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Should innovation stay in-house?

Should innovation stay in-house?

For many years I've used this forum and others to fret about the decline of IT as an engine of innovation and competitive differentiation. For those of us who love the job more than the title, love to design and code systems more than plan budgets and write performance reviews, it's been painful watching hundreds of ersatz CIOs, transferred in from other departments, chop off bits and pieces of IT and throw them overboard. Sadly, most IT departments are now tasked with coordinating the installation of somebody else's software and negotiating contracts with outside companies to keep systems running on networks that are being monitored by yet another collection of third parties. For most CIOs, this voluntary and catastrophic loss of internal capability is worth the comfort of knowing that they need not worry about a shortage of IT talent and that keeping up with everybody else is simply a matter of being skilled in contract negotiations. As a result, most IT departments are now staffed by people who know how to work things but don't know how they work.

Well, after years of arguing against outsourcing and in favor of IT organizations maintaining their own in-house development capabilities, I've come to realize that because of the evolution of the marketplace, the availability of talent and, in particular, the current mind-set among corporate management, this point of view is now wrong. Or maybe I was just wrong all along.

Let me give you an example. I read a poll recently that revealed that approximately one-third of your most compassionate fellow Americans believe that we ought to stop wasting money on space exploration and use it to solve problems here on Earth like housing for the poor or health care for the needy. If you happen to be one of them, you should know that physicist Stephen Hawking disagrees, and he's a lot smarter than you are. Professor Hawking considers the inevitable world-ending consequences of the coming asteroid impact, supervolcano or hypernova to be more than enough reason for some of the human race to get off this planet and spread out a little. Sounds like a good idea to me.

Think we spend a lot of money on the space program? We don't. The budget for the Mars Pathfinder Mission was US$150 million. By comparison, Superman Returns (the movie) cost $268 million.

With that in mind, and assuming you're not a member of the Voluntary Human Extinction Movement (VHEMT), you'll probably agree that we have, as a species, an overwhelming need to push into space and a technical challenge of extreme proportions. So, who do you trust to spend the money wisely and deliver results? Think NASA wastes a lot of the money we commit to the space program? Does a one-legged duck swim in a circle?

The ability of the federal government to manage big projects effectively can be summed up in one infamous quote: "You're doin' a heckuva job, Brownie."

My point is not to pick on NASA except with respect to its status as an agency under the control of a bloated and indifferent governance structure hobbled by all the inefficiencies, limitations, fecklessness and bureaucratic nonsense that any large structure can devise.

By the way, did the previous sentence cause you to momentarily think of your corporate headquarters?

A fresh approach

Anyway, the years go by in this game of cosmic dodgeball, with the asteroids whizzing by our heads, and NASA can't find the glue stick in its pencil box to keep the heat tiles from falling off the shuttle. Things are looking pretty bleak, and then along comes the X Prize and SpaceShipOne. In case you missed it, in October 2004, Scaled Composite's SpaceShipOne vehicle was launched and flew to an altitude of 63 miles, crossing into space high over Mojave, Calif., in essence matching the early Mercury launches. The spacecraft was designed and built by Burt Rutan with $30 million provided by Microsoft cofounder Paul Allen. Rutan and the team won the $10 million Ansari X Prize, which required the winner to take three people up to about 62 miles two times within two weeks in the same reusable nongovernment-sponsored craft. This single event will be remembered as the birth of private manned spaceflight.

The X Prize organization, seeing the benefit of reinvigorating a stagnant space program, was able to effect a radical breakthrough through outsourcing. Further, it was able to speed the delivery and effectiveness of the solution by making it a competition. Outsourcing the creative process. Pretty neat! Now, close your eyes and try to imagine accomplishing this same feat with the mighty power and resources of NASA. Getting a headache?

Fun fact: It currently takes NASA about 16.5 hours to spend $30 million.

This is not the only example of outsourcing as a means of circumventing bureaucracies in order to drive to a creative solution. In 2005, the Defense Advanced Research Projects Agency (DARPA) awarded Stanford University the $2 million Grand Challenge Prize for demonstrating conclusively that fully autonomous ground vehicles (self-directed robot cars) can travel long distances across difficult terrain at militarily relevant rates. In a competition that included more than 20 entrants, Stanford's robot vehicle, named Stanley, successfully completed a grueling 131.2-mile Mojave Desert course in less than seven hours. This technology could be used for anything from unmanned military ground vehicles to driver assistance systems that could keep your grandmother from running over somebody. This was only the second year of the Grand Challenge competition. Government-funded research into semiautonomous vehicles has been going on since 1977.

The truth about innovation

So, in case it wasn't already painfully apparent, the U.S. government needs to get out and stay out of the invention business. Not because there aren't smart, well-meaning people working for the government, but because the government is not wired for these kinds of efforts. Within its structure, creativity is unnecessary, and taking risks, even when successful, is not rewarded in the traditional sense. It is a world of deadlines over effectiveness, deliverables over solutions, motions over action, conformance over originality, and compliance over curiosity.

And the painful truth is that all established, midsize to large organizations suffer, to some degree, from these same problems. Really talented, competent CIOs earn their money by shielding their organizations from this form of corporate calcification by chartering skunk works, squirreling away the development budget and finding ways to reward the creative oddballs in the department. But the trends are clearly not going their way, and every year it gets harder to do this. Most IT shops have lost to (or never bothered resisting) the ERP wave, which significantly changed the talent profile within the departments and drove away the creative types. Budgets continue to move in the wrong direction as a percentage of revenue, and money spent on new development, if there is any, comes with ROI expectations that have changed the risk-reward profile to bland. BBQ chicken watered down to broth.

It seems odd to me that so many IT departments have lost this battle. It's a little like those who think we should not waste money on outer space. What do these people think the destiny of our species is? Is it to go out into the universe and gather answers to this puzzle or is it to just hang out here, driving our Hummers around in circles, until the planet blows up? Likewise, in spite of the knowledge that all competitive advantage comes either directly or indirectly through the skillful application of information systems, how is it that so many CEOs have ceded their capability to the capriciousness of ERP vendors?

Well, like they say, "You're either part of the solution or you're part of the particulate."

You've got three ways you can go on this and, unfortunately for many of you, it's going to require that you sell your ass off. Your first choice is to hang in there and keep punching. Don't give up your internal capability, get the budget to charter dangerous and rewarding projects, and get your HR department under control so you can recruit the right talent. Only a small percentage of CIOs are up to option one.

The second choice is to find ways to outsource the creative work using a model not unlike the X Prize. There may even be a way to develop a consortium of IT groups across noncompetitive companies to fund the prizes and share in the results.

The third, and probably the one I would choose, would be to quit your current job and start up one of those creative companies that would compete for those prizes.

Outsourcing the creative work of IT shouldn't seem all that radical or foreign to anyone. Companies outsource creative work all the time. Advertising, for example.

Oh yeah, there's a fourth option, of course. You can always do nothing. That'll probably work out fine.

Jerry Gregoire is the former CIO of Dell Computer and the beverage division of PepsiCo.

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