Friday, April 12, 2013

Outsourcing IT is Strategically Stupid

The Royal Bank of Canada (RBC) has received much publicity about its use of foreign workers to replace Canadian IT staff. While the storm has been about bad PR and the reaction of Canadian RBC clients, there is another reason to question the judgement of Gord Nixon, President and CEO of RBC and RBC's senior management. You might want to sell your RBC stock because their  IT outsourcing strategy is economically short sighted and bad for the long-term.

I wrote about this in 2009 in "What I have Learned from IT". 

Here's what RBC's senior management does not understand about the strategic importance of IT:
"The pathway to innovation and business improvement leads through IT: Every time a CEO announces a new innovative way to do business, the people affected hear the message and turn to .........   their computer. If they can't find the supporting tools and information there, the innovation is stillborn. The innovation or the process improvement isn't real until it shows up in the tools that people interact with." (What I have Learned from IT).

So if  RBC is anticipating new innovations in its bank processes, IT will be deeply involved. In fact, the failure to keep IT intimately involved with client and staff processes is the reason most new system rollouts become crash and burn (or more likely limp and stagger). So this leads to my follow-up point about outsourcing IT.

"The business management guru that came up with the concept of IT outsourcing should taken out and shot: If the people who work most closely with business units in improving their business processes and developing the underpinning software supports for business innovation have their work outsourced to ...... India??? What about intellectual capital that the organization needs to keep close for competitive advantage? Isn't that at work here?" (What I have Learned from IT).

Organizations that outsource IT don't get "knowledge management", business process management and organizational intellectual capacity. If managers understand the role of IT as the key principle business enabler (and how can they not in the banking industry with on-line banking, social media and smart phones for purchasing transactions), why would you not keep the organization robust in its IT capacity and the intellectual capacity of IT staff close.

Every organization that I watched outsource its IT function has eventually wound up led around by its nose by its  3rd party outsourcing firms, frozen in its capacity to respond to emergent business trends (fundamentally IT trends, e.g. Big Data) and ultimately strategically stupid.

Gord Nixon and RBC have a bigger problem than bad PR.

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