November 1, 2006
Starbucks Outsources IT Functions
What makes more sense? Keep it in-house or outsource? That is the question that many organizations face and there doesn’t appear to be any simple or clear-cut answer.
Earlier this week, Starbucks joined those going the outsourcing route when it entered into a deal that will have Unisys take over a large number of IT functions for the company in its retail stores, regional support centers and manufacturing facilities.
The coffee chain is looking to Unisys to help it manage the demands that will be placed on IT as the company looks to achieve its aggressive expansion goals here and abroad.
“Our Global IT Infrastructure Program delivers standard services to our international markets in support of Starbucks growth targets,” said Brian Crynes, chief information officer for Starbucks, in a joint press release with Unisys. “We chose Unisys based on our confidence in their global service delivery model that supports our growth requirements.”
Unisys will take responsibility for a number of functions including:
- Service and help desk services;
- Data center services, including network and server monitoring and support;
- Equipment procurement, configuration and maintenance;
- Business continuity and recovery consulting services;
- Global program management to plan and implement service delivery;
- Enterprise security management.
“We are pleased to have the opportunity to partner with Starbucks to achieve even greater international growth and recognition,” said Randy Hendricks, president, Unisys Global Outsourcing and Infrastructure Services. “We believe that Unisys global IT services expertise will help Starbucks attain its strategic expansion and enhance the service experience for both Starbucks customers and its people.”
Discussion Questions: Where do you fall in the outsourcing versus in-house management question? Do you see dangers in over-dependence on another organization?
Are there business cases that illustrate your position?
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Some retailers have stable IT departments, with reasonable turnover, the variety of up-to-date skill sets they need, and a reasonable project priority list. Many other retailers have unstable systems, high staff turnover, skill shortages, and huge icebergs of unfulfilled priority projects. Both outsourcing and in-sourcing can be poorly managed and/or underfunded, leading to disappointing results. Or not.
Many retailers use common carriers instead of their own trucks and drivers. Many retailers use outside ad agencies instead of their own staff. Why not outsource IT when it’s appropriate?
IT services have become critical to most retailer’s operations and vital to sustaining competitive advantage. Yet the issues surround successful IT operation — security, redundancy, network management — are mystifying to most retail senior executives. As a consequence, outsourcing is the way to go. Look at IT services like electricity and water.
However, if your IT is not yet stable, vital, and organically interconnected to the fiber of your organization, don’t think about outsourcing. You’ll need to give IT your attention, support and resources. Another party would only confound your situation. Outsource after you are well automated and stable, enterprise-wide.
It’s important to remember that outsourcing can highlight flaws in your existing processes that you didn’t even realize were there. Things that are easy to do when you know how to do them can become much more difficult when you have to tell someone else how to do them. Thus, outsourcing is best when you already have your act together – something that is lost on many companies who just say “let’s dump this mess” and outsource.
Will it work for Starbucks? They probably have their processes pretty well in order, they’ve probably evaluated not only the cost but the level of service that is required, and they seem like they should have the corporate mentality to make it work, so I would guess that it will. It’s always easier to outsource something that doesn’t require direct customer interaction.
I am seeing IT outsourcing going on now within the company (retail) I work for. My husband has worked for different companies; some have insourced and some have outsourced.
I would say that what is decided is based on what level of service you are comfortable with. Generally, better, faster and more efficient service is provided when you keep IT in house… naturally you have to have good people, dedicated and with the right skill set in place. That usually happens over time. Inhouse people speak the same language, have the same understanding of equipment, technology and company goals and they have a vested interest in getting the job done asap – they take pride in ‘their’ company.
Outsourcing provides a quick way to save money in the short-term but outsourcing is like hiring contractors within your own company – different culture, different and more generic skill set and a general understanding of business, not necessarily your particular business. This especially hurts with the one on one contact that some IT functions necessarily have, two ends speaking different languages. As far as projects go, outsourced IT can’t really see the project’s big picture because they are not really involved in your particular business beyond their defined duties. They may even be off-shore or out of the regional area.
Some of the greatest companies were built by promoting from within – not possible with outsourced IT. Companies like to say that their employees are their greatest asset but more and more real life business situations like the situation Starbucks has embarked on, gives lie to those words. If cost efficiency is a problem in some IT departments, you have lousy management who probably fall prey to the latest and greatest technology of the day rather than doing what works best for your business.
Outsourcing IT is a multi-billion dollar industry. If it’s the wrong thing to do, Western Capitalism is in big trouble. The question isn’t should you trust your outsourcer, it’s can you trust your in-house team to be as cost efficient as any of a number of highly credible outsourcing organizations?
The obvious answer to this question is “it depends.” It depends on a lot of things, but particularly on the ability for the organization to spread the high overhead costs of IT across multiple locations. As the “web” becomes more pervasive, it becomes easier and easier to centralize IT functions and deliver their services to remote locations via the network. What remains a local task is the actual attachment to the network, but even this is becoming more of a commodity as browser based application interfaces continue to replace client server architecture.
The big question is “Where is the breakeven point?” How much is it costing to run your central IT functions and how many places do you have to spread those costs? The IT department is often the “odd man out” in many retail organizations. Retail management doesn’t really understand exactly what they do and it is easy for a technology vendor to point to inconsistencies in a world of constantly evolving technology. The retail organization has three pretty clear options for providing IT services. They can outsource, buy packages and integrate them, or build their own application solutions. For the small to medium size retailer outsourcing is the obvious answer. For the 200 to 500 store chain, packages and application integration make some sense. When you go beyond 500 stores, it seems to me the answer is to put more emphasis on providing the services yourself (you may still use outsourcing or packages for “commodity applications” like payroll, accounting, etc). By recognizing IT as a tactical tool that can improve your operations and give you an operational advantage you provide better service at a lower cost.
Having said all that, I am surprised at the Starbucks decision. It seems to me that with the number of stores they have that their IT costs could easily be spread across many locations. And given the nature of their workforce and their desire to create a unique atmosphere, customized applications that are simple to use and directed at the task at hand would seem to be an excellent way to enhance their in-store service.