EXCERPTS OF THE DISCUSSION FOLLOW:
Lerry Sangalang: We are in the restaurant business. Considering that we are not an IT company, we don't maintain a lot of people who manage or maintain our applications. We know our limitations in implementing bigger systems, or in making sure that we have new technologies for our company. Therefore, most of the time, we outsource several applications.
Earl Ferrer: We actually use outsourcing for a lot of functions in the company. Right now, we are outsourcing the major development of one of our systems, since doing it internally would require more people as well as extending the duration of the project. By getting an outsourcing company to develop it for us, we basically trim down the schedule by more than half, plus we get somebody to support it even if we don't have enough people to maintain it. We have also outsourced various areas and expertise in the company which we don't have, such as fine tuning our databases, which we only do once a year. We've also done the same for network, database, and our other systems. Where it makes sense, we tend to outsource. Currently, we are looking for an outsourcing company for our e-mail system, but it's been a challenge for us. We are a global company, so there will be restrictions in some countries regarding where we put our data. We have been looking for the right partner for more than a year now.
Mike Dela Cruz: Currently, we outsource the management of our AS/400 systems. Apart
from that, we also outsource the software development and maintenance of one of our applications, our track and trace system, and we are looking forward to outsourcing other IT functions as well.
Dustin Andaya: In our case, with regards to IT, we outsource almost everything. I have a two person IT team, which is basically there for maintenance, and everything else is outsourced:
our e-mail, our website development, among others. Even if it's not IT-related, we outsource it.
Teddy Trinidad: For Blue Cross, we've outsourced our e-mail system and our web development. If the IT team does not have the skills to do it, we outsource. In my previous company, a health insurance company, when we set up the health system, we spent a lot in developing our hospital network, linking all the hospitals so that we can service our clients there. But when I joined Blue Cross, I found out that there's a service company who already has the setup in different hospitals around the Philippines. That would cost us far less than investing on developing and maintaining the service ourselves.
Ferrer: I'd like to say it depends on how the purpose outsourcing. For the standardized functions like e-mail and helpdesk, you should be able to outsource it to save cost, because it's a given anywhere. The problem that we've seen, so far,in terms of e-mail outsourcing, is that providers can't handle a big volume of users. What outsourcing companies suggest is that they would buy a server exclusive for us, which would make it really expensive. But the concept of outsourcing, basically, is that you have a big server where you pool all the users. For ROI in outsourcing, basically you get intangible values for that. You get fast turnaround, or high level of service quality. It's been a good experience for us so far. Having the outsourcing companies there mean support can easily be requested. If we are to do those things ourselves, they are never going to happen.
Sangalang: Outsourcing can get very expensive. An ERP implementation will cost you around 4 to 7 million pesos in six months, but if you will build a team from the ground up, it will take you six months doing that alone. The time is wasted. Given the right cost-benefit analysis, we can say that outsourcing is
very expensive but sometimes we really have to get the services of a provider.
Trinidad: Outsourcing is beneficial if you are under limited manpower and limited time to implement, especially if your team doesn't have the skills to do the project. When I joined the company, our main system was an old one, but the new CEO sent a directive to implement a regional application system for
the region, and it took us only half the time to implement it. If we were to do it ourselves, we have to gather the different IT teams from different areas and countries, but what happened was it was done by one team, an outsourced partner. We saved on time and resources because of that.
Andaya: In our case, it's easier for us because we are small. We just thought of the things that we know how to do, and everything else, we outsourced. IT is not something that we are very strong at. It's not something that we want to go into. I guess in a smaller company like us, we don't have to spend on capital outlay only to find out that we cannot handle racks upon racks of servers. There are a lot of companies similar to us, and they choose to keep their servers inside, and they end up becoming an IT firm instead of something which they are good at. If you talk to online retailers here, they know more about maintaining servers than actually selling or making something. We don't want to get caught up with that. I don't even know what my server looks like, because all we keep there are customer service data. But the thing is, when I call my outsourcing provider, it's like I have an IT department of my own. When I call them and there's a problem, they say they will take care of it, and I receive an e-mail with a trouble ticket right away. It's like having a whole IT department when you actually don't.
Dela Cruz: In our case, ROI for us is basically to ensure that the IT operations and the systems--the AS/400 box and the applications on top of it--are running 24/7. The management is very much aware that developing internal resources will be very expensive, if not risky. At the moment, we do not see a revenue ROI, but basically outsourcing ensures we have 24/7 operations.
