University of Tennessee researcher Kate Vitasek offers an in-depth look at how shortsighted cost-cutting and nine other behaviors can hurt companies in her new book, “Vested Outsourcing,” which was published earlier this month by Palgrave Macmillan.

For her study, Vitasek looked at outsourcing deals and identified the most common mistakes companies make when contracting. Among them: Micromanaging, lack of formal governance, metrics obsession, and, of course, cost-cutting as a quick-fix measure.

Cost-cutting, Vitasek writes, is the easiest to identify. Companies desperate to trim the bottom line take the cheapest offer. The result is a tradeoff in quality, service or both.

For more about the study, visit Vitasek’s blog, which features a wealth of articles. It makes for great snow day reading. And for previous posts published on this blog about the subject, see the following: Wasting Money is Bad for the Bottom Line, When Mistakes add up to Millions, and The Real Cost of Offshore Outsourcing.♦

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IT will gain a new nickname, the “No-Help Desk.” Employee morale will suffer.

That’s great news for the Indian workforce, but bad for U.S. companies. While the short-term cost savings from offshore outsourcing may appear to make it an attractive solution, here’s what all-in-one outfits like Wipro and others will deliver in the long-term:

• Poor customer service: The “help desk” becomes a place where, instead of help, your customers — er, employees — get only frustration. That equals longer hold times, increased abandonment rates, and more.
• Degradation of the help desk reputation: IT will gain a new nickname, the “No-Help Desk.” Employee morale will suffer.
• Increased shadow and underground support: Instead of waiting on hold for a half-hour or more, your employees will search self-serve help outlets, which are proven time-wasters, or they will ask the office software “expert,” and end up wasting the time of two workers. The lost productivity costs with this one are staggering.

Back in May, I wrote a rant on this subject that deserves repeating:

It’s surprising that so many CIOs continue to enter into contracts with offshore outsourcers, despite evidence that shows the cost savings are often nonexistent.

At this company (PC Helps), one of the most common questions customers ask our consultants is “Where are you located?” When our techs tell them we’re in the Philly suburbs, the consistent reaction is surprise, then delight — perhaps because the callers sense that maybe, just maybe, their issue will be solved today, and not after two hours of holding, spelling their name, rebooting, getting transferred, explaining their issue, holding again, explaining their issue again, and so on.

Choosing an offshore outsourcing partner for cost savings is short-sighted. It’s like opting to buy a Hummer instead of a Prius because the dealer slashed the sticker price; sure, it’s cheaper up front, but the fuel, maintenance and environmental costs are much higher with a Hummer over the life of the contract.

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Training and support transform smart phones from “fun toys” into powerful business tools.

The most recent is a witty report published by TechRepublic, titled “IT Budgets: How to waste money.” The nine-page report offers 10 tips on effective money-wasting, including doling out too much money on energy, unnecessarily purchasing new hardware, and spending too much on travel.

All of the tips are worth a look, but here are a few we’d like to amend/elaborate upon:

Spend too much on mobile technology. Yes, spending too much on mobile technology is a waste of money – when you don’t show your employees how to get the most out of it. Training and support transform smart phones from “fun toys” into powerful business tools. Write that down.

Hire full-time employees when contractors would be more cost-effective. We’re taking liberty and renaming this suggestion: It should read “Hire full-time employees when outsourcing would be more effective.” We know outsourcing is a sore spot for many workers, but consider the following scenario: Your company is migrating to Office 2007, and you are expecting a deluge of calls to the help desk, thanks to the radically changed interface of the new version. Do you hire new IT staffers and train them on Office 2007 or do you find an outsourcer/migration partner to do it?

First, consider the cost of hiring new employees, plus benefits, training and overtime. Secondly, can you afford to hire enough Office 2007 experts to cover a company-wide migration? And what will you do once the migration is complete and call volume diminishes? Fire them? A migration partner has trained experts, who are there when you need them, even after-hours. Best of all, you won’t have to do any icky firing.

