February 13, 2012, 7:13 PM — The decision to migrate company information-technology functions to the cloud or elsewhere is usually broken down as a set of specific cost-benefit calculations. However complicated the weighing of the startup savings and the longer-term returns involved in outsourcing IT, it at least appears to be a rational process.
But for sure, turf battles and human egos also enter the picture. And they receive the focus in a study by Subrata Chakrabarty of the University of Nebraska and Dwayne Whitten of Texas A&M, recently revised.
For their research they break company executives into two camps: On the one hand are IT executives like the CIO and head of IT; and often opposing them, "business executives" -- aka CEOs, CFOs and COOs.
"Though business executives tend to attribute success to their own personal qualities, they tend to attribute failure to other causes," they write in their paper, published in IEEE Transactions on Engineering Management. "Under pressure due to their firm's poor performance, business executives often blame IT executives by labeling in-house IT as a cost burden."
They go on to argue: "A firm's poor performance makes its business executives insecure. This fuels power politics, whereby the CFO and COO ally with the CEO and defend their grouping."
But once the decision to outsource has been taken, the companies in which the business executives triumph over IT, in terms of decision-making power, were found to get the lowest performance from their outsourced systems.
Of the 163 firms studied, only 26.7% of those where IT had been completely sidetracked reported having outsourced product quality above the mean. Companies where power is shared scored 63.5% on this basis, while those where the business executives had delegated all power to IT reported superior outsourcing results 70.6% of the time.
"When it comes to the 'outsourcing of IT work, the business executives might find reasons to justify increasing their own power and reducing the power of IT executives, even though this can ultimately be detrimental to the outsourcing activity," Chakrabarty and Whitten write.
This power play may also prove detrimental to the business plan of a financially troubled company. Facing the gun, business executives shy away from the "tougher route of modifying the external environment (such as by developing new customers or a new market), and instead prefer the easier route of modifying the organization's internal structure and decision-making roles."
