Breaking Up the Corporate IT Monopoly, Part 1

Once, not long ago, though strong technical skills didn’t necessarily guarantee employment, they clearly made a techie a highly marketable commodity. In the brave new world of declining IT budgets (in corporate communications jargon, “negative technology spending growth”), technical staffs are facing the sort of high-risk job environment advertising, sales, and marketing staffs have endured for years: If you don’t produce (or even if you do), we’ll outsource your function to a lower-cost provider.

The big news is that after nearly three decades of CTO/CIO empire-building, major organizations are breaking up their internal IT monopolies. These in-house IT departments, once the sole source for the creation, design, development, maintenance, and lifecycle management for every aspect of an enterprise’s tech infrastructure, are facing serious competition from commercial package vendors, specialized technology vendors, and third-party outsourcing service providers.

Although the shift from internal groups to third-party providers is certainly not new, the scale by which organizations are embracing the wholesale break up of the internal corporate IT monopoly is unprecedented. In doing so, many businesses are learning, just as the song says, breaking up is hard to do.

In this, the first of a three-part series, we’ll discuss broader trends changing the corporate IT landscape. In part two, we’ll look at a new trend of sticking with out-of-the-box functionality. This means implementing plain-vanilla versions of packaged software and configuring packages (even adjusting business processes to match package functionality) to forego the expense of developing custom code to match packages with business practices. In the final installment, we’ll cover a powerful new trend called low-cost computing, by which corporations are dramatically simplifying, standardizing, and outsourcing not only their IT operations but also the business processes and staffs that go with them.

The Golden Age of Corporate IT

In some ways, the past three decades have been the golden age of corporate IT. During this age, it was common knowledge more technology, or more advanced technology, was the answer to every business problem.

Corporations spent tens of thousands of dollars upgrading to the latest version of an operating system — not because they desperately needed increased capability or performance but simply because a new version was available. (This was also an age when many organizations realized — the hard way — many enterprise technology initiatives such as ERP and CRM were predominantly about organizational, cultural, and business process change, not just technology.)

With a stalled economy and a surfeit of point solutions from literally thousands of amenable (some would say increasingly desperate) vendors, corporate executives and technology managers are reevaluating many assumptions and practices.

One of the biggest lessons these executives are learning is new isn’t always better, and creating and owning often is more expensive than renting or buying off-the-shelf functionality. Business groups are being asked to reuse applications instead of buying new ones and to buy packaged applications instead of building them. Automatic upgrades to the latest software version are history.

The Value of Knowledge Versus IT Ownership

On a more strategic and fundamental level, corporate executives are learning a powerful new lesson, or perhaps relearning something forgotten during their IT spending spree.

These managers increasingly realize owning technical resources doesn’t necessarily result in differentiating technology. They are rediscovering the real value of technology comes from knowledge of what technology can do and the successful application of it to improve business processes within a specific organization relative to its incremental costs. It really doesn’t matter who creates the functionality or performs the implementation or if these resources are owned or outsourced.

As with all trends, some organizations outsource too much and/or the wrong functions. For example, they outsource some of their most knowledge-intensive and strategic activities, such as user education, training, and support. Or they try to outsource enterprisewide back-office functions, without adequately planning for disruptions in customer service and/or business continuity.

Next, we’ll examine how some corporations are getting out of the application development business and instead relying on commercial software package providers to met their specialized needs and to fund the ongoing upgrade, maintenance, and support of this software.

Got an interesting insight, opinion, or real-world example to share? What are your thoughts? Write me at Arthur.oconnor@reuters.com. And stay turned for part two.

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