Software Licensing & Master Service Agreements : Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

Due to the current economic conditions, IT departments are coming under increasing pressure to do more with less.  However, over the last few years upper level management has become leery of divesting themselves of the servers and network to a service provider.  In prior postings to this Blog I have provided reasons why outsourcing can benefit the enterprise, 10 Reasons to Outsource, and also a comprehensive checklist to consider prior to making the decision, Checklist Before Outsourcing Your IT.  In an effort to continually update this topic as events evolve, this posting is another in this series and concentrates on the concerns one might have regarding the Service Provider.  To get the full detail underlying the following points to consider when evaluating which Service Provider is best for your enterprise read Outsourcing Your Infrastructure: Ten Points to Consider When Making the Move.  Here is a brief summary of those ten points:

·         Uptime:  Greater reliance on the internet makes “On” the only option.  The global marketplace makes this a necessity.  The options could be straight hosting, managed service, or SaaS.

·         Redundancy and Business Continuity:    loss of customer call center could result in lost orders.

·         Data Restoration:  eDiscovery Laws require a significant and competent back-up plan.

·         Response Time and Site Performance: providers have high-performance servers and high-speed access, but do they have only one location.

·         Scalability to meet growth: Can the Service Provider add capacity quickly to meet the rapid increase in demand, in other words, does the Service Provider have the financial capital available to rapidly add more servers.

·         Customer Support:  This is the “value-add” dimension that differentiates one Service Provider from the other.

·         Security:  Must be able to adhere to the Data Privacy laws such as Sarbanes-Oxley, and Gramm-Leach-Bliley.

·         Cost Reduction and One-Stop Billing:  Abandon the ala carte approach to IT infrastructure.  Bundled services are discounted.

·         Optimized IT resources i.e. dedicated servers:  Allows IT staff to redirect their efforts to delivering their own services.  Plus services on demand priced on usage is better offered from a service provider’s business model.

·         Financial improvements:  Eliminates the need for cash oulay for hardware and turn the cost into an operational expense as the enterprise pays for a service.

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I recommend an Economist Intelligence Report entitled IT Excellence: Achieving Optimised Business Outcomes.  This whitepaper begins with the premise that “IT departments are increasingly being called upon to define and pursue excellence”.  The consensus seems to be that IT’s role has evolved to one of a business partner that must align itself with the company’s overall business objectives.  The editorial board of the Economist Intelligence Report put together this report based on in-depth interviews conducted with Dow Corning CIO, Abbe Mulders, and Applied Materials CIO, Ron Kifer.  It is interesting to see how both individuals recognize the pervasive nature of IT in their organizations and their commitment to realizing the most from their departments.  Each has an interesting approach.  I’ll briefly summarize below:

Dow Corning:

Mulders has embraced the Six Sigma (defined) statistical approach with its continuous improvement toward defined goals.  Business units within the company collaborate and produce a future strategic plan which includes IT as a full partner.  The senior executives of the functional business units along with senior IT executives hold quarterly meetings to review and adjust priorities.  This collaborative approach allows the participants a view into the infrastructure, allowing for more effective decision-making, investment and execution of their 5 year strategic business plan.  The Six Sigma approach requires some kind of return.  Mulders’ teams focus not only on the progress but also on the quality of those returns and reports an 80% achievment of targets 12 months after an implementation.

Applied Materials:

Applied Materials is a leader in nanomanufacturing technology and produces semiconductor chips, flat panels, solar arrays, and energy-efficient glass.  Ron Kifer’s approach to IT excellence starts with the premise that IT not only enables business strategies, but must take a leadership role in such business processes.  Kifer maintains that in order to compete in the global market each business functional area must be able to support all others.  This is what he calls “cross-functional support”.  He believes the pursuit of IT excellence optimizes the other business functions.  He looks at core competencies to get the most effective results.  He believes he has accomplished this through the outsourcing of major components of his IT infrastructure.  In order to make the most out of this approach Kifer explained that vendor management became a priority for the company and they needed to “reorganise and develop skills in negotiation and management of vendor relations”.

This whitepaper report also includes a Q&A with each CIO.  It’s interesting reading.

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I recently came across a very interesting article. The article begins by stating what most of us already know, (i.e. more than two-thirds of companies outsource their IT services and India gets a large chunk of that business). Be patient while reading this article and get through that first bit of rehashing the already known facts. The article sites some very interesting and reputable statistics which puts the current situation into a different perspective. It brings into question what I alluded to in the title of this post, when you come right down to it will the infrastructures of India keep pace with the massive rate of growth of the IT service providers or will such infrastructures collapse from India’s inability to repair and replace or build new infrastructures.

Let’s start off with some one of those facts from recent studies:

The number of developers in India who service primarily US markets is 250,000. In the United States there are about 500,000 developers, where roughly half are in product development. This makes the Indian programmer pool equal to the available domestic programming pool.

Indian software exports alone exceeded 17 billion last year, representing a four billion increase in one year (Gartner Group).

Bangalore has built a sort of Silicon Valley a few miles out of town. However experts are beginning to wonder if the Bangalore infrastructure can hold up under the intense pressures put upon it from the ever increasing expansion. Continuing on with some more of the facts:

Now Indian IT professionals, with their newly found wealth, have continually been buying motorcycles and cars adding 900 a day to the already overcrowded streets (The Bangalore Paradox).

Other problems include “a water shortage, inadequate sewers, and an erratic power supply” (The Bangalore Paradox).

As a user (or should I say hostage or victim) of the Chicago metropolitan highway system, the next fact I can particularly empathize with the IT professionals of Bangalore:

The poor road systems make a small 7 mile drive take roughly an hour to complete.

The Gartner Group reports further that:

A survey of 25 large organizations with a combined $50 billion in outsourcing contracts found that 70% have had negative experiences with outsourcing projects and are now taking a more cautious approach. One in four companies has brought outsourced functions back in-house and nearly half have failed to see the cost savings they anticipated as a result of outsourcing” (Gartner Group). Also, a reported 20% of outsourcing deals do not produce cost savings while 10% of those deals actually wind up increasing costs. In 2005 alone, 50% of all outsourcing projects will not deliver their expected value and will be labeled unsuccessful (Gartner Group).

Others see the outsourcing possibilities as endless. 

General Electric’s “70-70-70″ plan is an example of this. GE plans to outsource “70 percent of its head count, push 70 percent of that outsourcing offshore and locate 70 percent of its workers in India.” (Gartner Group).

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