There's little doubt about what's been providing the rocket-fuel behind the rebounding services business: IT outsourcing. Simply put, there are plenty of eager providers to choose between, they have access to most of the technical skills companies need, and their rates are far cheaper than retaining or hiring staff inhouse. Some are also getting pretty handy at becoming consultative business partners, and not simply low-cost body shops. Our recent study tells the real story – 50% of enterprises are either kick-starting, or scaling-up, their ITO right now. "So tell us something new", I hear you groan into your laptop screen…
What's different as we emerge from this crisis, is that the perceptions of IT from the other parts of the business are becoming increasingly cynical in many companies. Many companies are hiring new CIOs with the mandate to "turnover half the department, or outsource it", and IT middle-managers are being seriously questioned about the value they are adding to the business. While much of the bottom-layer of IT has already been contracted out, it's now the middle layer of IT professionals which is under threat. CIOs are under pressure to prove the value of maintaining these heavy middle-layers, or move them out of the organization. Some CIOs are already operating under the strategy of hiring a few people who "genuinely get it" to drive IT value, while outsourcing as much of the operational work as they can.
Remember marketing in the '80s and early '90s, where firms had these bloated marketing departments doing multiplous tasks such as PR, communications, database management, which used to be so critical to keep inhouse etc? Today, nearly all CMOs surround themselves with a handful of folks who "get it" and parse most of the operational work out to agencies. That is the norm today, and no-one questions it.
My fear for IT, is that it's going down a very similar path. Or should this really be "fear"? Maybe this should be "hope" of much-needed change? CIOs can't exactly hire 20 people over night who "get it"; firstly, they may only know a couple of suitable people who'd be prepared to join them, and secondly, they'd likely have a hard time getting the requisitions for a lot of expensive high-end IT talent which can apply innovative-thinking and new technology to source fresh avenues of revenue and productivity for them.
So the middle-layer of IT has a shot at saving itself - their CIOs need to pick talent that can prove their business value to the firm and mould them into the IT engine of the future. I do not believe that IT is going the way marketing did, but it does need to step-up a gear and win-back credibility from the cynics who simply want to offload the excess fat in this economy. That means CIOs need to train their staff to think out-of-the-box, to learn how to work more effectively with the business units, and to bring technologies into the organization that can truly impact the business and the corporate culture, such as virtualization, Cloud, video-conferencing and social media.
I do believe we're genuinely arriving at a critical juncture in the IT world, where it's time for CIOs shape-up their teams, or look outside of the organization to regain the lost credibility.
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This is a great question!
Business is dynamic, and the needs of tomorrow are rarely met by continuing to do the same things that we are doing today. Companies are increasingly looking for ways to become more efficient and profitable, and there will be pressure to outsource/off-shore things that are perceived to provide less value to the company. My take is that mandates such as “turnover half the department, or outsource it” are attempts by executives to focus IT shops on moving the commodity work elsewhere so that the IT shop can focus on delivering real business value to meet today’s demands.
In terms of IT overcoming its credibility crisis, my opinion is that a good many IT shops and mid-level managers tend to be caught in one of two traps:
Business Drives IT
In the cases where the business is running IT, there is usually a lot (and I mean way more than can possibly be handled) projects in flight, and they are all classified as “high priority” projects. There can be a lot of day-to-day prioritization and fire-fighting going on, meaning that resources are constantly being pulled off of one project and put on another each and every day, making it almost impossible to achieve meaningful progress of strategic initiatives. The IT organization in this setting is usually comprised of a weary bunch of people who have a difficult time articulating the value that they bring to the organization. In this case, the business “drives” IT, but in many cases drives IT crazy.
IT Drives the Business
In situations where IT dominates without regard for the business, equally difficult conditions exist. In these cases, IT typically expresses things in its terms, talking about excellent uptime, MIPS (millions of instructions per second), enforcing hardware and software standards to optimize and streamline support, and dictating that the business follows a software methodology that is geared towards the development organization, not the business. It’s a “here’s how you have to participate with us” mindset.
Under either of these conditions, it is in fact very difficult for anyone to gauge the value of IT.
IT should drive technology-related efforts, but IT needs to explain why they are doing things in terms that the business can understand. There should be meaningful business/IT conversations about value, ROI, and how technology can be applied towards creating new or better business models. A common ground needs to be established, with business leaders who understand the benefits of technology and IT that focuses on creating value through a partnership and innovation.
Both sides of the house need to focus on efficiency, how to produce software that benefits the business in a way that provides the greatest possible value, in a way that enables the business to begin realizing that value as early as possible.
