Outsourcing

The new CIO management strategy: Consultants 'R' Us

Revamping IT into an internal services organization--aka a consulting firm--won't be easy, but it will afford IT new respect and provide unexpected payoffs, including better expertise and a new revenue approach.

It’s a bad time to be a consulting company. First, the Internet bubble burst, driving several notable consulting firms out of business and giving consulting a black eye with all the clients left in the lurch. Many projects went unfinished, and clients swore that they’d never bet their future on another consulting company.

Then the Anderson/Enron fiasco hit. All of a sudden it was no longer safe to consort with the big boys if you were purchasing both auditing and consulting services. Even though large accounting firms are working feverishly to dismantle or dissect their consulting practices, the damage has been done. So where does a company in need of consulting services turn?

A time to look inside
I think it’s a good time for companies to look inward. One of the most common gripes in any IT organization is that the company views their services as a cost center and not as a profit center.

The internal IT organization is considered more tactical than strategic. Companies reinforce that notion every day by sending out large chunks of system design, software development, and strategic planning services to outside firms at the behest of division presidents or influential business-unit managers.

The result? Internal IT organizations are left with the grunt work of installing PCs, manning the help desk, or developing applications while the strategic work goes to vendors who first have to learn the business and then figure out how to apply their technology to the business problems. Doesn’t this seem backwards to you? It does to me.

Make IT the consulting company
The best way to turn this model on its head is to start operating your company’s IT function as if it were a consulting company. In the past, internal IT departments have been the “free” functions provided by the company. Unfortunately, the perceived value of something that’s free is zero. So internal customers have both an unrealistic expectation of the delivery time and the cost of the services they receive. What better way to reset this expectation than to run the IT business as an internal consulting company from which all services are purchased?

This would also change how the IT department manages employees. Staff performance would be measured by billable hours and meeting deadlines, with more consideration given to training and preparation for upcoming projects that the new internal “customers” are requesting.

Treating the IT department as a consulting company would also give IT some real advantages over external competitors (i.e., other consulting companies selling to the company’s departments).

First, IT wouldn’t have any marketing costs because they don’t need an expensive sales force or glossy marketing literature. Second, the IT staff has knowledge of the existing business processes since key members already participate in critical corporate strategy sessions. These two advantages alone could allow the CIO to offer better services at a lower cost than an outside consulting firm.

The resources needed
Given the market conditions, this is a great time to attempt this approach. A big plus is the availability of the workforce to make it happen. There are hundreds of top-notch consulting professionals that have been laid off, and they’re looking for more secure jobs with more stable companies.

Providing out-of-work consultants with a familiar consulting type of environment will make these new hires immediately productive.

There are no good reasons why an internal IT department can’t staff projects on their own by hiring on the available expertise, instead of paying top dollar to bring them in as consultants. It makes good sense to begin building a top-notch internal staff now with an eye toward providing paid consulting services to internal clients.

Changing the customer mind-set
The most challenging aspect of the internal consulting approach is convincing internal customers to pay for services, and expertise, that they’re used to getting “for free.”

Consider easing customers through the transition by billing internal customers for strategic planning, project management, software development, system maintenance, or user support at the employee’s proposed hourly billing rate but not collecting any fees from the departments for the first six to nine months. Departments could begin getting regular monthly invoices for overhead costs (including PCs, software licensing, and a percentage of communications use, such as Internet connectivity, phone service, long distance, etc.).

Over time, IT leaders will be able to demonstrate the economic impact that IT has had on the organization and clearly compare that value to potential outside consulting services. After IT has established an economic value, collecting on the invoices will be much less controversial.

To make it work, you’ll need two key agreements in place. First, you need the full support of the CEO and CFO to convert the internal IT function from a cost center to a profit center.

Second, you’ll need an edict from the CEO requiring all IT purchasing to be done through the new IT consulting organization. This needs to include not only hardware and software products but also, most importantly, the software consulting, software development, and strategic planning services.

There’s no question that there will be significant resistance from the heads of departments used to purchasing and managing their own IT services. And you’ll have to make an internal commitment to make customer satisfaction the number-one priority—regardless of the cost.

What you’ll find in the long term is that providing a customer-focused, industry-specific services organization will be much more cost-effective than allowing business units to buy their own services. The payoff, financially and for the IT department, will be big.