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BPO/ITO can help CIOs, businesses manage transformational forces

Former CIO Steve Sheinheit, a speaker at the World BPO/ITO Forum, shares advice on how to deal with transformational forces pulling at business.

Steve Sheinheit knows that there are a lot of concerns on the minds of today's CIOs and IT executives. Sheinheit has spent more than 30 years in executive IT management in the financial services industry, including eight years as CIO of JP Morgan Chase.

Scot PetersenScot Petersen

He will be speaking at the World BPO/ITO Forum in New York City on July 17 and 18, sharing his knowledge of how CIOs can deal with the many transformational forces tugging at them. Business process outsourcing is one set of solutions that enables CIOs to focus core competencies internally while outsourcing those aspects of operations that help form a successful "extended enterprise."

In this podcast with Scot Petersen, editorial director of the business applications and architecture group at TechTarget, Sheinheit gives a preview of his talk: "The Evolving Role of the Successful CIO -- May the Force(s) be with You!" He also discusses the key areas of transformation that are pulling CIOs and their companies in the direction of BPO.

Scot Petersen: Hi, I'm Scot Petersen, editorial director of the Business Applications group at TechTarget,and I'm here today with Steve Sheinheit. He's a former CIO of JP Morgan Chase, MetLife, and QBE, and he's now a management consultant. He's going to be speaking at the upcoming world BPO Forum in New York July 17th and 18th, and I'll be there as well. I want to welcome Steve here to share his thoughts on what he's going to be talking about there.

Steve Sheinheit: Thank you, Scot; it's a pleasure to participate in this call.

Scot: At the World BPO Forum you're going to be part of a fireside chat that's called  "The Evolving Role of the Successful CIO -- May the Force(s) be with You!" What can you tell us about some of their new roles that CIOs are being called on to do these days? What are these forces?

Steve: You know, one of the things that I do is reflect upon the changes that I've seen in my career and I've seen in the industry. And I guess in order to understand how the role of the CIO is evolving -- and I think it's evolving -- it's not necessarily new roles, but evolving in  where the CIO needs to put his attention. [That's] been evolving over many, many years and continues to do so.

I think first I need to briefly describe the forces and the set of transformations that I see companies going through as a result of advances in information technology that the CIO supports and delivers. The first thing that I look at is mobility, and that's really doing business anytime, anyplace. This can be an employee, a customer, or a business partner. And what that means is that the world for the CIO is expanded greatly in terms of what they need to understand and support.

The second transformation that's occurring is globalization, and really as you think about the whole conference, it's about understanding where the talent, the skills, and work is going to be processed over the long term. And what IT  does is it gives the ability to move information to the expert, as opposed to having to move an individual, an expert, to the information. And because of digitization around information, that digitization allows that information to move on a global basis and be processed anywhere in the world.

The third transformation is caused by proliferation, and that's the cost of computing, whereby the intelligence is now being embodied in everything. The cost of computing is being driven down so low in terms of the physical aspect of computing. Not the people aspect but the physical aspect -- it gets propagated in every fabric of everything that we do.

The fourth transformation is continuous. Once again because of the fact that we can do things globally and process anywhere anytime, because of that and the fact that intelligence exists all over the place is we end up in the ability to continue work processes non-stop on a 24/7 basis. That is a real challenge for CIOs, because the day never ends, and things need to be continuous, and always running.

The fifth area that I look at is really now as you think about some of the newer technologies, the social media, that are propagating is around community. And I really kind of look at community as harnessing the power of groups by integrating them around common interests; and that's really key.

I think we've been in an information overload, which has really been a challenge, but getting the right information to the right set of people to be able to act and respond is critical. So how do you manage that and manage the communities that we all are involved in, the different communities and the information that they need in order to be effective? And that really ties in to the whole concept which is the transformation.

And maybe the overall biggest part of the transformation is what I call the extended enterprise. And when I think about extended enterprise it's really inner connecting electronically across the complete value chain of an enterprise--every customer, every partner, every supplier, all interconnected into a value chain that can be very effective through the information technology enablement.

