IT chiefs face a choice in defining the long-term role
of IT: create and manage business processes or focus on the
sourcing and execution of IT services.
In 2005 analyst firm Gartner issued the leaders of IT
departments with a challenge: decide whether their long-term future
lay in delivering IT services to individual business units or in
offering strategic value to the wider business. But more than one
year on, how is the sector responding?
Gartner's warning to IT directors at its symposium in Barcelona
to safeguard the value of business technology was no empty threat,
but rather accompanied by a startling prediction that by 2010 the
number of IT staff in the profession will shrink by some 15%.
This message was all too clear: IT organisations must either
reinvent themselves to create and manage assets of business
processes and relationships, or choose to focus on the sourcing and
execution of IT services.
This is a choice that has become ever more urgent due to the
accelerating capabilities of external service providers and the
increasing need for IT services.
It is inevitable that IT will become a more integral part of
every business function. As a result, Gartner predicts that the
size of the IT organisation will decrease, and that by 2010 IT
departments in medium and large companies will be at least 30%
smaller than they were in 2000.
This will, at least in part, be due to an increasing trend
towards outsourcing which, for those organisations that do not
adopt process-based delivery models, is expected to occur at a rate
of 25% per year.
But can outsourcing ever truly succeed without a skilled
internal team that has the ability to be outwards facing and not
just inwards focused? And is it possible that outsourcing
represents not just a driver for change, but in fact uncovers a
more symptomatic internal problem?
Gartner identified three potential routes for IT directors: the
business change agent, the IT services broker, and the IT utility.
Some IT leaders will undoubtedly continue with elements of each of
these options, but while this may seem like an attractive first
choice, the three are not compatible in the long term.
It is, therefore, essential that CIOs consider which model will
best drive the types of benefits the business expects. But how will
they arrive at their decision when every business and the people
within it are unique?
Quality of service and cost will no doubt be key to the decision
making process. However, in the vast majority of cases external IT
service providers will be better and also cheaper if procured under
a sufficiently tight and appropriate contractual vehicle.
Highly experienced staff, bulk purchasing power, leveraged
facilities and a desire to move to output-based contracting - where
you tell suppliers what you want and it is up to the service
provider to work out how to provide it - all make outsourcing a
very attractive option.
And that is without mentioning the part that it plays in
assisting in headcount reduction and the associated savings
therein.
But be aware: if you elect Gartner's third option and pursue the
IT utility route where you provide some services in-house and
procure some externally, you will always be measured against the
external service provider once you let them onto your turf.
Based on recent trends and a little reading between the lines,
it would appear that the choice is straightforward and that
outsourcing is the future.
But is it really viable that a CIO should announce to the board
that the IT team is not good enough and is too expensive? Will he
really recommend that they outsource the IT department? It sounds
like a turkey voting for Christmas - hardly a great career
move.
Outsourcing does not make the role of the internal IT department
defunct - indeed, a key team is essential in managing the suppliers
you outsource to.
You may elect to put all of your eggs in one basket and give all
the IT work to one supplier. This was very much the vogue in the
"first generation" of IT outsourcing deals, and often yields
economies of scale, involving the least amount of your time to
manage.
Alternatively, you could take a more balanced approach that sees
the work being divided between several suppliers. This is
invariably the preferred choice of more sophisticated and
experienced larger customers.
All of this means Gartner's first option, the role of the
business change agent, does not look like such a long shot. This
requires not just a change in the way your department works, but
also in how your company works. Change is, after all, the only
certainty in business.
But while hardware and software can be altered quickly and with
minimal disruption and cost, changing attitudes is a tougher
prospect. However, it is essential to making this option
succeed.
Gartner predicts 60% of IT professionals taking on a
business-facing role, which is in itself not an unattainable
target. But can you honestly say that more than half of the IT
department's technical staff have the necessary skills and
commercial acumen to pull this off? Do some of them even have the
basic interpersonal skills that are a prerequisite for this
task?
Delivery managers and systems architects are like engineers on a
building site - they want to create something unique and better
than their last project, and cost is not even part of the
equation.
The converse can be said of most contract managers who insist on
every "i" being dotted and "t" being crossed - and for good reason.
However, the real world will not always wait for this to
happen.
I guarantee that everybody reading this article has commenced
work at some point without a formal contract having been executed,
whether this is under a letter of intent or even with no commercial
cover whatsoever.
When businesses sit down to look at their own processes, company
returns and opportunities, they should also take time to review
their own internal processes between delivery and commercial teams.
Strong and unambiguous contract management remains pivotal in all
of these areas.
There is a general dichotomy between the technical and delivery
groups and the commercial and contract groups within an
organisation using or delivering IT services.
Efforts are clearly needed by senior management to bring
technical IT requirements in line with financial restraints and
realities. Until the technical staff within IT delivery groups can
appreciate and act upon commercial realities, and similarly until
the commercial managers can understand the technical problems faced
by delivery teams, there will remain the continuing failure of IT
initiatives.
The result? Many businesses may be losing the ability to retain
internal control of their IT processes, due to an inability to
examine their own processes and contracts.
You do have one ace up your sleeve: at the moment nobody
understands your business better than the people within it. But
failure to play this card soon and instigate change will
undoubtedly see an external service provider use its financial
might to take you 100% out of the game.
The key must be to marry technology, business process design and
business relationships. Ensure that your team, be they technical or
commercial folk, understand the effect of their actions. Establish
what your business is trying to achieve and provide your service
around it.
Output-based contracting is becoming increasingly popular in IT
and could be the way to go. Focusing on what you want to achieve as
the end result will assist you in deciding how to get there.
Granted, the board will always take note of external providers
who boast about offering world-class services and service levels
with the magic five 9s, and you will be benchmarked against these
organisations from now on. You must be flexible and quick to react
and you must keep an eye on emerging technologies and trends.
There is no point in kidding yourself. If you cannot pull this
off, if as an IT director you cannot commit wholeheartedly to
changing your technologies, and your people's approach (and in some
cases your people as well), then maybe it's time to get the
outsourcers in.
The three routes laid out by Gartner
Business change agent
This represents the IT department prepared to align itself with the
wider business and support strategic objectives, offering skills
and credibility that can really add value. Organisations such as
these, that fuse technology, business process design and business
relationships are expected to outperform those that do not by at
least 15% per year, but only if they have a high level of
credibility and the necessary skills.
IT services broker
This is a very small unit with specialist contract and negotiation
skills which has chosen to outsource all of its IT products and
services to external service providers. The entity is expected to
play an important role in sourcing and managing outsourced IT and
business process services, but will have little or no strategic
value to the business.
IT utility
This is the most straightforward option, responsible for providing
IT-based services and operating them with competitive efficiency.
This unit will have a fundamental role in the acquisition and
delivery of IT products needed to
support the business, but will add no real strategic value.
● Paul Carter Hemlin is an associate director at contract
management consultancy Blake Newport Associates
www.gartner.com
Comment on this article:
computer.weekly@rbi.co.uk