Trend: Outsourcing corporate IT is becoming a viable strategy.
Link: Economy of Scale Might Inspire Companies to Ditch IT Departments
...journalist Nicholas Carr is infamous for his 2003 article in the Harvard Business Review declaring that information technology was no longer a significant source of corporate competitive advantage. Carr is back with an equally controversial notion -- the death of the corporate IT department -- that he launched in the spring issue of MIT's Sloan Management Review and is now peddling in speeches to business groups and industry conferences.
Now, Carr predicts, the same transition is coming to the world of information technology. Instead of each company buying, maintaining and upgrading its own hardware and software -- most of which are remarkably similar from one company to the next -- it will buy computing services from a utility-type company, paying for only what it uses while enjoying the lower costs that come from scale economies.
Carr argues that the current setup is rife with inefficiency and excess capacity, citing studies showing that the typical corporate data center uses, at most, only a third of its available processing power while more than half of its storage capacity is wasted. And if you are the typical employee, you use just 5 percent of the computing power of that PC on your desktop. In essence, the trend toward centralization began back when Ross Perot first persuaded a corporation to "outsource" its IT department to his new company, EDS. And even before Carr's article appeared, companies like Sun and IBM were already peddling early versions of a utility-type service, renting out processing and storage capacity for a fixed unit-price. Sun is even setting up an online auction of excess computing capacity. MCI's Digex unit, meanwhile, has been targeting small and mid-size companies with data centers that use shared hardware and software in a utility-type arrangement.
Microsoft, meanwhile, is about to introduce a new generation of products -- Web 2.0 and Microsoft Live -- that essentially embraces the utility model by allowing users to buy into software over the Web rather than installing it on their own computers. And what is Google, after all, but a giant computer utility providing search capabilities and now a growing set of services to huge numbers of customers?
All this has profound implications for the type and quantity of equipment that will be sold, and how it will be priced. And, not surprisingly, the industry has largely pooh-poohed Carr's thesis and thrown up all sorts of reasons why things won't -- or shouldn't -- develop in that direction.
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