While doing research for my Information Technology Management (MBA) class at UNLV, I came across the article “The Risks of Outsourcing IT” by Michael J. Earl (Sloan Management Review, Spring 1996). Earl explains that the decision to outsource IT is often driven by the need to cut costs. However, outsourcing IT functions central to business strategy is risky. Earl lists eleven risks of outsourcing, of which the eighth, “loss of innovative capacity,” really caught my attention (see page 5).
Earl tells of a conversation between a company’s CIO and an executive of the company’s IT vendor. The CIO expresses his disappointment in the vendor’s lack of innovation. The vendor’s executive responds that he thought the deal was all about the cost and didn’t know that there were expectations to innovate.
I think that there are many IT service providers that innovate, generally speaking, in providing services to their customers. On the other hand, an IT vendor that innovates for an individual customer’s business strategy and adds value is much more rare. That is the type of innovation IT service providers (or any business service provider) should strive for.