Premier 100 Q&A: McKesson's Cheryl Smith on outsourcing

When it came to data center consolidation, all roads led to Iowa

PHOENIX -- One of the speakers today at Computerworld's Premier 100 IT Leaders conference was Cheryl Smith, the executive vice president and CIO of McKesson Corp. Smith said she believes that the U.S. can provide an alternative to offshore outsourcing, and her company is proving it with a data-center consolidation project that has cut the number of centers it has from 11 to two, with locations in California and Iowa. (The main center is located in Iowa.)
San Francisco-based McKesson, which spends about $350 million a year on IT, is one of the largest companies in the U.S, and its consolidation and relocation decisions have paid off, Smith said. For the past four years, for instance, McKesson IT has been able to meet 100% of new business requests without charging the company an additional penny, she said in an interview following her talk.
You said that "America doesn't have to outsource" -- a very bold statement to make. Do you believe that? I really do. ... But I prefaced that by saying we are primarily an Americas company, [although] we have operations in other countries. We looked at India, China, Western and Eastern Europe. Part of it is getting an American company, an American management team to understand, address and face the incredible issues that you are going to deal with in other countries, in other geographies, cultures. It was hard for our management team to get their mind around it.

Cheryl Smith, executive vice president and CIO of McKesson Corp.
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Cheryl Smith, executive vice president and CIO of McKesson Corp.
Image Credit: Asa Mathat
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We would have done it without question, but was it the right thing to do? And I think that's when we began to look at Middle America. Maybe once we get everything consolidated, outsourcing in other countries might be incredibly cheap and very, very routine. But right now, our benchmark numbers look OK. You can go to Middle America, you can get really high-quality U.S. citizens, and we leveraged a facility we already owned. You can do it very cost-effectively here if you have the right setup and if it's the right thing for your company and management team.
Did you have problems finding people in Iowa with the IT skills you needed? We got resumes from all over the United States. We more or less had our pick. One of the things that we found is there is real desire of people in technology today to want to get back to some basics: to raise their family in place that may be not a big city.
Would the situation have been any different if you had set up your data center any other place? I don't know the answer to that question. But here's one of the things that I found out about [Middle] America: The work ethic is unbelievable. Nothing stops them from getting into the office. They think about it all the time. I will get e-mails in the middle of the night from the head of our operations group because he got up and went in to see how things were going. I never worry about whether that facility is going to be manned 24/7 by top-quality people.
Is that why you picked Middle America? I had a data center I could have selected in Dallas, in Atlanta, in Denver, in Iowa -- these were already big and established, and a lot of them had tremendously better facilities and better telecom. The Middle America one we did a lot of thinking about; we were hoping, and we guessed right.
What issues did you face, particularly workforce-related, in Iowa? We thought it was going to be a real challenge. We thought that finding the right workforce to actually move from New York City or Florida was going to be a real challenge, because we wanted top-quality people. But what we found is that we got really great people who wanted to live there. We looked at building costs, labor-rate costs, where we would draw the skills sets from, and we looked at colleges and universities in those areas.
So, in balance, Iowa had all the pluses? It didn't have all the pluses. What we had to do is make a bet and say, "Could we make this work?" The things that we thought were going to be a challenge turned out to be easier than what we anticipated.
What worried you the most? That I wasn't going to get top-quality people. I was betting our company. My biggest fear was that we wouldn't get the right people.
Should other companies look at what you have done creating facilities in Middle America? I think it depends on the executive management team. [But] it's a great option. And if it turns out to be an interim option for some companies, just to pull all their operations together, just to get synergies and savings -- it is not a negative; it's a positive, no matter what.

Copyright © 2005 IDG Communications, Inc.

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