Posted by: Monideepa Tarafdar | June 1, 2011

Running and Building with Information Technology

Modern IT operations, even for a medium sized firm, can quickly become very complicated. IT proliferates end-to-end processes in the value chain and forms a critical part of the infrastructure of the firm. Indeed there are certain aspects of the IT backbone, which, if non-functional, can derail the very processes that need to get done in order for the firm to operate. Think of Amazon with no back end database connectivity, or a bank where you cannot access your account information. Given this sort of infusion of IT in critical firm processes, there are many different tasks that require the attention of the IT function, including developing code, maintenance, data management, security, user support and standardization, to name just a few. An important question that IT departments are increasingly grappling with is – How to classify all these numerous activities into a reasonable set of focus and priority areas such that resources and skills can be appropriately classified and directed?

Emerging findings from studies on the CIO and the IT department suggest that there are two broad types of activities that the IT function is responsible for- Run and Build. Run functions are those that speak to the utility aspect of IT. These activities keep the lights on and make sure that the servers, networks, crunch applications and security programs are working so that business processes don’t get held up and workflows get done. Run activities include identifying opportunities for automation, providing sets of services and minimizing their costs. These activities can be provided by outsourcing vendors on a service level agreement basis. For example then, network services are provided based on capacity, throughput and downtime, while data storage and processing services are provided on the basis of processing and memory capacity. The focus of managing run activities is to achieve the desired level of performance and quality at minimum cost and appropriate standardization.

Build functions are those that support and enable new IT initiatives, that is, they provide technology for business change initiatives. Build activities require joint IT-business accountability because they focus on new applications and hardware infrastructure. Business interfaces are required for deciding their specifications and functionalities. Another aspect of build activities is platforms and architecture If new applications and systems are not built on existing platforms and do not integrate with them, then users may not be able to capture the full benefits. Consider your bank launching a set of new investment products and then telling you that you will not be able to consider these as part of your existing portfolio of products when you log into your account because “the IT for them is different”! A second aspect of build applications has to do with process reengineering. The IT department works with functional units to identify processes that can be transformed and taken to the next level, and then plans out and implements the required applications and systems. A relatively new aspect of build is IT’s share of revenue. Many IT units are using rapid delivery methods to quickly get digital products to market. They are serving as partners in product delivery, through solution and platform delivery activities. This is particularly so in the banking and media sectors. Thus revenue generation is an important part of build.

The question then arises – how much should a company allocate to Build and Run? Most companies spend about 50-60% of their total IT allocation on Run activities. While there is no fixed or magic number, the relative allocation would depend on the extent to which IT can assist in getting new products and services to market. Firms where that is high would likely require to spend more on Build. The idea is to maximize the cost efficiency and standardization of Run activities such that there is enough left over for Build.

Another important question – Where does IT outsourcing come in? Are different skills required from the IT department for outsourcing Run and Build activities? Typically, yes. Outsourcing Run activities is more structured and standardized. It is important to specify service levels and performance measures for the vendor, who is then expected to provide services accordingly. Once the contracts are drawn, there is not much of day-to-day interaction between the internal IT department and the outsourcing vendor except in case of emergencies and escalations. For Build activities however, the outsourcing vendor is typically required to be more informed about and involved in the client’s business processes and even long-term business plans. They are required to project medium to long-term technical and architectural requirements, based on projections of business and future products. Outsourcing service delivery is more about understanding process requirements and developing applications and platforms, rather than providing IT utility services. Not all outsourcing vendors have the skills to put them up to these sorts of tasks.

Finally, companies run the risk of over and under allocation. Too much attention to build renders the IT department unable to keep the lights on in the first place and hence its credibility is lost. At the same time, over attention to run may make the IT department oblivious of future business needs or of the technical and human skills required of it, to address them. Firms are just beginning to understand the drivers behind their Run and Build IT activities, and it is expected that with greater understanding will come greater ability to appropriate value from IT

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