This outsoucing trend has been accompanied by an increasing number of INsourcing efforts; where outsourcing has proven, in some instance, to be a poor choice. Companies are discovering that their decision process may have been flawed, and some of the longer term implications of outsourcing were not considered in the decision process, tying the hands of the company in being able to effectively leverage new technological capabilities. 

So how do we pick what should stay and what should go?

Let’s step back and look at a framework for making those decisions that may prove useful.

In any IT effort, there is a product life cycle. In that cycle there are 2 major blocks; non-recurring and recurring activity. 

In non-recurring activity, there are 3 major steps; Plan, Design, and Implement. In recurring activity, there are 2; operate and maintain. 

Laying these out as the columns in a matrix, from left to right:

Using this basic model, outsourcing would start at the far right side with maintain, as the first aspect you would outsource. As you move more to the left, you give up more control over the result, and of your future where the components being outsourced are concerned. 

What companies are discovering is that commodity IT services, can have levels 1-5 all outsourced, with little impact, whereas key systems that provide competitive advantage and market differentiation, or technologies that are subject to high velocity change, should have far fewer - or even none - of the level 1-5 steps outsourced. Understanding the business value of the systems in question, is key to this decision process, and this simple frameworks helps with understanding the impacts. 

If you are outsourcing something in the middle - say implementation - it is not truly an outsourcing effort, but a service delivery function that is being outsourced, most often as a project based non-recurring activity.

So structurally, what does this look like?

The American Productivity and Quality Council (APQC) publishes a generic business model that encompasses virtually every business in existence (with subordinate processes unique to business segments). The core processes are as follows:

1. Develop Vision and Strategy
2. Develop and Manager Product and Services
3. Market and Sell Products and Services
4. Deliver Products and Services
5. Manage Customer Service

This sequential series of processes comprise the generic model of any business.

Information Technology is NOT one of those core operating processes. 

Across all these core operationg processes, there are a number of supporting operating functions. 

• HR - Develop and Manage Human Capital
• IT - Manage Information Technology
• Finance - Manage Financial Resources

And a few other spanning processes. 

Of the key supporting operating functions that span all other other core operating processes, IT holds a unique, potential contribution:

• The key “tool set” that almost everyone in today’s business uses
• Done right, a source of real efficiency and productivity improvements
• Where the velocity of change is greatest
• Where the most money is being spent on a recurring basis
• Where the greatest expectation of a ROI exists

…….. and where the greatest number of failed efforts exist - as much as 76% of all IT projects fail, either with outright functionality issue, or budget / schedule overruns. 

So for IT leaders - get over yourselves! Shelve that ego and start to understand that your role is NOT a core function of the business…... but IS a core ENABLER, and likely the most important one that exists in any modern company. If you are not treating IT as that business tool, but instead, as technology-for-technology’s sake, you are not doing the business any service of true value and are likely doing more harm than good to the company’s future. 

How can you do that? That is the subject of another post :-)

1. Cost Center
2. Service Delivery
3. Business Partner
4. Business Peer
5. Business Leader

The bottom rung of this maturity ladder is as a cost center. Repeated surveys over the last decade have placed this structure as about 18% of all IT organizations. A cost center is perceived to be just that: a necessary business cost. Your IT organization is a mechanic, keeping the IT car running when something breaks. 

The next rung comprises the overwhelming majority of IT organizations; service delivery. This is the core of operating and maintaining the smooth operation of the computing environment. About 56% of all IT organizations fit into this bucket. You provide computing services to the business, often as a commodity. And that’s the rub; if IT is considered a commodity, you are ripe for outsourcing, as you provide little additional value to the business outside of smooth IT operations, which typically can be delivered better, cheaper, faster, using outside shared providers. 

CIO’s in category 1 & 2 average less than 3 years in their jobs.

We work with IT leadership in these organizations to elevate their perspective on IT’s role in the organization to one producing business value beyond the scope of an optimized computing environment. 

So with 74% of all organizations in the “upgrade and maintain the car” mode, the issues with providing IT value are pervasive - and limiting both IT and business’s potential. 

IT should be creating competitive advantage and market differentiation, bringing real, tangible value to the business and the key enabler of business - more so today than at any time in the past - the other 26%.