Until the current Great Recession, many enterprises hired IT people for more money than prior employer, driving pattern of people working at a firm only a few years, then jumping ship for more money.
That meant that only a handful like me, who loved the work we were doing, got to the point of really understanding the company and blending our contributions to help the firm.
The compensation system needs to retain the good people, not replace them with others who don’t know as much about the company. Also fund continuing education at relevant seminars and conferences.
This problem is hardly new. The question of whether the IT organization is a true business partner has not been asked any less frequently.
The fundamental issue is alignment between very specific business goals (tactical or strategic) and how the IT organization – people / process / technology – supports them with measurable results.
No alignment? Over time, the IT organization will certainly exhibit lack of credibility which is simply an after-the-fact indicator that CIO hasn’t succeeded to build the necessary bridges and foster the culture of alignment.
Fully aligned? Over time, the IT organization will demonstrate that it is indeed a true business partner, capable of solving complex and pressing business problems.
For example, UPS implemented a new route planning system which reduced the number of left turns and decreased gasoline consumption (a measurable reduction of cost of delivery). Reduction of carbon footprint is of course a plus:
I’ve heard this story told to me: When asked by an employee at one company in an open town hall how much of the IT department’ $1B budget is allocated toward innovation, the CIO responded, “probably less than $5M.” Ugh.
What we have is a bunch of stale baby boomers running IT departments struggling with keeping the lights on, overwhelmed by projects that meet the needs of the customers, who themselves aren’t all that strategic, and the burden of mega-deal integrations/implementations of packaged apps with payback horizons of 5 years (if the assumptions are even close to real).
Then, a few years ago, the baby boomer CIOs hit the big red “outsource it all” button, and mega 7-10 year deals obliterated the knowledge capital of IT teams and structured vendor invoices into a manner that irreversibly halted the business’s need for flexibility.
Smear on an ample amount of terrible vendor management, SOX auditing and IT security needs, and you have a recipe for a quagmire.
CIOs and their senior staff have organizational lifespans of 2-3 years. Just enough time to turnover their leadership and allow the rats who went hiding in the bushes to come back out to reinforce the status quo. It’s enough time to see if they can earn back the retirement funds that they saw wiped out by the market. It’s also enough time to inspire the CEO and sales teams to bring out their pitchforks and march through the streets.
One could say, “We need governance.” However, very, very few companies have the stomach for governance and they undermine it with “mandates” and “discretionary fund pools.” It’s all satisficing a la “Executive Warfare”. If you’re going to do it, do it right.
One could argue, as you do Phil, that you can hire some pretty good IT leadership talent right now. I might be in a dark mood, but I’m struggling not to call IT Leadership an oxymoron. Oops, I’ve done it again…
Bottom line, companies that are spending oodles on custom, underfunded infrastructure need to dump it as the commoditized load of junk it is and join the 21st century by leveraging vendor hosted solutions. The goes for voice and data networks, video/web conferencing, data center management, email management, and legacy app support. Then they need to REINVEST the savings into real innovation. Not projects that create step efficiencies in existing applications, but thought leadership driven projects that will make their existing apps dinosaurs and weaken their competitors.
Much of the credibility problem, IMO, is due to the fact that IT departments have built infrastructure and software that proved to be totally unnecessary.
For many companies, the maintenance of internal server farms became much less efficient than finding a good web host to partner with.
Then, many of the ERP software and administrative applications that IT departments spent years building and debugging were superseded by cheap web services and free open source software.
Now, for medium-sized companies, even core services like email may be better provided by companies like Google.
It’s tough to trust your IT department when many of its core investments become useless a few years later.
The key value add is what to do with IT, not the process of conducting IT activities. Just like the value-add of marketing is improving the brand and generating sales leads, not writing press release. Operational activities enable strategic differentiation but in themselves are not strategic. Successful CIO’s are those that leverage IT – regardless of where it comes from – to enable a strategic business advantage.
I do not think IT has a credibility problem. Instead, I think the benefits of IT now reside outside the corporate walls. That is, it is possible to get better, less expensive, and more reliable IT services from a source that is not local IT. It is also possible to get these resources without contacting local IT. This is not a challenge to the credibility of local IT but is more a move by the industry to make money by providing services that the local IT team could do better. To me this is the same as the buy verses lease argument. It provides the line of business executive with another method to get the desired services. To remedy this, I think IT must offer these services as options and ensure that the service provider deliver the expected service levels to the business unit. I also think IT needs to understand the needs of the business units and find methods to deliver cost effective solutions whether local or outsourced.