Commoditisation is sweeping the IT world as core business systems, once the sole domain of in-house IT, are outsourced, shared, or floated out into the cloud.
With this move towards "on-tap" IT through cloud computing and the growing popularity of high-quality business process outsourcing (BPO) services, IT leaders are at risk of losing both influence and status in organisations. The threat to IT leaders comes from the increasing ease with which non-IT heads can source and manage their own technology directly from a shortlist of "procurement-approved" vendors.
This is a worrying trend for IT leaders and organisations as a whole. The danger is that direct sourcing will lead to an over-focus on cost and encumber organisations with a multitude of different suppliers and systems to manage. It is vital that CIOs address this trend in order to adapt and maintain their influence, while securing their organisation's long-term IT stability.
Rather than pursuing a sourcing strategy of "lowest cost is best", IT leaders and CIOs should be carefully examining the host of new sourcing options available to them and matching them up against the technology needs of the business. They must then strive to procure and manage a portfolio of services and suppliers that provide the most valuable, relevant and effective service to the business.
Before making any sourcing decisions, IT leaders must develop a deep awareness of the value that technology provides to an organisation, and an ability to quantify and measure that value. Does the service effectively control risk? Does it facilitate future growth? Does it reduce workflow complexity or increase enterprise-wide collaboration?
Whatever the case, CIOs who can identify the true value that technology delivers to an organisation will be best placed to take advantage of the new sourcing landscape.
At the same time, IT leaders must have a keen eye on the horizon to identify emerging technology trends and innovations and those that are becoming ripe for experimentation. New delivery methods, outsourcing options and service providers will continuously change the value equation and force CIOs to make complex and difficult decisions about how best to deliver value to the organisation.
The chief information and procurement officer?
With more sourcing options coming online, the CIO's role is changing rapidly. IT leaders may begin to feel more like portfolio managers than traditional IT experts. Working closely with finance and procurement, IT leaders are already finding themselves more involved in the overall purchasing decisions of the organisation, identifying new delivery platforms, reducing duplicate spend and ensuring overall functionality within an overall technology framework.
This increasingly close relationship is becoming an important part of the business value-creation process. In fact, in some cases, procurement functions are being integrated into the IT department, where finance keeps an eye on cost and the IT/procurement department sources and delivers the services. This trend looks set to increase as time goes on.
Value versus cost
While price should always be a prime factor in selecting sourcing options, services that deliver enterprise-wide value are becoming increasingly important in a recovery- and growth-focused environment. IT leaders must maintain a sharp focus on delivering technology services that drive value, rather than bottom-line cost savings.
By making value-based sourcing decisions, CIOs can start to lay the foundations for an increasingly flexible technology infrastructure that supports new business opportunities, drives competitive advantages, and sets the stage for long-term and sustainable revenue growth.
While the IT leader's traditional role is under threat, the changing sourcing landscape and increasing importance of technology in business present opportunities for them to become more vital than ever before.
Bryan Cruickshank is the global leader for KPMG's Technology Advisory practice. Bryan can be reached at email@example.com
This was first published in September 2010