As Published In February 2007

ON DEMAND COMPUTING

Internal Strategy, Outsourced IT
By Ann C. Logue

Financial firms gain ROI through Oracle On Demand.

Businesses of all types get ahead by refining, testing, and experimenting with core competencies. Market-leading companies pursue innovation through robust information technology—but that doesn't mean they always handle the IT infrastructure themselves. Many companies form partnerships with their primary software vendor to provide software and software management services, saving the creativity of the in-house IT staff for developing resources that the operating units can apply for growth. According to Marc Schwarz, Oracle senior vice president for On Demand, "Increasingly, large enterprises are asking Oracle to assist them in increasing the value of their software assets by providing more business and industry insight. Having Oracle manage Oracle applications and technology offers compelling advantages nobody else can provide."

Cynthia Beath, professor emerita at the McCombs School of Business at the University of Texas at Austin, says that outsourcing can improve how the IT staff supports the operating business. "It lets them focus on IT use throughout the firm, and it requires lots of relationships within the firm," she says. If anything, it enhances the ability of IT to improve operations. "You can't outsource strategy or governance," she says.

The On Demand Advantage

Oracle On Demand is Oracle's fastest-growing business, supporting 1.7 million users working for some 2,200 global customers. For information-intensive financial services companies, Oracle On Demand provides an alternative to traditional outsourcing that lets the customer concentrate on the strategy while Oracle handles the infrastructure and applications management at one price per user per month. Customers have variable-cost access to Oracle's software, automatic upgrades, embassy-level security, and ongoing systems maintenance.

"One of the issues organizations have had in the past when they deploy technology is that they don't really know what it costs them," says Anthony Lye, senior vice president of CRM On Demand at Oracle. "On Demand helps them lock in the budget and avoid overruns. They can roll it out very rapidly so they can keep up with the speed of business," he adds, generating productivity gains from the start. Schwarz also notes, "We're in this business to help customers establish end-to-end business processes and industry-specific capabilities, to capture the business benefits of service-oriented architectures, to maximize the value of our customers' investments in Oracle software. We are changing the game, increasing customers' return on investment while lowering their total cost of ownership by making it easier for them to align their business transformation initiatives so that they achieve results faster, with less risk."

Equifax: Sowing Seeds for Growth

In the summer of 2005, Equifax, a global provider of data, analytics, and technology solutions, decided to invest in a sales force automation system for its Latin American businesses. They would have been happy with a single, regionally focused tool to replace its existing systems, but Tripp Partain, CIO of global corporate platforms for the Atlanta, Georgia-based company, was thinking about future applications. "I worked with our business leaders in Latin America to help tick up their valuation process, to make it more of an enterprise evaluation process," Partain says. He adds that Equifax started looking at Oracle's Siebel CRM On Demand for sales force automation in part because Oracle's solution could support Equifax for years.

As much as he wanted the system to grow with Equifax, Partain didn't want too much too soon. He was concerned that managers' requests for features could choke out the benefits of sales force automation. "It is a very robust tool set, but it doesn't have the kitchen sink in it so that it can be rapidly deployed, adopted quickly by users, and quickly leveraged," he says. "From an IT standpoint, that's a good thing. There's only so much creep that can occur. You understand what you're going to get, and that can make a project implementation more successful."

But at the same time, Oracle offered future flexibility. Should Equifax need a custom solution in the future, or if it eventually makes sense for the company to move the system in-house, the Siebel system can do that. "From an enterprise IT standpoint, I didn't want this to be a point solution," Partain says. "At some point, we're going to have a total, end-to-end CRM [customer relationship management] system. It won't be just sales force automation but also service and call center and contract administration with analytics around all of that data and the full customer 360-degree view. With Siebel CRM On Demand, the CRM solution was built and based on the exact same database structure and schema as the on-premise application from Siebel, so we have the ability to more easily convert," Partain says.

"It's positioned to take the next step whenever we're ready. That's No. 1," says Partain. "No. 2, Oracle is already working on hybrid solutions. You can have a blended environment where some pieces are still in the on-demand world, while some pieces are internal in your world. There are prebuilt Web services with the ability to export and import the data back and forth. From my standpoint, I was able to solve my immediate business problem and make a sound decision that will position us even better for the move we'll make two or three years from now."

