The impacts of the shrinking IT department
Business’ desire to optimise those key functions that create competitive advantage and commoditise those that don’t is resulting in shrinking IT Departments. This shift in thinking has profound implications on the way IT supports business, employment and the nature of local IT skills in demand.
We’ve been hearing with increasing rapidity about organisations grappling with an apparent misalignment in business cycles and the other day I came across a local organisation who’d come to grips with this situation and addressed it in a thoroughly modern way. Their approach was to recognise that some key functions within the business such as payroll, staff roster management, finance and telephone sales didn’t actually add much value to the business and hence they chose to carve them off and outsource them to specialised third party organisations in different geographies. They even took this further by outsourcing key components of IT such as the maintenance of the Enterprise Service Bus to a little company who specialised in this area. Another interesting point to their strategy is that they have formed relationships with a number of nimble, second-tier service providers both locally and offshore which provides them with the resource agility to rapidly respond to change.
A key element to their success was to structure the service contracts with the 3rd party providers to ensure that there was appropriate SLA coverage and to have good quality manual backup procedures where appropriate. So what did this mean for this particular organisation? Their IT department operates with literally a handful of people and their roles are really to orchestrate business innovation projects and drive business outcomes. As a wise sage once told me (you know who you are Chris) “There’s no such thing as an IT project!!!!!”.
While this is interesting for this particular organisation, it’s only really become possible through a number of emerging trends towards the commoditisation of infrastructure through virtualisation tools and techniques, cloud computing and huge growth in the availability and importantly a change of attitudes towards Software as a Service (SaaS) offerings.
A recent article from TechCrunch Cloud adoption in the enterprise: The coming Tornado takes this apparent movement further. “The coming shift echoes the disruptive transformation of IT in the ’90s, driven by companies like Oracle, Microsoft, Lotus and Sun. Geoffrey Moore, author of “Crossing the Chasm” and “Inside the Tornado,” studied this transition and described the chain of adoption for enterprise technology: innovators are followed by early adopters, visionaries, and finally IT departments. And when enterprise technology hits this latter group, we’re officially in the Tornado.”
“Well the dust is beginning to swirl once more. Over the next two years, enterprise IT will follow in the footsteps of today’s early adopters and visionaries, finally embracing the Cloud and moving content, applications, and processes to the web. So what are the catalysts for this perfect storm? A combination of maturing platforms, generational and cultural shifts, and compelling economics, making cloud-based solutions the undeniable choice for nearly all future non-core technology purchases. Managing infrastructure and technology that is not competitively-additive has become competitively-expensive.”
A recent piece of research by Gartner goes yet further by somewhat startlingly predicting “By 2012, 20 percent of businesses will own no IT assets. Several interrelated trends are driving the movement toward decreased IT hardware assets, such as virtualization, cloud-enabled services, and employees running personal desktops and notebook systems on corporate networks” .
As these trends become more mainstream, there will be a profound and broad impact on internal company staff, the nature of local IT work and the structure and approach of local supporting IT services organisations. A prediction in an article published some years ago in CIO magazine on the future of jobs and innovation in 2010 is proving eerily accurate “Commoditized work will go overseas. Some more creative work — like non-commodity one-off and unique projects — will go overseas. But where interface with the business is important, that work will remain here. What will continue to go overseas are the repetitive activities, the things that will ultimately be automated anyway.”
The key message that I’m seeing emerging in our day to day work is that people, not just organisations have to adapt and change their thinking to thrive in this rapidly evolving environment. Those business functions that can be commoditised, are being commoditised. The old ways of IT departments providing a full suite of onsite, local supporting services is rapidly diminishing. IT people must become more business savvy from top to bottom to ensure their contributions are adding value and can’t be commoditised. The organisations that are willing to embrace these changes can position themselves to take advantage of every business opportunity that comes their way and adapt accordingly.
Nice historical overview of the things to come
It’s all going to happen, just really not that fast. 2012 will be 2020 or even 2025
The crux is in repetitiveness and proximity to business indeed!
In the B2B area I’ve seen that it’s about two things: core business, and business criticality.
Especially the latter overrules the former in most cases; outsourcing the ESB? No way, it’s the spinal cord of your entire company. You should outsource parts, but it’s all yours to sit on. Like the first car you buy with the little money you have, you have to conceptually learn and know how an engine works, a battery, shifting & gearing
I do stick with my vision on IT Utility (http://www.martijnlinssen.com/2010/01/it-utility-and-cloud-and-why.html) that only very standard stuff can be Clouded this next decade or so. I totally agree with the business saviness, and therefore ask “what’s in it for the Business?”. Cloud’s only one of the suns on our horizon…
Cheers Martijn.
I too was particularly surprised when I heard that they’d outsourced the maintenance of the ESB but for this particular organisation it was clear that this was part of a broader business philosophy.
They’d clearly decided that they want their few staff to obsessively own the areas that add value to their core business and utilise flexible business partnerships to provide the arms and legs to implement that philosophy.
Your car analogy is quite apt but I’d look at it slightly differently. Yes you need to undestand what a car is capable of doing but we take our cars to service centres for maintenance don’t we? If I wanted to get more performance out of my car I would take it to a specialist tuning centre.
In the ESB world, these guys use their people to understand the right services needed to be made available in the right way to help them serve their customers better. They understand how to exploit the ESB but they chose not to pay for full time and expensive specialists to build those services and then maintain them?
I’m not advocating this as a broad approach though. It works for these guys because from the top down they seem to have a really innovative culture aimed at doing more with less.