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The massive recent project failures at IBM strike at the heart of why outsourcing fails

By Andrew Pollack on 08/08/2013 at 07:33 AM EDT

One of the most respected I.T. columnists for the last 25 years or more points out some of the latest failings at IBM in his most recent article here, entitled "Fulfilling customer requirements is a weapon at IBM"

Cringely has made a solid career and reputation by listening to what insiders at a company say about it. He's done it so long, that his channels for information are probably as good as those of the NSA or Volker Weber. A sure sign he's on the right track, is the report that "there is now a filter on the IBM corporate e-mail system that flags any messages that contain the word Cringely."

Cringely has been highly critical of IBM for several years - particularly since the company began a relentless campaign to reach $20 per share by 2015 no matter what it costs the company. Since that goal was announced, IBM has focused it's earnings per share efforts largely on cost cutting through employee reductions, transitioning as many remaining jobs to overseas data centers, and by spending as little as possible on current product lines. This last reminds me of what Computer Associates used to be famous for. They would buy a successful product, brand their name on it and continue to sell it on its reputation while spending as little as possible keeping it up to date and competitive, milking the revenue until the product became irrelevant.

Some of the latest bits include the following reports:

  • The state of Pennsylvania cancelled an unemployment compensation system contract that was 42 months behind and $60 million over budget.
  • IBM has been banned from the Australian state of Queensland after botching a $6.9 million SAP project that will now reportedly cost the people of Queensland $A1.2 billion to fix.
  • Credit Suisse analyst Kulbinder Garcha says IBM has a cash flow problem and downgraded the stock.
  • IBM’s Systems & Technology Group gave employees a mandary one week furlough at the end of August or beginning of September.

Good outsourcing vs. Bad outsourcing

The first two on that list strike me as emblematic of picking the wrong outsourcing partner. Cringlely's article talks about this in different terms, but for me the subject is quite personal. Over the years I've had discussions with clients many times who want me to compare my rates with what they can get by outsourcing to IT development centers overseas. What I usually tell them is that I'm not interested in competing at that price, but if their new relationship doesn't work out, I'll be here for them with no hard feelings. There's no point in arguing that the outsourcing vendor isn't capable -- because that's not really the problem.

The problem is that those kinds of vendors deliver exactly what you ask for without any analysis, discussion, or counter proposal. I've run into very few corporate project owners who don't think this is exactly what they want, and I've run into very few who can manage that kind of relationship as successfully as they think. They need an outsource partner who can help them get what they need, rather than just what they're asking for. You can't explain this successfully to a customer who hasn't experienced the project failures yet that result when they hire people who just do what they're asked and never raise questions.

It's the difference between a contractor and consultant. The IBM of the past was good at it. Today's IBM is not.

When I'm brought in to work on a significant development project as the lead, the first step is to sit down with the client and understand not just the requirements, but the goals behind the requirements and how the work they're asking for will impact the people using system. My job, at this stage is to use my experience to anticipate the unseen requirements, the potential problems, and the unintended consequences of the changes they're requesting. I do this through asking questions and getting them to walk me through both the current process and the updated process. If we have the right people in the room -- not just the project managers but also representatives of people who use the systems daily -- then during this phase they realize how the real world use differs from the project plan paperwork. We're able to adapt the plan and build what they need. Spending the right money up front on this kind of analysis prevents the kinds of disasters Cringley is pointing out.

IBM used to be the company you turned to when you had some massive technical job to do and no idea how to do it. They brought in teams of people who would help you get your hands around the project, then design a solution using whatever systems and processes it needed. The work of implementing was the tail end of the real project, and often wouldn't even be the part IBM did. Sadly, that's not the IBM of today, as the people of Queensland have learned when their failed project cost them 174 times the estimated cost. Today if you bring IBM in to solve that massive problem, you'd better already have your solution planned because IBM will give you just exactly what you ask for. If you don't ask for the right things and it fails, that's your own fault. If you do ask them to design your solution, you can bet it will be based as much on what IBM wants to sell as it will be based on what would actually be the best solution.

IBM will probably make a come back some day, when the people who have been there too long have retired and the right management team steps up. They've done it before, coming back from the dark days of antitrust, for example. It's going to be a long and painful process though.

