CIO To Go: The Value of Management Outsourcing

2005-06-24
The Triangle Technical Journal

Management guru, Tom Peters, nailed it when he said…“Do what you do best and outsource the rest.” Outsourcing is being used by executives around the world to lower costs and improve quality. But the benefits do not stop there, outsourcing is also allowing organizations to transform their business operations, generate better customer solutions, and create greater shareholder returns. And let’s not discount the boost to corporate momentum it provides by raising the bar of operational reliability, improving an organization’s ability to plan, and more rapidly implementing new strategies and initiatives. The bottom-line - in today’s business environment, it’s difficult to imagine how any company could be successful relying solely on its own resources.

And the trend appears to be long-lasting. According to an Accenture survey of more than 800 executives in the United States and Europe, more than 80% expressed commitment to permanent outsourcing of at least one key business function – with IT services continuing to be the leading outsourced function. And why not? It is no secret to small and mid-size businesses that good tech help is not only hard to find these days, but potentially, hard to afford on a full-time basis. Known for creative solutions, these organizations have decided to rent rather than buy Chief Information Officers (CIOs).

According to Aberdeen Group senior analyst Stephen Lane, “The idea behind CIO outsourcing is that you’re renting an officer of the company. Ideally, that’s someone who has the experience to get your company started with IT while you’re building your own organization.” This movement goes beyond standard project-based outsourcing – an outsourced CIO becomes a member of the senior management team. Rest assured – while the role of CIO is relatively new, executive outsourcing is not a new endeavor…CEOs and CFOs have been outsourced successfully for years.

With seasoned executives requiring hefty salaries, bonuses, and stock options, outsourcing the CIO allows businesses to gain all the advantages of “faster, better, cheaper” without giving away the farm before they’ve even bought the seed. Today, most small and mid-size businesses are only able to do the basics when it comes to IT strategy and implementation – which is usually then followed by a marginal support effort and a complete disregard for measurement of returns and effectiveness. As a result, IT is neither a productivity tool nor is it a driver of innovation as it is in large operations, where resources can be dedicated to support a full-time CIO and IT staff. This is where executive outsourcing shines. Outsourcing provides smaller companies a team of experts to call on for specific projects or strategic challenges. And with the average tenure of a CIO being around 24 months, maintaining a relationship with a virtual CIO firm can create a repository of knowledge and provide a continuity not otherwise possible for a small or mid-size company. Other benefits gained by using an outsourced CIO include:

  • Saving your organization financial, personnel, and time resources
  • Allowing you to focus on your core competencies
  • Providing outside, unbiased expertise to include assessment of IT infrastructure, evaluation of your organization’s IT policies and guidelines, examination of IT workflows, review of budget and spending, and assistance in driving new strategy
  • Access to immediate market know-how and better vendor selection (resulting in better prices and higher quality)
  • Assisting in defining and implementing IT strategy

In addition to the direct benefits received from the expertise and experience of an outsourced CIO, an executive who participates in outsourcing also experiences improvement in his ability to add value to his organization by allying with companies dedicated to managing people, processes and technologies toward well-defined, committed deliverables for their customers. In this relationship, the service provider takes on the responsibilities and risks for meeting its customer’s requirements. Best stated by an experienced executive, “Managing contracts is much more efficient and effective than managing employees; contracts are performance-based.” The interdependent nature of this new relationship allows executives to move sharply upward, toward their desired strategic roles – shifting their focus from hygiene to really working on the business.

So where do you sign? Remember - this outsourced CIO is going to be a member of your senior management team. The added value of the CIO should include:

  • Obsessive and continuous focus on business imperatives
  • Interpretation of external IT success stories
  • Establishment and maintenance of IT executive relationships
  • Establishment and communication of the IT performance record
  • Concentration of the IT development effort
  • Achievement of a shared and challenging vision of the role of IT in relation to the overall objectives of the business

With such hefty responsibilities for both the service provider and the virtual CIO, one should consider the purposeful, “go slow, but go steady” strategy for the best results. Build a relationship with your service provider on a steady, results-based basis – with the desired endpoint being a comprehensive relationship with a trusted partner. This approach provides an effective vehicle for controlled change. This approach also manages and reduces risks. If there is a need for the customer to reassert control, they are easily able to do so. Of course, there are times when outsourcing can and should be implemented much more aggressively – in fact, the service provider’s capabilities and resources can be of tremendous value in achieving the goals quickly, especially when a trusted relationship already exists between the companies. This long-term relationship, the value-added nature of the specialized partner, and continuous improvement create true business value. The era of the strategic CIO has clearly arrived, and for many small and mid-size companies, outsourcing will play a key role - empowering executives to create more value for their organizations. And that folks is what we call smartsourcing.