Make unnecessary upgrades. The upgrade itself isn’t the problem; it’s what your company does or doesn’t do with it that can create waste. If you simply upgrade without offering complementary training, then, yes, it’s waste. If you show your employees how to harness the new software’s power with training and support, well that’s just plain smart. (Jen Darr)

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Throw social networking and other electronic communications like e-mail and instant messaging into the mix, and productivity becomes a greater challenge for employees.

In particular, the study found that those who IMed frequently with their bosses were more productive than those who didn’t.

Well, that’s what conventional wisdom says.

MIT and IBM present a different case. In a study published in April, researchers at the two institutions found that instant messaging and other forms of constant communication actually increase employees’ productivity levels. Another win for Chatty Cathy. (For Win 1, see the post “Facebook Addicts + YouTubers = Sharper Employees?“)

According to an article by Jacqui Cheng of Ars Technica, the researchers analyzed the e-mail traffic, buddy lists and social networking friends of 2,600 IBM consultants over 12 months. They compared the consultants’ communication patterns against their performance in billable hours. Those who maintained constant communications averaged an increase in revenue of $588 per month over the average, while those who did not produced $98 per month less than the average.

In particular, the study found that those who IMed frequently with their bosses were more productive than those who didn’t.

The debate will no doubt continue, but this study’s implications highlight the importance of keeping an open mind. For example, when our productivity advisers engage IT leaders in conversations about the pain points or support gaps within their companies, we rarely hear about a strong need for mobile device support.

When asked where their customers go for this type of support, common responses are “they support themselves,” or “call volume is too low, therefore not worth our money to seek an outsourcer or train our staff on this type of support.”

And therein lies the dilemma. Recent studies prove that using tools like IM and mobile devices (or any application or tool that provides instant access to work) are effective and increase productivity, but IT leaders don’t believe that investing in support for these tools makes sense or is worth it.

Perhaps we can take MIT and IBM’s study a step further and ask how many of these end-users consider themselves advanced users. Imagine the productivity gains if they all were. What would those dollars look like? Tell us your thoughts on the gains or losses of supporting mobile devices. (Jen Darr)

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The study asked 1,400 CFOs which issues would take top priority in the coming year. Thirty percent said increasing productivity, while 20 percent saw boosting profitability as a priority.

After sacking their beloved cubiclemates, you may need to reassure the surviving employees that you believe in them.

It’s no surprise, considering the global economic condition, one that’s been punctuated by layoffs, hiring freezes and other cost-cutting measures. Companies must do the same amount of work with smaller headcounts. Among the employees who are left, morale is suffering.

Here are your options if you want to meet your goals of profitability and productivity gains:

1. Overload the current crew, and white-knuckle it till the economy rebounds.
2. Hire temp workers to save on overhead.
3. Hire an outsourcer to pick up the slack.

In the case of Number 1, it’s obvious. Morale is already low. Doling out more work will be akin to shooting yourself in both feet.

For the second choice, it may appear to be an attractive option, but consider this: Temps working the help desk are generalists, who probably will not be able to help out callers with macro questions. What’s more, temp-staffed help desks clock an average hold time of 15 minutes and an abandonment rate of more than 10 percent. What effect will that have on morale?

Number 3, outsourcing software support to a best-of-breed, is sometimes deemed “excessive” or “unnecessary.” But it’s the most profitable choice over time.

For example, instructing your employees to get more done with less help is unreasonable. Pay-as-you-need assistance is realistic. And, after sacking their beloved cubiclemates, you may need to reassure the surviving employees that you still believe in them.

Adding headcount isn’t a possibility at the moment, but freeing up the time of existing IT staff is the next best thing.

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What, or whom, to cut is never easy, especially when the software for the upcoming migration has already been purchased. It’s easier to drop services than it is to lay off employees; services don’t have a face or a family. Realistically, however, opting to bring in outsourcers in cash-strapped times or during a software migration provides greater ROI. The difference is substantial. Here’s a comparison:

It’s easier to drop services than it is to lay off employees; services don’t have a face or a family.

Certification level:

• Chances are that if you opt to add full-time employees to your help desk to handle the migration, they will be generalists. For after-hours or 24-7 coverage, they will be no more than junior level employees or administrative staff.
• Adding PC Helps gives you access to certified computer consultants, 24-7.

