IT Outsourcing, Off Shore Support, Cost Cutting and IT Department Changes
Businesses everywhere are looking to shore up their bottom lines by cutting costs. As a result, cost centers, like IT departments, are prime targets for outsourcing and off-shore maintenance. The typical business script is that as the IT organization moves into maintenance mode that cost center with high overhead becomes a prime target for reducing costs.
However, in spite of how things might appear, cost is NOT the real driver of IT outsourcing. The real driver of IT outsourcing has more to do with its function than its cost…
IT departments generally have not focused on customer acquisition, customer retention, profitability or revenue generation and have become commodities to be outsourced.
How Should Your SAP Support Department Differentiate Itself?
Imagine a presentation to the Board of Directors about how much money the company could save by outsourcing the sales and marketing functions. I mean come on here, look at the massive budgets dedicated to sales and marketing!
If you were making that presentation I would suggest you have your resume in order and already have another job lined up.
Can you imagine outsourcing discussions with that same Board of Directors if IT were seen as a strategic business partner, a business partner integrated with and indispensible to the revenue side of the business. What if IT were actually considered a very real or even a pseudo profit center? Not only would outsourcing be off the table for the IT functions that are directly related to revenue generation, but budget discussions and project ideas would be much easier to navigate. [FN1]
Why Has IT Become Nothing But An Expensive Cost Center?
The typical IT script has created an environment where it is seen as an expensive and expendable cost center. For too long Information Technology departments have focused on applications, programs, and business support to address process improvement, operations, and quality. These are all the cost side of the business and only look at “operational excellence.” Once the bulk of the business processes are set up, running, and stable all those significant IT labor costs make great targets for reducing cost and overhead. And from there the next step is to outsource, reduce staff, or off shore.
Is “operational excellence” important? Of course it is. But after integrating and automating the “back office” functions or operations of the business IT must then move on to product or service innovation and also revenue.
Without a move to the key revenue generation functions of the business IT will forever remain an expendable cost center rather than a key business partner.
Why Won’t CRM Applications Work to Change the IT to Business Dynamic?
A few of the applications in the market have tools and resources to help structure the customer acquisition and customer retention processes. And some of them have some decent rules-based tools for automatically evaluating, and then stratifying customers. There is application functionality in a number of major applications, and several niche applications for handing special offers, marketing programs, or other incentives focused on customer retention or increasing sales conversions.
What is the CRM Problem, Why Isn’t it Delivering?
There are three primary reasons: 1) clueless “CONsultants” who may have some exposure to a CRM application but little or no business knowledge (they lack an entrepreneurial perspective) [FN2]; 2) there are few applications, if any at all, which integrates and then actively engage customers in the business they are buying from [FN3]; 3) sales and marketing programs are poorly structured and designed and do not allow for good sales process analysis. [FN4]
In the SAP CRM space a lot of the benefit that is lacking is because of the number of frauds and fakes in the marketplace. They entered the market when the applications were immature and experience requirements were low. They came in droves with fake resumes, fake credentials, and little or no concept about sales and marketing. [FN4]
Nearly all CRM applications are focused on sales processes, measuring conversion or retention, and all of the other sales process areas. Software and IT applications do not directly engage the customer in the new product or service development cycle, quality management, marketing, feature or benefit development, or in working with them to address their product or service frustrations. Archaic customer service centers serve as a “touch point” to the customer but beyond that customers are not intimately involved in, or incorporated into the business product or service lifecycle.
Conclusion on IT as a Cost Center and IT Outsourcing
Until IT starts to more aggressively focus on the business side of the equation (like revenue, profitability, customer retention, customer acquisition, product development and engineering, etc.) then IT is little more than a dispensable cost center.
This model shows the IT application landscape of the future. It also shows the CIO role as a bridge between the CFO and the CEO, or between lagging and leading indicators of business performance and success.
source: Future Technology Landscape Alignment for the CIO, IT Director, or Key IT Decision Maker
Once again I will reiterate one of my opening paragraphs here;
Can you imagine outsourcing discussions with that same Board of Directors if IT were seen as a strategic business partner, a business partner integrated with and indispensible to the revenue side of the business. What if IT were actually considered a very real or even a pseudo profit center? Not only would outsourcing be off the table for the IT functions that are directly related to revenue generation, but budget discussions and project ideas would be much easier to navigate.
This model shows IT in precisely this way. Application alignment is focused on the customer–, customer retention, customer acquisition, revenue generation and profitability.
Footnotes and Resources about IT Strategic Alignment with Business – Customer Retention, Customer Acquisition, and Revenue Generation
[FN1] See these additional resources about business to IT to customer alignment:
Changing the Direction of SAP, ERP, and IT Applications to Focus on the Customer and Innovation
http://www.r3now.com/changing-the-direction-of-sap-erp-and-it-applications-to-focus-on-the-customer-and-innovation
CIO, CFO, and CEO Alignment – Why ROI is Lacking from Today’s System Landscape
http://www.r3now.com/cio-cfo-and-ceo-alignment-why-roi-is-lacking-from-todays-system-landscape
[FN2] Many businesses and Corporate IT departments have been sold a “bill of goods” with little to show for their investment
CRM, ERP, BI, and IT Investment — Where Do You Find the Business Benefit?
http://www.r3now.com/crm-erp-bi-and-it-investment-where-do-you-find-the-business-benefit
[FN3] See the customer integration model for the IT landscape of the future which integrates the customer into the business process.
Business and IT Alignment – Integrating Technology and IT Spend with Business
http://www.r3now.com/business-and-it-alignment-integrating-technology-and-it-spend-with-business
[FN4] There is a fundamental change needed in how performance is perceived and measured to understand how to make a difference.
Designing Startup Metrics to Drive Successful Behavior
http://www.r3now.com/designing-startup-metrics-to-drive-successful-behavior
I believe it was Peter Drucker who opined about outsourcing and then wrote a book on the subject. The original premise was that low level administrative functions, which were not a key or core focus of the business (like mail rooms) could be outsourced. Fast forward several years and business has learned that virtually all “non-value add” functions can be outsourced.