Outsourcing Leadership: Hands On, Hands Off

READER ROI

Learn how vendor management has become central to the CIO Find out why delegating operational leadership may be right for you Test yourself to find out what kind of leader you are When Jim Infinger became Raytheon's new CIO, he cast a skeptical eye at the company's 1997 IT budget. With 80 percent of the defense giant's dollar pie devoted to maintenance and just 20 percent allotted for strategic efforts such as planning and research and development, he felt too much was being spent on non-value-added jobs. And that wasn't just his gut talking. "The total IT spending was out of line for the industry," says Infinger, who benchmarked his budget against other defense companies and found that the other companies were spending much more than Lexington, Massachussets-based Raytheon on development. So to free up IS resources and reduce his department's costs, he created a shared services and outsourcing team, one that would centralize responsibility for and outsource all of Raytheon's high-volume transaction work, such as its help desk and desktop services. Then he stepped back to let a talented lieutenant run the show.

Liberated from operational worries, Infinger was free to focus on the company's future, an occupation he finds more congenial than day-to-day management, and a pursuit he believes is more aligned with his unique talents.

"I got my time to work on the strategic and be creative," he says.

When E.P. Rogers, vice president and CIO of the Mony Group, looked the millennium bug in its beady little eyes, he realized it made financial sense to outsource Mony's Y2K remediation effort. So he threw himself into the project.

He contacted potential providers. Once he found his outsourcer, he devised a budget and set up project timetables and a reward system for meeting goals.

Then, after the contract was signed, he met with his staff monthly to go over progress reports, making sure goals were being met.

"Our Y2K effort was nearly flawless," says Rogers proudly, "and was delivered below industry averages for cost per line of code." Two CIOs. Two approaches to managing outsourcing relationships. Both big picture, but one relatively hands-off, the other very much hands-on.

"I play a prominent role in vendor management," says Rogers. In his view, a CIO has to. In fact, in his view, it's an executive obligation. "Not just the CIO," says Rogers, "but the whole management hierarchy must understand the possibilities technology offers. You have to know when vendors blow smoke--because they do. You have to get how to marry it all up with the business." Although Infinger and Rogers have different management styles and different skill sets, they both recognize one important truth: No matter how it's done, outsourcing contracts must be managed by combining people skills to create the relationship with the vendor and then setting up structures to sustain it.

This is the mandate for all CIOs today because outsourcing is here to stay.

A CIO'S GOTTA DO WHAT A CIO'S GOTTA DO

"I am convinced a majority of I.T. shops today will be outsourced by 2005," says Sam Albert, president of IT industry analyst and management consulting firm Sam Albert Associates in Scarsdale, N.Y. "People are interested in their core business, and with IT being so labor-intensive, they just don't want to bother if it doesn't push that business forward." According to The Outsourcing Institute, based in Jericho, N.Y., this year alone the outsourcing market is expected to exceed $US400 billion. And now that the ASP market makes outsourcing increasingly available to small and midsize companies, virtually every organization will have the means to shop out non-core-competency functions in the future.

Although careful vendor management may seem a no-brainer now, it wasn't always that way. "Five years ago, a manager called me after his boss said, 'How are we doing with our outsourcing project?'" says Frank Casale, president and cofounder of The Outsourcing Institute. "The manager said, 'I dunno. We outsourced it.' "As more and more organizations outsource," Casale continues, "the risk to the organization is significant if IT doesn't have people or groups to manage those relationships." Poorly managed outsourcing can drain budgets, creating the equivalent of an IT money pit.

Management starts from the beginning. "When the ink dries on the contract," says Casale, "it's old." Casale has watched the CIO role change over the past 10 years and says it's crucial for modern CIOs to keep tabs on it all--from requests for proposals to careful contract negotiation to handling the inevitable day-to-day problems that crop up. "CIOs need to get beyond the old days of 'Me client, you supplier.' Those days are gone," says Casale, who advocates for more of a partnership model.

So what skills does it take to manage outsourcing? And can a CIO do it all? IT TAKES TWO Rajan Srikanth, a director in the San Francisco office of New York City-based Mercer Delta Consulting, believes there are two discrete sets of leadership skills necessary for success in out-sourcing management. One set, which belongs to what he calls the mythic leader, includes the ability to articulate, communicate and persuade. These leaders possess a charismatic ability to connect with employees and vendors on a personal and emotional level. The mythic leader becomes the physical embodiment of the whole company, incarnating the organization's goals and values in his own body, representing the business's future in his own person. He is a psychological touchstone for his employees; they feed off his energy. His aspirations become theirs, as do his fears. And once the connection between the leader and the company is made in the minds of both employees and vendors, the CIO is able to point everyone in a common direction.

