Outsourcing Technology Risks Enables Companies to be Competitive
Even a Fortune 500 company can fail. All it takes is a decision to invest dollars, time and people in the latest and greatest technological wonder. Sure, an Internet-driven world demands that executives quickly take advantage of innovations that technology promises will give them a competitive edge. But they can reap the benefits without incurring the risks or investment.
Outsourcing provides an alternative strategy that allows them to survive the complexities inherent in technologies that are rapidly evolving. Major projects can take up to two years to formulate, and organizations can spend an enormous amount of money and other resources on something that will be out of date very soon. “What they really need is a doctor,” says Peter Bendor-Samuel, industry analyst and CEO of Outsourcing Center.
Let’s say you’re experiencing physical symptoms of dizziness, numbness in your hands and arms, frequent interference of vision and occasional stumbling or staggering. Would these symptoms indicate separate maladies? Or would they, together, indicate that you have migraines. Or, perhaps, vertigo? Would they be indicative of multiple sclerosis or even a brain tumor? To diagnose and cure yourself, you would need to keep up with all new research, medicines and surgical techniques. If you’re not up to date, you could always try some herbs and over-the-counter headache tablets. Maybe an ice pack would do the trick. Or maybe a heating pad.
If this doesn’t sound too reliable, you’ll probably agree that the safest and fastest way to arrive at a diagnosis and a cure is to go to a specialist. Doctors spend a great deal of money and many years of their lives learning the intricacies of the human body and its afflictions. They have invested in equipment, and they continue to keep up with new discoveries in medicine and research.
Bendor-Samuel compares the benefits of outsourcing with going to a doctor. “By encapsulating the complexities of new technologies inside a service provider, organizations reap the benefits of the latest advances while avoiding investment and headaches. It’s an ideal solution, one that I refer to as “high-quality impermanence.” With new technologies, such as wireless, where time to market is a driver, outsourcing is the most effective strategy. It’s a plug-and-play strategy that allows you to have high-quality services that are not permanent.”
Nike stunned the world with its announcement in late February this year that its third-quarter earnings would be lower than anticipated. While they admitted that a slowing U.S. economy was a factor, company officials claimed the primary fault was distribution problems that the company had experienced in its marketing efforts to go global. Those distribution predicaments in inventory and delivery were the result of Nike’s purchase and subsequent implementation of supply chain management (SCM) software.
SCM is a process that is made much more effective and valuable to an organization’s bottom line through use of innovative technology that reduces cycle time and maximizes relationships. However, SCM software is complex and continues to evolve. It’s a good example of a process that needs to be outsourced – otherwise a company risks all sorts of problems in the implementation, maintenance, and end-user training aspects of the software and process.
Outsourcing Center has done extensive research on when and why companies outsource and has subsequently designed a product adoption life cycle to illustrate the study’s results. The life cycle includes four phases, the first of which is known as a “tornado.” Bendor-Samuel describes companies in this phase as having “a pressing demand to implement new technology quickly.” But the technology is rapidly changing and standards have yet to emerge. SCM and CRM (customer relationship management) are examples of current tornado software products. The safest strategy is to drive technology through a high-quality, impermanent solution “outsourcing.”
Service Level Risks
No matter how big or small a company is, its branding and customer loyalty can be adversely or positively affected by its eCommerce strategies. eBay, which sports 180 million page views per day and price changes 600 times per second, knows how crucial Web site performance is to customer retention. Today, ProactiveNet’s software tools are an integral part of eBay’s strategies in going forward.
Scott Homes, eBay’s director of operations, states that 99 percent of their site outages in the past have been hardware-related issues. But it’s performance issues that they are focusing on now. Homes says they had started developing “a big monitoring tool in-house. It was basically doing all the URL checks and everything else. But that meant we were starting to become our own software development house. That’s not our core expertise, and we wanted to move away from that.”
Marty Hollander, ProactiveNet’s vice president of marketing, says they “often sell into situations where we are replacing a home-grown solution that has worked but is now at the straining point. It isn’t scalable as the company grows, or it is taking a lot of maintenance work or a lot of consulting work to keep it alive. Our solution provides full coverage across the whole spectrum of hardware and applications that people run. It manages it and correlates what is going on in the underlying infrastructure, with the response time.”
