Dean Kamen holds more than 150 US and foreign patents related to medical devices, climate control systems, and helicopter design. In 2001 he developed a business to manufacture and market a ‘human transport' device that he believed would revolutionize travel. The Segway, Human Transporter (HT), Kamen declared, ‘would be to the car what the car was to the horse and buggy'.

While the device has been a bit slower in taking off than Kamen had hoped, it has captured the attention of the media and transportation industry analysts. The two-wheeled, Segway Human Transporter (HT) employs a unique patented ‘dynamic stabilization' technology.
With the assistance of optimistic investors, Segway hired a seasoned CIO to design the information systems for the new company. Patrick Zilvitis, who was CIO at The Gillette Co. before leaving to work part-time for Segway, decided that this unique company required a unique approach to information management. Zilvitis said in an interview that when he joined the company in fall 2000, he quickly decided that outsourcing would be the wisest path for a start-up that had a minimal IT infrastructure. He thought that would be the best way to hold down its technology costs.

Zilvitis thought that it would be a costly mistake for Segway to build a traditional data center and hire a big dedicated IT staff - a mistake that would slow the company's growth. Instead, he decided Segway should use software under a hosted environment that could grow with the company's needs. Outsourcing ‘allows us to upsize or downsize our IT infrastructure as needed', noted Scott Frock, Segway's director of finance. ‘For a small-to-medium-size company, there are a lot of advantages'.

Outsourcing also lets companies like Segway avoid up-front investments in servers, software, and technical support staffers, said Terry Jost, a Dallas-based consultant at Cap Gemini Ernst & Young LLP.

Before Zilvitis came on board, Segway had been using Intuit Inc.'s QuickBooks accounting software. To support the company's expansion, Zilvitis believed that it should upgrade to either an accounting package designed for small and midsize businesses or a larger system that it could grow into. The company decided to look for a larger system to avoid a ‘painful and expensive' conversion down the road.
After evaluating software from Oracle and SAP AG, the company chose an uncustomized version of an Oracle suite geared to small manufacturers. The system includes manufacturing and order-management modules in addition to the finance applications. Workers at Segway's headquarters and its manufacturing plant access the software via Windows 2000 PCs.

Additionally, Zilvitis chose a finance system hosted by Fremont, California-based Appshop Incorporated, which manages the Oracle applications from a Sprint Corporation data center in Denver. So Segway's information system includes components supplied by three different vendors in three different parts of the country.

Three years after the system's implementation, Segway is reaping the benefits of the larger Oracle system. The company recently upgraded to a newer version of its Oracle system and added software that will let workers at its customer service partner, Frazer, Pennsylvania-based DecisionOne, access product warranty data and other information via Web browsers. The Oracle system has made the integration and expansion a breeze to implement.

Maintaining data and systems off-site has presented some unanticipated telecommunications costs and savings. To speed the data from the application service provider to Segway's headquarters and manufacturing plant, Segway replaced its private branch exchange switches with voice over Internet protocol (VoIP) equipment costing ‘considerably less than $20,000', Zilvitis said. He added that the transition to VoIP has provided several benefits, including the ability to set up low-cost switchboard extensions for remote employees, extra voice and data bandwidth for future growth, and cheap yet reliable connections to Sprint's data center. For instance, Segway's Internet connection to Denver costs the company $1,000 to $2,000 per month, compared with the monthly tab for a T-1 connection that would have been $10,000 to $12,000, he said.

By outsourcing its systems, Segway has been able to focus on its product rather than data centers, servers, and an extensive IT staff. Instead, the company relies on one part-time, veteran CIO to manage its outsourced resources. Since the future of the company is uncertain, it makes sense for Segway to select a solution that is flexible, nimble, and can turn on a dime - just like its product.

Case Questions:

1. What benefits is Segway enjoying by outsourcing its information infrastructure and services?

2. What benefits can a company gain by managing its own information infrastructure and services?

3. What factors might influence a company to outsource its IT infrastructure and services?

4. What frustrations do you think Segway endures in dealing with outsourced vendors?

5. Discuss how your own organization can take advantage of outsourcing its IT systems/functions. In your discussion state what can be outsourced and what benefit will be gained. Do you think your organization can/may face any risks as a result of this outsourcing activity.