VideoSuch was the case with Ha-Lo Industries Inc., a Niles, Illinois, distributor of promotional products, with sales of $415 million last year. Ha-Lo had done little with technology, compared with other companies its size, when CFO Greg Kilrea came on board two years ago. It lacked a chief information officer, as well as an efficient way to communicate with more than 40 sales offices around the country, he says. With in-house technicians at a premium, an outsourced intranet seemed the fastest, cheapest technological solution.
"The IT profession had exploded," says Kilrea. "It was hard to get and keep people. We needed a lot of new resources to keep up, never mind make progress. We would have had to put in an entire infrastructure to recruit, train, and retain qualified people." Because he was outsourcing the entire IT function, Kilrea was concerned about saddling a newly hired CIO with an existing contract. Kilrea negotiated a two-year IT outsourcing agreement with Chicago-based Metamor Technologies Ltd. last year. A simple communications-focused intranet, featuring E-mail, addressed Ha-Lo's urgent short-term communications needs, he says. The company plans to expand it over time, has found a CIO, and intends to renew its contract with Metamor.
Much of the intranet outsourcing being done is still part of full-service IT deals with giant outsourcers, such as IBM Global, Pricewaterhouse-Coopers, and CSC, which can cover the spectrum, from a complete business- process reengineering to transitioning those processes to a new intranet that is housed and maintained remotely.
With all the competition for segments of the market, however, the big players are learning to bend a little. "About 70 percent to 80 percent of our outsourcing opportunities are total IT outsourcing deals, but about 20 percent are selective sourcing engagements," says CSC's Cofoni, adding that "we'll certainly take them if they come." CSC did more than $2.5 billion in IT outsourcing worldwide last year.
Paying a Premium
Experts caution that outsourcing intranet operations isn't right for all businesses, and that perhaps the chief peril is overpaying for the work. "You're probably going to pay a premium for this service over time," says Gene Phifer, an analyst with the electronic workplace division of GartnerGroup, a Stamford, Connecticut-based technology research firm. "The majority of enterprises will pay a price premium versus doing it in- house if you have the infrastructure on board. Companies that don't have the infrastructure will still get whacked, but not as hard."
Phifer cautions companies to think twice about outsourcing if they believe the outsourcing is transitional and that they will eventually bring the intranet in-house. "Unless you have a driving business need, you're just postponing the inevitable," he says.
However, some companies, like Peritus, assert that the cost of the contract is of less importance than access to reliable technology expertise. "Cost was about third on my list," says Allen Deary. Peritus is spending about $40,000 a month on its complete IT outsourcing contract and an additional $5,000 to $10,000 a month in consulting fees with Integris.
Having an outsourcer handle the intranet can also introduce a clash in corporate cultures-- a risk in any outsourcing agreement, but particularly acute here because of the sensitive company data and mission-critical applications often involved. "Our outsourcers took our database and gave it a GUI [graphical user interface] front end. But our IT department has a case of what I call extreme ownership," says Lippincott's Newman. "We kept control of the network internally for that reason. Our outsourcers were our developers, but we bought and maintain the servers."
As such concerns suggest, developing a high level of trust with an intranet outsourcer is essential. Companies looking to outsource their intranet should assign not only IT staff members, but also "process owners" and "data owners" to negotiations and planning teams at the earliest stages, suggests Frank Casale, executive director of the New Yorkbased Outsourcing Institute.
"If the project is led solely by a technology executive in the organization," says Casale, "you are probably not going to get as viable a business solution as you would get if you put a process owner or manager in charge of it. Most organizations look at this as an Internet thing, and feel that someone in IT should run with it. But you want to have someone there who is responsible for the process. That person is really going to be the client."
He suggests that companies wanting to make their intranet a long-term part of the business should be wary of outsourcers marketing themselves as "intranet only" operators. They may not know the best way to structure extranets, for example.
Some believe the extranet evolution is inevitable. Forrester predicts that the migration of internal data and processes to extranets--usable by outside vendors and others--will lead the intranet-outsourcing market to plateau at about $7 billion by 2002.
But for now, companies looking either to dive or dip their toes into the intranet pool will find a wide range of outsourcers eager to help.
----------------------------------------------- --------------------------------- Out-Sourcery: A Guide to Getting Intranet Help
Even though there is little useful data about the cost or return-on-investment experience companies have had after outsourcing their intranets, experts suggest conducting a detailed analysis of outsourced versus in- house costs. Consider not only infrastructure costs, but costs related to software, personnel recruitment, salary and training, long-term process, and infrastructure maintenance costs, and opportunity costs associated with implementation time.
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