Scot: Right.

Steve: So if you take that set of constructs and you look at the CIO of the past, it's become much more complex. And the importance of IT and IT delivery as a competitive differentiator just to be in business, grows as the CIO plays a greater role in so many aspects of the firm.

So the CIO now needs to be on top of new developments that enable lower cost, improved customer service, and enhance the value proposition of the enterprise. That hasn't changed; but what has changed is the all the aspects associated with what the CIO needs to be touching and responsible for: Managing, controlling; directing in some fashion in order to make the results effective.

Scot: Okay, so are you saying that the CIO is the critical lever in the ability of a business to take advantage of the things you're talking about, like mobility and globalization?

Steve: Absolutely. And because of that, it's maybe not so much the role that the CIO [plays has] changed, but the skills required for the CIO in order to be effective have changed a bit.

So when I look at that I say it's the skills that are required to change. CIOs have a lot of challenges in order to be able to get the investments [and] the dollars necessary to make the changes that they need to be most effective. They need to be sales [people], they need to be relationship folks, they need to understand business and finance, and they need to be with the business as they are integrated within the business in order to be effective. And that's the big change.

And one of the things I often see or talk about is the fact that there are gaps that have been created between business and IT. The fact that we talk about business and IT and we don't talk about business and IT as a component of business is a problem. So when I think about it, it's that integration that's required, and the successful CIO needs to be an integral part of the business and accepted on that basis. Also as a point delivering the performance and the capabilities that technology can provide, because that's their role. But being integral to the business in terms of directing where the investments go, whether the business be in technology or other areas is critical.

Scot: So a lot of this naturally leads to what we're going to be talking about in New York in a few weeks, which is business process outsourcing. So how does a CIO determine the competencies that stay part of the internal IT and what goes out to partners?

Steve: Every firm is different; they are different in terms of what they have in place, where their maturity is, what their needs are, how they can solve those needs and so forth. So I think the key is in what I've always tried to do. I try to keep knowledge within the firm around architecture engineering, as well as develop the management skills and the measurement of what's supposedly delivered by that third party so that it can be effectively managed. And I've seen in some cases where firms have outsourced something and then believed that was somebody else's responsibility to manage. It's critical; actually I think it's more critical, and even perhaps [an] even more difficult job when you're managing across a relationship that is not directly under your control to put the management controls and the measurements and the capabilities in place to be able to manage that relationship. But also from the perspective of the changes that are required, the needs of the business in getting the responsiveness that you need.

Unless you understand at a detailed level [what] I'll call the architectural engineering of what's in place, it's very difficult to understand what and how long it will take to deliver what's necessary to the business. And [it's] critical to maintain that knowledge internally. Because what happens -- and I've experienced this over the years in -- is that once the business is in place, you know, you do business with particular companies in place, is there's an inertia that gets established and an expectation that that business will continue and the flow of money will continue. So you have to work that relationship to make the changes required to be responsive to the changes in the business that you need, recognizing the fact that at times that's more difficult once you've established a third-party relationship. So that's a very, very different type of skills and capabilities that you need in order to manage that.

Scot: Since you spent a lot of years in the financial services industry, I was wondering if you could relate some examples of where you took advantage of BPO in those markets.

Steve:  Absolutely. I guess in some cases when I look back we were fairly early of being able to utilize BPO or ITO. Specifically when I look back we were pretty early into the ITO era with application development, with a number of major firms that [will] be represented at the conference, we were early adopters of the whole model of recognizing the fact that we needed to build technology capabilities more rapidly than we could internally. And the skill sets that existed on a global basis were actually stronger at that time outside the U.S. We built very, very strong relationships with a number of firms that effectively created the application development capability and model for being able to develop and maintain applications around the world. At that time we got to the point where if you looked at it we were about maybe 40% outsourced offshore and 60% in house at that time, and that's over 20 years ago. So that was fairly early days of that move.