Ferrer: The cloud is something we are looking at. In fact, we've checked the major vendors who can actually deliver e-mail on the cloud. But, quite surprisingly, there is no vendor right now who can do that with the regular functionalities like calendaring, contact management, and the like. We've actually
talked to two of the biggest telcos here, and they can't offer the cloud if your BlackBerry is running on either one of their networks, because they cannot support the other one. The problem with Google
is you'll really have a hard time running it as a true blue office system, wherein your secretary can manage your calendar and contacts, as you manage it yourself. Also, the applications that Google has are not as friendly as those which Microsoft offers.
Andaya: My provider wanted me to transfer to a dedicated server. I asked them, "Why would I spend a certain amount when I can stay in your shared server for half the price?" They told me that they are the
specialists in my software, and when it comes to peak periods, they guaranteed that the site will be back up in five minutes if it goes down. So, I decided to just get the whole thing. It's underutilized, though, because it has a big capacity.
Sangalang: For me, I have several ways of justifying the costs. Sometimes I go beyond the normal level, I argue about the value that I'll be giving the company, and say that we really need to have these systems considering the value and efficiencies it can deliver to the company. You cannot really measure ROI,
but when it comes to necessary equipments, like the walk-in chillers for restaurants, it costs more than a million but if you're in the restaurant business, you really have to have that.
Ferrer: For me, there are two ways of justifying it. One is the scare tactic, where I tell my boss, "Sir, what do we do when the system goes down?" On the other hand, as what Mr. Sangalang mentioned, we make IT an integral part of the operations, so that we know how to justify. Mr. Sangalang mentioned
about the chiller in Max's. There is no way they will not have that maintained, so if you get your system to be an integral part of your operations like that, there's no question about the cost.
Andaya: The problem with some providers is that they don't answer when you call. When your Internet goes down, you call, but they don't answer. What we have to do is we had to get two providers for our office in Makati and in Alabang, as well as for our farm, so it becomes even more expensive. But in IT outsourcing, it's not like you can have two suppliers just like with ISPs, and you just switch over to the other side when one goes down.
Ferrer: It depends on what area you are talking about. If you are talking about the standardized functionalities like e-mail and helpdesk, efficiency should be very high because it's basic. But the problem with that is nobody recognizes it, because it's a given. They only realize you are doing something when something goes wrong. We do measure it but it's not something we brag about, because it's already a given, it should be happening. For getting the efficiency on areas where expertise is need, getting the data from the past and the present will help you measure the present conditions against historical data. One problem with SLAs is the commitment on meeting efficiency. Usually, if they don't meet it, they pay an amount. Although, we all hope that they just meet it, because the amount of money they pay back is only one-tenth of the original cost, which is practically nothing. Efficiency is a major issue, because if they are not efficient, there is actually nothing to gain.
Ferrer: In most cases, people start looking at outsourcing as a solution to specific areas. But the way we do it is having a concerted effort, a real plan to move into outsourcing. That's where it really makes sense, because you get your people prepared for the scenario. We started that almost two years ago, which was when I joined the company. And the first step was to have a three-year plan to take out the development function, and get the developers to start implementing projects. If you actually look at it, it's going to be hard to start outsourcing your development if it's just on a permit basis, because you would still have your people replaced. They will not have anything to do, and so there will be some resistance because that is their job you are sub-contracting. So the first step of outsourcing is to have a concrete plan on what to outsource and what to do with your people. Now, selecting vendors is not as hard anymore, because of e-mail. You just have to send a message to your colleagues, asking them who the expert on a certain area is, and you would actually get replies for that. So, it's not a matter of price anymore, it's experiences with other people. To be able to network with your peers, that's the best way to really select the best vendor, and sometimes, even the best price.
Dela Cruz: Apart from that, another effective way would be to look for examples of their implementations. Basically, you go for a provider that is already known in the industry and has been there for the longest time. But then again, those are not foolproof qualifications. To me, sometimes, it could be gut feel that when I speak with the vendors, you somehow see the technical expertise. If your questions were not answered fully by the big vendor, and then you talk to a smaller provider which answers most of your requirements, then you would most likely go for the latter. It's a balancing act when it comes to selecting providers. There is no correct formula, but to me the bottom line would be the gut feel.
Trinidad: For us, we look at the clients of that particular vendor and see how big they are, and what kind of institutions they are handling. Our company has been in the Philippines for quite some time now, and I think there's no other provider who can provide that kind of service, because most of our
competitors are also using the same network.
