How to best extract value from information technology (IT) resources is a major challenge facing both business and IT managers, particularly as they turn their focus from searching for the competitive benefits of strategic information systems and striving for benefits beyond process reengineering. At the same time, managers are beginning to synthesize lessons from nearly a decade of IT outsourcing. Now astute managers are asking: How can we move beyond leveraging IT for redesigning current business processes to create new business capabilities? What is the best design for organizing our IT activities as a business driver? How can we best exploit the potential benefits of the Inter-net and the World Wide Web for delivering superior value to customers? How should we allocate and manage IT investments? How can we develop a strategic approach to IT sourcing that balances the risks and benefits of insourcing and outsourcing?1 What types of sourcing options should we explore? What truly distinguishes our ability to exploit IT functionality differently from our competitors? How can we continually achieve and sustain the required strategic alignment between business and IT operations? What are the driving principles for organizing IT resources in the twenty-first century?
During the past decade, I have observed and analyzed how companies respond to such questions and challenges. In this article, I synthesize my observations and analyses into a framework for managing IT resources as a value center. I introduce the value center concept, describe its essential features, and highlight its use in reframing the dialogue between business managers and their information systems counterparts on IT’s role in shaping and supporting business strategies. In doing so, I position the value and risks of IT outsourcing as part of the larger challenge of crafting an effective IT strategy.
The Compelling Case for Change
Most managers are painfully aware of the limitations of their legacy technological infrastructure and plan to migrate from their centralized, mainframe technology toward a more decentralized, distributed, multimedia platform. In this arena, they seem preoccupied with the year 2000 conversion problem. Few recognize the potential weaknesses of their legacy administrative architectures. Outmoded IS organizational design and processes, misdirected IS resource allocation criteria, inappropriate IT planning systems, parochial views on outsourcing, and mismatched IT skills with business needs are as critical as obsolete technological platforms.