Tag Archives: IT outsourcing strategy

The US and Our “Average” Workers

I am still baffled by the article from March 6th by CNBC titled, ‘Average’ Workers Plague US Businesses: Execs Survey.  The knock on the American worker is that they lack critical thinking, creativity and communication.

WOW!!  Imagine that the American worker is now the problem.  Never mind the American worker has been outsourced, marginalized by poor work designs and subjected to outdated management thinking.  However, clearly the worker is the problem?

What’s missing?  According to the survey  . . . “highly developed skills in making decisions, the ability for workers to transmit their ideas in oral and written form, being able to collaborate with co-workers, and the foresight to be innovative and make something happen when action needs to be taken.”  Let’s take a look at these:

  • Highly developed skills in making decisions – How often do executives actually allow a worker to make a decision?  On anything?  Compliance is the name of the game for a worker – written procedures and rules see to that.
  • The ability for workers to transmit their ideas in oral and written form – Other than the outdated “suggestion box” when is an executive really interested in what a worker has to say?  The strategic plan and projects restrict any ideas of relevance this is a management problem not a worker one.
  • Being able to collaborate with other workers –  Deeper issues here, reward systems pit one worker against another in too many cases.  Competition is cited as the best path, not cooperation.  Again, a management issue.
  • The foresight to be innovative and make something happen when action needs to be taken – Again the system workers are laboring dictates how much innovation is achieved.  Workers are restricted by the system.

American management is what plagues the US, not the American worker.  Something American management has not come to grips with yet.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his column at Quality Digest and his articles for CustomermanagementIQ.com. Reach him on Twitter atwww.twitter.com/TriBabbittor LinkedIn atwww.linkedin.com/in/trippbabbitt.

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The Perfect Medicine for Outsourced and Shared Service Success?

I ran across the “Sourcing Sage” and his creative cartoons about outsourcing.  I found the cartoons to be entertaining but not-so-much the sage advice.  His wisdom is that in order to outsource/share services an organization needs to do the following:

  1. Process Documentation
  2. Standard Operating Procedures (SOP)
  3. Training Curriculum
  4. Knowledge Base
  5. Product Documentation
  6. Organizational Optimization
  7. Workstation Standardization
  8. Systems Inventory
  9. Metrics
  10. Costs

Nothing new or creative but does “re-emphasize” what most big IT firms will tell you.  Unfortunately, most of this stuff guarantees nothing when sharing services and/or outsourcing.  In fact, most of it is waste.  However, in the industry this is best practice.  A fool and his money are soon parted.

And it happens all too often . . .

Standardization leads to failure demand as these manufacturing factories can not absorb variety found in service.  The result is a colossal waste of organizational dollars.  All the documentation in the world is not going to fix an already broken work design, it just adds to the costs.

For more on outsourcing and shared services click the one that interests you.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the The 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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IT Workers – Let’s Get the Outsourcing Argument Right

Former IT workers at Molina healthcare have started a firestorm with a lawsuit (see Outsourced and Fired, IT Workers Fight Back).  The article is an interesting read and I side with the former IT workers . . . but not for the reasons that keep being used.  They claim discrimination and they may be right, I don’t know.  The court will have to sort this one out.

Regardless, discrimination or even the patriotic message of protecting American jobs will not resonate with corporate America.  Heartless . . . maybe.  But workers – and not just IT workers – need a new tactic.

Plainly said, almost all outsourcing I have seen in contact centers and IT is not profitable.  Yep, that is correct . . . it is NOT profitable.  This is a message that corporate America will understand.

Yes, I know the wages paid to foreigners is much lower.  However, reducing wages 30 – 50% or more isn’t enough to make up for the poorly designed IT when you separate developer and the work that IT is supposed to enable.

IT executives have made IT in the form of production plants in manufacturing.  I even hear words like “software factory” when I speak to executives.  Software is not manufacturing and to treat it as such is foolhardy.  This is economy of scale thinking and is used in an IT outsourcing strategy.

So what is wrong with the design?  The flow of the work – economies of flow.  Traditional software process: project planning, feasibility studies, systems analysis, requirements definition, implementation, integration, testing, installation, deployment and then maintenance.  There may be derivations of this, but who came up with this crap?  Why has this become best practice or the “one best way.”  IT projects have stunk up the place for a long time.  New thinking is needed to save jobs, profit and improve IT in general.

