New York City-based Nielsen Media Research is virtually the sole arbiter of successful communications enterprises. Its television ratings help American advertisers and TV producers understand the value of individual programs while guiding the buying of over $60 billion of TV advertising every year.
But the complexity and scale of Nielsen’s customer base was increasing due to the growing number of viewing options, such as digital cable TV, satellite broadcasts, even the Internet. Clients demanded more detailed data. “We had to deliver new services quickly,” says CIO Kim Ross. “In our business, speed-to-market is critical.”
The Nielsen executive adds the size of a typical database product Nielsen delivers to clients has increased by a factor of ten about every four years, not to mention the complexity and enhanced client usability needs of those products.
To increase productivity, Nielsen had to make strategic business changes or the avalanche of new data requirements would inundate its IT operations. At the same time, Nielsen needed to limit the size of its IT and software development staff to no more than a modest five percent projected growth rate.
As the firm began transitioning its data management and IT methods in the mid-90s to agree with its increased obligations, Ross encountered obstacles to the firm’s efficient management and timely delivery of its data which led to his conclusion that outsourcing was a strategic answer to this quandary. The research firm began experimenting with outsourcing in 1995 when it began a relationship that still exists with Teaneck, N.J.-based Cognizant Technology Solutions (CTS), an IT and data management outsourcer whose programmers are in Chennai, India. The primary objective was and remains assistance with ongoing development of numerous new data management processes and IT applications.
“For several years, the total volume of business use of IT has outstripped IT’s ability to reduce the cost of delivery,” says Doran Boroski, Analyst and Consultant for Compass America. “As CIOs increasingly focus on aligning spending plans with business requirements, a detailed understanding of the full range of IT cost and performance is vital in developing budgets that address those needs.”
“IT by itself is not inherently value-creating,” says Jeanne Harris, Executive Research Fellow and Director of Research, Accenture Institute for High Performance Business. “The exception might be if a technology fully automates some type of activity. That requires some process redesign.”
This was exactly what Nielsen Media Research needed.
Managing The Offshore Relationship
Most of Nielsen’s IT work has to do with producing its own product – collecting data from 30,000 homes on a daily basis, analyzing that data, and packaging it in proprietary Nielsen databases. “We use Cognizant in every link of this chain except data collection,” he adds CTS was not an unfamiliar partner. Before the Netherlands-based VNU purchased Nielson, it was owned by Dun and Bradstreet, which had a joint venture with the firm that eventually spun off into Cognizant. “There was some connective tissue, some familiarity,” says Ross. “So it was logical for us to first approach CTS for assistance in developing the software that would drive these new products. But in the early days, there was a lot of ‘getting to know each other’ relative to understanding what CTS could do for us.”
One of the primary benefits Nielsen realized in these early days was the establishment of the working model that the company has since replicated in subsequent outsourcing relationships.
They created a “lean and mean” US-based employee “anchor team” that is responsible for project control and quality assurance. Typically, three or four Nielsen IT specialists devote virtually all of their time to managing the outsourcing work that goes to a similar number of CTS’ Indian employees.
Ross adds that in order to contain costs, it’s important to have the correct number of people helping with contract management. “Too many means higher-than-necessary fees; too few invites the risk of project failure.”
“We see the benefit in outsourcing a lot of different things,” says Ross. “But we manage these development projects as if it’s a single staff made up of groups – an offshore team, an onshore team (either or both), and an internal core group.”
Finding a Formula and Sticking With it
Ross quickly learned that provider capabilities relative to cost savings outweigh the outsourcer’s location, but that only stable, well-articulated projects work best with offshore providers. “That’s the first acid test,” Ross adds. “If the requirements need continuous end-user feedback or be defined as you go, you’re better off keeping that project in-house.”
Although he says the time saved on project development is difficult to quantify, Ross has learned through selective sourcing that new projects can begin more quickly because Nielsen doesn’t have to recruit new people. Additionally, outsourcing lets Nielsen respond swiftly to unexpected developments and mitigates risk. If a new application doesn’t work, the cost is typically much less than if it had been developed in-house. But if the application succeeds, the offshore developer is better able to support it, greatly reducing the cost of ongoing maintenance.
The supplier uses three relationship models, depending on the circumstances. Application agreements involve negotiation of specific levels of service and compensation. The fixed-price model finds the provider supplying specific services for a specific price. The third is conversion models, “like our Y2K conversion tasks where additional outsourced work needed to be done to enhance an existing process,” says Ross.
Most of Nielsen’s outsourcing relationships have fallen into the first category. “The secret is for both parties to agree on the project definition at the beginning,” says Ross. “If you don’t, you run into trouble.”
“Evidence suggests that selective sourcing is becoming a popular alternative,” adds Boroski, “especially in terms of critical success factors such as achieving targeted cost savings, maintaining or improving service levels, and renewal of contracts.
“But speed to implementation is critical,” adds Boroski. “The challenge of scoping, negotiating, and implementing a host of selective sourcing agreements can be more daunting and time-consuming than focusing on one agreement with one supplier to provide a wide range of services.”
These challenges may be on the wane, however. A fall 2005 poll by CIO Magazine of over 200 American corporations reveals that 42 percent have relationships with three or more IT or data management outsourcing providers and 36 percent with at least two.
Developing New Products
Because Nielsen develops its proprietary and most management tools in-house, it outsourced only between 10 and 15 percent of this development.
A perfect case-in-point was the establishment of Nielsen/NetRatings in 1999. Advertisers wanted better information on Internet usage. Nielsen was able to quickly launch this new measurement business by using Cognizant programmers to create the “sample” database which stores details about the homes in the sample audience.
The primary development of this new enterprise was done in Nielsen’s Milpitas, California data center. “But we needed to quickly modernize the sample management database to maintain support capability for this new service, and that’s what CTS was able to do,” says Ross.
Over the ten-year relationship, Nielsen has given the lion’s share of its IT outsourcing work to Cognizant. “They’ve really become an extension of our own IT department,” adds Ross.
“We discovered quite early that customer focus was what differentiated the also-rans from the successful firms. So we’ve built our operations with a strong customer focus. That’s how we discovered the customer really wants a complete solution, not just bits of technology,” says Cognizant President and COO Lakshmi Narayan.
This long-term success with CTS has inspired Nielsen to enter into subsequent IT outsourcing relationships of varying lengths. Most have been beneficial, some less so. But the overriding theme throughout Nielsen Media’s outsourcing history, when circumstances justified, has been “Why not?”
Lessons from the Outsourcing Journal:
- Stable, well-articulated data management projects work best with offshore providers. If the requirements need continuous end-user feedback or must be constantly redefined, they’re best kept in-house.
- Selective offshore data management outsourcing is becoming a popular alternative according to Doran Boroski, Analyst and Consultant for Compass America, so long as implementation is accomplished quickly.
- Long-term outsourcing relationships become a reality if a working operational model can be established between provider and client, then replicated as the relationship grows over time.