Business Partner - you listen to the business needs, and create what you perceive they need to operate. The role is often after the fact, being reactive/responsive to pre-defined needs. IT is the solution provider.

Business Peer - the business engages IT in the decision process on anything where there is a technology component, allowing IT’s insights on technology to be a proactive part of the decision process. IT is becoming the strategic partner. 

Business Leader - a very small percentage of IT organization fit in this lofty and elusive role, as, in most cases, technology in NOT the business driver, but the business ENABLER. Some organizations use technology as their driver, and therefore, may find this organizational perspective appropriate. IT becomes the innovator, anticipating the business needs, and proactively aligning strategy to meet the future business needs using IT as the lever. 

CIO’s in category 3-5 average > 13 years in those roles, as the business values their contributions to corporate value.

Why Does IT NOT have a seat at the “big table”?

In level 1 and 2 organizations, it is obvious. The business sees IT as a service provider - a waiter or mechanic for their shiny computing toys. CIO’s are often their own worst enemy in these situations, having been raised as a techno-geek, and used their über skills to transition to a management role, without ever accumlating the business acumen to become a level 3-5 IT leader. They have also done little to show non-technical leadership, how IT can provide the true business value to be considered as a business partner, peer, or leader. 

And other C level leadership is part of the issue as well, as - unless they have experienced it previously - do not truly understand that IT can be that partner in furthering the competitive advantage and market differentiation and an IT-enabled business can provide. As a result, they never ask IT to operate outside of a cost center or service delivery mode. 

Getting there is the trick; of the dozens of IT leaders we’ve worked with, a significant percentage has not been able to, or willing to make the leap from an IT leader running and IT organization, to a C level BUSINESS leader that brings the technology perspective to the future of the company. Those not making the transition, are at best, VPs of IT, leading singular functional organization. If they remain in the CIO role, they are a boat anchor to the business, not an enabler.

Those that do, typically end up in a company that is not stagnant, but potentially, as an industry leader.

So where are you in this IT maturity scale? 

Since the initial advent of the CIO title, CIO’s have lamented their lack of a seat at the “big table” – that elusive peer relationship with the CEO, CFO, COO, and President. It is not a reporting relationship, but one of providing value to BUSINESS. In the overwhelming majority of organizations, this remains true even today. The reasons are many and complex, but there is one overriding aspect that is at the root of this situation.

Most CIOs are neither C level peers, or corporate officers, but CIOs-in-name-only; VPs or Directors of a single functional organization with an grossly inflated title.

Is this an unexpected epiphany? Do you feel denial? Anger? If you do, you are probably part of the problem, but one that you have the ability to remediate.

Neither aggression or depression should be the next step, as understanding this situation is a major milestone in resolving a more substantial role in the corporate hierarchy, and one that moves you beyond the role of a technologist.

The myriad reasons behind this situation are many and complex. Let’s start with the role of IT.

Where Value is Derived

The role of IT has historically been as a cost center, or a service delivery function; the business of IT. However, that mode of operation provides limited value to the business – you are a service, not a partner, peer, or leader advancing the business with the myriad of unique capabilities that IT can provide. If you don’t, the business will do it without you. The trend is inexorable; 2014 was the first year that corporate IT spending was greater than 50% OUTSIDE of IT, and outside IT’s control, with corralling and securing the rampant proliferation of data – typically an unfunded liability – performed by IT as an afterthought.

The history of Electronic Data Processing (EDP) for accounting, then Management Information Systems (MIS for management), then Information Systems (IS for everyone), then Information Technology (when proliferation of technology moved outside the data center) are all obsolete paradigms. To be of value to the business, IT must transcend this role and take on the prime role of something like business process automation with a prime directive of making the business cheaper, better and faster (the modern terms for old school quality, quantity, cost).

Red Flags

To do so, IT must change the dialog with the business. Every time I hear the terms “IT Strategy”, “IT Initiative”, “IT Project”, or “IT-Business Alignment”, I cringe. The red flags go up, as the signs of a dysfunctional IT organization have reared their ugly head. Repeat after me: “there are no such things; there is only business strategy, business initiatives, business projects” – all of which have an IT component that is geared around making the business cheaper, better, faster. IT alignment is a given, as IT’s sole role is to enable the business, and as such, 100% of IT’s efforts are in support of a business strategy and are part and parcel of the strategic planning process.

