Crossing the Technology Line: Strategic vs. Utility
A strategic technology is measured on how well it accomplishes the goals set by the vision you have of what your company is becoming. A utility is measured on how efficiently and reliably it delivers its product.
A few years ago, Company X wanted to provide its customers with a way to order products online. It would expand the customers access to product information, differentiate the company from their competitors, and reduce the cost of sales. That was a strategic decision.
When they implemented the online ordering system, there were very few companies providing that kind of service. Their customers gained a service they couldnt easily get elsewhere and the company got enhanced loyalty from the customers. Reduced transaction costs soon followed.
After a couple of years, online ordering became a standard service for many companies. Customers now expected or even demanded online shopping. That technology had crossed the line from strategic to utility.
When you cross the line from strategic to utility, its time to think about either establishing a maintenance group or outsourcing the operation to someone else. In either case, the amount of unit resource devoted to the utility should begin to decline. If it doesnt, you either have an operational problem or insufficient mass to force the costs down.
In the first case, you need to take steps to gain control of the costs. Look at the resources youre using to maintain the application. Do you really need a full-time programmer or will a part-time contractor work? Consider deploying a packaged solution instead of a highly customized and costly one.
Examining the way the product or service is delivered and removing the non‑value added steps in the delivery process could also help solve an operational problem.
The critical mass problem in the second case is somewhat more difficult to solve. Outsourcing may be a solution. That can be done a couple of different ways. You could develop partnerships with other like-minded organizations to collectively deliver the service or product. Alternatively, you could look for a company to partner with that will deliver the product efficiently and use that organization as your product delivery surrogate.
In either case, an outsourcing arrangement can aggregate a number of clients together to gain cost advantages that, alone, a company can never attain.
Issues to Consider
In the example above, lets assume a company decides to outsource their online order entry application. When they do, they have two major areas to focus on when evaluating vendors, service levels and vendor management.
This part of vendor evaluation may be difficult because it involves not only evaluating the service levels your vendor says they can deliver, but also examining your own organization to determine what level of service you can support and are willing to pay for.
Our hypothetical company might believe they want to provide 24x7 service with no downtime. That is an achievable standard, but the cost may be prohibitive and the company may not be able to support that level of service if the online application requires the internal order-entry system to be available for data retrieval.
Realistically, this might be a standard that provides for 100% uptime with an exception for scheduled maintenance downtime. The company and the vendor can determine what an acceptable level of maintenance downtime might be. At that point, you can begin to build a partnership that will provide for bonuses or penalties based on deviations from the agreed‑to standard. That way the vendor and the company have equal desire to meet the standard.
One of the most difficult things to do in outsourcing is vendor management. Many times, organizations are outsourcing a headache and simply want to wash their hands of it. Thats exactly the wrong thing to do.
There should always be a company manager who is responsible for oversight of the vendor and the service levels. This manager should view the outsourcing company as an extension of the company staff. Dont fall into the trap of just letting the vendor do his job without the same kind of regular review you would give to an employee.
Mike Scheuerman is a partner at B2B CFO CIO, LLC, a nationwide network of partners that specialize in providing CFO, CIO and senior level executive services to growing companies. Mike has more than 25 years experience in strategic business planning and implementation.