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|In: Industry Commentary|Last Updated:

Some words inspire terror. Their mere mention causes blood pressure to rise, mouths to dry, and beads of sweat to burst out, cold. Words like “vampire”. “Final exam.” “Orthodontist.”

Orthodontist isn’t the most terrifying word to start with “O” either. Far worse is the dreaded IT O-word — the one that’s spoken only in whispers, when the fluorescent lighting is bright enough to drive away the shadows so they cannot hear.

Outsourcing.

Its mere mention is enough to strike terror in the hearts of IT staff, conjuring images of layoffs for many and sweatshops for those who remain.

The reality, of course, isn’t usually that bad. Most employees don’t even change desks after their employers outsource IT. They may get a bit more money and a bit less vacation. More unsettling is the change in their relationship with their formerly fellow employees, who often treat their just-outsourced brethren with the same mixture of pity and disgust usually reserved for those with a particularly urgent need to consult a dermatologist — pity because they’ve been victimized, disgust because they are, after all, outside contractors.

Outsourcing is badly misunderstood at all levels. Executives outsource IT for the wrong reasons, IT employees dread it for the wrong reasons, and most significantly for you, IT management takes exactly the wrong steps to prevent it.

The usual reasons given for outsourcing a corporate function are that it’s either (a) not strategic and consequently not a “core competency”; or (b) less expensive to contract out than to handle in-house. Neither of these stands up to scrutiny.

The old saw about handling strategic functions internally and outsourcing the rest is easily debunked through a quick look at what should be the most strategic functions in any company — those that directly affect customer relationships. We’re talking here about sales, marketing, and customer service, the functions that have direct customer contact. Companies routinely outsource any or all of these — independent distributors frequently handle sales, more companies use ad agencies than handle all marketing functions internally, and there are plenty of call centers for hire that handle everything from outbound telemarketing to software technical support.

On the other hand, very few companies of any size outsource accounting, which rarely has any strategic importance (unlike finance, which does). Clearly, strategic-ness and outsourcing have no correlation, either positive or negative.

As for saving money, that’s also questionable. In favor of outsourcing is the reality than a large outsourcer enjoys economies of scale not available to relatively smaller clients, and can move employees with expensive skills that aren’t needed on a daily basis among multiple clients. But outsourcers need to turn a profit. They need to cover both corporate overhead and taxes and still have 15% or so left over besides. That’s a big hill to climb.

Further complicating the picture is that compared to the formal standards of operation adhered to by most outsourcers, many of the companies that find it attractive under-invest in IT quite badly. It’s hard to save money when you aren’t spending enough now, and even harder to explain the value of outsourcing when the first thing you need to do is to increase IT spending to make it work.

So unless corporate IT is managed quite badly, there’s only one way to save money by outsourcing, and that’s to reduce service.

No, not the overt services that are easy to identify and keep track of. They can’t be reduced because they’ll be spelled out in the formal contract. What’s lost are the minor services and untracked favors that lubricate the relationship between internal IT and the rest of the business. So where an end-user might have called a buddy in internal IT for advice or help with some troubleshooting, that same end-user will just have to do without once IT is outsourced, as all requests for service are funneled through the formal prioritization process specified in the outsourcing agreement.

Here’s an irony: Many CIOs, having read about the importance of well-defined processes and formal metrics, work hard to prevent exactly these kinds of favors. Here’s another: By implementing charge-backs and adopting the notion of “internal customers,” many CIOs work hard to make their organizations look just like an outside service provider, making outsourcing a very easy transition.

Why would they want to do that?

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|In: Industry Commentary|Last Updated:

The president of a rather large technology company recently told employees he wants them to be fungible, or so a correspondent reports.

This might actually means something, although probably not. The term “fungible,” meaning interchangeable, is generally restricted to non-sentient beings after all.

Company presidents often say things to employees that aren’t worth a lot of scrutiny. The interesting question isn’t fungibility. It’s why this president chose such odd locution. My guess: Because of the economic downturn he wanted to reassure the troops (a good idea) but didn’t have any real news or anything reassuring to say (that happens), so he chose to say something vague and hard to understand (bad thing).

Companies are dealing with downturns right now. Many have leaders who have never experienced anything except prosperity — some even believed we’d see nothing but growth for the next fifty years or so, and figured they’d never have to handle hard times.

But hard times are upon us, folks, at least by the standards of the last eight years or so. And hard times are when leadership is both most important and most conspicuously absent in most organizations.

It’s easy to be captain when the weather is sunny and the wind is at your back. All you have to do is to raise the sails and enjoy the ride. It’s when the wind shifts that it takes skill to reach your goals.

So what’s it going to take? The first, and most important step is to get through your personal mourning period quickly. Yes, your personal mourning period. The world has changed, and not for the better. You’ve lost the good times, and whether you realize it or not you’re probably grieving for your loss right now.

Remember that the first stage of grief is denial and you’ll understand a lot of the behavior you see, both in others and in yourself. Right now, many leaders are in denial about the need to change perspectives, goals, strategies, and priorities. Most of all, they’re in denial about the end of an era in which growth was pretty easy to achieve.

Once you’ve stopped grieving, the next step is pretty obvious: Your company needs a strategy suited to these new economic circumstances. That’s the CEO’s responsibility, of course, but CIOs and CTOs now have a seat at the planning table, so you’re in this up to your neck.

There just aren’t all that many strategies suited to a downturn. A business can: Batten down the hatches and ride things out; buy weakened competitors at bargain prices to acquire new customers cheaply; cut margins to aggressively acquire competitors’ customers; redefine its marketplace, emphasizing its core, highest-profit customers and new segments unaffected by the downturn; or find a buyer, which changes nothing, but the top executives get a golden parachute while the situation becomes someone else’s problem.

Sadly, most leadership teams simply react to events as they happen instead of formulating a clear strategy. If your company’s leadership team is one of them, your company has chosen a “batten down the hatches” strategy by default.

That’s okay, because your most important job is visibility, which means answering questions. Any strategy will equip you to answer them, so long as your company has one. Even hatch-battening.

Now, more than when times were good, you need to be visible. Why? Employees right now are worried — about their jobs, their departments, their projects, their friends. They need you to answer their questions, even if the answer is that you don’t know yet. It’s perfectly fine to say, “Right now, our strategy is to ride this out. I don’t know how it will affect your project yet. There are no guarantees right now because the situation changes month-to-month. What I need from you is to be flexible.”

Are you visible? If you’re meeting in closed rooms, involving only headquarters staff to make decisions that affect everyone in the field, you aren’t visible, nor are you wise — the information you need to make good decisions is in the field, not at headquarters.

If you announce your decisions from a podium and then leave, you aren’t visible either. You inspire confidence by chatting with employees individually, not with a barrier between you and them.

Leaders who aren’t visible — who make decisions in private, involving only their inner circle, and only communicating by emerging to give a speech — aren’t leading.

They’re hiding.

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