Outsourcing May Lead to Empty IT Departments

By Jeanette James

November 9, 2004: As the adoption of outsourcing increases, CIOs will need to boost their business smarts (and skills) to ward off loneliness in downsized IT departments.

With companies across the country rushing to outsource and offshore their IT functions, who will be left in the IT department for the CIO to oversee in years to come? Almost no one, if you ask CD Hobbs, a senior vice president at MetaGroup.

As the trends to outsourcing and offshoring continue to expand, IT departments will shrink and the CIO’s role may well radically change within a decade’s time, Hobbs predicts.

According to MetaGroup’s research, the average large company will outsource 60% of its application work offshore by 2009. Offshore outsourcing is growing by nearly 20% annually and will continue to do so through 2006, Meta predicts, adding that most IT organizations will have a strategy for offshoring within two years.

Already next year, four-fifths of companies will outsource at least one IT function, Meta said, calling out mainframe computing, midrange computing, desktop services, networking and help-desk support as the five functions most frequently outsourced.

“Each and every item in an IT department is being evaluated” so that non-key functions can be outsourced, agrees Tony Greenberg, CEO and co-founder of RampRate, an IT outsourcing advisor based in Santa Monica, Calif. “If it’s not a technology company, there should be very little in the way of IT functions left inside.”

For the CIO, it may mean a lot of changes within the coming decade.

“We’re seeing some interesting changes among our CIO client base,” said Hobbs. “The CIO is changing to become a business subject-matter expert who is strong in technology” rather than a technologist who knows little about business.

As CIOs increasingly send everything from application development to maintenance support to outside firms, there will be fewer technology projects to oversee and more opportunity to focus on the “information” part of CIO job, Hobbs predicts.

“Maybe we’ll really take the ‘I’ part seriously,” he said, explaining that today’s CIOs need to know more about their company’s core business in order to advise various departments about how technology can help them meet business objectives.

At the same time, CIOs will also be asked to trim back IT vendors, reacting to the over-buying frenzy of the late 1990s, said Cayce Ullman, who used to be CTO at PostX but is now the president and CEO of the e-mail security firm.

“A lot of IT problems today are a result of buying lots of solutions” during the tech boom, Ullman notes. Over the coming years, “[o]ne of the bigger trends will be fewer vendors.”

As such, CIOs may be spending less time worrying about developing in-house applications and more time figuring out how to make already-purchased technology work together.

That may mean working more with the company’s various departments: HR, sales, legal, and so forth. As the years go by, CIOs will have to become more adept at working horizontally across departments, being able to understand different departments’ needs and goals. Then, as more of a business-integration analyst and less of a technologist, CIOs will link various department needs to the technology that best suits them.

As part of that shift, notes RampRate’s Greenberg, CIOs are less likely to report to the CFO and more likely to report to the CEO. CIOs may also be responsible more often for overseeing the protection of intellectual property (IP) developed with or by outsourcing partners.

“Managing IP is a burgeoning task” for CIOs, Greenberg said. As with many such outsourcing issues, “spending more time up front is radically important” when it comes to protecting IP.

Such changes in the CIO’s responsibilities are already manifesting themselves. According to a recent, as yet unpublished MetaGroup survey, about 42% of CIOs have non-traditional CIO responsibilities, such as business-process responsibilities.

To manage such career changes successfully, Greenberg recommends that CIOs “be more open to sharing data to make quicker and cleaner decisions” and to work with functional experts who can handle IT jobs better and cheaper.

“If you’re going to have heart surgery,” Greenberg said, “Go to the guy who performs the most operations.”

To be sure, sitting back and waiting for changes won’t work.

“You can hardly get ahead in this day and age without being proactive,” Hobbs notes. So moving into or succeeding at the CIO’s role may mean business courses, communications training and other skill-enhancement steps. Communications skills, in particular, may be increasingly important, Hobbs said.

All told, the right skills may lead to a trip upstairs.

“The CIO who can successfully make this change will be accepted as a member of the executive team, from which they are often excluded today,” Hobbs predicts. “The CIO’s role is changing pretty quickly.”