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Royal Dutch Shell’s decision this week to award a $4 billion outsourcing contract to three global technology and telecommunications suppliers, will no doubt again set off alarm bells within the IT ranks of corporations.
Under the terms of the agreement, some 3,000 IT staffers will transfer over to the winning suppliers, AT&T, T-Systems International, and EDS. According to statements made by the company there will be a limited number of jobs lost as part of the transition, in the range of 20-30, and where possible employees will retain their existing rights.
The justification for the move by the oil giant is that it expects it will gain “significant improvements in efficiency and productivity.” In addition, Shell says it expects to gain substantial financial benefits during the five-year length of the contracts.
Shell chief information officer Alan Matula says by outsourcing the basic day-to-day technology operations of the company, Shell’s remaining IT staff will be able to “focus on information technology that drives competitive position in the oil and gas market.” In other words, Shell can focus on technology that allows it to find and recover more oil and gas, and develop a competitive edge in the downstream portion of the business – the refining and marketing of oil and gas products.
On the surface, it seems to make sense. Outsource the basic plumbing, the applications, networking and systems that operate the day-to-day business, and focus on the areas that can make a difference in the marketplace.
A point that needs to be made, however, is that there is still plenty of opportunity for companies to innovate and gain advantage within the core infrastructure. A case study appearing this week on CIOZone on efforts to reduce IT complexity and speed deployments at Wachovia, found here, aptly demonstrates this proposition. Armed with knowledge of the underlying systems that support the business, the IT team at Wachovia has been able to leverage technologies such as virtualization to make better use of existing systems, shave costs, and reduce energy consumption.
The business case for outsourcing can be strong, and gets easier for senior executives to swallow when a brand name like Shell makes the choice. But when the plumbing gets outsourced – and in the case of Shell, to three different companies – the ability to innovate and experiment becomes significantly more complicated. In fact, it may go down the drain.
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