Mark Lutchen, the lead partner in PricewaterhouseCoopers' IT Business Risk Management practice, came to the position with excellent credentials: He was formerly the consulting firm's global CIO. In that capacity, he was responsible for reengineering and integrating the IT departments of Price Waterhouse and Coopers & Lybrand when they merged in the late 1990s. Lutchen continues to focus on the business of IT. His most recent book, Managing IT as a Business: A Survival Guide for CEOs (John Wiley & Sons, 2003), garnered praise from CEOs, CIOs, and academics alike. Consulting Web editor Howard Baldwin talked with him recently about the importance of applying business principles to outsourcing.
Q: In looking at outsourcing, you recommend going into partnership with your outsourcer, rather than having a vendor-client relationship. Isn't outsourcing a way to off-load work to someone who can handle it better and give you more time to think strategically? Why outsource if you still have to manage it?
A: What makes any arrangement with a third party work is the fact that you've established trust and a relationship. There has to be a win-win. If I hold something over you and I beat you, that's not a relationship, whether I'm the outsourcing company or the outsourcer. When you look at all the outsourcing arrangements lying dead on the side of the road, you'll see there weren't relationships there.
Q: What causes these failures?
A: Usually someone tried to outsource his or her own management problems. You can't do that. When you outsource, you have to understand the whole chain of events, just the same way as if you were doing it internally. Take the issue of provisioning a PC. I hand it off and it gets done. It sounds simple, but it can be complex. You need a process; you have to know who gets what kind of PC, configured with certain applications, and you have to have certain lead times in order to get price savings. That means having human resources involved to tell you when the person starts. You now have several interactions between internal and external parties just to get a PC on someone's desk.
If you're going to rely on the outsourcing vendor to do it the way they want, you won't have any visibility into the process. You have to approach it by saying, "We're all in this together." You have to lay out performance measurements across the whole process and decide what end result you want to achieve. We want the right PC in the right time frame with the right applications, and if any one of us doesn't do our job, the whole thing breaks down.
The most successful outsourcing arrangements are clearly defined, with visibility that dictates consistent and common accountability. If you say you're partners, then everyone's accountable. If you say the outsourcer's only responsible for this and your company for that, the outsourcer can hold up its hand and say, "Hey, I did my job." It's like a marriage, with ups and downs, but the objective is to highlight and pre-empt the problems.
Let's say you're outsourcing to multiple parties. Who's going to be the MC if not you? If you can't manage those processes internally, what's going to make it better when you outsource?
Q: I presume that offshore outsourcing is even more complex.
A: Yes, because you have to understand cultures, manage across time zones, and still have the level of management you would if the process were on-site.
Q: You've also talked about outsourcing for all the wrong reasons. Can you elaborate?
A: I call it emotional outsourcing—when people outsource because of what they're feeling rather than having a strong business case. An executive will say, "I don't like what I see," or "I'm not getting the information I want," or "It costs too much," so the best thing must be to get rid of it. They think that by getting rid of it, they're done with it. But if you don't understand your current baseline, how can you know whether outsourcing will help or be successful? Then you have an outsourcer trying to execute without any guidelines in place.
Part of the problem is that we're talking about relationship skills, not technical skills, and if you think about it, those relationships may not be present in IT in the first place. They think of it as a technical thing. When you're doing outsourcing, you need deep and capable performance measurements, and more efficient relationship management because now you have more parties in the mix. If you look at an IT organization that's technical and not good at relationships, if you don't have people who can communicate to the end user in the first place, it's like playing telephone, where the last person in the circle gets a completely wrong message.
Q: It sounds like just another piece in the puzzle of aligning business and IT.
A: That's right. If you're doing it right and have the right kinds of people dealing with relationships, then outsourcing is nothing more than an operational, rather than a strategic, decision to move pieces of IT to places that might be more cost-effective. I don't want to give the impression that outsourcing is a bad thing. In many cases, it's a good thing. But the way you get to that decision to outsource is important. It has to be based in fact, not emotion. You have to have people who understand the whole process, as opposed to thinking about outsourcing as a one-time event. You're going to live with it for a long time, so both parties need to use measuring sticks to improve the relationship, as opposed to using them to beat each other up.
