bITa Center

‘IT Legacy’ became a frequently used term before the millennium change. Originally used to indicate computer systems that are already in use for a very long time. These systems are often hard to control, maintain and improve simply because there is a general lack of understanding them.
Later,  IT Legacy became a much broader term to denote all IT that is inflexible (or non-adaptive) and thus becomes an inhibitor for change in general and more specifically for business innovation (see also my former blog). By this new definition, we have to realize that IT legacy is still being created every day. This is mainly due to the fact that new IT is in many cases created with a uni-sided focus on cost reductions and productivity improvement and with no attention to flexibility through proper IT architecture.
Since recently there is a new phenomenon, which I like to call ‘Outsourcing Legacy’. This outsourcing legacy can for example be found in organizations that in the last few years outsourced to several IT partners without any overall strategy. There is a good chance that this has left them with a historically grown outsourced situation that is hard to control, maintain and improve.
Similar to inflexible IT, there are also outsourced relations that are just inflexible by the way they are constructed. This leaves organizations with an new inhibitor for change and innovation. Similar to the creation of new IT legacy, organizations are creating outsourcing legacy every day, also mainly due to a uni-sided focus on cost reductions and productivity improvement.
So what makes an outsourcing relation flexible? First of all I would like to define a flexible sourcing relation as ‘having the opportunity to change the service delivery within a short time frame at low costs ’. Changing service delivery can have to do with requiring new services, the ability to up- or downscaling specific services, new ways of delivery or introducing new use of technology .
To create a flexible outsourcing relation, I believe that organizations at least have to pay attention to:

• Flexibility as an explicit driver for outsourcing
• Flexibility in your contract for the types of service delivery and related pricing
• A vendor strategy that is aligned to flexibility
• A Sourcing Governance (managing demand and supply) that is aligned to flexibility
• An enterprise architecture that is aligned to flexibility
• Transparency and the right control mechanisms to be able to steer changing service delivery

Without paying attention to these aspects there is a good chance that a new outsourcing deal signed today - will be ‘Outsourcing Legacy’ tomorrow.

Up until recently, the efforts in improving IT where all about reducing costs and improving productivity. We see that the focus is shifting more and more towards flexibility and control, and for good reason. One way of understanding this shift, is to look at organizations from an innovation and growth perspective. Innovation is not only a continues process, but is a combination of periods of sustaining growth, interrupted by periods where organizations have to go through radical change to enable ‘new’ growth. In the literature this is known as sustaining innovation versus disruptive innovation.

IT plays a prominent role in this process, sometimes as an enabler and sometimes as an inhibitor. A good example is that we have had long period where organizations used IT to lower cost and improve productivity as a means to add business value. Existing ways of working were automated and business processes optimized in order to improve the performance of the business. Internet among others made it possible to deliver products and services at a lower cost.  So IT played an important role in all this, enabling this business strategy and establishing growth. But the profitability of this strategy cannot be sustained for ever.

For example; most retail banks in western countries are in a situation that their home markets are relatively mature and to continue growth they have to innovate their business strategy to grow.  A major challenge that they are facing is that the same IT that enabled their growth the last decennia, has become an inhibitor for new innovation. The reason for this is that their IT has become ‘legacy’, meaning that is inflexible and non adaptive. Recent studies show, that in major business changes, the related IT costs as a percentage of the total costs of the change are frequently exceeding 50%.

To get out of this situation IT has to become more flexible and has to be governed better to achieve standardization and control. Within Quint Wellington Redwood, we are in the process of performing a large study focused on the value of IT and the organization of IT, for business innovation and growth. More specifically, we are researching the added value of actual topics in the IT management domain; like sourcing, shared service centers, IT performance management, IT governance and Service Oriented Architecture. All these topics play a role in sustaining- and disruptive innovation. Our goal is to achieve insight in the success factors when applying these topics, to effectively enable organizations to innovate and grow.

If you have any thoughts about innovation and growth and the role of IT in this, please share your thoughts?