Is today’s CIO really just another supply chain manager?

charlesbetz.jpgBy Charlie Betz

 

Charlie Betz is research director for IT portfolio management at Enterprise Management Associates (EMA) and author of the white paper, “Business Intelligence for the Business of IT.”

 

One of the big questions facing the industry right now gets to a fundamental issue of IT’s identity: In this age of cloud computing and SaaS, is IT merely a supply chain and sourcing problem?

 

There’s a lot that’s been said about the relative immaturity of IT management when you compare IT to other industrial and manufacturing disciplines (I’ve made my own contribution to the debate here). Today IT can no longer afford to be a handcrafted, artisanal pursuit. The efficiencies to be found in the cloud make sure of that.

 

As CIOs transform themselves into service brokers, we start to move very fast down the road of saying that IT is just complex contract and sourcing management. In effect, IT becomes another category in the supply chain. (And maybe this is why we currently see some CIOs reporting to the CFO, like other supply chain managers). I’ve even come across someone who was billing themselves as the IT category specialist in their supply chain organization, which is really interesting to me. And it’s got me thinking: If we simply say that IT is just a category in sourcing and vendor management, that’s provocative. But where does that get us?

 

The pros and cons of seeing IT as a supply chain

In this battle for the heart and soul of IT there are powerful pros and cons on either side.

 

If we say IT is a supply chain problem, there are definite advantages:

  • You reap significant efficiency and cost effectiveness gains when you recognize IT as a commodity
  • IT is forced to become more transparent (the lack of transparency into costs is one reason CFOs take over the IT function)

But if all of IT is simply a matter of correct sourcing, that leaves significant blind spots and risks:

  • If you view IT as a commodity, does that mean all of it could be outsourced? Do this and you risk outsourcing your crown jewels, particularly now in this information driven age and with IT as the biggest consumer of capital in many if not all organizations.
  • In an overly supply-centric model, who’s left thinking about demand? Don’t forget that supply is just one side of the equation. Who owns the requirements and who advocates on behalf of the demand for IT?

What’s strategic for your company?

These aren’t trivial questions. Understanding the demand for IT services –and how that relates to your business model – is one process that you can’t automate, and I believe it’s one you should never outsource.

 

When you’re looking at demand for IT services, what you’re actually doing is defining your business model, and more specifically, you’re defining it in terms of what good looks like for your company. Well, you can’t outsource that basic existential question of “What does good look like for my company?”

 

I believe you run the risk of compromising your organization’s interests if IT is simply viewed as a sourcing problem. Sure, there are benefits to be gained from supply-chain thinking. But CIOs need to balance the benefits with risks. I’ll put a stake in the ground and say IT is not just about sourcing management. What do you think?

 

