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what is the future for the internal IT function? March 3, 2010

Posted by Chris Eaton in competitive strategy, IT strategy.
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Building on my previous post on competitive strategy I wonder what just is the future of the internal IT function? (of an organisation whose core business is not IT)

There are definite and obvious trends in outsourcing. Helpdesks, end user support, application maintenance, application development, hosting, etc. These types of outsourcing are further combined when outsourcing through Software as a Service, Application Service Provider (ASP) and platform as a service.

In competitive strategy terms, most outsourcing is targeting cost leadership to reduce, minimise, or optimists might say,  optimise these particular activities through outsourcing by  delivering these kinds of activities through a single service providers who services many customers and therefore can devlier higher economies of scale.

Outsourcing is so pervasive when you encounter a company who have not outsourced these kinds of activities it begs the question of why not, surely some parts of the IT strategy is to achieve cost leadership and outsourcing is an obvious option (if all too often seen as the only option to reduce cost)

What I am trying to get at is that cost leadership is a common behaviour exhibited by IT functions. Outsourcing is an accepted, common and obvious strategy to reduce costs. Differentiation on the other hand seems alot less tangible. I think the differentiation (the extra value) that an IT function offers is not so obvious. (although one might argue that achieving cost leadership is a form of differentiation)

Is it arguable that as outsourcing increases then the need for an internal IT function reduces? I am tending to think that way.

Application development, maintenance and hosting is all outsourced, why not outsource IT strategy and planning? in any case you probably use consultants in this space already… ok i am teasing with an extreme possibility, but, my point is it is very important to be clear with the business about the value (the differentiation) that the internal IT function delivers that cannot be delivered by any one else. How is your IT function differentiating itself from its competitors of consultancies and outsource providers? is it obvious?

IT and Micheal Porters Competitive Strategy January 4, 2010

Posted by Chris Eaton in EA, IT Architecture, IT strategy, Uncategorized.
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I recently rediscovered Michael Porters book – ‘Competitive Strategy: Techniques for Analyzing Industries and Competitors’. This is essential reading for anyone strategist in business or IT. I skim read through it to refresh my memory and a very thought-provoking read it was indeed.

In a nutshell Porter puts forward three generic strategies which any competitive organisation might decide to implement to win in the marketplace:

  • Cost Leadership – be the cheapest at performing a particular activity  or service
  • Differentiation – offer something of value (a service) that no one else offers
  • Focus – combine Cost Leadership and Differentiation to be the cheapest in some activities (services) and offer value add (services) in other activities

In reality the Focus strategy is the one most organisations will use, the trick is to choose where to minimise cost and where to differentiate.

Two simple examples

As an IT organisation within a larger non IT Business it is probable that your Focus Strategy will be to:

  • provide Cost Leadership for commodity activities like Application Hosting and Application Maintenance by providing the cheapest hosting and application maintenance possible whilst meeting business commitments. The most likely route to achieve this is outsourcing to specialist hosting and application maintenance organisations.
  • provide Differentiation by delivering IT solutions (mainly applications) which focus on how the business itself wishes to differentiate itself in the marketplace

As an IT organisation offering IT Services like Application Hosting and Application Maintenance the a possible Focus Strategy is to:

  • provide Differentiation in Application Hosting and Maintenance with a twist that no-one else offers which could be flexible pricing based on actual hosting usage and service levels rather than fixed costs or provide specialist services like high availability
  • provide Cost Leadership through employing staff and hosting at the most effective locations

The conclusion of this post is whether IT organisations are really thinking in these terms. Generally I would say that most organisations are focused on Cost Leadership by minimising the cost of IT. However, the real prize for IT to become an invaluable partner to the business is through differentiation which is arguably much more difficult than slashing costs, true business intimacy is needed to achieve this.

Do you know how you are differentiating for your business? and does the business know you are differentiating and offering something they cannot get from an external party?

Wikipedia has a good summary of these three generic strategies -> here