Technologies such as cloud computing threaten to sound the death knell for the IT department. But there's still a role for in-house experts as outsourcing comes of age

For many overworked directors the idea is tempting: outsource IT, with its expensive kit and arcane acronyms. Then managers can run their business, while someone who understands technology well handles the high-tech stuff. Simple. But outsourcing is more complex than that. In a chilly economic climate, many companies have been looking at this approach as a way of cutting their costs and simplifying structure.

Some organisations have outsourced everything that is not key to their business, explains Henry Duncombe, IT consultant at Lanware. "They want to be released from anything that isn't core. IT falls under that."

But this way forward doesn't mean IT is without value, he adds. "More than ever it is a source of competitive advantage—companies just want experts to do it. They want to make the strategic decisions, they don't want to be involved with keeping the lights on."

As a result, outsourcing is booming, especially among bigger corporate players. Some of this is down to a series of mega deals with government and large businesses, but it also reflects many smaller agreements covering an increasingly broader range of services.

While outsourcing has been a long-standing strategy for larger organisations, new technologies such as the arrival of cloud computing mean smaller companies now have more options around how they want IT delivered.

Video production company DMI Productions has outsourced IT management and support, using consultancy Ramsac to look after its technology infrastructure, freeing up valuable time and energy for building the business. "We are a small company and everybody is vital to running projects and dealing with clients," explains DMI director Stuart Turner. "Having IT in-house would mean an expensive salary for someone who might not have much to do. Unless you are a large company with a huge infrastructure, I'm not sure of the benefit."

So what does this mean for the old-style IT department? Will it be made obsolete, as the role resembles a utility just like gas, electricity and water? After all, it is perfectly possible to outsource all IT—from desktop support and telecoms right up to data centres in one swoop. In recent years there has been much discussion about whether IT infrastructure now offers any competitive advantage. It used to be common to see the role outsourced to a single supplier, with most of the staff transferring to the outsourcer, leaving only a skeleton team behind for managing the relationship. But many of these single-vendor deals have not lived up to their promise in terms of innovation or better service.

So the trend is towards multi-sourcing or a best-of-breed approach, where a variety of outsourcers take on different parts of the infrastructure. One supplier could manage data centres, another telecoms and a third software development or security. Alternatively, some projects or services are outsourced while the internal team runs others.

CIFAS, the UK's online fraud protection service, has an in-house systems team but also switched work on its fraud database and an ongoing project to Logica. "Although we have a highly skilled systems team in-house we are effectively a small business," says Kate Beddington-Brown, head of communications at CIFAS.

By outsourcing large projects CIFAS secures access to expertise and delivers projects for a known cost. A benefit of multi-sourcing is that firms can hire companies with the best skills in a particular technology. But this also means a team inside the business is required that understands how different suppliers work together.

Innovations such as cloud computing make it easier to find a supplier because you can buy a service such as email or word processing over the internet, and its complexity increases. "The IT department won't be made obsolete, it will change," says Lanware's Duncombe.

Frank Ridder, research director for IT services at analyst Gartner, says that while outsourcing has been around for many years, cloud and utility computing—the packaging of resources as a metered service—have disrupted the model. Traditionally, the service was bespoke. But utility and cloud computing firms share a standardised product with other companies. While you might have been used to having an account manager with your old supplier, with a cloud service you could have a contract downloaded from the Web and a supplier on a different continent.

"More and more organisations are looking at having a best-of-breed approach. In the long run, when companies really buy into cloud computing, vendor management will become even more central," says Ridder.

Whatever your strategy it will be crucial to understand all demands from the business units, not just assume that the IT they have now is desired, either today or tomorrow. This means that whether you select outsourcing, multi-sourcing or cloud options, you'll need to have in-house expertise to make sure everything works together. Good communication among suppliers is vital, too.

"Vendor management is a key competency and if you have more vendors you have to increase that effort," says Ridder. This may mean that new skills must be developed—for example, account management rather than how to install the latest operating system. You will still need people in-house, such as business analysts, who understand what the business priorities are and how IT can support these. Without such a team in place, the danger is obvious—you become locked into outsourcers who understand more about your key systems than you do.

Another threat is losing control of strategy and being unable to respond to new business opportunities because you either don't know about them or are unable to afford the work because the outsourcing contract is written too tightly. Having your own team can help offset this.

The IT department of the future may be smaller but it will be become more important. It won't be discarded but it will switch from delivering services to managing relationships. Companies should also be aware of the recent trend for insourcing. Some high-profile organisations believe that their forays into outsourcing have not produced the benefits required and have decided to pull IT back in-house. All of which means those directors who hope outsourcing is a chance to forget all about the IT department might end up a little disappointed.

Steve Ranger is the editor of silicon.com