Mega company (by New Zealand standards anyway) Fonterra has just announced that it will be outsourcing some IT functions to India.

Fonterra’s outsourcing strategy is aimed at reducing duplication of backroom support functions such as human resources, information services and finance across its various brands and commodity businesses and will see it use Indian company HCL to run some of its IT systems.

Fonterra exec greg James, expecting the usual New Zealand knee jerk negative reaction sad the following;

“We have always made it clear from the outset that there will be some redundancies and those staff who will be potentially affected have been advised,” said James. “We are still working through the recruitment and redeployment processes with many of our staff and are not in a position to comment on what the final number of redundancies may be.”

Let’s just make a point here – Fonterra is in the dairy business – its core competency and primary focus is the creation, value adding, distribution and marketing of dairy products around the world. Nowhere in that description did I see that Fonterra is an IT company.

Outsourcing IT is a sensible “stick to your knitting” kind of decision.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

  • Ben

    the MOST interesting thing about this is that Fonterra had already outsourced most of its IT to…… EDS, who have failed to deliver the cost savings…. Mainly because they are very very old world

  • Falafulu Fisi |

    Ben said…
    Nowhere in that description did I see that Fonterra is an IT company.

    That’s true, besides Fonterra is a private company, they can do anything (make decisions) they like of how they conduct their business.

  • yip, they are also our largest company by revenue…and a virtual monopoly but you you won’t see the govt taking the stick to them….otherwise the tractors will be on a roll

  • Falafulu Fisi I fully expect to see you at the Edinburgh Comedy Festival next year – your posts always make me laugh.

    Where did anybody say – or suggest – that Fonterra is anything but a private company or can’t make their own decisions?

    Need to catch my breath …

  • I was going to write what bunreasonable said.

    My issue with this is that Fonterra is at the top of the food chain. What they spend is revenue that cascades to a bunch of other NZ firms. Taking this spend off the table is very bad for our economy to a large multiple – much more than the deal money they are talking about. That was what was so frustrating about the EDS deal. But also compounded because EDS kills projects that even Fonterra wants to do. EDS do the same at Telecom as well as any NZ IT vendor will tell you.

    Don’t get me started … but I’m glad I’m not doing Enterprise software in NZ anymore.

  • Ditto what was said about EDS above.

    But I dunno,anyway. Yeah, it’s not their core competency. But my experience is that the apparent cost savings are simply eaten up by the friction generated between the business and the supplier. The reasons are that a) the people in the business who write the SLAs are typically not close to the internal consumers and b) even if the SLAs do capture the customers’ needs well, there are times that you need to exceed the SLA, for good and valid business reasons, but the processes you have in place prevent you from even escalating in time to do any good. Finally there’s the New Zealand management delusion that if your supplier cocks up when you need them, that’s ok, because your contract covers that.

    Basically what happens is that one line item in the annual report shrinks, but others are affected in ways that don’t get measured.

    And not their core competency? Sure. Critical to their business? Hell yes.

    Anyway, I have blogged about this before.

  • Great comments everyone – Rod I guess I was guilty of judging this business decision with a different set of values than the business decisions of the NZ manufacturers who have left our shores.

    I contend that we need sme degree of manufacturing base in NZ to act as an incubator and build our competencies – I guess software is no different – if all the big boys outsource where will the people gain the skills that Xero, Ponoko, Plan HQ et al need

  • Going from EDS (their screwups in the UK and elsewhere are the stuff that legend is made of – the scale of which is almost incomprehensible from a NZ perspective) to India is a bit of a jump. Some large UK companies decided to do something similar but backtracked somewhat when things started to look less than ideal.

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