The traditional approach allows for the functional separation of work.  Project managers, business analysts, testers and other roles for the most part are non-value adding.  Most outsourcing seems to go after the developers, because they are expensive in an executive’s mind.  But developers are the only ones that do the work that adds value.  They have been hidden away as too expensive to interact with those workers that add value in the eyes of customers.

Developers are the only workers that can add value.  Having them away from the front-line employees that interact with customers is expensive.  Instead they have phone calls, meetings, requirements documents to facilitate their work.  Flow is disrupted and costs are increased . . . a lot!

Functional separation of work and economies of scale thinking leads to higher costs.  Outsourcing the pieces makes sense with this line of thinking.  This is why executives embrace it.  It is wrong thinking familiarize yourself with the arguments I have linked to in this article.  If you are in the midst of having outsourcing companies learn your system to get rid of your job, give me a call.  New thinking that is more profitable may be your only chance.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Asking the Wrong Questions to Improve Service

A client recently forwarded me an invitation from a company promoting a seminar titled “How to make off-shoring work?”  He rightly pointed out that if your asking the wrong question, you will get the wrong answer.  After all, it isn’t about getting off-shoring (or outsourcing, shared services, etc.) to work, it is about getting the work to work better.

The problem is (as with most fads) they are based in assumptions.  Here is the one that caught my attention in the promotion:

“Most major corporations have embraced offshore delivery of IT and are moving to the next stage of a global delivery model, in which the location of both supplier and internal resources are decided from a business perspective, with very few duplicate roles across the world. With major economic benefits, this transition has been accelerated by the economic developments of 2009. What are the challenges? What are the opportunities? And how can you make it work for you?”

Obviously someone with a vested interest in convincing an audience that off-shoring is the right thing to do and you would be ignorant or stupid to have not embraced it as this point.  No evidence, just a lot of hype from a major consulting firm that is trying to sell the mirage.

Too many companies will fall into the cost trap of such claims.  They will do this because they see a reduction in activity costs . . . a very short-term thinking proposition.  But with executives salivating over bonus potential in the next quarter, reducing activity costs sounds appealing.  They miss huge improvement opportunities with this thinking by not addressing the design of the work BEFORE considering off-shoring, outsourcing or shared services.  This is the fundamental thinking problem that management must overcome to improve service.

Off-shoring, outsourcing and even a shared services strategy have gone from a snowball to an avalanche without proof of total cost reduction.  If companies would see that they are off-shoring the waste that is in the design of the work, I believe a different approach would be in order to achieve business improvement.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.


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Better Tips for Government IT Outsourcing or Shared Services


GovTech.com has released an article titled 5 Tips for Outsourcing or Sharing IT Resources.  For all the advocating of technology, GovTech has no way to comment on any article.  So, here we go.

The first sentence should be a warning to any reader that this isn’t journalism, but a biased view.  It reads “Sharing or outsourcing IT resources can be a tough job-no matter how sensible or cost-effective the concepts may seem.”  The word “seem” is the key word here as sharing or outsourcing IT services usually results in increased costs.  Let’s take a look at why this happens as with most things thinking is the problem.

We are treated in this article to a long list of CIOs and consultants (from the big firms) as experts in IT outsourcing and sharing services.  It is a shame that with all that experience that there is so little knowledge.  It is as W. Edwards Deming said, “Experience by itself teaches nothing.”

The “tips” are as follows:

  1. Assess the Need
  2. Measure Total Cost of Ownership
  3. Carefully Craft the Contract
  4. Get Everyone on Board
  5. Win Approval from the Top

These all appear logical enough which makes most of what I am about to say a management paradox.  Most of the argument is predicated on the cost cutting and efficiency mindset.  We (my 95 Partners and I) have long found that a focus on cutting costs always increases them.  To focus on costs is to miss the causes of costs.

1.  Assess the Need.  Nowhere in assessing the need does anyone talk about the functional separation of work and that optimizing each piece leads to sub-optimization.  Or that IT is a supporting service that supports the actual work and can not be viewed separate from the work.  Doing so leads the actual work to fail while IT “saves money.” 

It would be difficult to say that the State of Pennsylvania didn’t save $316 million in IT, but they can’t show me that by sharing services that they didn’t increase the end-to-end costs by $500 million by provisioning services with a shared or outsourced service center.  These are the results found by my colleagues in the UK when assessing such moves.

If we are going to assess needs there should be a review of the services that are being provisioned.  In many cases we have already designed in waste with front and back offices.  This by itself begs the question of whether we even need IT, if a better work design can be found (and it usually can).  By studying customer demand and purpose (or called performing “check“) government services can be designed more optimally, lessening the demand for IT.

