I had this private debate with a number of peers in other analyst and consulting organizations recently, and wanted to share some of the discussion points with you all here.
In our recent discussion "Think before you fire: The cost of replacing IT talent", we discussed the issues facing many companies who were too trigger-happy to scale back their IT wage-costs, and ended up spending a lot more in the long-run when replacing the valuable knowledge of their business systems. At the same time, we see even more firms held back by IT departments that have failed to move with the times – and none more so than mid-market firms that simply cannot afford to employ the best quality IT staff. And while we can debate the fine points about business processes moving to offshore or fully outsourced models, you sometimes forget how critical IT is to getting things done.
IT is an impediment to many businesses: Companies need to develop an IT capability that doesn't impede their ability to operate, but acts as a facilitator tying their business needs to their industry. In this this cut-throat economy, companies need to be able to have immediate access to data on their customers, their suppliers and their employees. They need to be able to react to changes in demand, be able to scale-up, or scale -back their staff globally, and need to have immediate insight on their channel to market to keep ahead of the competition. If your company cannot get you the information on your business you need when you need it, you could seriously go out of business in this environment.
Dated IT skills and applications are dangerous: The horror stories of backward IT I constantly hear from people never cease to amaze me. While it's easy to sympathize with IT staff complaining about lack of budget, lack of good applications etc., it comes across loud and clear that many of them haven't had a day of IT training in years. Business executives are constantly finding new ways to provision the IT they need to do their job: for example CMOs signing up for Salesforce .com, or HR VPs Successfactors. Smart application vendors are finding ways around the IT department and developing intuitive SaaS applications that executives can deploy themselves, where they have no reliance on internal IT. And eventually Cloud Computing will enable us to circumvent creaking hardware infrastructures.
So what happened to IT adding value? In the heady days of the 1990's, I recall staff constantly taking themselves on training courses, learning new programming languages, operating systems, network skills – but something seems to have happened in recent years. Did IT staff get too cosy? Why do many companies still have IT staff who can only program in Visual Basic or Microsoft Access and limit email inboxes to 100mb (when you get 20gb with your freebie google account).
In the '80s and '90s, companies could get ahead by having smarter IT than their competitors, but now IT seems to have become a roadblock to success. I'm not going to enter into a diatribe on how outsourcing IT can transform a business, while saving money, but you do start to ask questions as to why so many business leaders today still seem scared rigid to look outside their firms to source the skills and talent they need to bring their businesses into 2009.
The leading IT services firms today are readying themselves for a fresh assault on the middle-market and this will be a key dynamic in the coming couple of years – especially as the high-end enterprise market is saturated. Desperate times will drive many firms to make brave decisions – and disposing of poor IT might just be one of them. What do you think?
Posted in : IT Outsourcing / IT Services, Sourcing Best Practises
Phil,
Right now the IT industry is so far out of whack, its a time bomb waiting to happen.
Oh there’s a lot one could say, but its people who lack the training that are hurting the process.
There is a lack of thought by corporate officers and decision makers and the quick short term thinking is starting to bite them in the butt.
Michael Segel
The concept of an ‘IT department” itself is faulty. Different departments in a company need different IT resources and should have at least some staff with an IT background within each area to facility data sharing and application building for that departments needs.
Once you get out of the basic ‘keep the servers/network running’ duties the ‘IT Department’, should just be a facilitator to bring together the separate units and oversee some data sharing/integration of the smaller IT pieces held within separate departments.
Barry Moraller
I agree with your observations but I also think that part of the problem is the lack of coupling between business planners and IT planners. What I see on the business side is people who are guided by hype and the press and who do not listen to their own team *OR* they listen to that part of the team that strokes their own ego and not the folks who sit down and do the hard analytic work.
IT is like any other part of any business. It’s about understanding costs and capabilities, setting realistic objectives and achieving them.