In Latin America, the Siebel CRM On Demand system replaced a variety of sales-tracking tools. Some country offices used Siebel already; some used Lotus Notes or spreadsheet-based systems; and a few still had paper files. The regional business leader wanted to achieve a consistent collection of the data that would determine how Equifax would grow there.

"One of the benefits of outsourcing was speed, so of course we decided right out of the box to put that in test," Partain says. The goal: 500 users in 50 days. "We made the decision in the summer; by Labor Day, we were live in four countries with 500 users," he says. "Between Labor Day and February 2006, we completed the final two countries—the last intentionally going later because it was the one coming from an existing Siebel installation that had the most data for us to convert."

Oracle's On Demand Portfolio The Oracle On Demand portfolio includes managed applications, which offer virtually all of Oracle's products on demand; subscription applications; and software management services to focus all of Oracle's capabilities on giving customers what they need to get the most value from their investment. And all of these offerings are built on an unbreakable Oracle Technology stack, highly reliable hardware, and world-class facilities based in Austin, Texas. Subscription Applications Siebel CRM On Demand Siebel CRM Call Center On Demand Oracle iLearning Oracle Retail.com Managed Applications Oracle E-Business Suite On Demand Oracle On Demand for PeopleSoft Enterprise Oracle On Demand for Siebel CRM Oracle On Demand for JD Edwards EnterpriseOne Oracle On Demand for JD Edwards World Oracle Collaboration Suite On Demand Oracle Transportation Management Oracle Retail Price Optimization Management Services Oracle Consulting Services Oracle Advanced Customer Services Business process outsourcing

To save time, Equifax used the turnkey services provided by Siebel CRM On Demand. "The only extra thing we added, and paid for, was translation of all of their training materials into Spanish and Portuguese. We felt that the training would be key," Partain says.

With the system a proven success in Latin America, Equifax will soon migrate other regions. "We already have our team working to migrate our Spain and Portugal operations onto our existing Latin America implementation," Partain says.

The Warranty Group: Independence Through Outsourcing

The Warranty Group, based in Chicago, provides extended warranty programs offered by manufacturers, retailers, and distributors. Until November 2006, it was part of Aon, a consulting, insurance, and risk management firm; it is now owned by Onex Corporation, an investment company, and by senior management. A key part of the sale was figuring out what to do with the company's IT systems, which had been handled through Aon. As a holding company, Onex couldn't accommodate the needs of The Warranty Group's 2,150 employees in 20 countries. The sale was negotiated in August 2006 and closed on November 30. "We had to purchase the software licenses. We had to acquire consulting services, and then we needed hosting services as well," says Larry Miklusak, director of corporate systems at The Warranty Group. "Oracle provided all three services."

Miklusak's goal was to have Oracle's PeopleSoft Enterprise applications up and running on January 1, 2007. He missed the target by only a day, flipping the switch on January 2. "It's an outstanding accomplishment," says Miklusak. "The team from Oracle and the team from The Warranty Group all pulled together to make this happen. I had concerns from Day One on the timing and was constantly thinking of contingencies but didn't have to execute any of them. So I guess the biggest surprise was that there were no surprises."

One key to the transition, Miklusak thinks, was a detailed service-level agreement with Oracle. That gave his staff the assurance that problems would be taken care of within known time periods, making it easier for them to move on to projects to support the independent company's strategy.

"There was some training for these new employees to understand the process that Oracle On Demand requires to put in service requests and get the communication going effectively, but that was minimal," Miklusak says. "The Oracle On Demand process is pretty straightforward. I attribute a lot of that to the experience of the individuals involved and their communication skills in driving to resolution."

Genworth: State-of-the-Art Flexibility

Like The Warranty Group, Genworth Financial switched to Oracle On Demand during a transition to organizational independence. The company, once known as GE Financial, was spun out of General Electric in a May 2004 initial public offering. "We had a rare opportunity to decide whether we were going to build our Oracle Financial and Oracle HR infrastructure," says Quentin Davis, CIO for corporate business systems. "We're a global company. There isn't an hour of the day where there isn't someone somewhere in the world working on Oracle on behalf of Genworth. We needed an infrastructure capability and a solution that would support a global operation. We wanted to make sure that we had a solution we could live with for a long time, and we wanted to have flexibility in our cost structure and not take on a lot of fixed costs to provide this capability." Davis considered building an in-house infrastructure as well as several outsourcing providers, then settled on Oracle On Demand for the combination of global capabilities, deep knowledge of the applications that Genworth's staff already used, and flexible pricing.

