Managing Contractors in Tough Times

As IT departments adjust to a slowing economy and tighter IT budgets,

third-party consultants are often the first to feel the brunt of any

changes. But some savvy IT managers who have come to rely on

freelancers are leveraging the economic downturn to get more bang for

their consulting bucks.

The Hartford Financial Services Group Inc., for example, is cutting

back on its use of outside consultants. "This puts us in a stronger

position with the ones we do hire," says John Madigan, vice president

of IT human resources at the Hartford, Conn.-based financial services

firm.

"We're able to exert more pressure for a better deal, to get a reduced

hourly rate or additional services for the same amount of money,"

Madigan adds. "They're saying, 'You guys are squeezing us!' But it's

simple economics."

Like other big companies, The Hartford has increased flexibility by

relying on its in-house consulting unit, which has more than 400

contractors. "We're turning more to them; they have a pretty good

recruiting machine," Madigan says. Previously, consultants from outside

the company were hired to fill recruiting gaps at The Hartford. Since

the market has softened, however, "our in-house team is now recruiting

outside consultants who are looking for work," he says.

Other companies are also finding it more cost-effective to build up

their in-house consulting staffs.

"Rather than paying through the nose for expensive outside consultants,

we've created a group of internal consultants who are not only forging

closer ties with customers, but also generating new revenues," says

Honor Guiney, CIO at National-Oilwell Inc. in Houston.

At The Limited Inc. in Columbus, Ohio, the need for new data mining and

data modeling applications to better focus products and improve

customer relations is leading the retailer to take a mixed approach to

using consultants, says CIO Tom McFadden.

The company has assembled a team of both in-house staffers and outside

consultants to work on systems integration and middleware for a new

customer relationship management system, says McFadden.

Indeed, some IT executives continue to cost-justify the use of outside

contractors where it makes good business sense.

Greg Clancy, executive vice president and CIO at Sallie Mae Inc. in

Reston, Va., is working with Onex Inc., a technology-consulting firm in

Indianapolis, on a Web integration project. Clancy says Sallie Mae

chose Onex because its rates are about half those of larger firms and

there's less contractual paperwork with which to contend.

Enzo Micali, chief technology officer at 1-800-Flowers.com Inc. in

Westbury, N.Y., says he used to rely heavily on outside consultants for

Web development. But now that those applications are up and running, he

has been reducing his reliance on outside help in lieu of internal

staff.

"As we execute our activities in relation to the goals of the overall

business plan, it may make good sense to outsource certain activities,"

says Micali. "There are two main reasons. The first is to accelerate a

project, and the second is to recruit a specific skill we may not have."

Girding for Growth

Although most organizations are cutting back on their use of outside

help, James Ellison, director of information systems for the Las Vegas

Valley Water District, says his use of external contractors is

independent of the economy.

The water district has recently completed a three-year project to add

to or change a variety of applications, including water billing, order

management, and customer service systems. Ellison says he plans to

initiate another big project in about 18 months and insists that the

outside economy hasn't affected his decisions on either project.

"It's been said that the general economic downturn is a high-tech

problem. But this is still a [growing] resort and retirement area," so

these projects are needed to support that growth, Ellison explains.

For other organizations that are holding back on their external

spending, the logjam of projects and work that has been put on hold due

to the economic downturn should eventually turn in favor of outside

contractors, says Maria Schafer, an analyst at Meta Group Inc. in

Stamford, Conn.

"Most companies do not have an integrated process for developing

technical people. So even though outside consultants and contractors

are currently in retreat, when the pendulum swings the other way, they

will come charging back," she says.

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