In assessing needs there is another faulty assumption around economies of scale.  A management paradox is that costs are not in the scale, but in the flow (economies of flow).  If or when government management understands this we can get on with saving money . . . on a large scale!

2.  Measure Total Cost of Ownership.  Sounds reasonable until I read the article and realized they were talking about IT and not the end-to-end system.  The focus on costs again doesn’t account for the end-to-end service delivery (system).

The article discusses the IT costs like labor, overhead, benefits, office space, etc. but think about the cost of a contract, monitoring the contract, all things that are typically not done well by States.  Waste begets waste so government management will hire the inspectors/monitors/auditors too.  Good segway to . . .

3.  Carefully Craft the Contract.  Having SLAs is a huge waste in government (please read: SLA: Stupid Limiting Agreement) not only the crafting, but once crafted they are like chasing jell-o across the table.  You seem to have one nailed and something else always slips through your fingers.

Targets for times are always a bad idea . . . targets in general are a bad idea.  The example of answering calls in under 60 seconds at a 95% service level is an example of the ignorance perpetuated.  I outline why in my article Call Center AHT-Wrong Measure, Wrong Solution.  The prescribed measure of service level is settling and adding costs to IT.

A good measure of understanding is to track failure demand (demand caused by a failure to do something or do something right for a customer).  This runs between 40-90% in government and offers a huge opportunity to improve.  Outsourcing or sharing services without knowing this number is to lock in waste.

4.  Get Everyone OnBoard.  When workers know a bad deal and the disruption to their work they object.  Seeing that Outsourcing and Shared Services is done command and control style (top-down) is a huge failing of these projects.  Performing “check” means understanding the work that delivers the service (and that is not IT).

It was AP Sloan that separated the decision-making from the work in 1930s GM, government management must start putting decision-making back with the work.  This means they need to understand the work, not use a report, vendor or anecdotal liaison.  To fail at this is to increase costs and worsen service.

The whole benchmarking of processes is another gigantic waste.  Every state, federal agency, city or local government is a unique system.  To draw conclusions about processes through benchmarking is ridiculous and wasteful.  Each government entity has different demands, work design, structure, people, management, etc. and to benchmark is to lead to copying.  Everything you need to improve your system is contained within it.

5.  Win Approval from the Top.  I agree here, but not the way one might think.  The “top” must get knowledge by performing “check” on the organization, not by a command and control dictate using assumptions about the work.  The input for this article is all about keeping in line.  This approach is costly and damaging.

So, that is it.  A better way to approach outsourcing and shared services requires knowledge and thinking.  Before any shared services or IT outsourcing strategy takes place we need to understand current service performance.  This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes.  We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared service or outsourcing opportunities.

To learn more click on shared services strategy or IT outsourcing strategy from my blog or go to www.thesystemsthinkingreview.com

Leave me a comment. . . share your opinion!  Click on comments below.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Improving Government in the US

The application of systems thinking in government is being well-documented by my 95 partners and you can witness the improvements yourself by going to www.thesystemsthinkingreview.co.uk.  This is a great resource for local, city, state and federal government.  The debate wages on how big or small government should be, but whatever side you stand on, services still have to be provisioned. And it is in our best interest to provision them with the least amount of cost and improved service.  I have established in previous posts that there is no trade off between good service and costs.  If you improve service costs will go down . . . this is a government management paradox (read: The Zero-Sum Game:A Loser’s Mentality).

The problems with services provisioned by the government are many.  Too much focus on reducing costs, that in another paradox only increases them because we manage by visible costs alone, but it is the invisible costs that can’t be seen (the ones in the flow).  The types of wastes outlined in Systems Thinking in the Public Sector hold true for the US Government:

  1. The costs of people spending time writing specifications.
  2. The costs of inspection.
  3. The costs of preparing for inspections.
  4. The costs of the inspections being wrong.
  5. The costs of demoralization

The functional separation of work conceived by FW Taylor 100 years ago still drives thinking in both the private and public sector.  This thinking along with technology leads to such foolishness as outsourcing that increase costs in the pursuit of transaction cost reduction.  This productivity mindset fails to look at the end-to-end costs (or total costs) by lowering the cost of a function or transaction leading to avoiding opportunities to reduce total demand (because most of it is unwanted or failure demand).  Outsourcing is not possible with technology, so we both outsource waste and lock it in with technology.