Pre-IPO, GE owned the infrastructure and supported the company's IT needs. Davis felt that Genworth employees needed more control if the company was going to be independent, but he was leery about making too many resource commitments. "The infrastructure and software management is at Oracle On Demand, but as far as the responsibilities for supporting the platform, that's with my team," he says. "My team can focus on value-added work like project management and customer engagement." When occasional problems crop up, Davis doesn't have to pull people off a project to find a fix. "That's all in the hands of the team at Oracle On Demand," he says.

Snapshot Equifax www.equifax.com Annual revenue: US$1.6 billion Employees: 4,600 Oracle products and services: Oracle On Demand for Siebel CRM The Warranty Group www.thewarrantygroup.com Annual revenue: US$1.4 billion Employees: 2,150 Oracle products and services: Oracle On Demand for PeopleSoft Enterprise Genworth Financial www.genworth.com Annual revenue: US$10.5 billion Employees: 7,000 Oracle products and services: Oracle On Demand for Oracle HR and Oracle Financials

"The transition has been going on effectively since 2004," Davis says. "One of the things that I think surprised most of us, at both Genworth and Oracle On Demand, is the complexity. We knew there would be a lot of moving parts, but there were even more moving parts and more details than we had thought." Realizing how complex the situation was, Davis felt more comfortable with the decision to go with Oracle On Demand, and he formed a strong relationship with Michael Beck, Oracle On Demand's global operations leader. "Likewise, we required that our teams form strong working relationships, so we were able to work through problems and work together to get this done," Davis adds. "And so now, it's almost seamless."

"We really don't have the typical vendor-client relationship. It's very strategic, very long-term focused. It's very easy for us to exchange ideas and information and solve problems going forward," Davis says. He had weekly meetings with his Oracle counterpart to work through strategic and tactical problems. "That line of communication allowed us to quickly surface and resolve problems so that our teams weren't bogged down trying to solve things they really couldn't solve," he says. "Things were quickly elevated to us and taken care of." Davis adds that team members were required to work with each other. "We didn't let people hide behind e-mails and phone calls and things like that."

Genworth employees who used the new system saw the conversion as an improvement. They received enhanced capabilities for their work, and system support is now more readily available. "They get to talk to people who know our business and what the needs are for this business," Davis says.

Oracle's Lye emphasizes that keeping in-house staff free from distraction is a key advantage of Oracle On Demand. "The internal resources are already deployed on other projects," he says. "If a company wants to add applications and do it internally, it either has to wait or it has to hire more people." The outsourcing strategy, by contrast, makes big IT changes possible.

"We see outsourcing as a strategic and competitive advantage," Davis says. "We don't have to allocate human resources or technology resources to running an infrastructure for Oracle HR and Oracle Financials, so we have the flexibility to redirect these resources to more value-added work, and we can scale that capability up and down as needs require. So it's a huge competitive advantage for us." Oracle's Schwarz concurs, noting, "Our customers are looking to us as their trusted technology advisor. Logically, we know about Oracle software best, how it's built, the product direction, and the best way to run it, and customers know their business. By partnering with Oracle to put the business imperatives together with the technology, customers can achieve a competitive edge, operating efficiencies, and scale at the pace they need to win."

Insourcing the Competitive Advantage

"I would say the big lesson here is don't underestimate complexity," says Davis. Oracle On Demand gave Genworth the systems it needed on a flexible basis, but it didn't eliminate the ongoing challenges of strategy and governance. Instead, it allowed Davis and his team to work on projects that support the rapidly changing financial services markets.

The University of Texas' Beath believes that the biggest mistake companies make when outsourcing is that they confuse the commodity part of technology with the value-added information. "Assuming that because mainframes or servers are commodities means that managing a data center or server farm is a commodity is wrong. It's a mistake to think that because the inputs are a commodity, that the processes should be outsourced. That's a logical error," she says. "The reason you outsource is that the service you want is an industry standard. That doesn't mean it's a commodity, but that other people want the same service."

For More Information Oracle On Demand Oracle Financial Services Applications

At The Warranty Group, the high levels of service available from outsourcing made the company's sale possible. "There's definitely a fast pace over here," Miklusak says. "I think it's been one of the biggest challenges I've faced and one of the most satisfying ones too."