After the mythic leader articulates the vision, such as spinning off mainframe computing or desktop maintenance and deciding which vendors will do the work, processes need to be built to sustain that brave new world.

This is where Srikanth's second leadership type--the operational leader--comes in. "Operational leadership creates the appropriate processes to stabilize the organization and make it perform as efficiently as it can," says Srikanth.

When it comes to managing outsourcing relationships, that means setting up incentives and penalties.

In order to establish procedures and then see that they are carried out, the operational leader needs a firm grounding in the technology. She needs good negotiating skills, and then she needs to be something of a hard case to make sure that promises are met and products are delivered.

In our brave new world of interdependent systems, outsourcing relationships can reach new orders of complexity, providing challenges for even the most detail-oriented operational leaders. For example, J.P. Morgan and Co., a global financial company based in New York City, assigned the contract management role for its Pinnacle Alliance to Mike Gotimer, vice president for sourcing management. The Pinnacle Alliance is made up of Andersen Consulting Inc., AT&T Corp. Solutions, Bell Atlantic Corp. Network Integration (BANI) and Computer Sciences Corp. (CSC), which together manage about a third of Morgan's annual IT needs. The work includes mainframes, networks, desktop and some applications development. The idea behind the alliance is to tie the four vendors and Morgan together from an operational delivery standpoint. Contractually, CSC is the lead vendor and Andersen, AT&T and BANI are subcontractors, and all of them operate under Gotimer's sharp eye.

Morgan associates work side-by-side with vendors (some onsite, some offsite), keeping a close watch on what gets done and how. Does this careful, detail-intensive approach work? According to Gotimer, "It works because you have day-to-day management and constant communication." Morgan and CSC put measurements in place for all jobs, with performance penalties applied if goals aren't met.

The operational leader's work falls into three categories. She must first create the outsourcing structures, such as Gotimer's Pinnacle Alliance. She then builds processes, spelling out who does what, setting up contracts, defining how policy and direction are set, and creating a process to monitor the vendor's performance, as well as that of internal associates. Finally, the leader must make sure the performance is in line with strategic objectives. "It takes a leader skilled at technology," says Srikanth, "and in managing and delivering projects." But the operational leader also needs good people skills to handle the inevitable problems that crop up between the organizations, problems that need to be thrashed out one-on-one with the principals. To do this, she has to be able to connect with the vendor, all the while representing the company.

All these skills needed, all these responsibilities. It seems like a lot. It is a lot.

What's a real, not a mythological, CIO to do? LOOK MA, NO HANDS Since he joined raytheon in 1997, infinger has been busy. he implemented an SAP AG ERP project to standardize business practices, a PeopleSoft Inc. project to manage payroll, a companywide network that standardizes everyone's LAN and WAN needs, e-business initiatives associated with Raytheon's marine, aircraft and other components of its aerospace/defense businesses. In addition, he completed Y2K remediation--all the while shrinking the IT budget he inherited by 35 percent over three years. Infinger is a classic example of Srikanth's mythic leader, possessing the ability to point everyone in Raytheon's IT units toward a common goal.

Infinger's particular skill set might be more difficult to acquire than the operational one because successful mythic leaders have something that can't be acquired through books, training, debugging software or organizational meetings: passion.

When Infinger came to Raytheon, it was a jumble of assorted aircraft, construction, commercial electronics and other divisions, each with its own IT department, all cowboys blazing their own trails. In addition, Raytheon had recently acquired E-Systems and the Defense Electronics Business division of Texas Instruments Inc. and merged with Hughes Aircraft.

Infinger's charge: Make sense of Raytheon's diverse and splintered IT needs and bring them all together.

To build an IT team in line with Raytheon's goals, Infinger took all high-volume transaction work--help desk, desktop and data center--and centralized them so that all report to the same place. Then he made the decision to outsource these functions. Because the person who would run this area could make or break his vision for Raytheon's future, he looked carefully for a leader. He chose Flora Vance, one of Ray-theon's IT leaders, now a vice president of operations and infrastructure, who had a track record of delivering projects on time and on budget.

What skills does Vance bring to Infinger's operation? She can organize, set schedules, manage the people and get the work done. In short, she has operational leadership skills. She also has previous experience outsourcing with the same vendor, CSC, which would take over Raytheon's data center, help desk and network design/engineering functions.

Vance even adds some mythical ability. She learned to focus more on the relationship with CSC than on the nuts and bolts of the contract. "The relationship must be in place first. Details follow," says Srikanth. "It's like Ronald Reagan said about a missile treaty with the Russians: Trust, but verify." Srikanth applauds Infinger's decision to join his mythic leadership with Vance's operational genius. It's tough, and probably not profitable, for a mythic manager to try to transform himself from a passionate change agent to a careful process manager. In Infinger's case, handing off tasks unsuited to his visionary gift maximized his effectiveness.