Shared services fares no better, the idea is to achieve economies of scale and reduce transaction costs.  The problem is that costs are reduced by economies of flow (not scale).  We typically get the double-whammy of shared services and outsourcing where we are allowing our government to contract out our waste and add to it in many cases.  Most of the waste in shared services is because government management has separated the work into front office-back office or skilled – simple (functional or transactional).  A better way is to design against demand where the variety produced by service can be absorbed.

Another waste is targets set in government.  Targets become the defacto purpose of government agencies, creating measures that sub-optimize by focusing on compliance and provide poor service by restricting method.  The purpose should be to provision services against customer demand, finding measures that matter to understanding and improving the work, and liberating method.  This liberation of method achieves government innovation by allowing government managers to be responsible and choose what to do free from compliance.

The conversation will continue, and we will need to try new methods to improve the way the US Government provisions services.  Otherwise, new ways are restricted and costs increase in an over-burdened system.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.

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The IT Scorecard: Hitting the Date

While doing bank management consulting I learned a lot about IT, as in how not to do it.  The classic and traditional way to measure an IT project is if it met the deadline.  Revenue targets and bonuses were on the line to meet the date.  A well-calculated project plan was always in place to be sure that revenue would be booked timely.  One aggravation was that to meet the schedule improvements were always by-passed.  No one redesigned anything, there was no time.  No time for collaboration, no time for learning the “what and why” of performance . . . the schedule was what determined success or failure.

The problem with that approach was that the fallout was great, lots of bugs and dissatisfaction from customers.  It was always strange how the customer would just negotiate a lower price vs. trying to fix the partnership.  To me it was such a wasteful process that took place for both sides.

There are better approaches to IT.  The better way is to understand the “what and why” of current performance and improve by turning the IT off or treating it as a constraint.  This way a service organization can redesign workflow, roles, measurements, etc and then “pull” technology if it will help the process. 

The new measures are measures not of project completion deadlines, but how well the system (technology, structure, measures, work design procedures, etc.) end-to-end serves the customer.  We have found that serving the customer always lowers costs and improves customer satisfaction.  Most banks serve the IT vendor and their calendar which has always made little sense.  One of several reasons to not like an IT outsourcing strategy.

Banks and other service organizations can no longer afford to blindly spend money on IT that entraps and never reaches an ROI.  With CRM, BI and BPM being tossed about as the new best thing you may want to exercise caution before jumping into the fray.  I rarely find these to be good investments for service organizations.  The movement from the “IT date complete scorecard” to a “customer scorecard” will serve you much better in the long run.  But to achieve this you will need to think differently and discover a better systems thinking way.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Outsourcing: Why It’s a Bad Idea

I have had a lot of mini-battles over this stance (99% from vendors that profit from outsourcing) and I am sure I am going to have more.  We need to have this discussion, it supports better thinking than the assumption that outsourcing always saves money.

Let’s begin with a look at the common thinking . . . command and control thinking.  This thinking is based on scientific management theory born from Frederick Winslow Taylor.  This thinking called for the functional separation of work.  Government and businesses have broken the work down into pieces like sales, sales support, front office operations, middle office operations, back office operations, technology, call center . . . you get the idea and probably live it.  Someone came along and said, “hey, we get 5,000 calls in the call center and it costs $20 per call.  But if we ship this to a foreign country with cheaper labor, it will cost us $8 per call.  No brainer, we can reduce our transaction cost.”   The fundamental problem with this production mentality is that we focus on reducing the costs of the transactions rather than reducing the number of transactions.  Better thinking is coming to the realization that call centers carry waste typically between 25% and 75%, this waste we will reference as failure demand (for example, failure to: show for an appointment, call back, meet customer expectations, not solve a problem, send out an application, etc).  These failure demand phone calls instead of being eliminated are outsourced.  And usually I see increases in failure demand after outsourcing because the outsourced call center winds up creating its own failure demand (one bad phone call that leads to many).  Elimination of failure demand usually requires redesign of the work and help from the people you are trying to outsource.  But elimination of failure demand both decreases costs and increases customer satisfaction, so why outsource the waste?

One of the arguments that I hear in favor of outsourcing is “we are specialists in this area and you are not, so you need to outsource.”  Maybe, but by optimizing a piece do we optimize the whole, the answer is no and in many cases it sub-optimizes the business.  The failure of organizations to look at their organization as a system can be very costly no matter what the function being outsourced.

