IT outsourcing is here to stay and IT directors should
not hold back from preparing for the inevitable, with changing the
skills of the IT department a top priority.
Many IT departments have recognised this and remodelled the
skills within to get the best out of the skills outside. This
involves developing more business, commercial, contractual and
people management skills alongside more strategically minded
technical people. But the trend could also lead to the setting up
of a new department to sit between the IT and business folk and
even the creation of the next-generation CIO.
The pressure for change comes from the popularity of IT
outsourcing. According to analyst Gartner, the value of IT
outsourcing contracts in western Europe will be worth €228bn by
2011. The take up of IT outsourcing is accelerating: between 2002
and 2006 it increased by 1.5% a year (from €162bn to €172bn) and
yearly increases of 5.9% are expected between 2006 and 2011.
In its current form, the corporate IT department faces
extinction unless it can prove its worth. And to do that, it will
have to change the skills found in the department.
Outsourcers have demonstrated they can adapt their offerings to
appeal to business decision makers. The IT department must now do
the same.
New balance of skills
The IT department of the future will be a mix of business,
commercial, relationship management and technology know-how.
According to Gartner analyst Andy Kyte, some IT competencies
have moved to outsourcers for good, and businesses no longer need
to invest in in-house skills in these areas.
"If you have industrial-strength third-party solutions which are
mature, commercially competitive and widely available, then
businesses are confident they are going to be able to continue to
use them," he says.
Kyte believes IT departments must develop the skills to manage
these relationships to ensure they get the best out of them.
"The key issue is the skill of managing outsourcers," he says.
"This is what is missing and is the root cause of so many
problems."
Managing outsourcers requires a completely different skill set
to traditional IT, adds Kyte. "You cannot take a programmer and
turn him into a manager for an outsourcer."
Understanding the needs of the business
Phil Morris, managing director for Europe at sourcing consultant
Equaterra, agrees that IT departments must learn business
engagement skills if they are to put the right kind of outsourcing
contracts in place.
"Talking to, listening to and understanding the needs of
internal business IT users and working as an internal consultancy
to achieve the objectives of internal IT demand is essential," he
says.
Morris says IT departments are evolving to cope with this but
not as quickly as they could because there is some reluctance.
"IT departments are changing but not fast enough," he says. "The
pressure to modernise is being resisted, which is crazy because
they need to modernise."
Scottish Water
One business that is not dragging its heels is Scottish Water.
The utility company has recognised the importance of changing its
internal skills mix and is transitioning to three major outsourcers
for a large part of its IT. BT, Fujitsu and Tata will run the
communications, the IT infrastructure and application management
respectively.
David Brown, general manager for IT at Scottish Water, says the
company has created a new structure in its IT department to ensure
it has the right mix of skills to get the best out of outsourced
contracts.
The company has 43 in-house IT staff: people with mainly
managerial and project management skills, plus a few highly skilled
technology people.
"We have always bought services in so we always had the skills
to manage service providers, but this is more full-on," Brown says.
"We had to create much more of a commercial focus, so we have
beefed up our contract management skills."
Many outsourcers are paid on performance and Scottish Water has
ensured its in-house staff can manage this complicated process.
This involves analytics as well as a good understanding of
contracts.
"We have also focused on performance management to monitor KPIs
[key performance indicators], so have employed people to analyse
data and performance," says Brown. "This includes people with
financial skills that can marry up performance with KPIs."
He says that technical people are still essential for setting
the company's technology strategies. To this end, Scottish Water
has created groups within the IT department to focus on IT
strategies.
"In the application and infrastructure space we have created
technical development groups. These are the guys driving the
technology requirements strategy," Brown explains.
Almost all technology support is provided by outsourcers at
Scottish Water, which reflects a trend where the balance between
technical and business skills has shifted towards business
experience.
Westminster Council
Westminster Council is also modernising its IT rapidly and has
bought into the outsourcing methodology.
The council will be infrastructure-free by 2015, when all its
IT services will have been outsourced.
The council's CIO David Wilde says the IT department will need
more project management skills as well as a strong focus on IT
strategy. Staff will need to retain some technical expertise, and
have commissioning and project management skills as well.
"It means quite a big skills change for IT staff," he says.
"They'll need to know how contracts work and how supplier
management works. We need to retain some technical expertise so we
can be an intelligent customer."
Taking away the responsibility for IT roles such as support and
maintenance will allow remaining IT staff time to focus on what the
IT users and business really need.
Nick Mayes, head of IT at nightclub owner Luminar, says his
company has a wide range of in-house IT skills and outsources
management of its Wan as well as first-line support.
He says that, in response to more outsourcing, the in-house IT
staff have become more service-oriented, proactive and strategic
and have a good understanding of the IT requirements of the entire
business. "The IT team is an equal balance of technical and
business skills, and my management team all have experience of
other areas of the business."
There are now greater contract management, budget management and
service level agreement (SLA) management skills in Luminar's IT
team. "As a result we are far more involved in the business
decision-making process and strategy," says Mayes.
IT teams at Luminar are trained in basic financial skills such
as budgeting. They are also given an understanding of contracts and
negotiation techniques and SLA management through ITIL
training.
A whole new department
The modernisation of the IT department's skills to accommodate
outsourcing contracts requires an additional layer of IT
management, according to Robert Morgan, director at Hamilton
Bailey, which advices outsourcing service providers.
He says a successful outsourcing relationship involves the
creation of a whole new IT department to interface between the
outsourcer and the business.
This interface, which will have between five and 10 staff, is an
essential component of the relationship. It should be made up of
people with technology and business skills and be led by someone
with CIO-level experience.
"You need the interface to have the business skills to
understand if the technology decisions fit with what the business
wants today and the future. This is usually a well-paid CIO-type
person who really does have the ability to blend these different
skills," he adds.
Morgan says the department must also have someone with
commercial experience who can understand contracts and get the best
out of them as well as someone capable of motivating staff who work
for suppliers.
Evolve or die
Like the 13 species of finches that Charles Darwin noted on the
Galapagos Islands, IT departments must evolve if they are to
survive and prosper in the environment they inhabit.
Darwin's theory of evolution was constructed as a result of
observations made while on a British science expedition around the
world aboard HMS Beagle. His recordings showed that species adapt
to the environment they inhabit over time, which eventually results
in new species.
IT departments must likewise evolve to work alongside
outsourcers, which are increasingly taking over their traditional
roles.
BOX: NEXT-GENERATION CIO
Outsourcing is also changing and if software as a service (SaaS)
continues its momentous growth the CIO of today might look very
different to the CIO of the future. As an alternative form of
outsourcing applications, SaaS is changing IT departments across
the board.
Carl Bate, CTO at Capgemini, says SaaS will lead to the creation
of a new generation of CIOs leading next-generation IT
departments.
He says SaaS - which delivers applications hosted, maintained
and managed by suppliers - is the future and that companies must
change IT departments to manage it.
Bate believes a new type of CIO must be in place to manage the
move to SaaS for businesses. "All sizes of companies are going for
SaaS at the moment, but most are doing it departmentally or in
individual business units," he says. "This is now getting on the
CIO agenda. Where there is change there is risk, and introducing
technology without an over-arching approach can cause
problems."
Bate says there are already next-generation CIOs out there who
understand the SaaS model but there are still major evolutions of
IT departments on the horizon.
"A very people-centric IT team is needed and a shift towards a
real 50/50 mix of people skills and technology skills," he
says.
Essential guide: outsourcing >>
Companies tread carefully on SaaS adoption >>
Lack of skills holds back change management >>