Companies need to change their attitudes to outsourcing, says Neil Lloyd.
IT is not a homogenous mass – some components are standard business tools while others represent the real essence of the business and deliver the competitive edge. Identifying these corporate crown jewels is key to attaining real value from technology investment.
Just what does IT deliver to the business? Yes, technology underpins business success – and poor systems can severely damage an organization’s credibility and competitive position. But which components of the IT infrastructure are unique? Do any deliver real competitive differentiation? Or are they all standard business tools that, while the mainstay of business performance, are widely used?
If the majority of IT systems are standard business tools, why are so many companies insistent on retaining ownership in house? What value is being delivered by an IT department that spends 50% of its time ensuring email is up and running and the network secure? Does this investment generate revenue, improve efficiency or generate competitive advantage?
If IT is not a core business skill, why spend time and money delivering IT services that can be managed more effectively, reliably and at a lower cost by experienced third parties? Yes, retain ownership of those systems that are unique to the organization, that are key components of business success. But the rest?
By taking a step-by-step approach to outsourcing, an organization can hand over these more standard applications and tools to third parties and focus valuable resource on the IT crown jewels that deliver real competitive advantage.
Arrogant or Obtuse?
Business has a blind spot when it comes to managing its IT systems. To be fair, business has a blind spot when it comes to procuring, specifying and implementing IT solutions. Why, in fact, are these organizations running any IT systems internally? Do any provide real commercial differentiation? Or, as is the case for the majority of organizations, is the IT infrastructure composed of standard business tools, from email to finance systems?
Who knows? Since, few organizations appear to have any real understanding of the true business impact of each system and, as a result, seem unable to weigh cost of investment against competitive advantage at any stage of the IT development and management process.
Why, for example, does every organization insist on tailoring standard applications – even email – to meet its specific needs? Is each business really that unique? The costs can never be recouped through business benefits: organizations use basic IT components, from security to email, financial applications to human resources, in pretty much the same way.
Yet organizations persist in tailoring these core solutions to meet perceived unique needs, undertaking a process that demands input from management, IT and end users alike. This consensus by committee will never deliver a cost effective, scalable, reliable IT system. It will deliver an expensive, late, and over-developed mess that causes havoc every time a software patch or upgrade is required and has constant reliability issues. And all this for a basic accounting solution that is used globally by hundreds of thousands of companies?
Is it corporate arrogance or the ability of IT to indulge in hyperbole that leads to such wasted investment? Certainly IT has spent years creating a miasma of complexity that masks the real business relevance of systems. But is IT the core business skill of the organization? Does it generate revenue or support statutory objectives?
Unless the IT infrastructure is truly unique, why is any organization still struggling with internal IT delivery?
Most organizations use the same standard component tools that, while undoubtedly the mainstay of business success, are not unique. And yet it is these systems – such as email and security – that soak up the majority of IT resource and investment. From an IT perspective, understandably so – any failure in email availability or security glitch that leads to system damage is immediately visible to senior management.
But this approach makes absolutely no commercial sense – particularly when a plethora of organizations exist that specialise in the delivery of reliable, robust outsourcing arrangements at a controlled cost that compares favourably to the spikes experienced by internal departments.
Is it perhaps the fear of decision-making that seems to be sweeping the corporate world, driven by an erosion of commercial confidence combined with increasing litigation? Certainly highly publicised traditional outsourcing mistakes that have cost organizations both money and competitive position have created less trust in the IT industry. But it is this persistence in viewing IT as one, indissoluble mass that makes the decision to outsource or not so daunting: it is just too big.
Furthermore, few organizations have any idea of real cost of IT. While most can separate the costs of servers, storage and networks, few measure IT costs by service. Without knowing the cost of email per user, or the cost of purchase ledger per user it is difficult to compare the benefits of a more cost effective delivery service – and enables IT to retain control of delivery.
As a result, while happy to leverage the expertise of diverse organizations to provide asset management, finance, even human resources, the widespread approach to technology within business is, quite frankly, bizarre – ranging from the ‘don’t touch it’ at any cost to a disparaging ‘hand it all over’ attitude that runs close to negligence.
Can the boardrooms of organizations really be filled with the fearful on one side, the obtuse on the other; vacillating between empire building and wholesale outsourcing of any perceived problem irrespective of the business implications?
Core – but not unique
A few organizations have begun to wake up to the idea that IT is not some intertwined monster that can only be managed in its entirety by one organization – in or out. And, as such, they are opting to outsource certain elements of the infrastructure, such as finance or security.
This step-by-step approach enables an organization to leverage specific third party expertise, minimising both cost and risk. Firm, business related Service Level Agreements become meaningful, while the process of step-by-step outsourcing ensures each component of the IT infrastructure can be enhanced and improved. This process also enables an organization to retain its core IT expertise: staff are less likely to be transferred over to the outsource provider, staying in house to focus on the systems that are unique and deliver real competitive edge.
Furthermore, rather than the highly complex, over developed implementations endemic in businesses, outsource providers will often opt for more standard deployments borne of experience of providing services to others in the same sector, an approach proven to cause fewer problems, support calls and downtime.
IT does underpin business processes and it can deliver competitive advantage. But unless organizations understand which components of the infrastructure play what role, IT resources will never be used appropriately.
Put it this way – if a company was starting from scratch, is there any element of the IT implementation that would represent real commercial advantage and IP? One that the business simply could not contemplate handing over to a third party? Where, therefore, does that leave the rest of the IT infrastructure? If it offers no competitive edge or commercial advantage it cannot be core to the business – so leverage the expertise and economies of scale that a third party can offer, reduce the costs and risk associated with IT management and refocus efforts on running the business.
Neil Lloyd is CEO of Netstore