The one argument I hear most from outsourcing vendors is that my expectation for organizations is unreasonable . . . no company is perfect.  Does this really make it OK to outsource waste?  I can hear the company motto now, “our waste does not cost you as much.”  There is a certain acceptance of waste and inefficiency, that to you, should be intolerable.  This doesn’t matter whether you are in private sector or government management.

My work is to help you understand your organizations as systems and that better thinking exists to manage your service companies be they private or public or even the service side of manufacturing.  A systems thinking organization has a huge advantage over the command and control thinker.  So before outsourcing or if you are outsourcing, I urge you to take a hard look at your system . . . the customer demands (value and failure), purpose, work design, flow and value.  If you can’t see the waste in your system, let me know, I’ll be glad to show you.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Download free from www.newsystemsthinking.com “Understanding Your Organization as a System” and gain knowledge of systems thinking or contact us about our intervention services at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt.

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3 Things to Consider Before Outsourcing

I spoke to a reporter from India (Reed Business Information) this morning regarding outsourcing and more specifically the impact on Infosys.  He informed me my view was “different” than everyone else and I could only reply that I was used to that comment.  Most Americans want “in-sourcing” because they want to bring jobs back to North America, I want service organizations to realize it is a poor financial decision to take this call center or IT outsourcing strategy. 

Decisions are made in command and control fashion from the financials without knowledge of the work and/or based on scientific management theory that has long proven . . . outdated.  So here are 3 things to consider before you outsource:

  1. The Work.  For a call center what is the type and frequency of demand.  More importantly is the demand value or failure?  Most call centers have between 25 – 75% failure demand in their call centers and after outsourced lock in the costs of this failure demand.  For software development it is the realization that software is not developed in a production line, software is developed from knowledge about the work.  When developers are separated from the work it almost guarantees a poor outcome in what is coded leading to multiple rounds of rework that quickly lose their “cost advantage.”
  2. Economies of Flow.  Economies of scale drives American business.  Few understand “economies of flow” is the real driver of costs.  Trapped in this wrong paradigm service organizations separate functions of work outsourcing pieces leading to sub-optimization (improving the cost of one area at the expense of all others increasing total costs).
  3. Ancillary Costs.  There are technology costs, contracting costs, turnover costs, training costs, meeting costs, customer impact costs, etc.  Look hard at what really is involved and you will probably find other hidden costs.

Evaluating these 3 areas before outsourcing can lead you to better decision-making about what your service organization should do when considering an outsourcing strategy or even an in-sourcing strategy. 

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  He is focused on exposing the problems of command and control management and the termination of bad service through application of new thinking . . . systems thinking.  Download free Understanding Your Organization as a System and gain knowledge of systems thinking or contact us about our evaluation of in-sourcing or outsourcing strategies at [email protected].  Reach him on Twitter at www.twitter.com/TriBabbitt.

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IBM = I’ve Been Moved (Outsourced)

OK, I just took Chase out back and gave them a blogging.  Now IBM has a turn.  In the WSJ this morning (IBM to Cut U.S. Jobs, Expand in India), it was announced that IBM was eliminating 5,000 jobs. Those that read my blogs know this isn’t the typical pushback, but I can certainly understand why Lee Conrad is trying to organize the Communications Workers of America.

The really distasteful part is that decision is made by executives and bean counters that have no understanding of the work or their understanding is tainted by command and control thinking.  This means they have financial targets to hit and whoosh 5000 jobs are gone. 

What about the damage to employees that are training their replacements.  Like the WSJ says IBM had them do.  I can hear it now, “I want you to work with someone that will be replacing your job in a few months and tell them every thing you know.  Oh, and you can keep that job if you are willing to take say a 40% pay cut and live in a foreign land.”  WOW . . . is my job meaningful.  This is something only out of Dilbert.

The whole IT outsourcing strategy works off the premise that software is a production line of functional separated work “where we can take this piece and move it over there and this piece over here and . . .”  I have never found this idea to work well in software development.  The developers need to see and understand the work of their customers in order to build good software.  This is no place to apply scientific management theory.  Doesn’t this industry already have a bad reputation for missed timelines, overdue projects, cost overruns and the corresponding results lead to increased costs for the customer rather than lower.  Now we are going to take the developer and move them 1000s of miles away from the customer and get better software?

This is technology change management, we can’t believe in and in reality will wind up costing IBM more in total costs that the bean counters can’t see in the financials and the executives can’t see in the work.  There is a better way . . . systems thinking.

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