Geoff Feldman
Phil:
If you were to find a large company that had no IT department and created one for them, within one year it would be understaffed, underfunded, and most of its hardware would be out of date. That’s just the nature of the beast. ALL IT departments are underfunded, understaffed, and are running out of date hardware.
But they run. And they usually run fairly well. Look at Y2K! Hundreds of thousands of large, underfunded and understaffed IT departments running old equipment successfully undertook the largest trans-national digital project to date. They were so successful that the general public now believes that “Y2K” was either or hoax or was nowhere as serious as it had been made out to be.
The space-shuttle continues to fly with 296 technology. We forget how powerful old computers can be when they’re not running new, memory-hogging software. (Remember what the 64K version of dbase could do on a 296?)
We progress or we eventually die, and I agree that there is much that can and should be done to modernize most IT departments. And it IS being done- just a little more slowly than most of us would like. But until someone hands every large corporation hundreds of millions of dollars to modernize immediately, we can take solace in the fact that the present infrastructure is flexible and reliable and, as we speak, is doing what we programmed it to do.
Herb Briggs
Historically IT has obliterated millions of jobs through automation, off shoring, computerizing what used to be done by clerical personnel no longer needed.
IT can help a company become more productive, compete better with less people, which means the economy must generate more jobs to absorb those people.
IT dept, ability to do the job expected of it, is impacted by effective communications with corporate leadership, regarding proposed improvements, continuing education, security, best bang for the buck.
This only works if it is a two way street. IT needs to know what is needed. Corporate leadership needs to know what IT needs to get the job done.
Some work can be outsourced to workers who are better trained, lower paid, provided those workers do not need long learning curve regarding the company they will be serving.
All companies have ways that IT impede their progress in this economy.
1. Companies that are in another industry think that they are suppose to be experts in the IT industry when that is not their core competency. They build these IT shops that are overstaffed, do not have the processes, frameworks, or methodologies to run efficiently, they do not have the expertise and struggle to get projects complete on time and under budget. They try to build too many applications in house with out having process well documented, if at all, no SLAs defined and no change control or governance to improve the way they do things.
2. They try to leverage onshore, near shore, or offshore Service Providers without bringing in the experts to manage the Global Delivery practice; they begin to use the service providers prior to having the Methodology in place to successfully transition the work and end up putting the cart before the horse.
They have a Strategic Sourcing, Procurement Group, or Vendor Management Office negotiate the terms of the contract, or rate card comparing to existing professional services contracts. This can show rate cards that look advantageous but are not competitive against the other outsourcing companies only against the domestic sourcing solutions. There is plenty of ways to structure deals using domestic companies that have near/offshore capabilities that can not only reduce costs but add value to the solutions.
3. They are not willing to walk away from bad solutions or technologies because they have money invested and want to try to save something instead of just cutting their losses and realizing the solution they are using is not the best long term play. Companies are just trying to look at the short term gains or plays instead of looking at the Total Cost of Ownership of engaging in the right solution instead of patchwork on a bad solution.
4. They are always looking at the IT projects that they can cut to make budget or the people they can layoff to reduce expense. When they can actually and should look at existing contracts and renegotiate the terms of them, letting the vendor know that if they are not willing to renegotiate they are too looking short sited as if they do not partner to lower costs, projects will be cut in the future. Companies need to look at their Service Providers and vice versa themselves as partners and look at new ways to do business in an market.
5. IT shops are looking at the next technologies that are the next upcoming thing without looking at what success looks like for themselves. If they do not know what they are trying to accomplish it is hard to justify the move to a new technology stack, switching frameworks, doing a vendor rationalization, etc… KNOW what you are trying to accomplish before making changes. Understand your existing environment and challenges to have all the available information before changing things in the environment.
6. Having lower costs does not always mean that you are getting better value. Determine what the cost is to get a quality deliverable and determine what is your core competency in your IT department and if you are not an expert in the place find a company that is, in the long term the value will be better and you will make the end users, customers much happier.
