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.
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.
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
Comment on this article: email@example.com