CIO Success in the NEW SERVICES ERA

Software Magazine, Sept, 1999 by John P. Desmond

Nine imperatives for achieving a win-win integration with outsourcers

The successful CIO today builds relationships with service providers that complement the core competence within his or her own organization in a drive to maximize business value.

That view is the consensus of leading outsourcing consultants who have experience working with many large organizations.

Outsourcing is the buying of services from external providers. To compete successfully in today's global economy, more companies are turning to outsourcing. U.S. firms spent $100 billion on outsourced services in 1996, 40% of that for information technology services, estimates Michael F. Corbett & Associates, Hyde Park, N.Y., outsourcing consultants.

Outsourcing challenges executives to rethink the notion of the traditional vertically integrated firm in favor of a much more flexible organization. The vertically integrated, self-sufficient organizations of the past are quickly being replaced by interdependent organizations focused on core competencies. Along the way, entirely new classes of business-to-business services are emerging as well as entirely new industries.

What differentiates companies today is not the size and scope of resources they own and manage, but intellectual capital, their knowledge and expertise.

"Senior technology executives need to recognize that the skill set that has made them successful to this point will not serve them in the future," says Mike Corbett, president of Corbett & Associates. "Technology executives going forward are really business integrators whose function is to identify innovative ways technology can be used to move companies forward. They need to focus on a wide open sourcing strategy to deliver on that vision."

Virtually no aspect of the technology operation of a corporation today cannot be outsourced through external relationships. Senior technology executives must identify services available on the market, then establish and maintain the necessary relationships. To fit the services to the business, today's CIOs and senior IT executives need a deep understanding of business strategy and directions, good negotiation and communication skills, and strong financial awareness of what constitutes success for their companies, Corbett suggests.

While overall spending on outsourced services is on the rise, the adoption of outsourcing services is more rapid in the most competitive industries. High technology manufacturing, for example, is projected to increase spending on outside business services by 20% from 1999 to 2000, more than any other industry, according to the 1999 Outsourcing Trends Report from the Outsourcing Research Council, Pricewater-houseCoopers, and Corbett & Associates. The report surveyed approximately 200 private and public sector executives and industry experts.

Information technology executives are projected to spend 42% of their budgets on outside business services in the year 2000, the study found.

Focus a Primary Motivator

The primary reason for using an outsource provider historically has been to reduce operating costs. Today the reason is shifting to a desire to focus the business on its core competencies, and to improve its business processes.

CIOs are now in a position to lead their companies toward a new business model. But how? To be successful, CIOs and senior IT managers need to recognize and adhere to nine imperatives, in the view of Wendell Jones, vice president, operations management services for Compaq Computer Corp., based in Stow, Mass. (formerly Digital Equipment Corp.).

Jones is responsible for the worldwide delivery of Compaq's outsourcing services. He has over 30 years of IT experience in the aerospace and securities industries, and the U.S. military. He is a former senior vice president of technology services at the National Association of Securities Dealers, which owns and operates the Nasdaq stock market. He led the $3 billion IT outsourcing agreement at McDonnell Douglas when he was general manager of its Aerospace Information Services Company. Here are his nine imperatives for CIO success in the new services era:

Achieve a two-way alignment of technology and business.

To only have the CIO in the executive suite is not sufficient. The CIO needs to understand the business as well as the technology, and needs to think about how to drive the business with the technology. "The CIO has really become the architect, manager, and leader of change," Jones says.

Build strong relationships with line management.

Line managers ultimately are the key users of IT services. They are the functional heads of the business who have to exploit e-business opportunities to achieve competitive advantages. The CIO has to foster communication with line managers and find a way to ensure there is shared accountability and risk with the business units. "Otherwise, whatever the CIO does, they can criticize it and say it's not good enough," Jones says. The success or failure of any company's use of information technology today depends on the understanding of line managers at all levels to understand what IT can do for them.