Business Leadership, Technology Roots and Consumerization

But few IT leaders are prepared for that reality. They grew up as technologists, often with a modicum of management moxie recognized at some point of their career. And to be fair, the world of IT is a world of high velocity change, with new technologies and their associated capabilities arriving daily. The “consumerization” of IT has also caused IT to be playing catch up with a more technically literate, early adopter user base, with renegade IT, and rogue data stores popping up all over. The user community has little regard from the complexities of IT’s management and security responsibility.

Even more important: most business executives have not seen – with few exceptions – any glimmer of business acumen from their IT leaders, so why invite them to the party? Yet in dozens of conversations I’ve had with CEOs, they long for an IT-literate business leader to be part of the team, that also brings this crazy world of IT into the advanced planning activity. And they are finding it outside of IT, in the CMO (another CxO in name only), which itself is a sorry state of affairs.

IT’s lack of business knowledge it is not about the business of any particular company, but about business in general. IT does not have to be the expert in their company’s business; that is what we have business leaders for. Conceptually, IT is IT is IT, regardless of the company, just with different implementations and tools. But understanding how business in general, operates, is essential for IT to learn to engage business operations effectively.

The other dichotomy of this situation is that, of all the organizations that exist within business today, IT is the ONLY one that has the full range of business functions, internal to their organization. Marketing (IT capability), sales (IT efforts), R&D (new technology and systems development), production (the IT “factory” aka data center), delivery (transition to production) and customer support (help desk), accounting (charge backs/budgets), and HR (IT specific skills management) are all functional activity within IT. They are, unlike any other department within a company, a microcosm of business as a whole, yet for some reason, are unable to be that IT-representing business leader at the big table.

IT is pervasive today, and even more so in the future. They span HR, finance, and the core business functions, and unlike HR and finance, which also span everything, IT in the enabler, the mechanism, the tools that can make/break a business, create competitive advantage and market differentiation.

What an opportunity – IT has the world at one’s feet, yet an opportunity most generally squandered.

IT Leadership Skills Gaps – Real or Perceived

Few in IT have the business acumen or the social skills to have that executive business presence required to interact with their C level business peers. Business suffers the consequences.

IT has a huge potential to provide market differentiation and competitive advantage, but not if IT remains a cost center or service delivery function, producing commodity services, and primed for outsourcing. If the business is not seeing any value creation from IT to the business, the option is to cut costs, typically by outsourcing IT, and further commoditizing what should have been a major source of business benefit and value creation. Optimized service delivery – a euphemism for creating a separate business unit disengaged with the core revenue creation – ends up realizing the business opportunity to reduce costs through the synergies gained in outsourcing IT, but loses the ability to create that market differentiation and competitive advantage. Outsourcing tackles “Cheaper”, but ignores “Better” and “faster”. Not that it isn’t appropriate to outsource much of current IT’s space, but make sure the outsourcing decision process is sound. 

IT is the Mechanism of Cheaper, Better, Faster

Even fewer in non-IT executive roles recognize IT’s potential value or that IT leadership should ever be involved in the strategic as well as tactical day-to-day decisions. Like the proverbial sailboat – a hole in the water into which one throws money – they see IT and IT leadership as those people that we give lots of money to, but gain little in return, and nothing of value. IT is a necessary evil. The people they continually see in these CIOs-in-name-only roles, may be adept at running a service function, but they seldom sit their ego on the shelf long enough to recognize that IT is NOT the center of the universe.

Face reality: IT is NOT in the core business delivery process chain. IT is neither an input or an output to marketing, sales, R&D, production, delivery, or customer support. However, IT IS the mechanism behind virtually everything done today; IT provides the one great opportunity to enable business to make things cheaper, better, faster, and have the tools and opportunity to do so.

HR does not provide this capability, nor does finance, yet HR and Finance are seldom the target of cost reduction through outsourcing (although they should be!). An engaged IT organization, marketing the capabilities that IT can provide to business, can be a powerful force for change, for improvement, for that elusive market differentiation and competitive advantage that commoditized IT can NEVER deliver.

The maturity curve for IT organizations, is from the basic cost center, to service delivery, to business partner, business peer, and maybe someday, business leader. Optimized service delivery is the initial ante to get into the game, but is certainly not a winning strategy.

