Fall Conference: Get The Most From OutsourcingFall Conference: Get The Most From Outsourcing

Outsourcing IT work can lead to cost savings and even improvements in quality and processes, but only if a company proceeds without demolishing its IT knowledge base, said business-technology executives serving as panelists during an information 2003 Fall Conference session on Monday.

Companies that choose outsourcing must be careful that they're not sapping the IT department of the knowledge base that manages its current systems and will help prepare it for the future, said Ben Williams, senior VP of information services and CIO at St. Joseph Health System, which runs 16 hospitals. Williams says St. Joseph outsourced most of its IT department to Perot Systems to develop common processes, cut costs, and gain access to new expertise. But as part of the deal, Perot hired 85% of the health-care company's IT workers, so St. Joseph never lost its in-house expertise.

The impact of sending IT work overseas to places like India and China, and whether that practice could hurt a company's knowledge base, fueled discussion among the panelists and audience members. Williams cautioned that if a company's sole purpose for moving IT resources offshore is to save money, "that's a short-term solution." Outsourcing should be about building a better and more strategic IT direction, he said. All of St. Joseph's IT outsourcing is done onshore.

Panelist Allen Klein, an outsourcing attorney with Latham & Watkins LLP, said that knowledge transfer can be a big problem with outsourcing and is a risk area companies must closely consider. "One of the big challenges is [determining] that risk," he said.

But panelist Rick Omartian, second VP and IT CFO/chief of staff at Guardian Life Insurance, countered that using offshore developers isn't just about saving money. Guardian has outsourced 40% of its application-development work to India-based firms, and 70% of that work is done offshore. Omartian says pay for offshore workers is one-quarter of what the company pays in the United States, which has saved Guardian considerable money. Still, the offshore firms' use of Carnegie Mellon University's Capability Maturity Model, a recognized standard for software-development process improvements, has led to improved processes within its own IT department. And since Guardian still keeps most of its IT talent in-house, tapping into the knowledge and expertise of both offshore technologists and internal staffers benefits the company.

Indeed, outsourcing can be a way of accessing knowledge that never existed, whether it's onshore or offshore. The city of Chicago outsourced its IT department because it was moving from a mainframe to a desktop-based IT infrastructure, and it didn't have the in-house talent to handle the change, said panelist Michi Pena, the city's first deputy commissioner and CIO. For the most part, that required replacing its IT workforce. "To take our people and re-educate them [would have been] a big hurdle," Pena said--and all of the city's IT workers via the outsourcing contract are locally based.