For Equifax, the reliability of the outsourced system meant that managers were willing to take important risks. "Our leader in Latin America said, 'If I don't get the deal off the Siebel report, it doesn't count—you don't get paid for it,'" Equifax' Partain says. He was able to support that requirement, he emphasizes, because he knew the system worked. And that level of commitment paid off for the company. "Our business that has had the highest sales consistently has been our Latin America business. They're beating their forecast consistently. Having a much more automated process around their efforts and the fact that they were the leaders in growth in our company, I don't think it's a coincidence," he says. "That leader is now not just responsible for Latin America but for all of our international businesses."

How Outsourcing Changes Companies "There are three reasons that larger companies consider outsourcing and offshoring," says Peter Allen, partner and managing director of market development at consulting firm TPI, in Houston, Texas. "The first is cost, but it's more than just the cost of an hour of labor. It's transforming what is otherwise a fixed cost into a variable one that is more productive." In addition, Allen says, "There's a whole category of reasons around capability enhancement," especially in terms of helping companies get IT and transactional business processing support with the skills that are needed to do the work more productively. The third reason? Market endeavors—which, Allen says, include "strategies to be acquisitive or pursue divestitures, or even penetrate emerging markets." Outsourcing makes it easier to handle corporate changes because back-office IT and support functions can be separated from core operations. Newly acquired divisions or new branch offices can come online, with full support, with little pain to the organization's infrastructure. For many companies, Allen says, outsourcing is a way to bring major change to an organization. "This is largely a political decision within many companies, a decision about introducing change when other avenues for change have been exhausted," he says. "It sends the message that we need to do something fundamentally different—to break the status quo regarding the organizational and operational direction of the enterprise." When a company has a problem getting people to follow standard processes or conform to corporate policies, which can affect management's ability to make decisions or deploy resources into new markets, the solution may be outsourcing the back-office services so that the front office can do the work of the business. Outsourcing also changes how C-level executives do their jobs. The job has "gone from being purely technology oriented or process oriented to having to really be conversant on the latest in technology features and functionality to a period in which functional executives in IT, finance, or HR have to be much more business aligned," Allen says. "I think we're on the third era. Executives responsible for corporate functions need to be much more sourcing proficient and need to understand that they're, in essence, an integrator of various internal and external delivery organizations. It requires a whole new skill set of performance management, financial management, contractual management, and socializing roles and responsibilities, and doing it in a fashion that insulates all of that integration from the business consumer of the services." One part of the executive's job will not change: the accountability for the functionality of the services lifecycle. "Accountability never gets outsourced," Allen says. "Sometimes companies think they're doing that contractually, but this is competency that needs to be retained within the company."

On Demand Glossary Applications outsourcing (AO): Contracting with outside providers to deploy, upgrade, and manage customized or packaged software. Applications service provider (ASP): An outside provider of infrastructure and services that hosts primarily packaged applications. Business process outsourcing (BPO): Leveraging technology or specialized process vendors to manage and supply an organization's critical and noncritical enterprise applications and business processes. Common examples of BPO are call centers, payroll outsourcing, and human resources outsourcing. Information technology outsourcing (ITO): Contracting with outside providers to supply IT services. The client typically retains ownership of the IT strategy while the provider assumes responsibility for the day-to-day supervision and management of the resources required to deliver services in support of the IT strategy. Infrastructure outsourcing: Contracting with outside providers to plan, maintain, and support an organization's technology infrastructure needs. IT infrastructure outsourcing services can include managing local area networks (LANs) and wide area networks (WANs); enabling internet access and internet services (e-mail, Web sites, etc.); providing hardware and software such as servers, workstations, productivity software, and specialized software; and providing user services. In-house: Producing a service or commodity, such as IT management, by using an organization's own staff or resources. Information technology infrastructure library (ITIL): A framework of best practice techniques to facilitate the delivery of high-quality information technology services. ITIL outlines an exhaustive set of management procedures to support organizations in achieving both value and quality in IT operations. Offshore outsourcing: Hiring an external organization to perform business functions in a country other than the one where the service or product will be consumed or sold. On demand: An enterprise infrastructure, software, and services delivery model in which a variety of IT resources are made available to the user as needed. The resources may be maintained within the user's enterprise or made available by a service provider. Software as a service (SaaS): A software delivery model in which a software firm provides daily technical operation, maintenance, and support for the software provided to their client.