CIOs – Create your “Blue Ocean Strategy”
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The reason why IT departments might be perceived as cost, could be rooted in the way they act like suppliers: using internal SLAs, launching customer survey, reallocating shared services expenses etc… The market trend shows the irreversible success of outsourcing model versus internal support. CIOs should reconsider their positionning within the Enterprise, and stop competing in the red ocean (see “Blue Ocean Strategy” – Chan Kim and Renee Mauborgne).
Technology vendors have learned how to approach senior management and refined their business model to make it more and more attractive in a very competitive economy. The “On Demand Services” model (with SaaS (Software as Service)) could be the internal service killer, by making variable the cost of IT services. How in this context should management react, if internal IT department persists on playing on the same vendors’ attributes? It is a lost battle.
As a first step, let consider the generic value proposition of IT services for an organization. We could articulate it thru the following attributes: Attractivenes of the price, technology expertise, quality of services, methods, knowledge of the organization, ability of implementing changes. Depending on your industry you might revise some of them. The idea here is to demonstrate how the process works.
If we try to establish a relative positioning of intenal IT services versus external vendors services, it is definitively in the favour of the last one, to the potential exception of the company knowledge (see chart 1). It is important at this stage to understand that internal IT department can not fight purely on these attributes. Vendors have much more resources than internal department will never have. This context defines the red ocean.
CIOs need to switch their mindset and structure a new value proposition for their company. Kim & Mauborgne suggest to look at attributes that can either be reduced, eliminated, raised or created. There is an obvious attribute to address; trying to have the complete depth of technology expertise that a vendor could provide, will be merely impossible. Organization’s knowledge however, is certainly one that can be raised, and we need to look at possible dimensions to explore. Most of the time, vendors compensate their lack of knowledge of a specific company by their knowledge of industries and their past professional experiences. I believe that internal IT has here not exploited fully the potential of this criteria.
One thing that vendors will have difficulty to provide, is to embrace the IT investment as the whole. Usually focusing on individual technology projects or services, they are unable to balance the risk on investing in change as a portfolio. This constitues a change in the value curve by looking accross strategic groups. Chris Potts in his book “FruITion” develops this idea, and I recommend the reading to fully understand the true potential of this proposition.
Another possibility is to consider the value curve across time & trend. A common flaw in organization nowaday is to lost memory. It comes with shorter assignment cycle, rapid return, which lead to making mistake without learning from it. IT departments could offer this service for the entire organization keeping track of past investments in changes and improved networking capacity. Making the true foundation of a “Learning Organization”.
Last but not least, reactivity has been pushed as a strategic enabler for growth, and if the vendors are quickly adapting, internal IT might have issue to address this need. While being reactive is certainly a good thing, being proactive is even better. IT has focused for decade on monitoring system that support the business. Why not changing the concept and establish a Business monitoring. There is tone of information present in systems today that are not exploited and could be the basis for pro-active analysis. Developping this competency within the organization memory could create tremendous value for organizations.
As a summary, the proposal here is to add 3 new attributes in the value curve: Investment in change as a portfolio, Organization memory, monitoring the business. This constitues your blue ocean. Chart 2, highlights these changes.
My intention, with this post was to demonstrate how simple the process is when accepting to change the mindset. Obviously the attributes suggested here could or not fit your organization, but they give food for thought. I will be very interrested to receive your comments, and experiences.
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I’m convinced that if CIOs start thinking differently, don’t compete where they can’t and use constraints as opportunities, Organization as the whole will get extraordinary value by using Information Technology. So CIOs, listen your Inner Voice…
Refreshing post. For even more ideas on Blue Ocean Strategy application in the tech sector I welcome you to visit http://www.creatingblueoceans.com — the most frequently updated website on Blue Ocean Strategy.
Chart 1 is an interesting opinion but wholly lacking in facts and even if it is has fact, only represents the initial representation of outsourcing. As someone who sees value in outsourcing for corporate flexibility, I do not see the value propositions you relate.
As example, while cost may cause internal IT to be lower on the chart, cost is only beneficial by reduction of actual technical expertise.
This is the primary reason that internal IT becomes ridged. You have staff which focuses on a technology and become a SME on that specific use for the software losing the big picture. This SME has the ability to keep inevitable system issues to a minimum for operational efficiency, but reduces the ability to change for competitive reasons. Outsourcing does its best in challenging the internal flexibility, but danger exists when process outages go from hours to days because of outsourcing. (Unless you are lucky enough that the SLA actually talks about real outage and not response time, and even then money doesn’t address lost business opportunity.)
Secondly, what is lacking in this is the long term effect of outsourcing, which is being capitalized by the vendor corporation. Phase 1 is to bring the experts to bear on the migration where your chart may be more accurate. Phase 2 becomes transition to standard support where price increases incrementally, technical expertise drops and service falls below the existing organization. Phase 3 becomes the struggle between keeping poor performing vendors versus the cost to unplug the corporation from the old vendor and moving to a new vendor or back to internal. Because of the inertia required to unseat from a given outsource vendor, vendors realize set their long term goals on cost reductions and improved EBIDA, not on increasing service.
Lastly, you eliminate the ability to make changes quickly. Outsourcing lends to less leverage by the internal organization over the contracted vendor. I have no ability to fire a vendor’s ineptitude but I have every ability to coerce a staff member for competitive advantage.
I do like your points about other factors that need to be shown in internal versus outsourced IT, however, I see these as icing on the cake in a mixed model IT proposal.
Thank you for sharing your experience and opinion on outsourcing.
This article assumes that a CIO’s role is to defend traditional internal service models, and to “beat” SaaS or convince the C-level that internal is the way to go. But is that really what a corp wants from it’s CIO? Someone who exists to provide himself and his black box tech team a job justification? Or should the CIO morph with the changing way IT is delivered and valued, either by internal or external teams, in order to provide the greatest opportunities to the core business strategy? Are we still just judging the size of the “C” by the number of direct employees he/she manages?
As an IT leader I am disheartened by the overhead and inflated costs of maintaining my internal team. I feel victim to supporting the racket of training/certification lifecycles of constant yet unsatisfactory technical changes. Outsourcing key components (email, document management, compliance, etc) removes not only costly hardware and software solutions but also costly HR requirements – my smaller team means focusing less on middle management, team development, recruiting and performance reviews and more on creativity, innovation, and driving technology to meet the business need.
If a CIO needs to create a Blue Ocean strategy for selling himself to his own company, then he’s already an outsider and there’s a reason for that which needs to be addressed before the IT pitch is even delivered.
Thanks Susan for you thoughts. I believe you have just created your own Blue Ocean Strategy.