A Case Study in IT Strategy

Written on February 18, 2009  |  by RP Mickler  |  Leave a Comment  | 

If you’re a business owner, should take a good look at this article found in the latest issue of Inc. Magazine. If you’re a student, or, an IT professional, you should see how the business of IT is dramatically and rapidly changing.

Within the article, Fitzgerald illustrates some critical strategic IT conceps everyone should be thinking about:

The case study example shows a company that has made investments in information technology and pays considerably to maintain it – through staff expenses, total cost of owernship, software licensing agreements, and service/support agreements. This is an exercise equipment retailer: managing technology was not its core competency and it didn’t add value to the strategic execution of its business plan. Through recognizing that, the CFO in the article was able to realize that parties outside the firm could provide stronger services at better economies of scale than what his company could.

In recognizing that IT wasn’t a core competency for this company, the CFO eliminated the expensive IT staff and took their IT needs to an integrator at nearly half the yearly cost; the CFO shifted email management, Point of Sale (POS) management, accounting system, and payroll management to the Clouds (see below). Through doing this, the CFO shifted the cost and burden of maintenance to fixed contracts that limited his IT expenses yet kept up with his growth; tacking on new capability just meant adding on new per user subscription licenses to the web services.

Instead of paying for and managing local applications, POS, accounting, and payroll functions were shifted to web-based applications; in this case, Netsuite.com and ADP.  Secure and professionally managed, the CFO was able to tap into these larger companies with much more favorable economies of scale who could offer smart, integrated products at lower and fixed prices.

So what the CFO ended up here is a smaller IT footprint professionally managed by local integrators, with application hosting managed in the clouds through fixed contracts. Further, because of their use of the Cloud, they could offer the same application platform anywhere, to anyone, on any device, via the Internet, at the same cost and risk as every other user. And the CFO could now offer a more nimble and flexible IT function that went from an annual $670k -> $259k (or .7% annual revenue to .3%)

This company, the CFO realized, doesn’t use IT to innovatively create new markets and services; instead, IT is a cost that provides business process automation, and managing that cost themselves was anti-competitive – IT was not their competency. And like many companies, it doesn’t have to be… tapping into these kinds of service providers gives immediate capability at fractions of the time/maturity cycle that it would have taken to develop those capabilities on their own.

Thanks for letting me share this – this was a great case study and real important, I think, for everyone to see what’s happening right now in the industry.

R