the client to ensure they get what they're paying for. That needs to be made explicit in the contract. A clear brief with explicit objectives is essential."
Chris Evans, IT manager with Holden, agrees. Evans says problems are most likely to arise at the point of delivery, rather than at the outset. Holden uses business consultants (normally Big Six) sporadically to help define what's needed up front, and outsource their operations to EDS. "We've had times when we've felt compelled to question whether they've delivered what was promised in the contract. We might start with some idea in our heads about what we want to achieve from a project, then call them in to crystallise it into proposals with cost-benefit analyses, design frameworks, and so on," he says.
"The key to ensuring you get what you want is to define very clearly in the initial contract where your expectations lie in design, costs, re-engineering and the like. The more thought and detail you put into it at the beginning, the more likely you are to come away satisfied at the end."
Anthony Davoren, an associate director of IT with Macquarie Bank, says the majority of consultants the bank has used have been worth the spend. "The main thing to be wary of is scope creep. That's a given if you allow them too much say in defining the boundaries of the project. If you give them the leeway, they tend to sell themselves into your business left, right and centre."
To curb this, he says, it's important to carefully circumscribe each project and agree on the scope of work up front - give them a well-defined brief to work to from the outset and make sure that any scoping changes come through internal management.
Ask the consultancy side of the equation about this, however, and it quickly becomes apparent that one man's scope creep is another man's "value proposition". "Sure, we'll bring new ideas into play as we work on a project," says Paul Spence, managing partner with Ernst & Young Consulting. "I mean, we're there to show them how to increase their revenues, reduce their costs and contain their capital expenditures, and if we can see some new way of achieving any of those as we go, we'll certainly raise it."
Anthony Davoren doesn't dispute the value of letting consultants do that. "No, it's OK - even advisable - to let them identify other things they can do. But it's important either to identify those things as scoping changes ASAP yourself, or, preferably, bear it out as a separate project."
CALLING IT QUITS!
A senior IT man working for the Seven Network - who wished not to be named - was scathing about the company's experiences in retaining one big-name outsourcer in maintaining its networks, including mission-critical editorial and broadcast systems. While not prepared to expand too far on the subject, he says it soon became obvious they didn't have a clue what the business was about. "They had no idea what was required of them in an environment where split seconds are critical," he says.
"Obviously in this business we need instant action when our on-air systems falter, or our journalists' machines go down. Even though they had people on site, it was as if they just weren't a part of us. It reached the point where our own networking people were fixing up the things we were paying them handsomely to fix," he says. As a result, the network terminated the contract and brought the maintenance facilities in-house.
Of one software vendor's efforts at implementing a new suite, an IT manager from one large company said: "They're arseholes. They sold us their stuff on false premises in the first place, and if they spent as much time working on getting it running as they have on making excuses about why they can't, we'd have had it up months ago. The whole thing's been a bloody joke - especially since their PR company's been sniffing around for an endorsement of the product."
This story carries no surprises for the aforementioned Young. Australis terminated its outsourcing contract for similar reasons. "We simply weren't getting the service," Young says.
"In situations like that, it's fairly predictable, really. It's not likely that you're going to find much in the way of empathy with your business in a big operator like IBM GS or EDS. That's not to say they're inherently useless - we use them here. But the way they keep their services cost-effective is by economies of scale, so the first thing that's going to be compromised is the way they service specialised needs," he says.
As a result, Young is a firm believer in keeping the maintenance of strategic and business-critical systems in-house. "Obviously that's not a blanket rule. There are many situations where outsourcing works fine. But certainly in the case of businesses with special needs such as broadcasters, it's well worth thinking about."
Young also says many such problems can be alleviated up front by drafting explicit service level agreements (SLA) imposing heavy financial penalties on those outsourcers who break them. "These kinds of outsourcing deals have been attracting plenty of attention in the press recently. Particularly in the public sector, with departments trumpeting the kind of savings they stand to make by taking that route. As a result, the big-name outsoucers have been raking in plenty of money."
WORTH THE BUCKS?
It's helpful for the parties to agree on a fixed price for the project. "That certainly helps minimise the creep factor, by relieving them of the incentive. That's very useful, too, in letting you cost each project accurately up front," says Davoren.
So how do consultants work in best with internal management? Ernst & Young's Spence says ideally consultants will complement, rather than supplement, internal managers. Conventionally, the consultant brings business nous to the project, to complement the internal managers' cultural and technical understanding of the organisation.
The success of most projects, says Spence, is heavily contingent on using the client organisation's informal cultural channels as well as the formal ones. "It stands to reason that the internal managers will be much better acquainted with those aspects of the company than we would," he says. "They're also very familiar with the organisation's functions and processes, both formal and informal once again, and with the strengths and weaknesses of their legacy systems."
That said, some of the biggest benefits of using consultants derive from their objectivity, according to TNT Australia's IS director, Bob Hennessy "The perceived objectivity of their appraisals is important in inuring people to change. Having the recommendations formalised from without tends to add weight to things - it's culturally important," he says.
"Given that, I think how useful a consultant turns out to be depends very heavily on how far the arms and legs inside the organisation are prepared to go in bearing out the consultants' recommendations. For that to work, I think it's essential to have key internals - MDs, managers etc - who are prepared to overcome the inevitable resistance to change."
Hennessy says if there's a risk in using consultants, it lies in the fact that they don't have to live with the results of their recommendations. "That said, we've not had any bad experiences with them that we can sheet home directly to them. We've had times when we've coughed up plenty of money for the services of consultants whose recommendations we don't end up going with, but how much that's been the consultants' fault is highly debatable."
WE'RE IN THE MONEY!
The money one might waste in such situations varies considerably. Consultant organisations command much higher fees than would the individuals they're hiring out. Ball park figures for the services of a Big Six company are $200Ð250 an hour, or about $40Ð50K a month. Systems integration people come in a little lower at about $30Ð35K a month. For programmers, expect to pay $150Ð160 an hour or about $25K a month to an umbrella organisation, or about $90Ð100 an hour to an individual.
So what's the advantage of using an umbrella organisation that close to triples the price of the service? Hennessy: "It's mainly in the knowledge bank and the support on hand behind the individual. And of course, if the individual gets sick or whatever, there's always another one on hand." A useful way to go, he says, is mixing the services of freelance individuals and consultancy firms. TNT, for example, has been doing this for its year 2000 conversion work, using a consultancy firm for the QA work, but individuals for the actual conversion work and project management.
The knowledge bank available through a large firm can bring major benefits in implementation speed and reliability, says Ernst & Young's Paul Spence. The fact that big consultancies work all over the world for a diverse client base allows them to transfer what they've learned from job to job. "It means that in taking on each new job we'll be able to dip into a repository of proven methodologies and solutions we've developed in similar situations elsewhere. Obviously that's restricted to systems that aren't proprietary to past clients - we're strictly bound by our contracts in that respect. But there's still plenty of leeway to take what we learn from place to place."