The incredible shrinking IT department

When Vito Forte started in his role as CIO at Fortescue Metals Group 18 months ago he was heading up a function that supported around 1500 users.

Today that number has blossomed to more than 6000, but Forte’s IT function has not increased its headcount by anything close to that ratio.

“We’ve had to make sure we can help the organisation grow, without being a barrier,” Forte says. “The only way that we can do that while keeping our overall unit rate down is to utilise smart external services.”

Forte has chosen to hone his function’s focus down to doing just those things that it actually needs to do, and handing many activities off to partners and utility service providers (cloud).

He says the fact that he can do so is directly attributable to the maturing of those utility services such as cloud computing.

“As a team, our focus is on trying to look at all of the things that we shouldn’t be doing anymore, and what can be done through some of these newer-style services that deliver better value, are more flexible and have better commercial outcomes,” Forte says.

“As the maturity of the cloud market in all its various forms increases, the need to do the stuff that we were doing a year or two years ago is now starting to diminish.

“As an organisation we’ve got some pretty aggressive targets to hit, and we’re trying to do that by keeping our headcount down. So it’s really a case of looking for all of the points of leverage that we can find to deliver the productivity gains that we are looking for.”

Unlike some of his peers, Forte is in the fortunate position of supporting an organisation that is experiencing rapid growth, albeit slightly less aggressive recently. While this seems to indicate that budgets are less constrained, this is not the case.

“We need to stay relevant, effective and efficient because our competition is no longer outsourcers, but cloud services,” Forte says.

“The business can just go direct for a growing number of services, so we need to stay sharp, and demonstrate value constantly. We will be facilitators of these services into the future and the place to be is in the middle.”

At other organisations, particularly in Europe and the US, the driver is one of needing to do more with less, as cost pressures force them to look for alternative service provision models.

Either way, it equates to a trend where IT functions are providing often superior service with fewer resources than were needed only a handful of years ago.

This is reshaping the composition of the IT functions and the skills they require. In some cases it is also leading to a reduction in the size of the overall IT function.

In a speech delivered in Perth in June this year, titled ‘Industry Disruption and Cloud Computing’, Frost & Sullivan vice president Andrew Milroy outlined how the cloud and related technologies can reduce the ultimate numbers of staff needed, although he emphasised how for many organisations that was likely to play out as a change in the skills mix.

“Process management, compliance and enforcement of company policy will be the kind of activities that IT departments will focus on more and more,” Milroy says.

“IT departments as we know them will shrink but these people may focus on different tasks.” At Fortescue, Forte has implemented a range of cloud-based services, including cloud-hosted email and service desk systems, and is investigating cloud-based recovery and analytics capabilities.

The company has also created its own internal cloud to ease provision of resources to business units.

By taking these services into the cloud, Forte has been able to reorganise the skills requirements of his function.

“The kind of skills that we will be looking for are more around delivering solutions rather than infrastructure,” Forte says.

“Our infrastructure team is actually really small in comparison to the size of the organisation, and that isn’t going to be growing, because we are using additional services to fill the gaps.

“The people we do have, we are trying to get them to move further up the value curve, so we get more out of them for the business.”

What doesn’t change, however, is the application support role, although Forte says there is less emphasis on the backend operational aspects and more on functionality, effectiveness and utilisation.

Greater reliance on external parties has also increased the emphasis that Forte places on vendor management.

“What it does do is you bring them closer – they are much closer than they probably were in the past,” Forte says.

“And you have to make sure that they are very clear on your objectives, and that you are very clear about what they can deliver for you. “That’s a constant conversation.

You build a lot of relationships with those service providers that are probably slightly different to what they would be in a traditional sense.”

Page Break

An issue for many organisations is that these new technologies and partnerships must be retrofitted into existing structures and architectures.

This means savings from implementing new models may be difficult to achieve, and indeed may involve a costly period of re-engineering before benefits can be realised.

This is not the case for start-ups, however. One of the examples cited by Milroy was Jetstar, which maintains a small IT team (believed by Milroy to be just five), but which calls upon a varied list of suppliers for specific IT projects.

According to Jetstar’s CIO, Stephen Tame, this model enables the airline to keep its fixed costs low and still ramp up quickly when the business requires it to. By building a bank of suppliers, Tame says, Jetstar has ensured they remain accountable and aligned with its business outcomes.

“Our IT support model is focused on investments in central systems and applications with minimum effort required to run the peripherals,” Tame says.

“International suppliers, airports, ground handlers and engineering companies provide their own IT infrastructure, and we deliver Jetstar applications entirely over Internet points of presence in Melbourne, Singapore and Japan.”

The model has also enabled Jetstar to flex its internal staff numbers as required. For instance, during the operational launch of the airline in Japan in July the company had up to 40 IT specialists supporting the business, but that number has continued to be scaled back since the launch.

Tame says a focus on virtualisation of core systems, applications and networks has delivered a more effective and lower cost support delivery structure for Jetstar.

“The IT support model is constantly evolving through our virtualisation and cloud strategies,” Tame says.

“Jetstar’s preference is to manage cloud application services. Where this is not available, we’ve taken the traditional IT systems into virtualised servers, storage, networks and applications.”

Indeed, the cloud is enabling many newer organisations to effectively forgo a traditional IT department almost entirely. The New Zealand based accounting software maker Xero delivers its software via a cloud computing model, and as such is a heavy user of cloud services for its own business requirements.

Hence, while the company employs close to 270 staff, its internal IT team numbers just five.

That support team is unlikely to grow significantly even with Xero expecting to hire another 100 staff between now and next April.

The managing director of Xero for Australia, Chris Ridd, says that team has also had to contend with Xero’s paying customers doubling to 100,000 in the past two months. His own part of the company, which employs 42 staff, currently has no dedicated IT personnel.

“We run almost entirely on cloud-based apps,” Ridd says. “Our core customer management, billing and financial management is all home-grown Web-based applications, and we use Xero of course to manage our own finances.”

The company runs its email through a hosted Exchange service, runs marketing campaigns through Campaign Monitor and uses Learning Source for customer training and event registration.

It is also a user of Google Docs and Yammer for internal communication, and is investigating Office 365.

“All of these are cloud-based,” Ridd says. “It means we can leverage quite an efficient IT operation which is centralised out of Wellington, and they provide support globally. We don’t have any IT servers here.

“It also means that we are able to quickly establish teams in new centres around the world, so we are not worrying about setting up IT to support those functions. We can remain pretty agile and get up and running using cloud-based apps.”

Indeed, while the company has a 100 square metre computer room at its Australian headquarters in Melbourne, Ridd and his team have chosen to turn it into a music studio.

It is a model that Ridd agrees is difficult to implement for large organisations, meaning that cloud computing often proves to be a much easier proposition for smaller business.

“They can come in to work on a Monday and decide they don’t want to do ‘this’ anymore, and by the end of the week be up and running with cloud-based applications,” Ridd says.

“Every application that they require is out there, and there are multiple choices. They can get freeware and slowly move up the food chain.”

But as Fortescue proves, big businesses can play the cloud game, too. Over time Forte expects to see further maturing of external service providers, and a diminishment of the difference between internal and external service provision, at least from the perspective of the business users, with a seamless ability to move between on- and off-premises solutions.

“That makes it even more important to get your ducks in a row with the people you deal with, in terms of how you deal with them and the commercial models that suit your business.”