So what can be done?

The walls of the ivory tower must come down. Drain the moat, lower the drawbridge. Shelve the ego, and embrace the fact that IT can be the organization that can make or break the business, provide that competitive advantage and market differentiation, and become heroes in the process. Make it your mission to do everything in your power to enable business, ideally using IT expertise. Outwardly, eliminate IT as an adjective to anything – it is all about business, period. Get the business engaged with what you are building for them. Find out what they want, but also market what IT can do for them. Swallow your pride an embrace a major dose of humility; IT must recognize that they are not the center of the universe, but can provide the most effective transportation for the [business] driver, and done right, propel the business to new heights.

And if you don’t want to do this, but instead, stubbornly cling to your inflated CIO title and single functional organizational leadership, ask yourself, what is the role in IT that DOES sit at the big table, and helps direct the future of the business through technology-enabled business capabilities, because without some serious changes, it ain’t you? Your ego has created an impenetrable glass ceiling, commoditized IT, and impeded the business from ever realizing the wondrous capabilities that IT can bring to business process automation … to the detriment of both business and IT.

Read on grasshopper! In another post, I’ll explore methods of making the transformation of IT into a business leader, the history of the roles of IT, and how that history is an additional impediment, but for another time…..

There is no such thing as IT Strategy. Or IT Innovation. Or IT Initiatives. There are only business strategies, business innovation and business initiatives, all of which have a key enabling component called Information Technology. Information technologies sole responsibility is to make the business cheaper, better, faster. To do this, IT must be an integral part of the up-front business strategic planning process. WHAT IT can enable, can radically change WHAT a business can effectively do to tackle opportunity, mitigate threats, enhance strengths, and reduce weaknesses. But NOT if they are not part of the up-front process.

Sidenote: Don’t confuse information technology with product engineering. The operational aspect of technology based business solutions is a different animal than an organization geared to produce product for consumption by users.

A Recipe for Disaster  

Adding IT into the mix after the fact, adds the additional step of IT-business alignment, as reduces IT, to at best, a service delivery function, or worse, attempting to implement business enabling IT solutions that were fantasized by people that have no concept of the costs, complexity or management of a functioning IT delivery capability. Cost overruns, unmet expectations, security breaches, etc. all are possible outcomes, to deliver what may have not been the optimal solution in the first place, because the process was broken.

If you have to do IT strategy after the fact because you were excluded from the business strategic planning process (a bigger issue), then make sure that 100% of what is defined as IT’s efforts are intrinsically linked to one or more business strategies. Orphaned IT efforts will be a funding struggle, and may require their own defined business strategy to support them, so that they are funded parts of the business operation.

Everyday People Writing Code

Gartner defines this evolving category as “a user who creates new business applications for consumption by other using development and runtime environments sanctioned by corporate IT”.

The reality is that a lot of this citizen development fits in the same functional areas that I call “rogue IT” and “renegade data stores” ; superuser types that may have a degree of expertise in the IT field, but lack complete understanding of the complexities of not only creating, but managing, supporting, and securing information technology assets. Often this is done in a vacuum, without IT’s concurrence, or guidance/alignment with current strategic direction. 

Collectively these activities potentially fall back on the lap of IT to fix, manage, support and secure, many of are “islands of automation” without consideration for integration into the rest of the corporate environment. This creates a lot of unplanned (and unbudgeted) work, detracting from the planned work, and creating a huge unfunded liability for a company. 

Compounding the Situation

As a result of the increased workload, re-engineering, retrofitting, and enhancing the un-engineered outside-of-IT developed environments, IT has become less and less responsive to business needs - a vicious circle. Hence the rise of not only the citizen developer, but the new roles at the top of the fod chain.

Adding to the confusion: Chief Digital Officer and Chief Marketing Officer

These new roles are spending more in IT - as of 2014 - than IT does. This situation exists, partially due to the need to support the less-than-ideal developments that have occurred outside of IT. And it is not just application development, but it is outside software-as-a-service - things like SalesForce. Many of these outside products seems great on features, but the [in]ability to integrate them into existing workflows and enterprise environments, create more unfunded, non-value-added work, further reinforcing the vicious cycle, and driving up costs. 

