December 7, 2008 Boeing's aggressive effort to outsource development of its new 787 jetliner has resulted in delays, missed deadlines, and unhappy customers and suppliers, all of which, more than likely, has a very familiar ring to many CIOs. How are all these negative lessons-learned affecting future outsourcing plans -- if at all?
The Wall Street Journal had an extensive story on the problems the airline maker is encountering with its much-anticipated Dreamliner 787. According to the Journal, the new plane is at least six months behind schedule, customers are concerned that they won't receive their orders in a timely manner, and suppliers are working overtime to accommodate increasingly aggressive production schedules.
Boeing had conceived a radical new construction process for the Dreamliner, with big chunks being manufactured by outside parties and then assembled by Boeing at its Everett, Wash., plant. That's not dissimilar to the way big application development projects are conceived and constructed. The results Boeing is experiencing aren't dissimilar to what's happened with some (many?) big outsourced applications.
There's certainly something familiar about this statement from the Journal article: "The first Dreamliner to show up at Boeing's factory was missing tens of thousands of parts, Boeing said." Substitute "lines of code" for "parts" and the lesson as it applies to software is the same.
"The missteps underscore the hazards and limits of outsourcing," the Journal article said. Hazards and limits such as these, all of which apply equally to IT outsourcing projects:
>> Communication barriers, including language and geography.
>> Lack of institutional knowledge, which required Boeing to "parachute in" its own engineers and executives to help suppliers.
>> Outsourcers outsourcing to third parties, which compounded problems with production and quality assurance.
Outsourcing may be at something of a crossroads (so to speak). The era of the big-bang IT outsourcing contract is probably over, the last nail in that particular coffin driven in three years ago when Jamie Dimon, CEO of JP Morgan Chase, canceled a $5 billion outsourcing deal with IBM (NYSE: IBM) and rehired about 4,000 of the workers involved.
There are indications that less-ambitious outsourcing efforts may get suffocated next year. In the Society for Information Management's most recent survey of IT managers, respondents indicated that they had allocated no IT budget dollars for outsourcing in 2008. Whether that means zero funds to IT outsourcing next year, or zero ADDITIONAL funds, isn't entirely clear, but nonetheless it indicates a strong negative trend.
Outsourcing is not a fad, destined to whither away. It's a step in the evolution of the global economy. And negative lessons are important, but not the only lessons to be learned. What companies are wrestling with now is the proper equilibrium for outsourcing -- what, where, and how much exactly. CIOs are at the forefront of that evolution, and of determining that equilibrium. Their experiences with outsourcing will help decide the shape of the global economy for years to come.
What's your take? Have your experiences with outsourcing been mostly negative or mostly positive? And how have those experiences shaped your outsourcing strategy -- more, less, or about the same? -JS
Tuesday, December 11, 2007
Outsourcing Hazards and Limits
-Special Thanks to John Soat-
John Soat contributed this article below to InformationWeek's CIO's Uncensored Blog