The Virtualization of IT Departments

While participating on a technology panel at NAREIM’s recent Spring 2012 Executive Meeting, many of my discussions centered around outsourcing IT, accounting and other non-core backroom support services. Joe Beggins of GEMSA Loan Services described the rationale for his company’s embrace of outsourcing: “[We seek to] virtualize our company as much as possible to our core competency.” GEMSA is not alone in going virtual. In fact, the banking/financial services industry is among the top three industries taking advantage of managed IT services. (Source: 2011 MSP Mentor 100 Report) The following is my take on what might be behind this trend. (For a print version of this article by John Ahlberg, Click Here) Internal IT department’s typical first response to a new business need is to ask for additional headcount because the existing team lacks the expertise. This tendency has earned many IT teams a nickname: the “Department of ‘No!’” The downturn, however, made saying “no” a bit more problematic. Overall, staffing has been rationalized down, while the complexity and sophistication of technology increased. In a time of volatility and uncertainty, hiring any staff that isn’t 100% utilized means wasted capacity even in IT. But at the same time, growth companies must be closer to the cutting edge with their technology tools. Outsourcing and virtual support has become a logical alternative to “no” for many finance and real estate firms. For example, in 2009, a mid-sized Chicago-based financial firm made the decision to completely eliminate their internal IT department. Waident was then hired to replace helpdesk support, manage their network and act as a strategic partner for technology planning. In the past, this kind of move was perhaps viewed as a cost savings move, but in this case, and in many others we’ve seen since, the focus was much more on better execution, more accountability and ultimately scalability. He needed an IT team that executed against what he wanted done versus living with a more limited technology department slower to change, grow, shrink or innovate. A virtual IT team can help a firm make better technology decisions. If there is a need for strategic technology investments, clients can more clearly weigh the costs and benefits. IT bloat and delays that can happen when technology projects are undertaken without a clear sense of the costs are avoided. Every project can be evaluated on its merits versus just being tossed in the “do it eventually” bucket, clogging up the system and wasting resources. Further, clients can make the right investments without worrying about hiring a bunch of people who will be superfluous when the demand surge or project is complete. At the same time, by design, an internal IT department often has difficulty keeping up with new technology. Committed as they are to maintaining and incrementally improving an existing infrastructure – they rarely have the people, the expertise or the willingness to embrace important new tools. Consider iPads as an example. Just about every executive at the March NAREIM conference is using an iPad in some capacity. When I asked whether their IT department was happy about supporting that usage, I saw a lot fewer hands raised. If it makes people more productive, the business is right to demand that their IT team enable the leading-edge technology. When an internal technology team lacks experience with the latest tools, they are usually only reluctantly dragged along by the early adopters in the organization – such as senior executives with clout. With economic uncertainty and accelerating technology change the new norm, firms can expand and contract their technology support more easily as the business needs dictate by using a virtual IT team that has expertise across a range of companies – and technologies. The virtualization of IT departments is a trend that is only beginning – and with good reason.
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