Outsourcing Function, Not Form
Transitioning Systems and People
Along with flexible systems, Agilent needed flexible people handling its information technology. The internal staff were open to outsourcing because it meant they could concentrate on the very thing that excited them about technology: how to use it to do things better. "It's pretty challenging to get your internal employees motivated around doing the standard, day-to-day, repetitive tasks," Vaidyanathan says. "Most IT folks love to work on new challenges and new problems—they're not as interested in trying to solve existing problems in the current production environment. We found quite a few people interested in adding to their skills who wanted to go out and learn about project management," he adds.
However, they didn't have all of the skills that Agilent needed. "We've been able to get our top-notch folks focused on how to make the Oracle platform work for the business," Vaidyanathan says about his team, but it took some training. Among the things that they had to learn was how to manage resources, how to work with service-level agreements, when to hold vendors and partners accountable, and when the work had to be done by Agilent, says Vaidyanathan.
One lesson that Vaidyanathan learned was to settle on processes and do the training at the beginning of the transition. Agilent's staff moved from managing systems and incidents to managing vendors and strategic plans. Although most were thrilled to spend more time using technology to drive the business, they hadn't necessarily used those skills in their previous roles, so they needed to be brought up to speed. "We sent quite a few of our folks to supplier management training and other courses so that we could get these relationships to be much more fruitful rather than being a pure subject-matter backup for our Oracle partners," Vaidyanathan says.
The users experienced some dislocation too. Agilent employees were used to tapping in-house IT expertise when they needed a quick solution to a systems problem. But with the company spread out through the world, this meant that it was difficult to keep a centralized knowledgebase. "We probably had 20 different people solving the same problem because they were in different places," Vaidyanathan says. "We were not able to see the problem management side of things, which is about tracking repeating incidents and figuring out how we prevent the same incidents from happening again and again and again."
Once the transition was complete, Agilent's users saw faster, more-reliable service while the IT department got to work on projects that kept the company's competitive edge razor sharp. That, in turn, made it easier for Vaidyanathan to attract new employees to his team. "Now we can attract people with options," he says. "They come to work on business enablement projects that push the business forward rather than help users figure out basic operations. We have all these projects and activities that IT people typically love to work on and that made our recruiting job easier."
Less Leverage Leads to Better Returns
The traditional IT model assumes that a huge investment in hardware, software, and training will pay off as the business grows, because those costs won't change much with the organization's scale. That leverage would go straight to the bottom line. That model works fine for companies that are solely focused on internal growth, but it doesn't work for companies that manage their product lines as actively as Agilent does.
How has it worked for Agilent? In 2002, when the company made the transition off its legacy systems to Oracle On Demand, Agilent posted a loss of almost US$1 billion on US$3.9 billion in revenue and US$8.2 billion in assets. By 2006, the company earned US$655 million after taxes on US$5 billion in revenue and US$7.4 billion in assets. Despite the trimmer base, Agilent's people had the information they needed to generate more profits on more sales. "From an IT cost perspective, we have gone down to about 30 percent of what we were five years ago," Vaidyanathan says. "We consider that a tremendous ROI."
Vaidyanathan believes that Agilent could not have hit those numbers with an in-house IT infrastructure. "Outsourcing has definitely helped us in terms of cost savings," Vaidyanathan says, and it's allowed his team to work on projects that generate more returns for the operating units. "If we had kept the systems work in-house, our cost structure would be about 120 percent or 130 percent higher, and we would still be struggling to figure out how to reduce those costs."
For More Information
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is a freelance writer based in Chicago.