Is “citizen developer” a bad thing? Yes and no; it all depends on how you, as an organization, design, plan, manage, control, and support these new developers. Often it takes a great deal of existing resource to educate the citizen developer on the vast myriad of attributes that goes into moving from a personal computing platform, to a supported, secure, integrated corporate computing asset. On the other hand, the oft-neglected-by-IT business user is just striving to create the tools they need, that IT has not be responsive in providing. 

It is an evolving area, where IT needs to do a far better job of creating that business value, and partnering with the business users. 

We don’t try to manage technology - per se. We put in place the governance processes that facilitate effective IT management. Face it, there is probably a lot of talent in your organization - talent, that, without direction, seems to flounder, or get buried in the details. Sometimes they make good decisions - at least from the perspective of a given project. However, this may not be what is best for the enterprise.

The process we put into place has been proven in nearly 100 companies from startups to the world’s second largest corporation, and has provided radical improvements in the overall IT governance and financial performance of both IT and the parent company. This process is highly flexible, extremely repeatable, and provides consistent benefits that, in most organizations, become institutional fixtures in the running of the organization.

The core of the process is Principles - the values that are used to make decisions. Understanding these values, and how they should be applied to what decision when, is essential. You need to leverage all this knowledge in your organization, and the top executives can’t be there for every decision. Getting everyone to behave the same way for the same reasons, and for the right places, is highly effective for massive cultural and business change. Broadly supported decisions can then be made, and the empowerment that gives to people - in line with executive intent - is amazing

The Ideal Sequence - Ideal, but not mandatory ......

1. Strategy - WHAT the business wants to do

2. Strategic Metrics - characteristics that insures that subordinate efforts are adding to the desired value

3. Business Tactics - HOW the business wants to create this value

4. Principles - statements of value that guide decisions

5. Principles Alignment - against a behavioral view of the organization, such that all decisions might be made synergistically

6. IT Direction - WHAT IT needs to do to enable the strategy and tactics for the business

7. IT Delivery - HOW IT plans on delivering the WHAT

8. Current Environment - a qualitative analysis of the technology landscape across the complete coverage model of platforms, applications, data, operations, security, people and process

9. Gap Analysis - the delta between where we are and where we want to go - made up of keepers, retirement candidates, and components we need to build or buy

10. Implementation Priority - the delivery sequence roadmap

11. Cost Model - what it takes to acquire the build/buy items

Seems like a lot of effort? With well proven templates, “shopping lists” of content to select from, comprehensive training materials, and expertise from delivery in over 40 companies, the work output is highly pragmatic and efficient.

Contact us - we can get you on the track to more effective business value delivery through information technology.

Application development is like accounting - a necessary evil that adds nothing to the bottom line - at least in many cases. 

IT is made up of 2 major areas - application development and operations. Operations delivers the applications and infrastructure to enable the business to operate. They are the factory and the foundation that the business relies on.

But in the realm of application development, there are distinctions that can make or break an IT budget, and even a company. 

Application development is geek toyland - a place to play with the latest technologies, and live in a world so foreign to the outside world, that no one can question what they are doing. OK, so most companies have a need for at least some application development. The packaged, commercial-off-the-shelf software may not meet their needs, or necessarily provide the competitive advantage required. Add to this, that many CIOs are not business people, but techno-geeks that have grown up the management chain, and want to continue with what they are familiar with and enjoy - and think that they are adding value by doing.

NOT the CIO success path of today’s day and age......

With most software packages today, these software companies have learned the best practices from hundreds or thousands of customers, or competitors products, and applied this to their off-the-shelf application. It stands to reason that the way their application works, may be better than the way you currently work today.

If you find these products, minimize your application development - you’ll save lots of money, and have a vendor to point the finger at when bugs arise. Take it on yourself, and you become the fall guy. On the other hand, technology can provide competitive advantage and market differentiation - in those code functions that provide the unique value to the operation of the business. You need to move IT development into the arena of making the business more effective at everything they do, whether that is with a commodity off-the-shelf product (for those things that do not necessarily provide unique value), to rapid time-to-value development of tools to make the business run “cheaper, better, and faster”. 

Now if we could only eliminate the accounting department….   :-)

Contact us - we can help with product selection, and refocusing your IT organization on providing real value.