Preparing for utility computing: The role of IT architecture and relationship management

• Published in: IBM systems journal 2004-01, Vol.43 (1), p.5-19
• Main Authors: Ross, J W, Westerman, G
• Format: Article
• Language: English
• Subjects: Cost control; Enterprise resource planning; Information technology; Outsourcing; Studies; Utility computing; Wage rates
• ISSN: 0018-8670
• DOI: 10.1147/sj.431.0005

In this paper we examine the likely impact of utility computing on information technology (IT) outsourcing. Drawing on a set of eleven outsourcing cases and on IT outsourcing literature, we identify four risks that lessen the potential benefits of IT outsourcing. We consider two approaches to outsourcing: selectively managing a network of outsourcing partners and managing large-scale exclusive partnerships. The firms in our sample introduced a number of popular relationship management practices in order to counter the risks of outsourcing. We describe their practices but then observe that, in addition to the capability of managing their vendor relationships, the firms' ability to generate value from outsourcing depends on the maturity of their IT architectures. We discuss the implications of both vendor relationship management and architecture design capabilities as firms seek the benefits of utility computing, and conclude that both continue to play key roles. We close with some recommendations as to how firms can use relationships to build effective architectures and how an effective architecture built around standards-based technologies and business process components can enable a firm to capitalize on the strategic agility that utility computing offers. [PUBLICATION ABSTRACT]