IT sourcing strategy guide for enterprise CIOs
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One day Steven John might be able to join a company that is not in dire need of an IT infrastructure overhaul. That day didn't come when he joined $4 billion crop-nutrient and fertilizer supplier Agriliance LLC in 2002 and had to rip out and replace a failed global enterprise resource planning implementation. And it did not come when the C-suite at global adhesives maker H.B. Fuller Co. came knocking on his door in 2007.
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It is John's reputation as a "turnaround guy" that caused H.B. Fuller to come calling, and it is the reason we chose to profile him as one of our SearchCIO.com Innovators, a series we are launching this year to showcase business transformation shepherded by IT innovation.
IT innovation was not a term bandied about at H.B. Fuller before John entered the picture: The company's IT department in essence did not exist, having been replaced by a $150 million contract with a large outsourcing firm. "We were writing a very big check every month and had little management [over the contract], or transparency or metrics into the value we were getting out of that relationship. … Aside from a revenue stream for [the outsourcing firm], it wasn't beneficial to either party," said John, CIO of the $1.4 billion St. Paul, Minn., company that develops adhesives, sealants and paints for customers in dozens of markets, and has 3,300 employees worldwide.
H.B. Fuller's IT systems, developed in the '80s and installed in the '90s, hadn't been updated since Y2K. The company does business in 100 countries, but it had never been able to implement a global platform successfully, never mind the global collaboration system John had in mind -- one of many projects that soon would be under way.
As it stood, however, the condition of IT and the relationship between IT and the business were akin to the Eastern Bloc, John said. IT was woefully behind the times, and a wall had gone up between the IT department and the business because of the outsourcing contract. Its business leaders were ready to pull down the Iron Curtain to update IT, but given the times, that had to be done at the lowest cost possible.
John set out to achieve these goals by leapfrogging H.B. Fuller's systems and business processes into the 21st century using cloud computing. Before he could make a move to a new outsourcing model, however, he had to take care of the $150 million outsourcing elephant in the room.
Step 1: Take back control of IT
From email to project management, everything except for a thin layer of H.B. Fuller IT employees (10 in all) was managed by a third party. Outsourcing to that extent had caused the company to lose the people with critical knowledge of the business: Business analysts were no longer in-house; those positions were staffed with contractors out of Manila.
"By doing that, we had lost the people close to our core revenue-generating business processes. … Having that outsourced, they didn't understand what needed to be done," John said.
John did not jump into renegotiating such a massive outsourcing contract lightly. He spent six months evaluating the contract with business leaders before deciding it "wasn't tenable." The next 12-month period was what he describes as a brawl to renegotiate the contract, this time with an outside (undisclosed) expert firm leading the charge. "That was kind of a back-alley, brass knuckles [renegotiation] because, you know, the big outsourcing firms know how to do this. We got a firm that does this for a living too, this time. That was one of the mistakes that Fuller made before: They felt that they could do it themselves."
All the core functions that drive IT innovation were brought back in-house: project management, business analysts, key application development areas that John felt were too high-risk to leave in the hands of an outside firm. Code development, help desk, security and some infrastructure stayed with the outsourcing firm.
Insourcing to outsourcing, the right way
With a team of 60 IT business experts now on hand (most were H.B. Fuller employees who had worked with the outsourcing firm and had been brought back in-house), John started to lean toward an outsourcing model that would meet the company's business goals: to create a global communications system, to update IT systems quickly and to focus the IT staff on mission-critical business processes.
The prenuptial cloud agreement
When it came time to negotiate contracts with several cloud providers, Steven John, CIO of H.B. Fuller Co., was not taking any chances: He hired NET(net) Inc., one of a handful of IT service providers that specialize in cloud contract negotiations. Here are the key considerations he came away with:
- Treat the contract as if it were a prenuptial agreement: Understand how the relationship will end before it begins.
- In what format can you get the data back? You might own the data, but the cloud provider owns the application and infrastructure.
- How long will it take to get the data back on-premises or onto another cloud provider's platform? Is there even another provider out there offering the same type of application, support and services?
- No matter how stable the cloud provider is, prepare for the worst. Have a software escrow built into the contract. --C.T.