There are  - loading -  comments....

re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Craig Wiseman on 08/09/2013 at 09:12 AM EDT
And this time, unlike the antitrust scenario, they've got no one to blame but
re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Shiraz Oken on 11/17/2013 at 10:53 PM EST
Avoidable failures have resulted from adopting an 'order taking' approach, not
challenging the status quo by asking leaders the right questions or having
effective governance structures to keep the project true to its original intent.
Without trying to over simplify ,three main factors that drive failure includes
a desire to close the deal at all costs, second is the low level of strategic
knowledge and experience of the resources doing the implementation and the
third is the tech implementation approach that allows analysts to join widgets
without an understanding of the big picture of what they are trying to deliver
re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Andrew Pollack on 11/18/2013 at 10:35 AM EST
I agree with this. I don't think it's particularly new, but I do agree with
what you say here.
re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Had enough of the blues on 12/21/2013 at 01:08 AM EST
IBM have a pack of cards, and at any stage in a project, it's pretty
predictable which one they'll play. Delivering what the client wants is
unimportant... Making a dollar is. The longer the project, the greater the
dollars. The most played card is the change in requirements, but don't play it
too soon... You only play this card when you can maximize the impact of the
change, & conveniently deny that it was requested 6 months earlier.
re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Russ on 01/06/2014 at 08:09 PM EST
IBM has made a determined effort to shed it self of people 55 or over for the
last 20 years. The knowledge and experience lost is irreplaceable. The
company I work for has hired many of these folks--who by no measure are
obsolete or problematic. The institutional knowledge is wrapped up in the
employees, not the management.
re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Amit Arora on 01/15/2014 at 04:20 AM EST
Hi Andrew,

Good to read your blog.

You said:

The problem is that those kinds of vendors deliver exactly what you ask for
without any analysis, discussion, or counter proposal.

This is very much the problem for sure but another reason for the same is the
organization design structure as well within IBM , Until you have the right
people at the right place taking the right decision, things will never improve.

Within IBM there are level 2 people who are reporting to a manager who is at
level 5, this creates problems. He is taking decisions which are actually meant
for level 5. IBM uses Agile a lot but at such an expanded e level Agile
tends to fail and doesn't work. To make it work you need the requisite
structure. At a company level one should also match the level of the vendor and
the team structure once the work starts with the outsourcing vendor. Until you
have the right structure and the right kind of role relationships with clearly
defined accountability, projects will keep on failing as well.

IBM has been recently interested in Requisite Organization ( Elliot Jacques)
and they are co-sponsoring the RO conf in NY happening in JULY this year. If
they adopt this I am sure they will come back with a bang.

re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy Vijay Paul on 08/25/2014 at 02:23 PM EDT
It is an issue with our Indian education system, culture, and feudal attitude
towards management. We cannot do big picture visualization, conceptualization,
solutioning; we cannot create solutions with risk control if we are given an
unstructured and amorphous business IT problem.

IBM should embed American or OECD trained managers in all its Indian teams,
Indian HR/admin.etc. This can be budgeted by getting rid of one level of the
feudal multi-level management/reporting system that always evolves in India.

Maybe IBM can send me an honorium. j/k
re: The massive recent project failures at IBM strike at the heart of why outsourcing failsBy David Hibbs on 03/30/2015 at 04:18 PM EDT
Once upon a time I was a Transition Project Manager for IBM. My job was to work
with both IBM and the contracted company on bringing the outsourced entity to a
successful standing. At the time it was important that both with IBM and the
contracted company agree that all provisions of the contract were met to the
satisfaction of both companies,

Customer sat numbers & service level numbers were watched closely by Project
Execs. If any dropped, they were immediately reviewed. For several years I was
assigned to several of the contracts as a 'Troubled Project' specialist. I
would be handed the statistics and told to analyze and find out what was wrong.
Then I was to put together a presentation & review it with Execs on both sides.
If they agreed the next step was to put together a plan to correct the issues.I
did this for 4 contracts up for renewal. All were renewed.

About 2005, attitudes started to change. Bottom lines became the guiding rules.
Travel to the customer sites were discontinued; project teams were
significantly reduced and the final act that I saw was 40% of the experienced
Transition PM's were let go. Having 29.5 years in I was given the choice of
retiring or getting laid off. I took the retirement/lay off and haven't looked

Given what I read in this article, I am not surprised IBM is having these
catastrophic problems.

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