The role of the IT department in companies has evolved, and it is now fundamental to enabling revenue growth and driving business performance

The role of information technology in a business has changed rapidly in the past five years. Since its conception, the primary goal of the IT department has been to improve efficiency and reduce cost. The emergence of the outsourced IT function, using a low-cost workforce to run low-impact operations, only enforced this view. However, those days are set to come to an end as cost-cutting, while still vital, is no longer enough. According to a recent survey by the Economist Intelligence Unit, 83 percent of chief executives now believe that within three years, IT's predominant purpose will be to enable revenue growth and actively drive business performance.

At present, many organisations still regard IT in a solely cost-cutting capacity. In order to maximise its potential, IT must be recognised as a transformational tool which, if managed effectively, can be used to maximise investment, while simultaneously achieving reduced cost and improve overall business performance.

Changing perceptions
The good news is that revenue contribution from IT can come in many forms. The most obvious method can be seen in the online environment, through state-of-the-art websites and complementary e-commerce channels. However, it can also be used to improve internal knowledge sharing, help share crucial intelligence across the enterprise, improve understanding of the customer base and tailor services to meet consumer demand. Mobile technologies are also delivering huge benefits enabling employees to stay in touch and react to opportunities faster than ever. In addition, collaboration with partners can be expanded far more easily so projects are completed more efficiently and in less time. Failure to create an adaptable IT framework can place your organisation in serious jeopardy, with those businesses who fail to appreciate the importance of IT to grow revenue likely to be left behind.

The Economist's research also highlights that one of the challenges faced by organisations is the difference between chief executives and IT managers in how they see IT's future contribution to business goals. IT managers' day-to-day responsibilities have traditionally focused on operations management and reacting to recurring faults in poor system and applications design. When investment is made in implementing technology, it is often to cut costs rather than to support and enable business transformation. This gap in perception of what IT needs to deliver is a real hindrance in the alignment of business goals and technological operations.

Companies that continue to rely on the financial function to control IT must break with tradition — the starting point is for the chief executive to get actively involved in IT's management and communicate the evolved role he sees for the department. Organisational structures, too, are not designed to facilitate revenue growth, as customer-facing functions and the IT function have traditionally been very separate, making collaboration difficult. While the perceived potential of outsourced IT has only recently begun to change, landmark outsourcing deals have started to deliver genuine business value, proving how the application of a new approach to outsourcing can help organisations' IT investment fund revenue growth.

The outsourcing evolution
When the concept of outsourcing first emerged, clearly its real goal was cost-cutting. Imported, low-cost labour on temporary visas was used to supplement existing staff. The second generation corrected some of the limitations of the first, with work sent offshore while regional marketing offices representing the outsourcer were established to provide a degree of local contact and support. Cost-effectiveness immediately improved — through the offshore relocation — but the model was still insufficiently equipped to perform anything beyond basic engagements. In many cases early outsourcing deals failed because work was very poorly defined before being "thrown over the wall". When inadequate results were delivered, the immediate need to revise and resolve meant that any short-term cost savings disappeared.

So the model evolved once more: a stronger focus was again placed on local geographic and industry expertise, but with reducing operational costs still the primary objective. Local offices with project-management capability were set up to enable productive, day-to-day liaison and to resolve previous issues with poorly defined functional and technical specifications. With this model, outsourcing providers could be relied upon more to deliver complex projects that required significant ongoing discussions.

Today we're seeing a fourth-generation model, which puts long-term business impact at its core. Characterised by seamless integration between provider and customer, IT providers taking this approach combine…

…the cost-effectiveness of offshore production and the on-the-ground expertise needed to manage projects at the highest level, delivering the revenue-generation support required by today's chief executives.

The key to this is in the engagement process, and the ability to provide the customer with the best on-the-ground project management and industry skills available. We advocate using a "two-in-a-box" model, which pairs these industry experts with their colleagues offshore so that projects stay on course. This means that when there is a better and/or quicker way to do something it is spotted and implemented immediately, with the on-site outsourcing team responsible for driving the offshore team as and when the client's needs change. When all the competition in a market is heading in the same direction, a faster start can reap huge benefits in terms of "first mover advantage".

Integration, integration, integration
To ensure the contribution of IT to business goals, companies need to integrate outsourcing operations across their organisation. By tightly integrating the providers' teams into the client's business, the impact of the relationship is naturally bigger and can be felt sooner. Whether it be delivering a new product faster, improving margins, reducing cost or transforming IT, the efficiency of offshore work combined with the local intimacy fostered through tight integration can rapidly accelerate the impact of IT on business performance. The difference this makes when embarking on complex implementations can be immense, with the potential to break down internal barriers between business and IT departments.

Longer term, fully integrating IT outsourcing across the enterprise yields significant economies of scale. By opening up multiple divisions of a business to a service provider, common build, manage and delivery methodologies, skills and software solutions can be shared and therefore used more effectively and consistently. Scalability — one of the major advantages of outsourcing over build and maintenance in-house — becomes easier and faster with fourth-generation providers, meaning customers have far greater flexibility in reacting to internal or market changes.

Expectations of what IT should deliver to a business are changing. To realise these ambitious expectations of chief executives, IT providers who are capable of driving business transformation through industry expertise, customer intimacy and the ability to drive tighter integration at all levels are essential. The fourth generation outsourcing model can achieve this, because it can deliver more, faster at a lower cost than prior outsourcing approaches. Of course the continued success of this model does require that these offshoring providers keep re-investing in talent ahead of the market whether it be hiring experienced experts or developing raw talent. Only in this way can the customer be assured that they will continue to receive the best advice and expertise available as their relationship develops. But, if the provider is able to do this, then the contribution of offshored outsourcing will continue to move upstream and board confidence in IT's ability to make a real difference to the business will continue to grow.

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