IT as a Competitive Advantage – The Real Imperative for Managed Services

February 3, 2016

A number of years ago I was interviewing for the Information Technology Manager position at a commercial furniture company in the Grand Rapids, Michigan area. From an initial perspective, the role looked like a great fit for me, a solid company which wanted to grow and do great things in a niche market and an immature information technology strategy.

As I was interviewing with the President of the company, he and I were sitting in his office discussing the role and our respective approaches to technology and leadership. They were a year or so into (and digging out from) the implementation of an Enterprise Resource Planning (ERP) system which had not gone well at all. They were struggling with communication to their market and independent rep sales force and they were experiencing consistent outages and failures of technology and systems. They really needed help from someone who could come in and get their arms around the situation and have fast, meaningful and positive impact.

We were having a great discussion until I asked him to whom the IT Manager would report, and his answer was the Controller. At this news I told him that with all due respect in this case I did not feel like this would be a good position for me, and I did not want to waste any more of his time or that of the organization. As you might guess, this declaration took him by surprise. To his credit (and my relief), he was intrigued and asked me to explain my position.

I told him that the only reason to implement information technology within an organization was to drive competitive advantage. The investment and mindshare demanded by a mature information technology strategy could only be justified if it drove and realized an improvement in competitive advantage for the organization. Some examples;

• The ability to make “widgets” faster in order to get them to market sooner
• The ability to make “widgets” at a higher quality in order to increase customer satisfaction and drive market sales.
• The ability to make “widgets” cheaper and therefore drive higher margins which left more capital to invest in the organization.
• The ability to deliver accurate invoices quickly in order to realize improved cash flow and lower accounts receivables this yielding the opportunity for better financing and faster response to markets.
• The ability to drive external branding driving more clients to the door improving sales and results.
• The ability to manage order to cash – allowing for efficiencies and higher profits allowing for further investment in the organization.
• The ability to communicate quickly, efficiently and accurately with all links along the supply chain from supplier through customer.

I went on to explain that the person who was tasked with leading a part of the organization which was charged with driving competitive advantage needed to clearly understand the strategies and goals of the organization at the highest level. That person needed to be a part of the leadership team of the organization, reporting to the person tasked with developing and driving the strategy, having visibility to the goals, and strategies That person needed to be focused on and integrated with the entire organization and should be viewed as a part of the strategic leadership of the company.

Having the IT Manager report to the Controller was a sure way to stifle the creative leveraging of information technology for competitive advantage. The viewpoint of the Controller’s team is centered around cost efficiency, low risk projects, back office operations and financial pressures. Investment designed to drive competitive advantage could be stymied as being too expensive or risky before it ever reached the eyes of the staff or president. A focus on cost reduction would run counter to enhancing strategic direction.

We spent some time exploring this idea, and he promised to give it some thought. In the end, he offered me the position, reporting to him. I accepted and spent twelve great years providing leadership in various roles from IT Manager through Vice President of Technology and Customer Satisfaction.

Why do I tell this story? Because it sets the basis for a further discussion around focus within an IT organization and how that focus can be enhanced.

If we accept the premise that the purpose of information technology within an organization is to drive competitive advantage, how does that stance influence the structure and direction of the information technology team? My contention is that it should influence the team to focus on those things which provide the greatest competitive advantage and value to the business, and should offload those things which do not.

Consider the following graphic as an illustration of my point:

Plotting IT initiatives (projects or services) into the different quadrants based upon the amount of domain business knowledge (vertical axis) required to successfully complete or implement the initiative and the amount of competitive advantage (horizontal axis) that the initiative will drive yield a very clear indication of those upon on which the information technology team should be focused.

1. Lower Left Quadrant – Requires a low level of knowledge of the business and does not drive competitive advantage.
2. Upper Left Quadrant – Requires a high level of knowledge of the business and does not drive competitive advantage.
3. Lower Right Quadrant – Does not require a high level of knowledge of the business and does drive competitive advantage.
4. Upper Right Quadrant – Requires a high level of knowledge of the business and drives a great deal of competitive advantage.

Clearly the information technology team should be focusing on those initiatives which fall into the upper right quadrant. The amount of domain business knowledge required indicates that we need people who are already within and understand the business, and the high level of competitive advantage yielded shows the importance of the effort. Outside influencers to initiatives within this quadrant should be selected to fill gaps in the existing team and bring specialized knowledge and capabilities.

What of the other quadrants?

At the upper left we have initiatives which require a great deal of business domain knowledge yet yield little competitive advantage. These initiatives should be examined and questioned. Why are we doing this? Is there a different way that we should do this? If it is determined that an initiative should be pursued in spite of the low competitive advantage yield, then how can we do it without impacting our team of highly business knowledgeable people? In other words, with whom can we partner to make these projects happen?

At the lower right we have projects which require little in the way of domain business knowledge yet yield great competitive advantage. We will absolutely pursue these projects, so how can we do so without impacting our team of highly business knowledgeable people? These initiatives are ripe for being handed off completely to a trusted partner with only minimal involvement by existing IT staff, so who can we employ to make sure these initiatives get done right and in a timely manner?

And that brings us to the lower left quadrant. initiatives which require very little domain business knowledge and bring little competitive advantage. When we have initiatives which fall into this quadrant yet we know they must be done, it only makes sense to pass them off completely to someone else to take care of. Why would we ever impact the time and efforts of our business knowledgeable people when we can just pay someone else to take care of things? This quadrant is the one which lends itself very clearly to the idea of outsourcing projects or services.

Gartner has consistently used the terms “Run”, “Grow” and “Transform” in recent years to try to help IT leaders to focus on what is important to their organization and teams. If we layer those terms over the graphic above, we get a representation of how those terms map very nicely onto our initiatives.

“Outsourcing? We don’t need no stinkin’ outsourcing!”

Okay… so let’s address the elephant in the room, “outsourcing.” The term outsourcing brings a bad connotation to many people. They associate it with layoffs and people losing their jobs. They associate it with loss of control and endless fighting with suppliers to get things done. It is too bad that the term carries this impression, but it does – and rather than fight that uphill battle we will instead refer to the activities we ask a partner to perform and lead as Managed Services.

Managed Services can take many forms – but in the end it all comes down to paying another organization to take care of tasks which fall into an area where we deem that we have insufficient capabilities or insufficient time to focus upon them. In other words, we are going to pay someone else to take on services which free our skilled, knowledgeable people up to focus on things which bring competitive advantage. One of the advantages of using someone else to perform the services which do not require a great deal of domain business knowledge is that the focus they are afforded to pay attention to the details often yields a capability to perform the services more efficiently and with higher quality than we can ourselves. This means that they will actually do a better job and in the long run it will cost us less to accomplish the initiatives.

There are other advantages to using Managed Services. Some are financial, having to do with certain organizations being better served to spend money on operational expenses (OPEX) rather than capital expenses (CAPEX). Some are technical, having to do with the fact that a team which manages many different clients sees many different situations and learns how to handle and prevent them more efficiently. In other words, the partner that is providing the services gets to learn on other client’s and bring the advantages to us. From a management perspective, it is fairly easy as well to set clear, documented and specific goals for a managed service provider, then let them go away and do the work and meet those goals while IT leadership focuses on the initiatives in the upper right quadrant.

Here is the call to action for today’s IT Leadership: Focus your teams of talented, business knowledgeable technologists on initiatives which bring great competitive advantage and requires their skills and capabilities. Identify those initiatives which do not require your talented and business knowledgeable technologists and give them off in whole to someone else. Your organization, your team and you will all be the better for it!