ANALYSIS: Companies farming out IT results face comms issues

Many companies are considering outsourcing their IT to cut costs or improve business, but a host of communications challenges come with the deal.

Many companies are considering outsourcing their IT to cut costs or improve business, but a host of communications challenges come with the deal.

All eyes will be on Merrill Lynch this month, as the company unveils a new $1 billion IT platform, ideally making the company's financial advisers more efficient. Helping the company make this move are the likes of Dell, Hewlett-Packard, IBM, and Microsoft, among others.

And while the amount of money Merrill Lynch has sunk into the deal is significant, whether the company can pull it off is what has everyone eagerly awaiting the completion of the deal. Because if outsourcing its IT does make Merrill Lynch leaner and meaner, some experts believe that many more companies will follow suit.

Not that IT outsourcing is anything new. Companies have been doing it for years. But as businesses from a variety of industries put off expensive IT upgrades during the downturn, they are now faced with having to update and upgrade everything from IT infrastructure to applications that are in danger of becoming obsolete. And more and more companies are all too happy to let technology firms such as HP, IBM, and EDS handle their IT for them.

"Most CEOs see outsourcing their IT as a cost-saving issue," explains Hill & Knowlton SVP Josh Reynolds. "But more and more are seeing it not just from a cost-savings perspective, but from how outsourcing will help the company solve its problems and do business better."

As the $68.5 billion IT outsourcing market is predicted to swell to $100 billion by 2007, according to IDC, companies on both sides of these increasingly popular deals face a wider array of communications concerns.

"Each of these multimillion-dollar IT outsourcing deals requires a cultural change within the enterprise seeking to outsource their IT," says Albert Durig, chairman of Burson-Marsteller's US tech practice. "It starts with employee education. But you also have to communicate these changes to customers and partners, particularly if it provides a competitive advantage. It can even get down to shareholders. You have to educate people as to what's going on. Companies are faced with communicating this major change to employees, particularly the employees who will work with the IT company handling the outsourcing, as well as all the other employees who might be using this technology."

"Communication is vital," says Terry Balluck, a PR manager with EDS, one of the top IT outsourcing companies. "Employees are the most important audience when it comes to an outsourcing effort, especially those who are being transitioned to the company that is taking over IT services. We will work with the client to help them explain to employees what is going on. You also want to communicate with partners and clients as to what the company's objectives are for outsourcing in the first place."

EDS has a dedicated team to help clients with all internal and external communications surrounding IT outsourcing deals, adds Balluck.

Durig says that Burson has picked up project work helping companies communicate the benefits of IT outsourcing deals.

"It's becoming a more common experience for us, to see companies that are seeking to outsource their IT also seek an agency for counseling on how to manage the communications," says Durig. "Each one of these outsourcing deals requires a small communications staff."

Agencies that do get hired for such a project will need to bring a mix of PR expertise, adds Durig, including change-management expertise, tech PR, and knowledge of whatever industry the client works in.

Keeping quiet in some situations

But not all companies want to shine a spotlight on outsourcing deals. Some even take great pains to keep outsourcing deals quiet, particularly those that involve outsourcing customer service, says Tom Womack, PR manager for Telvista, which specializes in outsourcing customer-service solutions.

"Almost all of our clients want a nondisclosure agreement," says Womack. "They don't want customers to know that when they call, it's not necessarily their employees they're talking to. When it comes to these kinds of outsourcing deals, sometimes less communication is the way companies want to go."

But more often than not, communications is essential, as such expensive and complicated deals can cause concern or anxiety. Betsey Hardman, a marketing communications consultant with EDS, says she often helps various stakeholders that will be impacted by the outsourcing understand what the relationship is between the two parties.

"We need to help them understand what's in it for them," says Hardman. "They need to understand what the benefits are. We try to manage expectations, and help everyone adjust to the change, because everyone who will be impacted by this needs to buy into it, and it needs to go smoothly."

"And that process needs to begin quite a bit before the actual outsourcing even begins," adds Holly Young, an HR consultant at EDS. "We try to take the mystery out of the process, and help the client deal with things they might not even be thinking about."

Communications expertise is crucial, says Hardman, particularly from a company or agency that has helped with an outsourcing deal before, as they can bring institutional knowledge to a situation where the client may be outsourcing for the first time.

What often derails an outsourcing deal is the failure of the two companies' cultures to meld, or at the very least the failure of the client to adapt to the IT company's way of handling applications, network management, infrastructure, or business services. That is why PR firms are often called in, says Lucy Allen, a VP with Lewis PR.

"The reason these deals could fail is because the cultures don't fuse," says Allen. "You have to make sure both cultures understand each other, and there needs to be enough communications to make that happen. And it's often incumbent upon the IT company to make sure that happens. Because at the end of the day, if it doesn't work, the IT company will lose out and the client will take its business elsewhere. In my experience, it falls on the provider to make it work. And it's not just about communicating. It's also about the perception and reputation of the IT service provider."

Perception and reputation are why many IT providers, such as IBM, HP, and EDS, are stepping up their analyst relations, as many companies considering outsourcing look to analysts for recommendations, adds H&K's Reynolds, who heads analyst relations for the tech practice.

Chain of communications

Warren Egnal, a senior consultant with PNConsulting, agrees that the IT provider must make sure that it respects its client's culture. The IT company providing the technology has to respect and preserve the values of the client, says Egnal. And the client needs to communicate to its employees that those values will be protected.

"Like any significant corporate-strategy shift or change, you have to understand all the stakeholders who will be affected by this," says Egnal. "And you have to understand the actions you want each of those stakeholders to take. And then you must evaluate what kind of information you need to communicate to make that happen. And it doesn't end once the deal is done. You have to see it through."

The number of companies outsourcing is increasing, and IT companies are announcing more deals every day, from global companies to local school districts. But it has to be done right, and not everyone is doing their best to communicate these changes, says Egnal, adding that many companies are learning from the mistakes of others.

"Outsourcing holds a tremendous future for PR," predicts Durig. "What makes outsourcing successful is a deep understanding of the new processes, and a deep understanding of the benefits. These are deep and complex issues that can't be explained with something like advertising. It's the perfect type of activity for PR."

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