The information technology industry, maintains Dan Brennan, resembles nothing so much as the construction industry. How? For starters, about the same amount of money (in the $400 million range) is spent annually on buildings and computer systems in the United States, according to Brennan. Both industries are project based. The systems integrator is equivalent to the general contractor–and both are evaluated in much the same way, says Brennan: “Do they have a track record of successful projects and a reputation for quality? Does a project fall in the sweet spot of their expertise, and do they have the resources to deliver?”
But there’s a significant difference between the two industries, he adds: “You almost never see a building start up and not be completed.” Why is it that so many technology projects are derailed? According to Brennan, one overlooked reason is the absence of surety bonds to keep IT projects on track.
Each year, about $3 billion worth of surety bonds are generated by construction projects, says Brennan, compared with a mere $8 million for IT (mostly for government work). “The buildings are bonded,” he says. “It provides a mechanism for keeping the project going. There’s a lot of motivation to finish the project.” As principal and co-founder of Gladwyne Software Surety (www.itsurety.com), in King of Prussia, Pa., Brennan thinks surety bonds for technology implementations is an idea whose time has come.
Founded last year, Gladwyne’s principal business is conducting prospective risk assessments and ongoing audits of IT projects. Now, it offers IT surety bonds, which guarantee on-time, on-budget implementation of technology projects. The bond is offered in conjunction with Gladwyne’s own engagements and with KPMG LLP software implementations that include Pivotal Corp.’s (www.pivotal.com) customer relationship management software. The predictability and reliability of KPMG’s Pivotal implementations make bonding eminently feasible, says Brennan.
At press time, Gladwyne hadn’t issued a bond yet, but Brennan says it’s close to doing so. Several triple-A insurance companies have been lined up, three clients are in the assessment phase, “and about 30 deals are in the pipeline,” claims Brennan.
One Gladwyne risk-management client is The Jackson Laboratory, a world-renowned genetic research institute in Bar Harbor, Maine. Jackson Laboratory (annual revenues: $67 million) is embarking on an Oracle ERP implementation, and if it decides to sign a fixed-price contract with Oracle Consulting Services, the institute will probably purchase a surety bond, according to CFO Lee Wilbur.
Brennan says he’s never met a CFO who didn’t like the idea of an IT surety bond, and Wilbur, who previously participated in two SAP installations in Europe, is no exception. “A surety bond works well if you have a fixed-fee contract,” says Wilbur. “It keeps you and the provider focused.” A bond would also reassure Jackson Laboratory’s board that the ERP project won’t spin out of control. The cost would be 1 percent of the project cost, says Wilbur.
Commonality and standardization characterize the construction industry, observes Brennan, and he believes that bonding and risk management can drive standardization in information technology. In the future, surety bonds for IT projects will be commonplace, he hopes. But for now, Gladwyne just wants to get the ball rolling.
Participants in a 1999 survey of shared- services organizations reported an average ROI of 27 percent, according to Deloitte Consulting LLC (www.dc.com). Deloitte, in conjunction with International Data Corp., interviewed project leaders at 53 companies in North America and Europe.
The processes in shared services tend to fall into five broad process bands, says Deloitte: order to cash, procurement to payment, recording to reporting, employee services, and IT management.
Some of the survey respondents are also outsourcing support processes. The most frequently outsourced functions are payroll (17 percent), IT support (11 percent), and accounts payable (9 percent). Companies most likely to outsource processes have mature shared-services operations, reports Deloitte. Why? They understand what it costs to operate a given function on a standardized basis, and can thus evaluate external outsourcing providers, explains Andre Pienaar, a Deloitte principal and co-leader of the firm’s shared- services practice in the Americas.
Top 10 processes in shared services: