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Breaking Up the Corporate IT Monopoly, Part 3

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Posted February 12, 2003 By Arthur O'Connor     Feedback

Something's happening to the techies slaving away in your IT department. They're disappearing. Last of a three part series.

This is the final installment of a three-part series on how corporations are breaking up their internal technology monopolies. In part one, we looked at some of the broader trends changing the IT spending landscape. Part two discussed the growing popularity of plain-vanilla, out-of-the-box implementations of commercial packages, instead of designing and customizing packaged applications to meet specific internal user requirements.

The Standardization Trend

One major reason for maintaining a large IT organization was to meet the needs of unique business processes of a given organization. At one time, idiosyncrasies in even basic, back-office functions such as accounts payable, benefits administration, or general ledger were thought to offer some type of differentiating or competitive advantage for the organization.

Many businesses have come to realize they don't need creative or unique ways of consolidating financial statements for corporate reporting or for calculating social security withholdings for payroll.

To the contrary, executives now realize that, without achieving the economies of standardizing on basic services, they won't be able to make the investments in product and service innovation needed to effectively compete in an increasingly global economy.

As a result, organizations standardize many basic services
-- back-office processing and network administration -- which permits competition from third-party providers.

Raising the Bar

With a trend toward standardization, internal IT groups face an increasingly challenging definition of what constitutes commodity technology and what represents truly differentiating capability.

Corporate managers are raising the bar because they've been burned in the past. Many managers, who invested millions in the creation, design, development, and now upgrade, maintenance, and support of homegrown applications, have discovered these "custom" systems aren't really unique at all. Often, they represent a loose collection of commercial packages tied together with customized code. Because of the customization, the application requires a dedicated team of in-house developers and managers to keep the system up and running.

With growing use of industry standards and protocols (such as Web services) for standardizing how systems and processes integrate, many organizations are shocked to learn the bulk of their internal IT development budget is spent on integration using proprietary technology and custom programming. Many executives are frustrated so much IT time and money are spent integrating disparate tools and applications that are incompatible only because they are produced by different vendors. Why can't a big and relatively mature IT industry develop standards like those that prevail in other industries?

Low-Cost Computing

In part two, we talked about how corporations are getting out of the application development business and instead using their leverage with software vendors to develop the product extensions they need. No more maintaining large, expensive in-house application development groups.

An even broader trend is low-cost computing. Corporations are dramatically simplifying, standardizing, and outsourcing not only IT operations but also the associated business processes and staffs.

Low-cost computing now means the little internal development that is funded takes place offshore, until recently in India, increasingly in China. Many organizations are moving to open operating system standards (Linux), especially for application servers (name brands still prevail in the large-scale database server space). They're moving to centralized, shared-service bureaus (many offshore) to ensure consistency and standardization of basic business processes.

These shared service centers no longer offer only commodity back-office functions but also the far more sophisticated services associated with "knowledge workers" -- financial accounting and consolidating reporting, procurement, provisioning, and second- and third-level help desk functions.

In other words, firms are streamlining their standard business processes, hopefully to redirect previous resources where they count: learning more about who their customers are, what they want, and how to deliver greater value through operational excellence and product innovation.

I hope you enjoyed this series on the break-up of corporate IT. Got an interesting insight, opinion, or real-world example to share? What are your thoughts? Write me at Arthur.oconnor@reuters.com.

Reprinted from ClickZ.

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