That was the case last year when Houston-based Enron Corp., regarded by many as the embodiment of everything innovative and admirable in American business, created The New Power Co. Launched in May and based in Purchase, New York, TNPC aims to be the first nationwide energy provider for residential and small-business customers, and last fall it began offering services in several states. Enron had tried to get into the consumer space once before and had failed. This time, the company decided that a new company, aided by new and powerful partners, was the way to go. TNPC has signed exclusive marketing and service agreements with Enron, IBM, and America Online Inc. (AOL). The contribution made by IBM, in fact, is so significant that Tony Wyatt, TNPC's managing director of operations and technology, says that "this relationship really can't be considered outsourcing at all."
Certainly not in the traditional sense. Like AOL, IBM has an equity stake in TNPC. And it is providing not just data-center services, but also so much of the company's IT needs that Wyatt says simply, "IBM is my CIO. And [it works] so closely with us that there really is no boundary between IT and operations." Formerly CIO at AT&T's consumer division, as well as at other companies, Wyatt is now responsible for both IT and operations, an arrangement that would seem to guarantee substantial integration between the two. Bill Jacobs, CFO at TNPC, says that one key to the arrangement is that "Tony and his team are in minute-by-minute contact with IBM. They've worked out a shared vision that is essential to making the deal work."
Managing the Relationships
Despite TNPC's reliance on IBM for the bulk of its technology needs (as well as call center and other customer-service functions), Wyatt agrees that in today's environment, no single supplier can do it all — not even IBM. "It's really a network of relationships we have," he says, "with IBM dominating but others playing important roles." For example, the company uses E-Online to host its SAP software in an ASP model, while ExoLink provides messaging capabilities between TNPC and local utilities — a key bit of infrastructure in this deregulated age — and SCT provides the billing "engine."
"We never contemplated building something like that ourselves," says Wyatt. "That would have been suicide." As with many newly formed companies, TNPC wants to contract for as much technological capability as it can. That's one of the current drivers in the outsourcing market. "We wanted to outsource as many business functions as we could," says Doug Paustenbach, former head of IT at Branders.com, in San Mateo, California. "To grow quickly, you have to devote your staff to core business issues. You lose some control and some reaction time, but the pluses outweigh the minuses."
This approach, however, places a different burden on client companies — they may not have to build it themselves, but they must learn how to manage it. "It changes things," admits Wyatt. "Your status no longer comes from managing an army of internal staff, but from managing a successful relationship."
Or many relationships. As outsourcing metamorphoses into strategic sourcing, companies are creating senior-level positions for the employees who select outsourcing providers and manage the ensuing relationships. This allows companies to create what Barry Wiegler, managing director of Sourcing Interests Group, a Bell Canyon, California-based consortium of outsourcing clients and providers, describes as a "knowledge center where benchmarks, processes, and insights into how to develop and refine relationships" can be gathered and accessed by those in the company who might have a need for outsourcing expertise.
Centralized knowledge centers are likely to be invaluable as more employees get involved in outsourcing decisions. While most outsourcing arrangements still encompass some IT component, the fastest-growing segment is in BPO, where the key decision maker is often a line manager, not a CIO or IT staffer. And BPO vendors as well as ASPs routinely market themselves to various "process owners," from the vice president of sales to the head of accounting.
Who's the Boss?
This creates plenty of room for miscommunication and disagreements about which party should take the lead — internally as well as among the retinue of companies providing services. Gartner's Cohen believes that, because such services are, at bottom, about technology, IT should dominate. "There is the potential for some organizations to be duped by the claims of ASPs," she says, "especially if the CIO is left out of the loop." She argues that because IT organizations usually have deep experience in selecting technologies and negotiating terms, they should, in essence, shop on behalf of the business units they serve.
But James C. Madden, president and CEO of Irvine, California-based Exult, sees things differently. "In large companies," he argues, "IT is one stovepipe, and business processes such as human resources are another. The process is more important than the technology that underlies it, so we sell to the people who own the process. Functional expertise trumps technology."
As a former CFO (of MCI), Madden believes that by creating the role of sourcing expert, companies can maintain control over what could become a management nightmare. "At two clients, we have situations where the CIO has tapped one outsourcer, the head of HR another, and the CFO a third. But it can all be made to work together."
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