Later on, what was interesting is that we had the opportunity to build one of the unique set of hybrid-types of relationships with a firm that we put in place to get us off the ground on the BPO side effectively with another third party partner. But we hired all the employees up front on an offshore basis, as a direct employee of the firm I was working for, and utilized the third party to do training, recruitment, food and transportation, facilities, and so forth, and it was [a] very, very successful hybrid venture that eventually then spawned into a captive that we created, and maintained the dual relationship as well.

So there are many ways to attack the BPO space. I think you need to evaluate where your needs are and then look at the types of models that are available and the types of firms that can supply that capability. I was fortunate in those days working for very large firms that had critical mass, so you were able to move the needle very, very rapidly. In many cases, and actually in more recent positions, where we didn't have the mass to move the needle, it was amazing to me how a relatively what I would consider a small commitment in terms of resource requirements and so forth could actually get vendors very, very capable and known vendors to respond with the potential of future capability.

And also, the fact that they had evolved in certain aspects in areas where they could provide the capabilities at a very, very cost effective level; meaning that they had developed the processes, the skills and capabilities that could supply at a much lower level to the marketplace a capability without having huge scale.

Scot: What do you think would be some emerging areas of BPO that we think we might be seeing in the next few years?

Steve: I think BPO is maturing and changing and evolving as well. If I think about the first wave of BPO and some of what I'll call [the] potential learnings or values of that, is I think we all know that as BPO originally started to really grow, it had some trouble in dealing with customer service because of language. And there was retrenchment, I believe, in that space. I believe that side of things will evolve and mature over time, either based upon improvement of the language skills on a global basis, or the use of technology to be able to respond more effectively and provide the scripting and so forth.

What I see happening and I see how many firms is that they recognize that there needs to be not a single solution, but a multi-level solution, especially as you're dealing with U.S. firms. There are opportunities to compete within the boundaries of the U.S. or what's called near shore, or to go far ashore, and to craft that into a solution. So I think that the BPO suppliers need to understand that they need to expand their capabilities so that they have all those capabilities in place that can then match against the needs of a particular company.

The second thing that I see is actually -- and this is an area that maybe there's a little bit of a paradox here -- as we automate more, the need for BPO actually diminishes because of the need for labor associated with the processing of the information is going to get lower. So where a lot of the initial BPO was the ability to do data entry, and offshore different manual kinds of processes, as those processes become more automated because there's more capture at the source and digitization of information at the source so that there's no need for data entry, there's more and more customer self-service, which is again entry at the source, then the ability to process without people becomes more enabled.

So then I believe that we've seen that constantly, I think, if you take a look at the U.S. economy and look at the profitability of firms today is what's been seen is not been necessarily on revenue growth and business growth, but it's been on the average to lower costs by reducing staff, by automating processes. And when you do that then the nature of the BPO relationship needs to change.

I think that's also why when we talk about BPO you also need to talk about ITO at the same time. ITO enables BPO, and to the degree that the BPO firms can provide the technology capability and be able to provide an economic model that allows companies to scale up, scale down, and so forth, and move rapidly utilizing the firm's capabilities, I think will enhance the use of the BPO. Right? So I think it's that interconnection and affection to a different type of offering than they provided in the past, and being able to then become the true partner relationship with firms and to be able to then do whatever is required as the firm is evolving and changing.

Scot: [Those are] excellent insights, Steve. Thanks very much.

Steve: I appreciate the time and I hope that folks listen to the dialog and learn something from it.

Scot:  The World of BPO Forum in New York on July 17th and 18th is a really good conference. It's great for meeting people, excellent networking and excellent sessions. Steve Sheinheit, former CIO, will be leading the panel on the "The Evolving Role of the Successful CIO -- May the Force(s) be with You!"  This has been Scot Petersen, editorial director of the Business Applications group at TechTarget. Thanks for listening.


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