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Labels: CIO
Comments
Stu Charlton(anon) | ‎08-30-2012 08:25 AM
I find many companies are far too immature in their understanding of IT and even supply chains to effectively adopt the thinking.   IT consists of commodity pieces, and a few custom bespoke pieces.  But it's the management application of them in a designed integrated whole that brings buisiness value.  Just piling up commodity IT has no value. It is possible to treat IT as a design AND supply chain problem - but you can't ignore the design!  Just like Apple doesn't build their iPhones, they have a huge supply chain that they coordinate based on their designs, with a mix of custom and commodity components.    So,  primary challenge is related to your two points, but also a third.   Firstly, a) The "crown jewels" tend to be about understanding what your IT systems do for the business today, how they've evolved, and where they can evolve to given technology trends and business trends.  Some call this business architecture - with a dash of portfolio management.   Viewing it as a supply chain problem makes it all too tempting to ignore the "design" of what you've assembled in the first place!     You cannot rely on brand name vendors or outsourcers to perform this function.  All too often they are going to just sell you what will make them the most money.  It is the talent of individuals whose loyalties and economic incentives reside with the company that makes it work.  It is a rare sourcing deal that can truly tie these factors in, thus it cannot be effectively outsourced.  b) All too often viewing IT as a supply chain completely shuts down demand management.  It is very tempting to look at delivery as a commodity function, but its processes and shipment patterns are heavily weighted to the culture of te company's approach to delivering results.    My current client has a nearly 100 year history of both big capital projects and a culture of continuous improvement and dialogue among departments and IT.  The shift to supply chain "only" thinking for IT 10 years ago saved money on paper by putting a massive wall between IT and the business at the mid and lower layers.   Only "big bang" requisitions were allowed, not incremental, fluid adjustments.   Offshore teams usually needed large detailed requirements documents for results and many months to analyze them before giving a proposal that was late and costing millions.   And operating budgets after delivery were anemic.   This led to a proliferation of "self service IT" where the business got things done by themselves:  hundreds of spreadsheets, access databases, point applications and rogue applications. In the end, the supply chain / outsource approach winded up costing more - almost double - relative to our peers who were more vertically integrated in IT.  We are now moving to an insource / out task model. Finally, c) The third factor is related to the first, but is about operations.   By pushing pieces of IT out to supply chain providers we lose integrative knowledge, or how the service works.  Many supply chain approaches do not source on the "service", they focus on the layers of technology centred around skills.  No one understands how the whole is put together, critical incidents become 15 deep conference calls of finger pointing,  and service levels plummet.   Again, my experience is that with traditional vendors, the incentives are often not aligned to actually manage a full end-to-end service.  SaaS is sometimes an exception,  but all too often it too suffers from being interconnected into a broader whole that no one takes responsibility for. All of these can be mitigated by recognizing: - You cannot ignore design.  Business and technology architecture matters.  If your supply chain managers are designing your services, they will reflect their typical values and incentives and will unlikely have much creative or high-impact uses of IT embodied in them.  - You cannot ignore integration.  Many of not most critical IT services are not available in an 80% out of the box approach.  Retaining this knowledge and coordinating the various parts of your supply chain requires deep technical skills, not just supply chain and vendor management skills. - People respond to incentives.  If you want an advocate for the business in IT, make sure the business signs their cheques!  Similarly for any other factor you want to promote.  Vendors are only incentivized by two things:  more of your money, and more lock in.
CharlesTBetz(anon) | ‎09-04-2012 07:53 AM

Great comments. And I continue to read more interviews and columns advocating this approach. I think this debate is just heating up. Anyone care to argue for the counterproposition?

Nadhan | ‎09-04-2012 04:32 PM

Hello, Charles.  This is E.G.Nadhan, Distinguished Technologist, HP Enterprise Services.

 

Your assertions in this post about IT not just being about sourcing management triggered several thoughts in my mind -- including the comprehensive role that IT must play in today's enterprise as well as the vital role of the CIO going forward.

 

CIOs must drive IT to combat its consumerization.  IT faces real competition today from various service providers marketing directly to departmental units.  In addition to making a business case for IT, the CIO must also bring together the eco-system of services to comprehensively address the long term objectives of the business partners.

 

So, you say IT is not just about sourcing management.  I whole-heartedly agree.  I say that CIOs must integrate the business of IT end-to-end to combat its ongoing consumerization.  http://bit.ly/MkSD1q

 

Connect with Nadhan on: Twitter, Facebook, Linkedin

Khaled Khan Shuvo(anon) | ‎03-14-2013 01:05 PM
Thank you all for debating on this very interesting and important issue. My approach to this topic is a little bit different. I will approach from business context.When we are talking of IT, which specific area of IT are we talking and what type of organization. When we are talking about large scale manufacturer, their IT must be designed and aligned with the plant and product,including design. Outsourcing can be external IT audits and IT asset management. But the approach will differ if we are talking about financial institutions. IT service management can depend on cloud environment as part of supply chain management but security and IT data management must be considered as part of internal service. But the debate will continue...
Khaled Khan Shuvo(anon) | ‎03-14-2013 01:20 PM
And yes it's hard to draw a finish line because it takes a lot to become an efficient supply chain manager and it takes a lot to be an effective CIO...And it's even harder to combine both...For some supply chain managers outsourcing can be a quick solutions to needs...
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