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IT as a Service Provider May Be Bad for Business

Published on: 2014-07-13

This is the third in a series of eight posts that examines the relationship between business and IT. Based on an article examining manufacturing, I talked about four different levels (or stages) IT can interact with the rest of the business:

  • Stage 1: Internally Neutral (Minimize IT's Negative Potential)
  • Stage 2: Externally Neutral (Parity with Competitors or IT as a Service Provider)
  • Stage 3: Internally Supportive (Provides Credible Support to the Business Strategy)
  • Stage 4: Externally Supportive (Provides an Important Contribution to the Competitive Success of the Organization)

Last month, I talked about how Stages 1 and 3 were not viable long-term stages for businesses in the 21st century, though for very different reasons. By definition, Stage 1 companies either have dysfunctional IT departments or dysfunctional relationships with their IT department (or both), where Stage 3 companies will naturally move to either Stage 2 or Stage 4. This month I'll discuss Stage 2.

In both Wheelright's and Hayes' Stage 2 and the concept of IT as a service provider, the primary goal of both business and technology would be to put the business (i.e. technology consumers) in the driver's seat in determining how and where technology would be used. When the business leadership had identified a new need, technology providers would be tasked with creating estimates for costs and time frames. The providers would be responsible for ensuring that the business would have all options at their fingertips, including the benefits and drawbacks of each option. The final decision would rest with the technology consumer, as well as the final responsibility of the success or failure of each decision.

The business would approve or reject projects based on the projected ROI based on the original estimates (or in the case of many small companies, the gut feeling of the decision-makers). Since the business success of technology products would lie in the hands of the business leadership, the technology producers would measure their project success merely by ensuring that the project is completed within the promised time and budget, instead of metrics useful to the business.

Why would a company choose this model?

Stage 2, or treating IT merely as a service provider, is comfortable for both business and IT. Business, thinking that most technologists don't truly understand the business and how it works, is able to control technology spending and is able to set the priorities of the technology department. IT on the other hand gets to focus on the technology aspects of the project and can relinquish responsibility for the business-related success of the project.

Why is this bad for business?

Much to the chagrin of most business and IT professionals I've met, who feel much more comfortable staying in their specialty areas, the best business decisions related to IT are nearly always made when all of the important strengths, weaknesses, threats, and opportunities that are either technology- or business-related are factored into the decision. When IT is acting merely as a service provider, they are not giving input into the direction a company should go, either on a micro-level, such as how to fix a particular business problem, or on a macro-level, such as how to stay relevant in a market with several new competitors. As a result, the company will miss out on technology-related opportunities and will not leverage existing technology-related strengths. Few companies wishing to be best-in-class can afford to miss out on these opportunities.

Is this a failed business model?

Plenty of companies that are in business today could survive with this business model, assuming one of two things are true:

  1. The company is satisfied with being a niche player in their market
  2. The company as a whole is being carried by one particular are, such as a world-class product, sales department, etc.

So unlike Stage 1, to say that intentionally setting up IT as a Stage 2 environment or limiting IT to being a service provider is setting up the company for failure is a bit strong. Clearly companies can and do survive limiting IT's role. However, these companies are finding it increasingly difficult to do more than just survive in today's technology-infused world, and this will only get harder as time goes on.

Other posts in this series:

May: Levels of function (and dysfunction) IT can have with business
June: Why Stages 1 and 3 are not viable long-term stages
July: What a Stage 2 organization might look like
August: What a Stage 4 organization might look like
September: How IT professionals can be their own worst enemy in achieving Stage 4
October: How your Stage would affect your management practices
November: How your Stage would affect your hiring practices
December: How can an organization reach Stage 4?

This article was originally posted here and may have been edited for clarity.