Jason Atwood
Phil,
Valid points. I cannot help not noticing similarities with other G&A processes, where many empires have been built on the basis of intransparent processes and tools. Unfortunately, such empire-building excercise sometimes displaces the resources needed for strong business understanding – CIOs who can really show they impact the business models, HR Directors who can vaunt real talent management, CFOs who go beyond accounting and stockmarket comms. The ability to source “the run of the mill” from somewhere else holds the promise for retained organizations to move up the ladder – but not everyone is able to really stand naked in front of a CEO and explain what the next big thing is and how to get it.
I asked a CIO for a Fortune 40 firm how much the IT organization budgeted for innovation. Of the $1B budget, the business had directed the IT organization to spend less than $5M. Why? Because much of the funding had been allocated to cost reduction projects and lights-on small feature enhancements.
IT is one of the least innovative teams in a organization. The history of IT is 1) Build Requirements, 2) Prioritize Requirements, and 3) Control Project Delivery. The entire education of a IT executive is prioritization and project delivery, all the while trying to make sure that requirements are well defined. They learned this from day 1 as a programmer, and it is reinforced through centralized budget management and corporate budget cutting. Project management disciplines evolve to ensure budgets are achieved.
Now that every fortune 200 IT organization is filled to the brim with these resumes, how can you expect anything but a mentality of control, limits, and change control? Heck, how many SVA models do people have to complete to invest in start a new project?
The change has to be in IT portfolio management and a complete shift from spending 95% of available funds on lights-on to spending 40% on innovation, with a tolerance for acceptable failures. That all starts with 1) IT getting a handle on their costs and 2) the business being focused on the challenges of their competitive destiny and putting those actions at the top of the list, while living with the fact that a variety of lower value projects wont happen.
Tony
With the current speed of development in IT and new tools and languages it’s tough for IT departments to stay up to date. My biggest questions is if you still really need internal IT departments? Or if you shouldn’t source wherever you can the best?
I see so many of my customers with DOS-Screens on their remote desktops where there main company software runs on (just check the airlines when flying) – no usability and a lot of database issues. IT departments busy with fixing and updating these softwares and building management tools around them. I believe most companies should invest into completely overhauls – redesigns at least every 5 years…
Phil, sorry disagree, Most organizations are already too “outsourced” – broadly defined as internal staff versus IT and telecom vendor spend. The mix is 15 to 85 – show me an auto or aerospace vendor which outsources that much and they have far more sophisticated vendor metrics and supply chain disciplines than we do in tech
I wrote abotu several IT “truisms” and “best practices” we have accumulated in last 2 decades. As I wrote in this op-ed for Information Week, this scary economy gives us a chance to rethink many of them…
http://www.informationweek.com/news/showArticle.jhtml?articleID=215801712
Vinnie,
My concerns are for those firms that are unwilling to train their IT staff, or invest in their IT apps/infrastructures, and persist with dated technology delivery. For sure, I would love to see a return to the days when quality internal IT staff are considered a competitive differentiatior by the majority (not minority) of firms, but in too many cases today, we’re just not seeing it.
This is particularly the case for young IT talent, working for mid-sized firms which are not offering career development opporutities, or training to acquire new skills. Ambituous IT staff will go where they can develop themselves, and this is far too skewed to the services / consulting firms these days.
However, in this market, you would expect to see some more experienced talent more tempted to move back to internal IT organizations (especially in areas such as healthcare with investment flowing in)… the next few months will be a big indicator of things to come,
PF
Phil, good point.
Not suggesting companies hire IT folks anew in a big way, but they need to take a hard look at “buy versus build” in a number of areas – mostly by squeezing vendor budgets, expecting better quality etc
I mean surely they can do better than 5% of software dollar in innovation, better than outsourcers paying their employees 1/10th of what they are making in revenues etc.
Tech vendors have become a SG&A and margin recycling machine, with little coming back to clients in real product or productivity