FT.com / Technology - TECHNOLOGY LITE: The shrinking IT department

FT.com / Technology - TECHNOLOGY LITE: The shrinking IT department

TECHNOLOGY LITE: The shrinking IT department
By Dan Ilett

Published: May 9 2007 11:36 | Last updated: May 9 2007 11:36

Business leaders are learning a few lessons about IT. After spending small fortunes on equipment and technical specialists over the last decade or so, many have started to realise that a lack of cost savings and profit avenues from these investments means a shake-up is required.

In a bid to reset the IT profit model, larger businesses are now starting to mimic smaller ones by contracting specialist IT companies to service their technology while they focus on selling their product.

“You’ve now got the virtualised server environment where you can host things remotely,” says Mark Kobayashi-Hilary, author of Global services – moving to a level playing field. “With that, all the grunt work is then taken away from the office. It’d be better to stick to what you’re best at, write down your technical requirements and ask someone else to do it.”

Several services are now on offer that remove the burden of administration from the IT department. For example, some companies opt for software as a service, such as Google’s spreadsheet and word-processing applications that can be used over an internet browser. More commonly in larger companies, this type of hosted service involves customer relationship management (CRM) programs from providers such as Salesforce.com.

“You can also outsource IT maintenance by paying a retainer or an hourly rate to another company,” adds Mr Hilary. “Smaller companies do that because it’s cheaper than the salary of an engineer. All this means you have a virtualised IT department.”

Such actions to shrink the IT department’s staff and equipment have been coined as moving to an “IT lite” environment – a trend that has been noticed in some of Europe’s largest companies. The Corporate IT Forum (CIF), a CIO-end-user organisation for big companies, said its members are now employing more business-minded people to negotiate outsourcing contracts.

“[Our members] were all experiencing the same thing,” says David Roberts, CEO of the CIF. “We found there’ll be fewer people in the IT department but they’ll spend higher amounts of money and will be much more commercially aware. The corporation really has to have these skills to compete with the Accentures of this world.”

Mr Roberts explains that CEOs are also pressuring the IT department to find ways of profiting the business, which requires a radical shift in thought from simply saving the company money and time – a move which could see the IT department slim down considerably.

“These models are threatening the old establishments,” he says. “This has been a long time coming, where technology alone can build a profitable business. You’re therefore going to need business people for IT who can procure and you can now procure almost anything from the other side of the globe.”

Yet some outsourcing companies have been waiting for this moment for years. For example, companies based in China and India, which recruit tens of thousands of highly qualified technical people every year, have based their entire business models on this very shift. Now jobs such as programming, support and administration could soon be offshored to these firms while project managers and architects will remain safely employed internally.

“The need for programming is reducing as this is not an essential skill to have in house,” says Ian Campbell group CIO of British Energy. “If you look at new companies, they’re being more virtual in IT, but British Energy is coming from a traditional position – if it was new, I would go for that new model.

“The role of the CIO is to understand the business and provide added value. But to do that you need commercial IT managers who can sort contracts. IT people don’t come with these skills and I’m spending a reasonable amount of my time working on relationship management.

“I’ve seen one or two organisations that have gone from hundreds of people in the IT department to 50. They are really going for it while others are waiting for it to become standardised.”

Of course outsourcing IT jobs could also spell turbulent times for people with technical skills. While many can design databases, build back-end offices and speak programming languages to each other, businesses are starting to require commercial knowledge and better communicative skills. On the other hand, IT recruitment agencies are having difficulty in finding the next generation of IT worker.

“The salaries can be anything up to £200,000 because of these trends,” says Albert Ellis, CEO of recruitment firm Harvey Nash. “These people are a mixture of project managers and business analysts. One of the interesting things about this is they not only need understanding of technology and offshoring but sales, cultural issues and how to manage expectations for the board and the customers. This is all new territory.”

Research from US employment IT analyst Foote Partners backs this up. It claims employers are “desperate for employees who have more than just technical skills”. Capgemini’s Global CIO report also urges CIOs to move away from IT-centric management.

The IT director of European catering firm Elior Alastair Fuller changed the staff on his IT team in a bid to improve the business: “The sector we work in is changing so the IT needed to change,” he says. “What was apparent was that the 20 people in the IT department were clearly not fit for purpose. Now we have almost a new team and only have four of the original.

“The new people have brought a much broader set of skills on board. For the IT departments in some organisations it’s about doing the minimum. In the same organisations you can see the self-sustaining interest in IT.”

Copyright The Financial Times Limited 2007