The most frequent reason companies turn to outsourcing is the need to increase profits. Replacing premium-priced labor with workers earning less has led to lower costs for products and services. That in turn has led to an increase in the purchases -- that is outsourcing -- of materials, components, parts and services by the companies.
Stories by Paul A. Strassmann
In this era of lower corporate profits and tight IT spending, CIOs' careers are on the line when they get grilled during periodic budget reviews. Unfortunately, the CIO's survival kit isn't well stocked with credible analytic methods that will answer the supreme question: How can a CIO prove that IT will deliver a significant contribution to improved profits?
I have always been amused by simplistic methods offered to CIOs to answer complex questions about the health of IT.
In 1986, General Motors Corp.'s top management became alarmed about escalating IT costs. To benchmark IT spending against Ford, GM hired me as a consultant to deliver an IT-to-revenue ratio comparable to Ford Motor Co.'s, whose IT budget was reportedly smaller than GM's. It took me a while to convince GM that overall revenue wasn't a reliable basis for reaching valid conclusions as to whether GM was overspending or underspending on IT compared with Ford. In those days, Ford, with less revenue, was outsourcing more of its production costs than GM was. Therefore, Ford would theoretically require fewer employees to make a car and consume fewer IT resources to support its workforce. After adjusting for each company's employment, salaries, the amount of outsourcing and total assets under management, I delivered a report that was used to realign some of GM's IT spending.
We're at the end of corporate computing as it has been practiced for the past 50 years. From now on, billions of computers will only be network peripherals. Corporations will stop building and maintaining their unique hardware and software capabilities as fixed costs.
How will last month's terrorist attacks affect corporate IT? Hijacking and crashing four jetliners was only one move in a concerted campaign to disrupt global commerce, damage U.S. economic interests, erode U.S. power and foment distrust in the conduct of international business. Given those objectives, I'm quite sure that high on terrorists' checklists is a plan to wreck the Internet. If they can stop Internet traffic for a day or two, the effect on business, and particularly on the future of IT, would be devastating.
After last month's ruling that ordered the breakup of Microsoft Corp., Bill Gates made a number of public statements at a press conference that warrant closer examination of their credibility. "Microsoft has brought widespread benefits to the economy ... making the vision of low-cost computing a reality ... [with] low prices that really arise out of the PC industry."
The news that General Motors Corp., one of the nation's richest corporations, is turning itself into "the world's largest e-commerce company" could affect the ambitions and plans of every corporate IT department.
Practitioners in most major professions subscribe to codes of ethics that govern their behavior. Trust is thus linked to expectations that a privileged expert will behave ethically. Such an outlook is essential in order for a modern society to operate, because we depend on the fairness and good judgment of an advantaged few to tell the truth, abstain from giving self-serving advice and offer warnings when waste of valuable resources is discovered. Otherwise, corruption will invariably creep in, opening the door for government intervention.
Recently, Microsoft Corp.'s top executives disclosed that the company will embark on a new business model: shifting from selling shrink-wrapped software to offering applications on a use-as-needed basis. The move copies application service provider offerings that have sprouted up all over the Web. Under this model, Microsoft would no longer depend exclusively on sales of licenses but would instead draw addition-
Windows, Unix, Linux, SPARC, Pentium and Merced - there's nothing technologists love more than a debate about operating systems and microprocessors. But soon, those debates will be irrelevant. We have reached the end of computer history as we know it. Fifty years of CPU- and operating-system-centric computing is ending.