CXO

Sanity check: Is IT moving toward an inevitable split between in-house strategy and outsourced operations?

As the pressure builds for IT departments to move from being a cost center to an innovation-driver, the forces of change are moving IT toward a split between strategy and operations. TechRepublic's Jason Hiner evaluates this trend and what it means for the future of outsourcing.

Last week I criticized The Wall Street Journal for its article showing users how to circumvent IT. While that piece was the cover story of an eight-page special section on technology on July 30, tucked near the back of that section was another interesting article called "What's Next for IT," which touched on an issue I have been thinking about recently and which came up again this week at LinuxWorld — the potential split between strategy and operations in IT. In The Wall Street Street Journal article, Frank Modruson, CIO of Accenture, said, "There are two pieces to IT: strategy and operations. Ten years from now, you will see CIOs focus even more on strategy, whereas operations will be industrialized and outsourced to providers that are at market-efficient scale and have the ability to invest and attract top IT talent to operate the technology."

Steve Squeri, CIO of American Express, went into even greater detail. He said, "The days of tech leaders as relationship managers and 'order takers' will go by the wayside and they will be called upon to create and drive technology strategies that drive business capabilities. Technical architecture will become a core function of IT departments (today some of this is outsourced) as the basic architectural footprint becomes important to own, manage, and control as we begin to manage platforms and capabilities as opposed to one-off projects. I believe that project management, testing, coding, maintenance, and basic infrastructure support and day-to-day operations will continue to be outsourced."

I was thinking about this at LinuxWorld this week as I talked to IBM, HP, and Verizon about their "managed services" businesses. Managed services essentially involves a company turning over ("outsourcing") part of its IT operations to a third-party partner, and IBM, HP, and Verizon all have thriving managed services divisions.

Cliff Cibelli, who is a manager in the Verizon managed services division, told me that Verizon offers three levels of service. The first is where Verizon will take over management of a specific group of applications or services, such as the company's WAN links. The second is where Verizon will take over additional services, such as network management and monitoring, but the client's IT department will still handle all of the physical equipment. The third is where Verizon also takes over the physical network infrastructure by placing its technical staff on site with the customer.

Cliff explained that companies often move up the ladder from the first level of service to the second and then the third as they get more comfortable and confident with Verizon running part of their IT operations. He also highlighted the fact that when a company turns over the operations to Verizon, the on-site staff handle things during business hours and then the monitoring and management is turned over to one of Verizon's 24/7 command centers during "off" hours.

Sanity check

The issue of a potential split between IT strategy and operations leads to several questions: Is this split an inevitable part of where IT is moving in the future? Is this split a good thing or a bad thing for IT professionals? Does "outsourcing" mean that a lot of the IT operations jobs are heading offshore to India or China?

First, this split is certainly not inevitable. It could simply be a fleeting trend that has not had its weaknesses fully exposed, and it won't until this is done on a broader scale. There could be technology developments over the next few years that relieve pressure on IT and make it advantageous to keep IT talent in-house.

That being said, the split makes a lot of sense because it solves a number of current problems, especially:

  1. Training and retention - Recruiting, training, keeping, and retraining operational IT professionals (such as administrators, help desk technicians, and programmers) is very difficult for most organizations. Managed services organizations can focus on continually finding and developing the best IT pros. It would have to be one of their core competencies and so they would likely do it much more effectively and resourcefully than organizations who simply need these IT pros on staff to keep things running.
  2. Complicated infrastructure - IT operations are becoming much more complicated, especially as we move toward virtualization, service-oriented architecture (SOA), and an adaptive infrastructure in which resources will be scaled up and down on a regular basis. This will require new training for many IT pros as well as highly trained specialists in new areas. The specialists will likely be too expensive for most organizations — except the really big ones — but if they are part of a managed services organization, they can apply their skills and knowledge across more companies.
  3. Giving IT execs a strategic seat - CIOs and other IT executives are too often tasked primarily with managing the organization's technologists rather than being focused on finding the technologies that can make a major impact on the business and playing a more active role in the company's strategic direction. Instead of the company's leaders making decisions and then telling IT to find the technologies that make it work, technology leaders need to be more involved in the decision-making process on the front end to help shape decisions with the information on technologies that can best catalyze a line of action that is being considered, and possibly even open up new possibilities with information on new technologies.

From a career standpoint for IT professionals, a split between strategy and operations would have a number of implications. First and foremost, the days of old-line IT pros who resist change and build their own little stagnant fiefdom within an organization would quickly come to an end. IT pros who work in operations would be required to keep their skills sharp — and would have the resources to do so — and a lot more of them would be working in organizations that are purely IT focused and serve multiple customers.

More IT pros would be located in centralized command centers, but there would still be plenty that are located on site, albeit employed by a service provider and not the local company. These on-site IT pros would likely be more isolated from the other employees at the local company, depending on the company culture — and that could be a negative thing, both personally and professionally, in some cases.

IT operations jobs would be much more competitive in an environment such as this, and there likely would not be the same kind of job security because companies wouldn't keep IT pros around during times when they didn't need them. If IT operations are outsourced with a service provider, then a company can scale up and scale down the number of IT pros it needs. Some IT pros may not work on salary but on billable hours, more like a consultant. Or they may have a base salary plus a bonus that is based on the number of hours they worked in a month.

However, this split does not necessarily mean that a lot of IT operations jobs will simply be shipped to Asia. As I've already mentioned, there will always be a certain number of on-site jobs that will require local talent. Other IT operations jobs, such as working in command centers (for administrators) and call centers (for help desk), will require highly skilled IT professionals who can work efficiently, keep their skills sharp, and provide great service.

Hewlett-Packard is currently near the end of a data center consolidation for its internal servers, going from about 80 data centers worldwide down to six. At LinuxWorld, I spoke with Fidelma Russo, vice president of HP's Adaptive Infrastructure initiative, and she said that when HP started the consolidation project, she expected to see a lot of offshoring involved. However, that hasn't been the case. It's mostly smaller, focused, highly skilled teams in various global locations, including the United States and Europe.

What do you think about IT being separated between strategy and operations? Have you seen examples of this already? What would it mean for your career? Join the discussion.

About

Jason Hiner is Editor in Chief of TechRepublic and Long Form Editor of ZDNet. He writes about the people, products, and ideas changing how we live and work in the 21st century. He's co-author of the book, Follow the Geeks.

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