Media giant Viacom is taking bold steps in the use of smart sourcing to run its back-office functions. As CIO Joe Simon tells CEO, the benefits of contracting niche suppliers offers a glimpse of the future for outsourcing.
Though many people have heard of media company Viacom, they may not be aware of its scale of operations. The company's portfolio includes cable networks Comedy Central, Nickelodeon and the family of MTV channels (MTV, MTV2 and VH1). Viacom also owns Black Entertainment Television, which airs programming on BET, BET Gospel and BET Hip Hop. In the film business, Viacom operates through Paramount Pictures.
For CIO Joe Simon, the challenge is to manage the company's myriad technology needs, marrying innovation with controls and driving growth while avoiding inertia and waste. This is no easy task, considering the varied nature of the business which, in 2008, recorded revenues of over $13bn. For Simon, the secret to this success has been embracing and encouraging change.
"Even a slump can have a positive effect on a company, but that is where having people who aren't afraid of change make a difference," Simon says. "The same folks who drive change through a company will have to be innovative for the future."
Retain the hunger
A crucial tool in avoiding complacency, and ensuring that the company retains its hunger for change and innovation, has been the practice of smart sourcing, which offers a glimpse of the future for those looking to match a no-frills approach with keeping operational areas in-house.
"The idea is that we have a framework in mind, and we identify what elements we want to outsource," Simon explains. "We then execute it in pieces where it makes sense. This means running a number of small-scale outsourcing deals across the IT function. Deals tend to be for a fixed term, and are subject to regular review. Costs are kept down, and Viacom engages smaller, niche firms to carry out specific outsourced IT jobs."
The impetus for going down this route lies in Simon's experience of large, long-term outsourced projects. "The thing I would compare it to is if we had outsourced all of our IT, which is what a lot of folks have done," he says. "And they've all had issues. This is about the lessons we've learnt from them and our own experiences."
For Simon, the loss of control over operations that was inherent in pursuing an outsourced model simply was not sustainable within the Viacom environment. Having experimented with large outsourcing contracts it became obvious that the dangers lay in the time spent managing the process and not the actual function.
"With large deals, one of the ways you manage them is with all sorts of stringent service levels and associated penalties," Simon says. "The problem this brings is that you end up managing not the service levels but the penalties. And that's a waste of time."
Keep everyone happy
Simon is keen to point out how smart sourcing is different: "Of course we have service levels, but we can also have termination clauses that are very favourable to us. And that really is the best penalty. We're not nickel-and-diming over trivial service problems, clawing little bits back. We end up focusing on providing a great service for our end users."
Viacom's external contractors are made aware of the company's needs before they sign up, ensuring a good cultural fit.
A second benefit of parcelling out smaller outsourcing contracts is the impact it has on staff retention. As a company that strives on its intellectual capital and its ability to constantly innovate, Viacom cannot afford to lose its talent, either to an outsourcing provider or in response to downsizing.
Even thought he is a technologist, Simon recognises that without a core of talented individuals the company will lose a huge amount of momentum for future growth. He believes that if the best people leave, then the technology function will lack the ability to turn away from outsourcing and bring its functions back in house.
"You need to retain a select band of smart people within your organisation who have the wherewithal to bring it back," says Simon. "You can outsource to IBM, sure, but you still need enough clever people in house to move to HP if that's what you decide."
For his part, Simon keeps his team and external contractors on their toes with regular reviews. It is not so much to scare them as to ensure that complacency does not creep in, a major danger for multi-billion dollar businesses. This practice, which Simon calls 'continual competitive bidding', has proved successful in keeping contractors competitive and hungry to drive down costs.
"When you do large deals there's a lot of inertia and risk in moving from one provider to another," Simon explains. "When we go for small deals, it is important to retain people who can help us move, if we need to. We could look at deals every two years or 18 months to see what the market looks like. And that applies to services and technology. For instance, we have a habit of moving our network every two years. People have a hard time believing that, but we do."
For Viacom, prevention is better than cure. That is why Simon is determined to both hire and partner with those who question the status quo. In his view, the traditional outsourcing model has been led largely by marginal process improvements and efficiencies.
"Many of the traditional outsourcers will measure success by time it takes to accept a call or time of resolution," he says. "But they're not being compensated by their structures as they exist. If they get 300 calls, they'd rather see if they can handle 600 with the same staff. But I don't want the 300."
What this ultimately points to is the need to find a cultural fit with outsourcing partners. Simon advocates going with smaller players that make up in depth of understanding what they lack in breadth of service offering. That means he may have as many as 15 smaller IT providers engaged in Viacom businesses and projects at any one time. He gets the expertise, but it begs the question: with so many individual providers on board, surely more management time is taken up by keeping them in line?
"The relationships seem easier to manage without the huge numbers of service levels that need to be enforced in the bigger contracts," he says. "Of course, you need to have discipline in managing those relationships but that seems to be a lot easier to do than making sure that service levels are kept up to date."
So has Simon foresworn ever getting into bed with an outsourcing giant? "The bigger players, they may know everything but they are not very deep in some areas," he says. "For example, we're open source on the infrastructure side. Not too many outsourcers are that knowledgeable about that so we had to look for a specialist firm. And they've been great."
It is fair to say Simon is happy with the arrangement. If proof were needed of smart sourcing's effectiveness in driving down costs and streamlining the company's processes, Simon says that in some areas he's running at 1998 spend levels. Proof that it is how smart you are that counts.
Simon is a keynote speaker at the Global Sourcing Forum+Expo 2009: http://gsfe.outsource-world.com