Credit Crunch SOA - Outsourcing

One of a series of posts exploring how the current economic conditions are affecting the SOA world. What are the implications for organizations and individuals?

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Outsourcing

At the level of the individual deal/firm, there are clearly going to be some casualties. Obviously the organizations that are in meltdown, or whose funds are currently frozen in some Icelandic bank account, are not going to be spending money they haven't got and can't borrow. And some emergency take-overs in the banking sector are going to reduce the number of banking systems that need to be built and maintained.

But overall, the situation for the outsourcing might not look too bad. Business-as-usual requires systems-as-usual. Indeed, some people in the outsourcing world (for example Phil Morris of EquaTerra via ZDNet) are arguing that outsourcing is countercyclic - in other words, it goes up when the economy as a whole goes down - because it is cheaper and lower-risk than employing people yourself. (I don't remember anyone saying outsourcing was counter-cyclic when the economy was going up, but I must have missed it.)

But what kind of outsourcing is it going to be? Following Archilochus (via Isaiah Berlin and Jim Collins) we can identify two styles of outsourcing: the Fox makes lots of small outsourcing deals and the Hedgehog makes one big outsourcing deal.

Som Sarma of Satyam Computer Services is on the side of the Hedgehogs when he writes "As organisations are driven to focus on IT cost having a single supplier can minimise management, due diligence and supplier selection expenses." [ComputerWorldUK, 2 October 2008] He repeats (in almost identical words) a point made by Martyn Hart back in January who, while acknowledging that the past couple of years has seen a swing away from 'mega deal' towards multi-shoring and choosing separate suppliers for each process, predicted a swing back to the single supplier, arguing that this would provide better cost management. [ComputerWorldUK, 22 January 2008]

However, Som Sarma's colleague Deepak Kataria, speaking at the New Services Environment Summit in Dallas TX (February 2008), warned against over dependency on single vendor. He recommends defining and implementing a conceptual abstract framework for mapping the technology roadmap to multiple vendor platforms and future versions [see Deepak's presentation on SOA Transformation (ppt)].

I'm with Deepak on this point. If you have a first-class architecture (and I admit that is a big IF) you can get the best of both worlds - better governance and risk management, as well as better cost management. With SOA, organizations can choose to manage outsourcing at a finer level of granularity, in order to squeeze extra value from the network, as well as keeping closer control over their suppliers. As organizations develop more sophisticated service management capability, they can move from being a simple hedgehog (hand everything over to XYZ Global Services and hope for the best) to being a clever fox.

One data point here - reported anxiety at General Motors over the merger between HP and EDS, which means GM is now spending a third of its massive technology budget with a single supplier. [HP-EDS Combo makes General Motors uncomfortable].

Meanwhile, both Som and Martyn identify another critical benefit from outsourcing - a shift towards Pay-As-You-Go models. See my previous post on Service-Oriented CashFlow.