The Value of Experience

Experience counts, especially in a fast changing world

The Second Best Decision I Ever Made – Outsourced ERP

The second best decision I ever made was to outsource the infrastructure and “care and feeding” of our Oracle ERP suite to a niche Oracle services firm. We were able to move some non strategic services to an expert company allowing us to reduce costs and improve our responsiveness to the organization.

As a CIO, I was always interested in ways to be more effective and efficient in providing services to the organization. The outsourcing wave was already well established. At an ERP conference, a few years before, a colleague told me how he had successfully outsourced his ERP system during their implementation. So I was aware that it was a viable alternative.

Situation

Let me set the stage. I was brought into this mid-sized international manufacturing firm to shore up their IT department and to move them from the older green screen Oracle system to the newer version. This company had gone through a buyout scenario which resulted in an underfunded IT department that was barely surviving. The company had done everything to make the bottom line look good, and thus the IT department received little investment over the past few years.

Once the sell of the company was complete, the new management was ready to move forward. After guidance from an IT audit from one of the Big Four, I was brought in. One of my first task was to analyze and create a project plan to upgrade the ERP system. I began to research the requirements for the newer version. A colleague in Atlanta had just upgraded to the same newer environment. He had also outsourced his upgraded system. Now I had two successful and creditable references for the value and advantages of outsourcing.

The Tipping Point

As I began to learn more about the requirements of the upgraded system, I learned that the new environment would require a total new refresh of the infrastructure. It was obvious that we did not have the requisite skills in house to adequately accomplish a new infrastructure environment. I had some concerns about our internal DBA skills as well. Top quality DBA skills are essential to a successful upgrade. These facts, plus the success of  my colleagues, gave me the impetus to think seriously about outsourcing the needed expertise.

I not only wanted to outsource the new infrastructure, but also to contract for the “care and feeding” of the Oracle technology and applications. We would maintain end user and application support in house. We made the decision to look at a Managed Services contract including the requisite Service Level Agreements (SLAs).

Vendor Selection

Having done many software and hardware selections in my past, I leaned on this experience. However, I approached it a bit differently. Instead of developing a full fledged RFP, I used the vendors to help me scope my requirements based on the state-of-the-possible. Then, I took a hybrid approach to defining the requirements. First, I looked internally to define the requirements that were unique to our organization. I talked with other CIOs to learn how they managed their process and, again, I talked to the prospective vendors.

With the high level requirements defined, we submitted this to five or six vendors. We had a review session and initial proposal review from each vendor, passing their unique offerings through a decision matrix. This process lead us to two final vendors.

At this point, it is critical to see a prospective contract from the vendors. We uncovered a significant difference in scope of services being proposed. There is a limited amount of negotiation at this point, unless you have a facilitator.

Throughout the process, I kept the management team involved. This was to be a significant investment and a key change to the strategy of how the IT Group was serve the organization. I even had the top two vendors make their final presentation to the management team.

ROI and Cost Justification

In order to validate the efficacy of the option,  I developed a model to look at the different assumptions related to the proposed cost savings.  There were some real hard costs savings such as investment in equipment and reduction in personnel costs.  There were also some “soft” costs, such as more up-time, better response and the ability of our team to now work on more critical business issues instead of back end maintenance. 

In the worst case scenario, where the “soft” cost were marginalized, it was a wash. This made it difficult to develop a solid high ROI without including those soft costs.  However, the story was still very compelling and we made the decision to move ahead with the project. 

Benefits/Results
The soft benefits actually turned out to be huge. In essence, I was able to outsource the environment, upgrade the infrastructure, and increase my level of DBA expertise for little more than the cost one fully burdened DBA. Additional benefits were:
– A new, stable and to-spec infrastructure environment without the required capital outlay.
– A environment with the proper controls, redundancy, and back-up site. The outsourcing model takes advantage of economies of scale by spreading the cost of all of the security, redundant power and general infrastructural underpinnings across multiple clients. Our IT group Group could not afford all of these essential services on our own.
– Expert service in converting and upgrading to the newer version of Oracle.
– 24 / 7 support. This was very helpful with patch management as many of the processes could be run after hours by their support staff.
– Access to multiple DBAs.
– Managed services for the daily “care and feeding” of the Oracle instances
– Proper controlled process of moving changes from Test to QA to Production

The Second Best Decision
Now, you might be wondering why I said that this was the second best decision I ever made. Well, my wife is my editor so that should answer your question.

2 comments on “The Second Best Decision I Ever Made – Outsourced ERP

  1. Ashu
    March 28, 2012

    Great piece of education for all of us. Very practical way of making the build-vs-buy decision. It awesome to see how you looked at the TCO for the solution – cost to implement (hardware, software) as well as operating costs to maintain and support, risk involved, etc. I am sure your modeling the costs and benefits with ranges provided an objective way to make the decision. I was working with a client recently that took only the few categories of costs and ignored other investments. This hurt in the end.

  2. Paul C. Pinto
    May 31, 2012

    It’s great to see a personal expereince where outsourcing was successfully leveraged as a meaningful business tool, in a small-scale scenario. Most CIOs only consider outsourcing as being viable when there are large numbers involved, but, as you have shown, small and medium-sized engagements can benefit greatly, when outsourcing is approached in an intellegent manner. Your use of the vendors, to provide insight, was really clever.

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This entry was posted on March 25, 2012 by in CIO, Oracle, Outsourcing and tagged .

Hank Edwards

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