Successful IT Outsourcing

Feb. 1, 2005
In today’s world of automated business-to-business (B2B) transactions, the wheels of electronic commerce typically turn smoothly.

But behind the scenes, the need to build and maintain the electronic links that keep data flowing efficiently between business trading partners can require significant investment. Sometimes—as a way to sustain focus on a company’s core competencies—it may prove cost-effective to outsource certain e-commerce-related information technology (IT) functions.

One case in point involves IBM Corp. (www.ibm.com/us). Numerous Fortune 500-class customers that once relied on traditional electronic data interchange (EDI) links to IBM have now chosen to base their e-procurement systems on eXtensible Markup Language (XML) technology. So IBM set out about four years ago to transform its electronic order management processes.

For IBM, one big challenge was the multiplicity of XML communication protocols used by its customers. The list includes Ariba, Commerce One, Oracle, RosettaNet and SAP, as well as various custom implementations. Each protocol required IBM to build and maintain a different software connector to facilitate incoming customer orders, notes Timothy R. Dinger, manager of B2B technology strategy and architecture for IBM’s Enterprise On Demand Transformation Organization, in Somers, N.Y.

Beginning in early 2001, IBM took on the task of developing the XML infrastructure and building and maintaining the connectors. But at the time, the IBM product set didn’t include the tools needed to efficiently handle the job, and the company found the effort to be both time consuming and expensive, says Dinger. Nearly 50 full-time IBM staffers were initially assigned to the project, he recalls. “We had a couple of years of pretty painful slogging.”

But that began to change with a drive by Dinger’s group to seek out a third-party provider to develop, manage and maintain the XML connections and connectivity infrastructure. The decision was based on a desire to focus IBM resources on core business activities, says Dinger. “While we felt that managing the relationships with our largest customers is something that is core to our business, managing the technology needed to keep them connected to us wasn’t something that we felt we needed to spend time on.”

After evaluating multiple vendors, IBM settled on E2open (www.e2open.com), a four-year-old Redwood City, Calif.-based company, to handle the job on an outsourcing basis. IBM was one of several original investors in the company, and still holds an equity stake in E2open, which specializes in managing inter-company processes. But that doesn’t mean the deal was a slam-dunk. Given the fact that E2open would be managing connections for a major source of IBM revenues, says Dinger, “it took a long time within the (IBM) stakeholder community that I support to convince them that this company (E2open) was robust enough to handle the job.”

IBM worked with E2open on a “start small/grow big” basis, Dinger notes. For the first 18 months, E2open provided consultative services, and handled various pilot projects and test beds. As those efforts succeeded, the relationship grew broader, until the California company took over total outsourced management of the IBM XML connection platform in March 2004. The result, according to Dinger, has been a system that is working “extremely well,” and at a 50 percent annual savings to IBM.

Dinger has this advice for other companies that are looking to outsource crucial IT functions. “I think it’s very important when companies decide to do an outsourcing agreement such as this that they spend a lot of time upfront on process definition. I really think that makes or breaks the relationship.”

Dinger’s group worked closely upfront both with E2open and with IBM’s internal IT production organization to define a joint set of support functions and responsibilities. One important set of details, for example, involved cross-company processes related to IBM’s help desk. “IBM desired strongly to retain the relationship with customers, including whom they dial up when they have a problem, which is the IBM help desk,” Dinger notes. “So the help desk needed to have visibility into E2open.”

In the end, Dinger believes the project succeeded in large part due to the tight working relationship between IBM and E2open. “From the very beginning, this was a partnership, as opposed to a supplier relationship,” he observes.

Wes Iversen, [email protected]