CIOs Take New Look at Sharing IT Infrastructure, Apps

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CIOs who consider hosting IT services for one or more organizations would face the uphill battle of gaining buy-in from others in senior management, particularly if the service "isn't core to the rest of your organization's business and if it would take cycles away from the normal job of a CIO," says Beach Clark, CIO at the Georgia Aquarium in Atlanta. Clark notes that an industry consortium is building software for keeping animal records. "It's years behind schedule, so there's some skepticism" among his senior executive peers. "I think we will follow the lead of some of our peers in the industry on adopting [it]."

Ways to Make Shared Services Work

Assuming that you can get past the philosophical objections, the remaining obstacles and risks can be addressed through legal agreements and well-designed governance processes.

A board-type structure where each of the major participants has some level of representation is important for such purposes, says Scott. He says it's acceptable to have one of the members serve as the president or CEO of the entity "since realistically, most of these consortia are going to be tantamount to closely held businesses with a small number of stakeholders involved." Plus, because shared services organizations are typically formed to help member companies reduce costs, "you're not looking to add labor costs" by hiring executives to run the business, Scott adds.

The rules should include policies for vendor selection and vendor management, as well. "You run into this problem where one of the members may have a close or strong relationship with a particular vendor, and it's really the strength of the combined group that helps you to gain bargaining power in the marketplace," says Scott. As such, it's important to establish clearly defined processes for vendor selection and management, even down to such details as the dollar value of gifts that participants can receive from vendors.

But tread carefully: Some ill-fated consortia were weighed down by too much planning and bureaucratic decision making, observes Indiana University's Wheeler. He says he's seen groups with big charters go heavy on governance and achieve far less. Wheeler points to a previous, unsuccessful attempt by a closed group of university investors and a vendor to develop a financial system in 2003. That was "before open-source development models had made such progress [in creating] enterprise-scale application software," he says.

The hoteliers hope to avoid such mistakes. With respect to sharing a hotel reservation system, participants are discussing how much flexibility they would have to modify the functionality to suit the individual company's needs, says Conophy. "What you need is freedom in a framework," he adds, meaning that any agreement to share software would include provisions entitling participants to customize portions the application. It might be similar to the open-source model of the universities' Kuali Foundation, without the reciprocal sharing of modifications.

Also, the service being delivered has to be as good, if not better, than what IT organizations are currently providing in-house, says Gary Curtis, global managing director for Accenture Technology Consulting (he is not involved with NetHope). Curtis has worked with multinational companies to restructure IT operations, including incorporating shared services within some of them. He notes that whether a shared services provider is an independent company that's established by member firms or a member hosting an IT service, it "has to pass the same test" as an outsourcer, such as an audit to demonstrate it has the proper controls and governance in place for operating the service.

Finally, to address privacy and security concerns, it's important for shared services participants to be clear up-front about the types of data that need to be kept private and the information that can be shared freely among members, says Grainger-Happ. Confidentiality arrangements should be written tightly to prevent one or more participants from taking proprietary information or processes away from any of the other members, advises Scott.

The attorney goes further, cautioning that participants install strong accounting and internal controls to prevent any members from filching funds. That's actually happened: Scott points to a group of insurance competitors who formed an organization to provide shared technology services only to discover missing money about eight months ago.

In the end, CIOs have to decide which, if any, IT activities could be shared or operated by another business in order to drive down operating costs and free up precious resources for more ground-breaking endeavors. "Do we want 100 people working on developing and maintaining a hotel reservation system?" asks Starwood's Thompson. "Or do we want 100 people focused on building innovative solutions for our company?"

Thomas Hoffman is a freelance writer based in New York.

This story, "CIOs Take New Look at Sharing IT Infrastructure, Apps" was originally published by CIO.

Copyright © 2009 IDG Communications, Inc.

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