Imagine yourself as the new CIO of a major company, being immediately tasked with taking over a large ERP implementation project that must be rolled out to 118 distribution facilities supporting 2000 users located in 38 states, including Vancouver, Canada, and Tijuana, Mexico. Unfortunately, the ERP project has already been an issue to your company for several years and is still not off the ground. You’re also informed of time constraints — that the company needs to start the rollout to all 118 distribution facilities and get into the first phase soon in order to achieve value from the investment.
Then imagine that the ERP software company goes out of business.
Such a scenario is not the stuff of fiction writers; it happened to Jesus Arriaga, CIO of Pomona, California-based Keystone Automotive Industries, Inc., the largest U.S. national provider of non-OEM after-market collision replacement parts.
“We were put into a situation of trying to understand what resources it was going to take for us to internally implement and support the infrastructure and ensure it would be secure and reliable. We also had to have a 24×7 operation that operated in a very cost-effective manner,” recalls Arriaga. Evaluating all the factors, Arriaga determined Keystone would have to double the IT staff and train them in the expertise necessary. But there was not enough time to do that.
Though it was “a very expensive decision,” the CIO states they ended up “pulling the plug on the project” and immediately started searching for another ERP solution.
One request for proposal (RFP) and six months later, Keystone Automotive was headed into a successful implementation of phase one of the newly selected ERP software along with an outsourced solution for the infrastructure to support it.
How was it able to so successfully achieve its objectives in such a short period of time? It came down to three key factors.
Factor #1: Provider Evaluation is More than Presentations and References
Outsourcing buyers must know exactly what they want, as well as require, from the provider’s service. Keystone Automotive selected (i)Structure, Inc., the Broomfield, Colorado-headquartered IT infrastructure outsourcing provider, as its outsourcing partner. The provider met four of the RFP requirements: expertise; a data center to support the work; flexibility in working with the buyer’s in-flux situation from the prior failed project; and financial stability.
Arriaga’s 22 years of both corporate and Internet experience was the basis for the company’s fifth requirement – a “corporate enterprise-type of mindset.” “When we down-selected to three companies and analyzed their solutions, I really saw the big difference in their solutions,” he recalls. “I was able to filter out those Internet-related solutions, because that was not going to work for us.”
The final two providers had similar expertise and pricing, but (i)Structure’s reference checks revealed it had a higher level of customer service and a longer history of stability. Keystone Automotive’s CIO adds, “In order to make this project successful, everybody has to work together as partners. Part of why (i)Structure won is because a lot of their references said this is how they function.”
Factor #2: What’s Required for Smooth Transitioning to Outsourcing
Transitions are always threatened with the potential of unexpected problems, no matter how much expertise may be in the planning. Smooth transitions require flexibility (of both parties), teamwork/collaborative environment, and stakeholder buy-in (a large part of the change management process). All three came into play right away in Keystone Automotive’s transition.
As Arriaga recounts, the contract with (i)Structure was signed in September 2001, a timeline was in place, and they were within 30 days of rolling out the new equipment, when he put (i)Structure on hold in October 2001 with the decision to switch to a different software package due to the ERP software company going out of business. Suddenly, the infrastructure equipment waiting to be installed had to be sent back to its vendor and new equipment brought in.
The project’s “hold” status put (i)Structure in an enormous crunch. The service provider resumed work the first week of January 2002 with the requirement that the intricate infrastructure be in place and operational by January 31. Amazingly, Arriaga reports that (i)Structure “met that bar and got the infrastructure up and running one and a half weeks early! And we came up in with a stable and operational infrastructure.”
“Our outsourcing relationship allowed us to successfully keep a six-month implementation schedule for phase one,” Arriaga says. “If the outsourcing relationship had not been in place, we would have been stuck with spending probably a year and a half just getting the software ready to launch phase one. And then we wouldn’t have been in a position of strength with expertise, as we are because of the outsourcing.”
Stakeholder buy-in was also a key aspect of the transition. The company was, for the first time, going to be handing off the critical heartbeat of the company – the systems that measure and collect data on sales. Arriaga recalls, “Everybody – from the top down – was really questioning the concept of outsourcing and why we were undertaking it.” They had to be “convinced into” the benefits of it, he says, as well as guided in how the relationship would work and what would be happening at each step.
“Long story short,” Arriaga states, “now they would not have it any other way because they realize what a great partnership this is; how well our people and their people work together; and that our projects could not be achieved without our being completely overwhelmed, if it were not for (i)Structure.”
He admits the success of this relationship has surprised him. From enduring prior experiences in “rough waters – where you know there is a right solution but you really have to battle to get it,” he did not expect the flexibility and smoothness of this outsourcing relationship. “When we find issues where we need to make decisions on what needs to occur, we work very well together to find a resolution and to make the relationship work.”
Factor #3: Defining ROI
In addition to financial aspects and reliability of service levels, Keystone Automotive measures its return on investment (ROI) by considering whether the outsourcer provides “optimum service.” He checks to see if:
- There are “contentions and struggles in getting them to maintain the expected level of service”
- The provider exceeds defined expectations
- The (i)Structure provides cost-savings opportunities
- The service provider maintains costs within reasonable parameters going forward with changes.
These are tall expectations, which most companies could not begin to meet internally, but which they can achieve through outsourcing if they set those expectations together at the outset of the relationship.
The crux of Keystone Automotive’s ROI measurement is whether the relationship is “free-flowing” and whether the two understand that they are working together. “We discussed all of this with (i)Structure at the outset,” states Arriaga.
The planning worked in building a highly effective relationship. As Arriaga gratefully claims, the ROI also has a personal aspect: “Because of the (i)Structure relationship, our infrastructure is a non-worry in the back of my head. It is one burden that I do not have to carry. I can sleep at night, knowing that I’m not going to be paged about an escalation point.”
Lessons from the Outsourcing Journal:
- An outsourcer’s expertise and resources can successfully achieve a faster and more cost-effective software or infrastructure implementation, with greater stability and less risk.
- In evaluating provider’s various solutions, outsourcing buyers must know exactly what they want to achieve, as well as require, from a provider’s service.
- Smooth transitions require flexibility of both parties, teamwork and collaborative environment, and stakeholder buy-in.