Advanced support and number of applications supported:

• For advanced support, like working with macros and application development issues, you will have none if you hire full-timers for a migration, and your staff will only be able to support 12 applications on average.
• PC Helps has plenty of developers to go around, and we support more than 166 applications.

Cost model:

• With full-time employees, you will be paying them a fixed rate, plus benefits and overhead. That amounts to about $65,000 annually on average.
• With PC Helps, you pay only for time spent on solutions or actual use.

Response time, abandonment rate and peak hold time:

• With full-timers, the average response time varies, the abandonment rate is 5 percent, and the peak hold time during a migration is nine minutes. Doesn’t sound that bad until you consider the alternative…
• … which is a two-ring response, an abandonment rate of less than .01 percent, and no hold time, even during a migration.

Resolution time and cost:

• With full-time employees, calls take an average of 30 minutes to resolve, and cost roughly $89 per solution.
• With PC Helps or similar best-of-breed support, the average call takes six minutes to resolve and costs less than $25 per solution.

Next post: A side-by-side comparison of temp workers versus best-of-breeds.

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Ripples from the conference traveled to industry publications, blogs and Twitter, with writers offering their take on the future of outsourcing. Here’s a rundown:

Outsourcing has become a dirty word because service level agreements have been ignored.

Lesson No. 1: Flexibility is the new black.
SearchCIO editor Rachel Lebeaux reported that the watchword of the symposium was “flexibility.” It’s a great trait to have, no matter what industry or economic climate. Here’s what a focus on flexibility could mean for outsourcing:

• Subscription-based models over flat-rate deals:  Pay for what you use. This model makes sense given the fluctuating nature of the business cycle.
• Trial periods instead of lengthy contracts: Satyam and terrorist attacks left CIOs with a bad taste in their mouths regarding outsourcing. Trial periods afford both you and the outsourcer some wiggle room.
• Per-project deals (like migrations) in place of blanket IT support:  Perhaps you’ve committed to a software migration, but are not sure how to approach it. Rather than signing a contract for comprehensive IT support services, which could prove messy and inadequate during a stressful switchover, try a migration plan, which addresses the issue at hand. Your migration will be covered, and so will your investment. If it works out, you can ink another deal for broader, post-migration support.

Lesson No. 2: Costs aren’t the only consideration.
A handful of publications are writing about IT outsourcing costs this week, including CIO and The Wall Street Journal. Some say prices are falling; others say the opposite. What most agree on, however, is that quality is an essential part of the contract package. Outsourcing has become a dirty word, partly because service level agreements are ignored. You cannot take the cheaper deal and expect the same quality.

Lesson No. 3: Don’t try to boil an ocean.
This metaphor was mentioned in a CIO piece about how IT leaders can learn from their failures. Though the piece was not a reaction to the symposium (it was published before the event occurred), one of its main arguments is a timeless truism*, so it rightly deserves a place here. After years of trying to squeeze ROI out of all-in-one, long-term deals, companies may be opting for smaller, a la carte outsourcing contracts. It’s the difference between trying to boil the ocean and heating up the kettle. It makes sense, too. Smaller contracts are easier to control, and offer opportunities for setting performance-based goals. (Jen Darr)

*According to FastCompany and other sources, when a reporter asked Will Rogers what should be done about U-boats during World War I, he responded, “Boil the ocean.”

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I understand we’re in a recession, and the pressure for you to prune your budget is great, but how on Earth do you expect to get the same quality IT outsourcing for less money? I didn’t major in business, but I do know that in a capitalist society, nothing is free. Didn’t they teach you that in economics 101?

Here’s the thing: Trying to save a dollar here and a Euro there during a recession is shortsighted, sir. You need to think long-term. To try to envision the copious ROI that will come your way. I think it was my grandma who said “You reap what you sow” – although someone may have said it before her.

If you put on your MBA cap, you will see that skimping on your IT support will cost you in the end.

