HOUSTON BUSINESS REVIEW

COST-EFFECTIVE IT: SERVICE-ORIENTED IT
By Richard Sonnier

Houston Business Show Commentator Richard Sonnier, of the Information Technology Services firm Nimble Services, provides weekly information on our show about information technology issues. Mr. Sonnier can be reached at 281.445.4800 x 250 or via email.

This week I will discuss service-oriented IT.

IT Service

Since Information Technology (IT) is hardware and software, it is easy to forget that it is all just junk without service. For the proper perspective, consider the telephone. The telephone is the original IT. However, the actual telephone handset is useless without the service. Computers are much the same. At a low level, computers and software are like calculators and completely functional without any additional service. However, at the level of a business process like accounting, service becomes an integral component of the business solution. For example, Intuit's QuickBooks requires monthly or weekly updates to keep up with tax law and other government changes. Much of QuickBooks' value is this service.

IT Profit Center

In the 1980's, business leaders and business school professors realized the service nature of IT in large corporations. One famous article in the Harvard Business Review recommended organizing the IT function within the company as a profit center. By managing the profit and loss of IT the business focuses on the essential services that IT is providing to the company and the value of those services. Over the last 20 years, many large corporations have created IT business units or companies to deliver IT services. Usually, these IT organizations serve only the parent company, and they define a set of services to be purchased by the rest of the company. This service orientation has tremendous benefits like value pricing, cost savings, and outsourcing.

Value Pricing

Like any profit seeking business, an IT service organization focuses on the needs of its customers and develops services to meet those needs. It changes the thinking away from particular products and vendors to what the company needs from IT to make money. The IT services are priced in terms of their value to the internal customer. For example, a basic PC desktop with standard business software would be so many dollars per month. Over time this monthly charge recovers the cost of hardware and software and provides for steady upgrades as appropriate for the business.

Cost Savings

By consolidating the IT functions from across the company into a focused organization, many redundant costs are eliminated. For example, an IT service organization can buy software licenses in large quantities at a discount from the prices that individual business units or departments would have to pay for them. However, the biggest cost savings is achieved by the focusing on the services needed and by improving the services to the business lowering their cost.

Outsourcing

Focusing on the IT services allows a business to outsource some or all of these services. A very good strategy is to keep the core IT services unique to the business inside and to purchase the commodity IT services from outside service vendors. For example, you could buy the basic PC desktop and productivity software from an outside vendor while keeping the programmers that write your custom business application inside.

Recommendations

Outside of large corporations most companies do not need to setup independent IT organizations, and it would not be cost-effective to do so. However, you can still reap the benefits discussed here by taking the following steps:

1. Write down IT services your company needs for its operations;
2. Determine a monthly value for each of these services that you would be willing to pay;
3. Sort them into services that are unique and core to your business and those that are commodity; and
4. Get some bids on the commodity services and consider outsourcing them.

Next week I will discuss planning for the New Year.