Richard Sykes talks to Julia Vowler about the outsourced future of
IT
It is not always obvious to observers or participants how history
will pan out. Nevertheless, however complex the currents and
cross-currents at any particular time, there inevitably comes a
point beyond which the outcome is irreversible.
That is the point the IT industry has reached when it comes to
delivering corporate IT, argues Richard Sykes, former corporate
head of IT at chemicals giant ICI and now chairman of outsourcing
consultancy Morgan Chambers.
Sykes will give a keynote speech at this month's IT Directors'
Forum aboard the MV Aurora.
Sykes believes it is now inevitable that corporate IT will cease to
be delivered by an internal IT department. This has been an interim
stage in the history of the IT industry and within 10 years will be
a rarity on the evolutionary road to extinction, he argues.
Instead, organisations will turn entirely to external service
providers to source their IT, while retaining governance, sourcing
and strategic responsibility internally. The very term
"outsourcing" will be seen, historically, as an interim phrase,
says Sykes, denoting the period in which the large in-house IT
departments were handed over to service providers.
Already, he points out, the norm for start-ups is not to build in
any internal IT capacity but to source externally from
scratch.
"Beneath the surface, the IT industry is rightly moving to a
service model," says Sykes. But for external sourcing to become the
predominant method of delivering corporate IT, the supply side must
change in three crucial ways.
Service
First it must develop a service culture. A
service model of business, Sykes points out, is quite different
from either a box-shifting or a software-licensing culture. The
former is a new product sale, the latter an upgrade-treadmill sale.
Both expect users to constantly buy change, whether new boxes or
upgrades, or else submit to being milked on maintenance charges as
a penalty for not upgrading, rather than buy a steady-state service
for "business as usual".
Even the outsourcing market culture must change from deal-making to
on-going service-based relationships, says Sykes. There is too much
emphasis, he argues, on outsourcers setting up the big deal up
front, rather than focusing, as they should and must, on on-going
customer service, interspersed necessarily by major transformation
programmes from time to time.
Competence
Second, service providers must move to a
culture of extreme competence. Their watchwords must be reliability
and seamless capability.
This will become ever more important as their clients become, in an
age of extended supply chains and customer relationship management,
increasingly exposed to the outside world, whether to their
suppliers and business partners or their customers. Any hint of
sub-optimal performance in IT will be doubly disastrous to an
organisation exposed on both fronts in such a way.
Moreover, the steady technical push for IT to become more available
for longer times, as the Internet era is already proving, puts
increasing pressure on those responsible for keeping IT
going.
Sykes says the IT service industry will need to adopt the service
levels now expected as normal in engineering and manufacturing.
There, the standard for reliability is "six sigma" - the notion
that the normal distribution (the sigma curve) of failure must be
surpassed six times over. Although it requires considerable
investment to achieve that high level of reliability, the payoff,
as companies such as General Electric have demonstrated, is in
minimum rework and maximum customer service.
The six sigma standard is not uncommon on the hardware side of IT,
from chip manufacturers to telecommunications.
"The real battle is software," Sykes warns. "The software industry
has not been used to operating at that level [of
reliability]."
But in a world where IT delivery is bought in, such exceptionally
high standards will need to be the norm. "Service companies will
need to be six sigma," warns Sykes.
Business excellence
But it is the third factor that
will make or break the success of external sourcing. For while it
will be taken as given that a service provider will be able to run
internal IT with greater efficiency and greater technical expertise
across a much wider range of technology than is possible in a
single IT shop, and certainly able to leverage its experience in
running change management programmes and implementing new IT, the
real differentiator will not be a technical one, but a business
one.
To be of real use to users, service providers must not just possess
technical and technology change management excellence, they must,
urges Sykes, possess business excellence in the sector in which
their users operate. They must, he says, be as good a retailer as a
supermarket, as good a banker as a bank, as good an aerospace
contractor as a plane maker - or better - if they want to prove
their worth.
It is that level of business intimacy, says Sykes, that will
provide the real added value that will drive external sourcing to
triumph as the dominant form of IT delivery.
Whereas about l5 years ago three IT directors from each of the
above sectors would have had a great deal in common in the kind of
competitive advantage IT was conferring, these days they would find
little common ground.
Fifteen years ago IT conferred competitive advantage by automating
routine tasks common to all organisations; now it is being
specialised by sector. IT in retail is very different from IT in
aerospace, and any company providing a service to those sectors
must understand exactly why. They must have, says Sykes, "a
fingertip feel" for the sector to which they supply IT
services.
"Service providers must be masters of technology and service, but
they must also be intimate with the industry sector they serve,"
says Sykes.
Richard Sykes will be speaking at the IT Directors' Forum on
20-23 June