Sangalang: We also want to outsource the preventive maintenance of our branches, so I also need to check the facilities that the vendors have. We check if they have SLAs for hours of downtime, if they will replace it. I have to validate that part to make sure, because maintenance is very expensive.
Sangalang: At my previous job, we hold a weekly meeting to discuss if there a need for a bit of fine-tuning because of the SLA or the penalty clause. We also lay down clear expectations and communications, like, for example, when doing POS, there are two sides--the software side and the hardware side, so we have to manage both suppliers.
Ferrer: Management depends on which product you are talking about. If it's a supportside product, we should be able to get reports from them either weekly or on a good period of frequency, and that will manage itself as long as there's a good reporting system on their routine activities. I think that's the concept of outsourcing, we don't want it to be a burden to us. So, even with telcos, we do a weekly report to find out how healthy everything is, and then we have it structured in such a way that those that require focus would be more noticeable than the normal, so you could just go to your table, pick up the report, and then if there's nothing urgent, you can forget about it. On that note, we have to be able to define the reports, because those are your only eyes and ears on the service. You have to know how the reports were constructed, what formula they used in driving those reports. For the other projects like development, you'd have to manage by milestone, and by the people in place. It's a bit harder because you get people to work temporarily for you, so you have to manage them on your own. We have four to five contracts with different companies now. Four of them are running smoothly, but one of them is our biggest problem right now. We had to issue a 30-day notice rescinding the contract unless they are able to rectify their mistakes. We always give them that because for one, it's a partnership. To restart is more costly.
Andaya: I'm fortunate because we are much smaller, so we can move quickly. Our requirements are not that big, and they don't require people coming to our office. Basically, we just monitor the downtime and uptime of our systems, and then maybe corrupted databases here and there. Basically, all these things can be settled by a company. If the user interface for the reports is okay with me, then that's fine. All I look at is responsiveness, that if I e-mail them will they e-mail me back immediately, and what kind of reports they can give. I'm happy with my provider right now, because when you log in to their admin panel, everything is there. I think it's overkill even.
Dela Cruz: For the servers, basically, we measure them by the turnaround time. So for the AS/400 boxes, which seldom go down, in our case, if it goes down, we make sure that when we report them, we follow the SLA. We give them two hours after they've received the call to send their personnel. For the application, it's being managed and maintained by a third party in Denmark. So our concern there is the time zone. We send them an e-mail and we expect the answer the next day. Fortunately, the problems we've encountered in that system is more on our side, and not on our customers' side. What's good about foreign providers is that they give you details of your project.
Ferrer: We normally outsource because providers do it better and manage things better.
Andaya: In the US, if you call a helpdesk, when they pull your account, they know the product and the problem right away. Here, you have to look for the specific person handling your account. If he's absent, then you have no choice but to wait for him. In the States, you can never encounter that. If the person is not there and they can do it themselves, they will. No problems.
Sangalang: You really have to demand quality from your supplier, because these are your IT projects. If one department fails, you fail as well. You should be three steps ahead. If you do not demand, then that will be your showstopper later on, because sooner or later, there will be problems that will arise in the future.
Trinidad: Sometimes problems are simple definitions of your requirements. You give your requirements through documentation, but when they interpret it, they read it differently.
Sangalang: Sometimes, there are suppliers that let us talk to their programmers. We are not supposed to talk to them, but to the project head instead, because I'm talking about business sense and they are talking about the technicalities.
Ferrer: Our billing database has been hanging and operating slowly lately, so we got a Microsoft-
certified company to check everything and tell as which is the problematic part--is it the application, the network, or the server? The improvement was around 30 to 40%, and of course, it cost us money. But that's okay, because everybody is getting this hanging problem with the network and honestly, nobody was able to fix it, they would just reset the switch but not solve the problem. To finally end everything, we hired two good people to fix it and honestly, it was expensive, but it was our billing system we're talking about here. Apparently, the fix gave improvements not only on our billing system, but on the whole company as well. We also outsource the preventive maintenance of our AS/400 servers and SAP applications. There's a big system that we would like to change next year, but as early as now, we are trying to identify three companies who can come in and tell us which way to go. We did that because they know where to go, because they would know better. With vendors, they always tell you all these flowery stuff. But when you have another person doing it for you, you have a very unbiased look on the project. We pretty much outsource a lot of items on our list, and it does help when the company is able to allocate the resources. They have the confidence that you are doing the right thing, because otherwise, they'll just treat it as an additional cost, and they will always ask you why you can't do it yourself.
