© Best Practices in IT Leadership, Mosaic Media, Inc.
Extending the Walls of the IT Department 
When should you outsource?
BY IRV JARETT

NIKE, Inc. designs and markets a wide variety of athletic footwear, apparel and equipment for competitive and recreational uses.” (Quote from NIKE’s 2000 Annual Report.) The report does not mention manufacturing— because NIKE’s partners now manufacture the shoes NIKE markets.

Yes, this quote does relate to IT.

Once, the IT organization’s walls were clearly defined; certain processes were always performed internally while a select few were outsourced. Today, the boundaries are not so clear. Managers struggle with a burning question: “Can we run a business without internal high-tech competency in computers and telephony?” In other words, how to decide which processes to outsource?

The issue of technology versus accessibility can be discussed at the intersections of four questions:

1 What technology is essential to our business and common to other businesses, as well?

2 What technology is both essential to our business and distinguishes us from our competitors?

3 Do we require access to the technology in house?

4 Could we just as well access the technology from an external source?

The discussion cube below (Figure A) gives examples in each of its intersections:

Figure A: Technology Essential to the Business

Common: In-house

At first glance, this intersection seems fairly straightforward. For example, most companies need copiers, so they buy them. Soon, paper and toner inventories run short and maintenance is needed. Eventually, running the copiers requires fulltime copy/production personnel. In-house operations may not be the most efficient solution; it may make more sense to partner with a copier company to manage such operations.

Most IT departments use the “Common: Inhouse” approach for their desktop hardware, software packages, and helpdesk functions. The Internet has expanded the concept of partnering with generalized Internet browsers. For example, bookkeeping has moved to the Internet, where partners operate “online” accounting and financial services that traditionally functioned within the organization.

As a result, what was once clear is now not so clear. If a common business function is large enough to be a cost center, it may be a “partnering” opportunity.

Common: External

Companies are outsourcing many functions that were once considered so essential that they were kept in house. The classic example is NIKE, which does not manufacture shoes! Instead, its partners handle manufacturing.

Distinct: In-house

Where a distinct process defines the enterprise (such as DuPont, with its patented formula-based products), that process is usually kept in-house. Certainly, old-line companies with major investments in unique manufacturing processes and trade secrets are not likely to outsource those processes.

Or are they? Auto makers have made significant efforts to outsource all the parts production they can. Their remaining manufacturing process is mostly assembly, and they still partner with robot makers to automate that process as much as possible.

Because of the rapid changes brought about by technology, every process is subject to partnering with companies that specialize in segments of that process. The same is happening with object-based programming technologies, where IT departments partner with large organizations like IBM to produce components for their in-house proprietary applications. Certainly, NIKE fits in this box, too, because all its design and manufacturing process design work is performed in house.

Distinct: External

However, distinct enterprise-defining processes are increasingly being performed externally, even over the Internet. Software solutions that can be adapted to myriad business requirements are appearing more quickly than one can imagine.

An even more dramatic example of this change can be found in corporate phone systems. Until recently, companies invested in their own internal systems to manage and monitor corporate communications. But mobile phone technology is evolving so rapidly that even this largely in-house process is moving outside.

According to a recent Reuters article, Nokia has released an entrylevel mobile phone that emulates Internet E x te n d i ng Co n t’ d “chat” messaging features. The implications for voice and data communications are staggering! Clearly, companies with in-house telephony technologies will need to partner with more specialized companies to extend their communications capacity. Forming and managing these partnerships will be a major challenge to IT leaders in the next few years.

Conclusion

The real question we are dealing with is: “How can we operate a business if we do not have internal high-tech competency in computers and telephony?” The answer to this question is simple: Having competency does not mean that you have to have the technology distributed throughout the organization. What it does mean is that you have a core group of “technosavvy” people who know your business and know how to use technology to improve performance. They can help your company find organizations that can perform the services you need and help you turn outsourcing vendors into true partners.

Today, the boundaries of your organization aren’t as clearly defined as they once were. Business problems are too complex to “throw over the wall” by way of traditional outsourcing. The IT manager is at the forefront of developing creative partnerships with external service providers to manage the organization’s common and distinct processes. The only walls surrounding most corporate technology are in the minds of organizational management

 IRV JARETT
© Best Practices in IT Leadership, Mosaic Media, Inc.