THE PROCESS PROS

If mythic leaders are driven by personal experience, knowledge and chutzpah, operational leaders are challenged by a need to set up and monitor complex internal and external processes.

"Outsourcing is a longer-term commitment than a consulting relationship--more like a marriage," says Peter Bendor-Samuel, president of Dallas-based Everest Group and CEO of the Outsourcing Center. If consulting is the dating scene of the business world, outsourcing must endure for better or worse. These relationships will prosper, he says, if care is applied. "You can dump the girlfriend," says Bendor-Samuel unchivalrously, "but not the wife--it's expensive and painful." Keeping the marriage going requires that the CIO make demands and let the vendors sink or swim. "At first, CIOs tried to be friends with the vendors, which didn't work," says Bendor-Samuel. "They used friend-ships to maximize profits at their own expense." But CIOs cannot afford lengthy honeymoons.

Vendor relationships must be managed through institutional vehicles such as service-level agreements--and common sense. Call it tough love.

Can a CIO develop both his mythic and operational sides? Mony CIO Rogers believes one person can do it all--or most of it.

"Not that long ago, a CIO could be successful if he was charismatic or very technical or had people skills," says Rogers. "I think it's changed tremendously. You can't have one element. If you only have one, you won't survive long." Rogers is by nature an operational manager, a detail fanatic with a talent for managing multiple projects and fixing problems. "I'm consumed with being the best I can be," he says. "It's a blessing and a curse. You have to manage it so that you don't go crazy. I want to celebrate successes. I do. But I also want to avoid making mistakes by making process improvement so that we don't make them again." When it comes to outsourcing, Rogers keeps a sharp eye on five to six vendors.

He partners Mony's project managers with them and uses incentives as carrots.

"We create a win-win situation with our vendors. We both benefit from achieving the results," he says. When Mony outsourced all Y2K remediation, it offered bonuses if the vendors delivered. They did. "We paid those bonuses gladly because they did a good job. It improved quality and built credibility and respect." Rogers may have stepped up to the visionary role--achieved through experience and welcoming change, he says--yet he still sees himself as a problem solver.

"The real challenge for me," says Rogers, "is keeping pace with technology. You juggle so many balls that finding time to stay current is tough. You must have discipline and commitment to do that." A good CIO finds a way to lead, set up processes and be an effective businessperson. In other words, even a careful process manager must be able to see outside his IT world. "A CIO must understand big culture relationships, who gets things done, who doesn't. At the core, you go into a meeting, and you must contribute in a meaningful way to the business dialogues. If you aren't providing value," warns Rogers, "you won't be invited back." Although Rogers and Infinger set up their departments differently, they both recognize where their natural abilities lie, and they either find someone else to handle tasks less suited to their talents (Infinger) or take an active role with the staff to get it done (Rogers). Vendors help further both Raytheon's and Mony Group's CIOs' visions of how their IT departments can best support their companies' goals. They realize that success demands both a vision of where outsourcing can take them and a well-tuned vehicle that will carry them there.

If you have thoughts about this kind of leadership dialectic or new models for managing outsourcing relationships, write us at letters@cio.com.

MYTHIC VS. OPERATIONAL

What kind of leader are you? Take this test to find out 1. You're stuck in an airport, waiting for your delayed flight to start boarding. Do you a. Stick your nose in the most recent issue of Data Warehouse Digest--free time at last! b. Check the status of the latest performance results and finish up a performance review. c. Log an epiphany in your Palm Pilot about creating new relationships with other like-minded executives from competing companies.

2. You could be best described as a. A clock. Here at 8 a.m., gone by 6 p.m. b. A queen bee. You keep those workers humming. c. A hawk. Strong, with one eye on the clouds and the other on the ground, searching for any mice in your vicinity.

3. How many times this past year have employees run crying from your office? a. I don't know. b. Once a month. Hey, we have standards, and it's my job to make sure we meet them. c. Never. They come out of my office energized and inspired.

4. How do you want to be remembered? a. I delivered on all my commitments. b. I left behind an institution that survives me. c. People will look back on your tenure and say, "Man, that was a turning point." 5. What kind of relationship do you have with peers and subordinates? a. I'm always misunderstood. b. I'm regarded as a solid citizen. c. They love me to death.

6. The title that best defines you is a. God b. God c. God If you responded with mostly A's, you're probably a data-processing manager in CIO's clothing. Better keep on eye on technology and the business and consider your role as change agent for your company.

If you responded with B's, you're an organizational leader--not that there's anything wrong with that. Try shaking the leaves on your tree. Feels good, doesn't it? If you're C, you know you are the mythic leader. You need only a chariot and some lightning bolts. Just remember: The organization is bigger than you.

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