The term mission-critical is used a lot, but this is the way John explained his strategy for choosing which business processes and systems his staff would focus on, versus those he would entrust to an outside party: "If we're doing something that someone else can do, then something only we can do isn't getting done." Human resources was not mission-critical, while the manufacturing system was, for example.
With this mantra in mind, and with the business goal of high-quality, low-cost IT, John took H.B. Fuller's Oracle Corp. HR system out of commission and replaced it within 18 months with a cloud solution by Workday Inc.'s on-demand HR software. Excel spreadsheets for customer relationship management were replaced by Salesforce.com Inc.'s hosted CRM product in less than a year. Novell Inc.'s GroupWise collaboration software was replaced by Microsoft's Business Productivity Online Suite (BPOS), which was integrated with SharePoint collaboration software within a year.
The cloud migrations started in mid-2008. Within two years H.B. Fuller went from having an Eastern Bloc-era IT infrastructure to having a global mobility strategy by replacing GroupWise (emails couldn't be received on cell phones or smartphones with the version the company was using) with BPOS. A global collaboration platform via SharePoint and BPOS was now available to company lab workers developing new adhesive products and working together and with team members from their global customers.
"We wanted to differentiate our product development, with the possibility of adding projects on which the sun never sets," John said. "The cloud infrastructure allowed us to create a virtual environment or virtual lab of scientists in North America working with engineers in China."
With Workday's HR software, IT no longer had to focus on daily support of HR or those systems, and the business now could look at talent management globally. Previously, "the best people were not always aligned with strategic plans," John said.
As for IT innovation, John could focus his team on developing tools that solve such business problems as a new pricing tool now in use in H.B. Fuller's Asia-Pacific region. The tool ensures that the prices of raw materials are in line with the prices of the company's products, so margins can be maintained.
And when it came to improving relations between IT and the business, a request for an easier click-through method by the CFO on his Workday screen sums it up: "With the cloud [in which providers often release software updates in quarterly cycles] you can say to the business, 'You'll have that change in few months,'" John said. "If we were still on the old system, I would have had to say [to the CFO], 'Wait four years and maybe [the vendor] will add that new button to the screen.'"
The cost of IT innovation
John would not disclose the cost of the cloud implementations or the extent of his IT budget, but suffice it to say that money was tight and resources were lean. "Pushing to the cloud was the only way that I was going to get mission-critical, differentiating work done," he said.
Steven John joins H.B. Fuller. Goal: Update IT infrastructure.
- Reviews outsourcing contract.
- Brings functions back in-house.
- Starts outsourcing human resources, CRM and email to cloud providers.
- Removal of outdated systems, move to cloud solutions is complete.
- H.B. Fuller achieves a global collaboration platform through integration of SharePoint and Microsoft BPOS.
- H.B. Fuller's board now asks for -- and isn't pushed toward -- IT innovation opportunities in the cloud. -- C.T.
The move to the cloud paid for itself in many ways because the company no longer had to maintain outdated systems. Workday was paid for by retiring Oracle; Salesforce.com was an "incremental cost because it wasn't replacing a system, so the value was measured in improved efficiencies and increased sales"; and the cost of the Microsoft hosted collaboration solution was significantly lower than the cost of the Novell solution, he said.
"The great thing about the cloud is that there is little to no capital expenditure and many of the extras [servers, security, and disaster recovery] that are incremental to new systems are included in the monthly fees or subscription costs," John said.
John doesn't have to fight for budget dollars for DR or security, because those are built into the contract. Without huge up-front capital expenditures, projects are easier to get approved, he said.
There are tradeoffs, and you will encounter some resistance to the cloud model, John said. If you require heavy customization or transaction processing, the cloud is not for you. IT staff might feel threatened by the cloud, just as they would by any outsourcing contract. IT departments will have to adjust to a world in which software updates come out every three months, not every three years; a world in which a year-long testing cycle is replaced by a two-week validation process. "You're trusting your business partners to do the testing for you," he said. "That's a different mind-set, and IT sometimes struggles with that."
But the business does not. With a global collaboration platform in place, outdated systems retired and a costly outsourcing contract behind them, "the cloud is something that the board is asking for, it's not something I'm driving them toward."
The SearchCIO.com CIO Innovators profile series highlights how CIOs use technology to meet both IT and business leadership objectives. To suggest a leader for a future CIO Innovator profile, email email@example.com.
Let us know what you think about the story; email Christina Torode, News Director.