If you put on your MBA cap, you will see that skimping on your IT support will cost you in the end. Your employees will call for help only when their monitors are on fire, or when they forget their password for the fifth time in a month. That’s hardly big-picture thinking.

They will not call when they need help with an Excel pivot table; maybe they’ll fudge it, and perhaps get a figure incorrect, throwing off the numbers for the project they are working on. That could cost you dearly, Mr. CIO. But I suppose what you don’t know won’t hurt you, or, what you can’t see doesn’t exist. My grandma didn’t tell me that. That may have been Dr. Phil.

So anyway, when it comes time for another whopping project, maybe an Access database to be used by an entire department, the pivot table employee will wing it again, and he might bring in the help of a colleague, who knows a wee bit more about Access. The two of them will tinker around with their pet database, and maybe they will get it 98 percent correct. Close enough, right? No, sir. That 2 percent will come back to haunt you.

If you didn’t skimp on IT services, your employees could have called a database expert for help. Although on the surface it may seem more expensive (if you don’t see the demand, does that mean it’s not there?), it’s actually saving you boatloads of grief, and money, over time.

What’s more, that expert will not only fix a misbehaving database, he will also show your employees how to approach database design the proper way. His company will then furnish you with a report that details call complexity for all employees, which can help you identify future training needs. That’s awful nice of him and his employer.

You have the right to try to squeeze the same services out of a provider for less money. That’s why they made you CIO. But don’t say I didn’t tell you so when you are staring at the numbers, waiting in vain for ROI to show up.

Sincerely,
Jen Darr

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“Without PC Helps, it would be like having no air to breathe.”

Sheesh. I think we’re good, but that description of what our consultant accomplished may be a smidge extreme.

What inspires such over-the-top praise? Is it that our techs are software ninjas, or that outsourcers don’t meet service level agreements in general, and, when a help desk treats a customer like a customer, it’s shocking?

I’d say it’s the latter (okay, maybe a combination of the two).

If IT transformation is the entree, then improving service is the parsley sprinkled along the edges for aesthetics — thrown on just because it’s supposed to be there.

Despite the fact that most CIOs agree that strong service levels are vital to a successful outsourcing partnership, few pay attention to them. If IT transformation is the entree, then improving service is the parsley sprinkled along the edges for aesthetics — thrown on just because it’s supposed to be there.

In a recent CIO.com article, Ron Kifer, CIO of Applied Materials, explains how he cut IT costs successfully during an economic downturn. The article states that Applied Materials “maintained high service-level agreements,” but doesn’t divulge the method of measuring.

That’s because many companies have no method. (I cannot speak for Applied Materials, which may indeed have a method in place.) For those that keep their help desk in-house, stats are scarce. IT leaders often cannot even offer a breakdown of call type. Among companies who contract their help desk to outside firms, few require quality assurance surveys as part of the service level agreement.

In PC Helps’ experience, firms that say service is important are commonplace; those that actually measure it and make it a priority are not. The result is a poor overall image of the help desk, and jaded customers who are surprised when service is more than substandard.

What does that say about the customer’s value, not to mention the actual level of cost savings?

PC Helps has an answer to the cost question. Based on data collected for more than 15 years, we can report that, without average to above-average service levels, customers seek IT support elsewhere (for example, from their colleagues), or, even worse, they devise imperfect and time-sapping workarounds.

Both result in lower productivity levels, more underground support and increased customer downtime.

The productivity impact of these “underground” support channels averages three hours per solution at a cost of $48 to $196 per solution (depending on salary). This doesn’t even account for the additional cost of the peer’s time (the colleague in the example above). For comparison, the average solution with a best-of-breeds software application support provider is less than $25. Best-of-breeds throw in stats, too.

If a CIO cannot identify the IT department’s true costs, how can he make his department more efficient? You tell me. (Jen Darr)

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We particularly liked this line: “[PC Helps] focuses on personal, rather than rote step-by-step, delivery of its services, and doesn’t send customers up various tiers. It has carved out a place for itself.”

Thanks, Computerworld!

Click here to read the article on Computerworld.com.

Click here for Patrick Thibodeau’s blog.

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