Sangalanga: We outsourced our business intelligence system for handling the sales of all our branches. We are also planning on a maintenance program for the point-of-sale system down to the branch level.
It's a choice between maintaining people for supporting the projects, along with keeping several IT equipments, versus outsourcing everything. We are still doing some computations and documentation.
Dela Cruz: In our case, majority of the IT services are still being done in-house. That is one of the challenges I have now. We'd like to outsource our technical support team, but it's very much dependent on management approval. But it's definitely on the pipeline. Second would be our data center. This one, our management is very much leaning towards doing. Our office is in Paranaque, near the airport, so it's not very stable near the airport. There could be an effect when an airplane hovers around the area.
Management is very much aware of that, that is why they are very keen in outsourcing or relocating our data center to a third party. Next, we would like to outsource our telephony or PABX systems. I believe the current system we have now is old, but it's still up and running. The fourth would be to outsource our e-mail systems. Right now it is being supported by in-house personnel, and the problem is, when it goes down, we have to search for a solution elsewhere. So we started looking for thirdparty providers. They are very expensive, but we see the importance of getting their services to ensure that our e-mail system will run 24/7, especially now that the company is expanding to other countries. Since we are taking that direction, it's really practical to outsource our data center, to ensure continuous operations. As much as possible, if we see the need for outsourcing, as it would answer our requirement of continuous operations, personally, I would consider outsourcing almost every aspect of IT. That way, the internal IT staff would be more focused on planning, strategizing, and improving our systems, rather than being involved in day-today operations.
Trinidad: For Blue Cross, we've outsourced our main system and our financial system. It is not even locally produced, it was made by someone else. The difficulty there lies in the link between our office and that area, so we had to commission a telco to provide that service. We've outsourced our email system and our hospital network as well. I agree with Mr. Ferrer that you have to have a plan if you are willing to outsource, because it has to gain approval from your management. There are cases where outsourcing is more costly at the beginning, but in the long run, it will be cheaper, especially in manpower services. It's really hard, for example, to get a good developer nowadays that the company can afford.
Sangalang: Like what I mentioned earlier, our company direction mandates us to prepare a number of projects for three years, but we have limited resources. We want to implement a major enterprise project in less than two years, what do we do? You really have to outsource. I'm happy we made that bold decision to outsource, because if not, I'm sure I'm still implementing the projects until now. I may also still have problems with my staff, especially in managing the skills that they have. Outsourcing has a contract, has an SLA, has expectations and targets set. It has really been significant for our organization.
Ferrer: For a lot of outsourcing that we've done for maintenance and operations, management is more satisfied than happy. Sure, my boss won't thank me if I keep the e-mail systems up, in the same way that I'm not going to send flowers to our provider for keeping our outsourced tasks running. But there are some areas like, for example, we hired someone to go to each user and executive and try to get their ideas, transform them into something physical. During the plenary session, these consultants tried to share their best practices and the executives looked at me, saying, "Yes, that is where we want to go." There's no way I can bring that knowledge to them if I do it myself. But after that, my executives suddenly learned to trust me. That value of outsourcing really makes me happy, because I utilize somebody else's knowledge. I mentioned the billing system earlier, where I got a network and a software guy to fix it. Everybody was happy then, and in fact, our system even improved because we bought the skills--not the time, not the manpower, but the expertise. And that makes me happy.
Dela Cruz: I believe that is the expectation of the management from their CIOs, and they are very much aware that if we outsource services, we outsourced the technical expertise and know-how. In my case, in the past years, outsourcing made me happy because it makes life easier for us, especially for the technical support group. Just as well, we learn from these providers. Outsourcing those projects I have in the pipeline is something that I have to check if I will be happy in the long run.
Trinidad: If the outsourcing provider is doing the right thing, and doing his job right, then it gives you peace of mind that something won't go wrong, or would lead to any disaster. But if your provider is not a good one, then maybe it's time to look for another vendor. That's the benefit of outsourcing that I can see, especially when I don't have the manpower skill to deliver the kind of service that is needed. It makes the IT Manager's job easier.
Andaya: I'm happy with the idea of outsourcing. Sometimes, the provider doesn't give what he is supposed to provide, but the idea of outsourcing is something that I like. When it's good, it's really good. And when it's bad, it's still better than if I did things myself.