Monday, December 28, 2009

IT in Competition

Internal IT departments faced almost no competition in the mainframe era and most of the client/server era. This inevitably led to problems as competition was introduced and at least some backlash from their previously captive audience. This is not unique to IT people, but just look around to other examples such as the 1983 breakup of the AT&T monopoly or the introduction of significant foreign competition in the steel and automobile industries. Initial efforts attempted to put the world back to the "good old days", then moved on to casting as much fear, uncertainty and doubt on the newcomers and finally reducing prices to hold back the flood waters. None address the fundamental lack of skills and perspective required to survive.

Internal IT faces an expanding competitive threat from an increasing number of sources. These include:

  • Outsourcing - In other words, buying IT from another company. The economics of this are the most puzzling to grasp. Can I really buy the same thing I've been doing myself for less, and the outsourcer still can make a 15%-20% profit? Some of this can be accomplished by larger scale, but outsourcers live with competition every day and it simply makes them better at knowing their business, their costs and your contract.
  • Off-shoring - The economics are simple. We make a lot of money in the U.S. compared to most of the world, there are talented people out there and being 12,000 miles away just doesn't interfere all that much, and in certain circumstances, has a speed-to-market advantage.
  • Software-as-a-Service - I want it and I want it now. Sign on the line or input your credit card and you are off to the races. No worries about upgrades, fighting for capital or waiting in the IT queue-of-death. Compelling marketing messages targeted at the business user with the checkbook and the need to solve their business problem. Match made in heaven.
  • Cloud Computing - A new source of competition that's currently in the fear, uncertainty and doubt phase. But the economic case for non-production servers (about 60% of the total), short-term needs and spiking workloads are very clear and compelling. But perhaps the scariest part is that all these virtual servers will pretty much all look the same and can take advantage of continuous hardware price reductions. That Amazon small instance at 8.5 cents per hour today is likely to cost about 1 cent per hour in 5 years. Simple Moore's Law.

Can your IT department survive, and even thrive, in this competitive landscape? Yes, but not without a significant improvement in your business skills. All else being the same, you have several advantages, including:

  • You can see your budget and all the line item detail
  • You don't have a profit-margin to obtain and retain
  • You should have better insight into your companies' priorities
  • You are in a position to take more risk than an outsider
  • Your company knows you and you're readily available

To leverage your advantages you need to get involved, learn more about your business, stop protecting marginal jobs and embrace the changing technology options. Develop a trust relationship with business decision-makers and deliver on your promises. Be an advocate of your companies' change efforts and get involved. In the end it's all about business.

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