The Evolution of IT, Informatics, and Sourcing Decisions

IT architects, information managers, applications, and IT operations and infrastructure staff add little, if any, value to most businesses. How has this come about and what do 21st organizations do instead?

Disclaimer: This blog represents the author’s views based on experience working in and managing IT functions in a wide variety of industries over almost thirty years. The reader is advised that the article is based on observation and experience, it is the author’s opinion, not an academic treatise.

I have been a keen observer  and a part of the evolution of IT services over the last 3 decades. My experience took me from being  an IT professional from the late 1970’s in some of the world’s largest companies to managing many large internal service functions, these have usually been IT departments.

In twenty years as a manager and in the fifteen years that preceded them I have seen a clear development in progressive and leading-edge companies in the nature of the IT Department and the relationship that companies have with “IT” as a function. This is not to say that 20th century companies, with 20th century attitudes to their IT functions do not exist today, however these are increasingly in the minority and, like the dinosaurs, either dying out or making a last-ditch effort to keep up with the rest of the world.

This brief essay attempts to describe some of the changes in the relationship between IT and business, the reason that “right-sourcing” decisions must be made by corporate leaders, and how those decisions might influence an enterprise’s future.

The IT Department in 1980 – Competitiveness Through In-house IT

Thirty years ago IT departments in large organisations traditionally provided a full range of “IT services” to companies. To a greater or lesser extent enterprises relied on IT to support their efficient and effective running. In some cases these efficiency initiatives provided companies with a competitive advantage.

Therefore the cost of running the IT Department represented a very real investment decision for the companies involved. Like the book-keeping and clerical functions of the rest of the industrial age, the IT Department was a service provider to the business.

Over the ensuing years; as IT capability evolved rapidly; as the importance of IT to business increased; and as the world careered toward the information age; the nature of the investment decision has changed dramatically.

In the 1970s and 1980s, IT was often considered something of a black-art, managed and delivered by technical boffins, and assiduously avoided by “business” people. In this environment the investment decision was one that revolved around “which particular roles were required to support the company’s IT needs?” and “could we do without them?”.

In those days of few data networks, no wireless or mobile telephones, no automatic teller machines, and Internet (as we know it today); IT was an effective tool used to automate repetitive, often tedious, and otherwise expensive transactional work.

As a result IT offered businesses opportunity to gain a short-term competitive advantage by selectively eliminating costs.

It was sensible, in 1980, to consider building and sustaining a dedicated IT Department, in-house. This gave a business ability to develop a team that  was in tune with the organisation’s operational challenges and able to provide solutions that would make the business more competitive. This advantage was however short-lived, and easily replicated by others.

Companies often employed teams of computer professionals to develop software-based solutions to their business challenges. Over time, they employed, sometimes even larger, teams of people to run the hardware and the systems necessary to deliver these “solutions”.

The situation evolved and, by 1990, the nature of the investment decision had undergone another step change.

The 1990’s – COTS and the rise of Informatics

By the time the 1990’s arrived it had become apparent that automation-challenges were often very similar across a range of companies and even a range of industries. As a result many entrepreneurs became successful by developing solutions which could be used by a whole class of customers, rather than by a single organisation.

Systems that supported common business functions such as payroll, financial management, human resources management, stock control, supply chain management and marketing all became readily available as packages. These were referred to as Commercial Off-The-Shelf  (or COTS) solutions.

In the higher-education sector packages were available to manage student (customer) flows. In healthcare it became possible to manage patient encounters and centralize, electronically, critical information.

Competitive advantage became dependent, not on the IT investment but, on how effective the organisation was in making use of that IT investment.

This was about the time when the ability to align people, processes and technology to improve a business-outcome became a valuable commodity in the IT marketplace. This is the art practiced by informaticists.

The Information Age and the birth of “Right Sourcing”

As attention was drawn to the value-added to the IT investment, those responsible for counting the beans in the corporate machine, and the corporate leadership, started asking themselves some very serious questions.

These questions revolved around the services provided by their IT Departments; in particular “which of these require intimate and specific knowledge of the business?“.

There began to be a recognition that many IT-services are effectively commodities that; like telephone calls, electricity and water; can be purchased as a “service” as and when needed.

Around the year 2000, corresponding broadly with the release of the ITIL 2 framework, organisations which were able to offer a standard set of IT Services began to flourish.  These organisations offered the services involved in controlling and managing computer operations.

Leading enterprises had matured to the point where many companies could express their desire for IT services rather than their need to employ the people who deliver these services.

Whether ITIL, with its disciplines of categorising services and developing service level agreements, was a catalyst for corporate executives to consider outsourcing of IT operations, or otherwise, outsourcing became commonplace.

Through the outsourcing model management had a means of achieving quality of service at a scale-able cost whilst enabling focus on value-added activities involving IT.  This included a focus on informatics for efficiency and data analytics to provide business intelligence.

Right-Sourcing Decisions in 2012

In 2012 some outsourcing decisions are easy ones. Newly set-up companies typically choose to source “core” IT Services from a third party provider. These services include email, data storage, service desk, in fact nearly all back-office IT functions can be sourced from organisations who specialise in providing high quality, high-availability services at low cost.

Often core applications are also sourced from external providers who take on all the responsibility to running, maintaining, and supporting enterprise resource planning (ERP) tools such as the financials, HR, payroll and marketing systems that used to be managed in-house.

The role of the IT Department has fundamentally changed

The information age IT Department has evolved to become an informatics department, closely aligned with the goals and objectives of the business. The model IT Department of 2012 is vastly different to that of 1980.

The IT Department of today anticipates needs, assists in managing, monitoring, and measuring change. IT provides the skills to manage programs and projects of work, manages contracts, service level agreements and vendors to ensure that the business receives the services it desires. The CIO and the IT Director are key to ensuring that the businesses needs and wishes are understood by vendors, that they are specified, ordered and delivered correctly and that services continually increase in value received for money paid.

An IT Department, led by the Chief Information Officer, should have only one goal. This goal is to drive the maximum value from the business’s IT investment.

Achieving this goal is a challenge. Not only must IT put considerable effort into assisting the business to use IT correctly and effectively but, led by an effective CIO, the Department must understand the fundamentals of the business and be prepared to advise on how the information assets can be exploited to maximum effect.

Is Your IT Department an Information-Age Organisation?

In an effort to cut through the hyperbole and to get to the point: Chief Executives don’t need an expensive, jargon spewing, acronym bound consulting firm to work out where their enterprise sits in the spectrum of industrial-age through information-age companies.

CE’s do need to recognise that companies that will be successful in the 21st century will be those that are able to harness and exploit the information that informs their business decisions and their planning.

The following questions will help Chief Executives and their teams to work out if they are ready yet for the information-age:

  • Are email, telephony, data storage services, service desk, desktop support and other generic IT functions maintained and supported as in-house services?
  • Is the structure of the IT Department reminiscent of some sort of bad science fiction movie, with groups responsible for systems, development, call-centre, servers, operations, and data bases?
  • Do conversations with the CIO and IT Director tend to revolve around costs and service quality issues?

If the answer is “yes” to any one of these  questions then it is important to look carefully at the advice which is being received about your IT spend.

Competitive, information-age business however, would be able to answer “yes” to some, if not all, of  the following questions:

  • Are all of the computer applications and information technology used by your company provided and supported by third party providers who are managed through well understood service level agreements?
  • Is the IT department structured around services such as supply management, change management, information management, business intelligence, project management and IT Service management?
  • Is the IT Director or CIO a valued contributor at senior executive meetings and are his/her team key members of all marketing, sales, and other key business meetings across the organization?

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