Nortel, Pacific Bell, Prudential, Barnes & Noble, Exodus, Lucent Technologies, Ericsson, Jamcracker and Blue Shield of California are among the leading companies that also use ProactiveNet tools. The technology helps them analyze performance across their entire infrastructure to pinpoint what is causing performance slowdowns. It assures more revenue and satisfied customers because of faster Web site access and greater reliability. “I can’t tell you how many times we catch things – it’s the nature of our environment,” comments Homes. “And the small things can become big things, so it has paid for itself time and time again. We’re able to react much more quickly, however big or small the problems are. The overall quality of the site is definitely getting better.”
The solution is easy to implement; it was up and fully functional on eBay’s site within two weeks. Homes likes the fact that “everything is browser-based, so everybody in the company can quickly look at the data. We soon found that we were correlating stuff that we didn’t know how they were interrelated or where the problems existed. But now instead of everybody just looking at their stovepipe we have a broader picture of what is going on.”
The software helps companies understand where their Web sites may be in jeopardy of failing or slowing down and also where resources are being overutilized. One of its customers, eGreetings, uses the tool for allocating their servers in real time to the areas that need more processing power when they do a new release. eBay does releases every day and major releases every week. The tool allows them to see, within minutes of a major release, where resources are being more heavily utilized and where they are being underutilized.
Not every company has the technological expertise of an eBay, Exodus, Nortel or Lucent. For the others, ProactiveRPM is the solution. Through the RPM program, all benefits of the technology are available as a remote performance management service on an outsourced basis. (see related article, Like a Fifth Wheel, in this month’s issue of the BPO Outsourcing Journal.)
Out With the Old, In With the New
Amazon.com and other Internet startups took an early lead over the old brick-and-mortar enterprises simply because they weren’t stuck with legacy systems. Keith White, vice president and general manager of MERANT, describes an outsourcing solution for this technological problem. “Egility is a framework that we use to help companies extend their legacy systems and bring them into the new Internet world. We build and deliver drivers that allow old systems to communicate with new systems. We also have legacy integration solutions that allow us to take your existing legacy systems, connect them and put them in as back ends to your new Web business services and systems.”
Advanced Technology Services (ATS), an outsourcer providing maintenance and technology support primarily for manufacturing enterprises, offers a unique and valuable service to its customers. As Steve Welch, ATS’ vice president of sales explains, “people who are in the technology or automation business don’t know what to do to take care of all the old technologies that are in place out there with customers. What they generally want to do is focus on designing and manufacturing new technologies, instead of having to maintain the old with parts and repair.”
So ATS – whose core expertise is repair and keeping existing systems in place, rather than developing new technologies – provides Legacy Products, – a service that manages the legacy systems for those manufacturers. With this service, when an end user customer telephones the manufacturing company’s customer service line, ATS answers the phone with the manufacturer’s company name and then sends out the requested parts. “The customer thinks that company is great because they have been able to take care of an old technology in a very efficient, speedy manner,” brags Welch. “So it takes away the risk of dealing with old technology as they move into new technology. They can focus their engineering, production line, onsite repairs, and customer service on their new products. It frees them to be forward thinking. When technology is changing every two years, you can’t worry about eight years of old technology.”
Whether it’s new or old technology, “with outsourcing, you buy the result of headaches going away,” explains Bendor-Samuel Outsourcing Center’s CEO and industry analyst. “It’s the ultimate strategy for mitigating risks due to technology.”
Lessons from the Outsourcing Primer:
- By outsourcing, companies can reap the benefits of new technology without incurring investment or risks inherent in technologies that are rapidly evolving.
- Where technology is rapidly changing and standards have yet to emerge, outsourcing is a plug-and-play strategy that allows you to have high-quality services that are not permanent.
- Since technology is changing every two years, companies don’t want to maintain and support old technology. Outsourcing allows manufacturers to focus their engineering, production line, onsite repairs, and customer service on their new products.