Friday, February 22, 2013

Why IT Will Outsource Itself In 20 years

The Golden Rule (of IT):  If you can't rule, you might as well have the gold...

When you read the following post, understand that it is an opinion piece, not a scientific study!


As a CIO I have read numerous publications about my position.  Some deal with how to be successful, others focus on how to get a "seat at the table".  The latter point refers to how CIOs who are part of the senior leadership teams of companies and/or report to the CEO will get more say in the strategic direction and thus be seen as more powerful within the corporate structure.  Having been a CIO and direct report to multiple CEOs I cannot dispute that there are rewards to be had under that structure.  Typically the compensation is higher and the company as a whole tends to be more deferential to me as a person.  But authority is a different thing altogether.  When is the last time in your company that a CIO overruled another C-Level Officer? 

To understand what I am saying above it is important to look at how the "C-Level" roles came to be.  If you looked at the management structures of companies, dating from the dawn of time through about 1980, what you'd find is that companies were run by people holding the title of "President" or something equivalent.  Of course there were other positions of power below that level, typically called by titles like "Boss", "General Manager", and eventually a plain "Vice President" moniker.  When positions started to specialize more under the true corporate structure, we started to see roles like "CFO" and "COO", and "General Counsel" emerge.  The purpose of these titles emerging was most likely to give more status and clarification to certain specialized roles.  The CFO was the top person responsible for the finances of the organization.  The COO was in total charge of the operations, bottom to top.  All of these roles were developed while companies were still operating with pencil and paper.

In the middle 1990s through 2000 (remember Y2K?) companies quickly began to rely on technology.  Those that embraced computers and productivity software were getting a major competitive boost over those that didn't.  This was the advent first of the title of "VP - Information Systems/Technology" and when that was no longer sufficed in larger companies, the role of CIO emerged.  The problem is that the CIO function came late to the party by about 25-35 years.  Couple that with the fact that the industrial revolution made it easy for everyone to understand the roles of CEO/CFO/COO, very few could understand what a CIO was actually supposed to do.  With so much new technology emerging in such a short time, the type of person required in that role was often confused by companies.  While today the candidates being sought are rounded out with both business and technology backgrounds, in the beginning they were almost pure "tekkies".  Put another way, they were people who we would today most likely refer to as "nerds", incapable of building relationships or understanding business strategy.  (I know some people who still have their pocket protectors hidden away somewhere in their houses).

The dotcom boom helped advance the role of CIO into many companies but it did almost nothing to give it prestige equal to other C-level roles.  Fast forward to modern times, CIOs have purviews of their companies that are typically found only in the CEO roles.  Yet they are typically not reporting to the CEO, are not involved in the strategic decisions of their companies, and receive some of the lowest compensation packages.  Their tenures are also the shortest - a five year stint in the role is considered long by many.

What is the point of taking so long to get to the heart of the article?

There are symptoms that IT is not a popular field for younger workers, especially Generation Y.  After all, why pick a field that is typically less respected than others where the end of the career path does not usually end with a seat at the table?  There are a few reasons some might pick IT as a career choice, one being the exceptionally low level of unemployment.  But with competition from third world countries, outsourcing, and a career path that tops out lower than other disciplines, what is the allure?

If you have been in IT, basically any role, for over five years there is a curious awareness that develops.  IT organizations are always employing contractors.  In my experience and that of many others, it is very uncommon to see a per/hour rate of less than $75 and more often it is common to see that rate go between $125-$200/hour.  Working for the Big Four (Deloitte, Accenture, PWC, KPMG) or equivalent firms (IBM, McKinsey) these rates can go in the three and four hundred dollar per hour range.  Keep in mind that there is ALWAYS contract work because companies are willing to pay those rates because the skills the contractors bring are critical and necessary.

Now say that you are an IT employee making between $70,000 and $140,000 per year, benefits included.  Which path might you take if you could do the same work inside a company for that salary or work as a consultant for, say, $125 per hour.  As a consultant you would not have the same type of structure or "stability" as an internal employee, but on a year of 2080 work hours you would be making 2x to 3x more!  As a CIO, if you were making $200,000/year (a decent salary) and you could work for $200/hr or more, what would you do?  One could argue that you chase the money, which might be what's leading to such short CIO tenures.  Alternatively, you could work towards greater responsibility and thus more reward within the company structure.  It's harder to make a determination for those at the CIO level versus those below.

There is no immediate answer that would cover the choices that everyone would make.  But consider that pensions are a thing of the past as is job security and 401Ks are really a bad investment these days. I personally see more and more people opting to become consultants.  There may not be a change overnight or even in the next 5-10 years.  However, with globalization and the ability to work all over the world, the 30+ year old crowd is guaranteed to have this subject on their minds.  Those between ages 20-30 are opting for consulting or companies like Rackspace, Google, Yahoo, Microsoft, Amazon, etc that are corporations but focused on the business of IT itself. 

The Brick-and-Mortar companies may be looking at IT facilitators in the future rather than IT departments.  The internal IT functions of the companies of the future may be more about coordinating the work of external entities than actually performing that work on their own.

Given that the IT of today is still not considered strategic - look at the websites of many mid-sized companies and see if you can locate a CIO - the move of technology workers may be that of an inexorable shift towards working from the outside...

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