Oddly enough if you did generate electricity it could be very cost effective if you have enough money up front. You guarantee your power supply and the price you pay for power. Next you can sell the excess off at profit. So in way you'd get free electricity by subsidizing the cost of generation with the sale of the excess.
In IT I've seen this exact same concept work. I've seen developers build a in house solution that they could have bought. The benefit is they get a solution that fits 100% instead of buying off the shelf solutions that at best fit 50% and come with tons of functionality you will never use but you have paid for. Then if you product is good enough similiar businesses might be willing to buy you software as well. So if done right you could write you own custom solutions while subsidizing that developement by selling you solution source included to other companies to use and modify. In return they could sell you back the source modifications they made.
We do that where I work and we generate our own electricity too.
Why are you managing your own power plant?
Summary
Companies should question if they really need to build and manage each IT project themselves, particularly if it offers little or no competitive advantage says Jim Frome of SPS Commerce.
Topics
Commentary--Every business needs electricity to function, but have you ever thought about what it would take to generate it yourself? You’d need engineers, wire, land to build on, permits from the government, and who knows what else to create the right size power plant to suit your needs. Of course in reality, it makes no sense to waste time and millions of dollars to generate our own electricity. It just doesn’t make economic sense or add value – particularly when there’s already electricity available from a common power plant shared by others in your area. Simply put, no one would try to do this on their own. Yet just like the absurdity of this example, companies should question if they really need to build and manage each IT project themselves, particularly if it offers little or no competitive advantage. You need it, but like your electricity, you don’t have to burden yourself with the mundane and costly details of doing it on your own.
To that end, here are the top five questions you should ask yourself when deciding whether to manage an IT solution yourself, or outsource:
1. Does it give me a competitive advantage?
2. Are there companies out there who have already created what I need?
3. Are there vendors who have more expertise in this area and stronger alliances with retail partners than me?
4. Does it take up much of my internal resources?
5. Could I benefit from the economies of scale of a Software-as-a-Service (SaaS) model?
These issues are particularly salient as businesses face tough economic times. It is evident that we’ve entered a recession in the United States. Companies large and small are pulling in the reins like never before when it comes to IT spending. So why are B2B integration technologies, especially SaaS solutions, still thriving in the face of strained IT resources and severe cost cutting measures? Simple. Executives recognize that in order to survive, their businesses need to focus all of their internal resources on sharpening their core competencies. As with the rest of the organization, technical staff cannot be distracted by tasks that don’t help to bring the company further up the rung than its closest competitors.
Case in point: A few years ago, consumer packaged goods (CPG) manufacturers invested heavily in in-house electronic data interchange (EDI) systems—and paid staff highly to support them. Yet ultimately this proved foolhardy. Not only were these firms spending money hand over fist, replicating work that SaaS or on-demand EDI vendors were already doing, but all of this financial investment was for naught. It gave them no market advantage whatsoever.
EDI is a basic necessity for manufacturers doing business with big retail chains like Wal-Mart and Target. Think of it like the electricity of the supply chain. Manufacturers need to create detailed EDI maps in order to comply with encyclopedia-thick rulebooks in order to deliver highly-specified data to retailers, according to those retailers’ specifications. No matter the manufacturer, they each have to build and continually update these “maps”. Before SaaS EDI, the exact same maps were being built by each manufacturer doing business with a given retailer. Talk about reinventing the wheel! And there are still hundreds if not thousands of manufacturers out there, each with their own dedicated IT staff, toiling away at building exact replicas of maps that SaaS EDI providers already have readily available. It makes little sense, right?
This scenario becomes even more ridiculous when you consider the sheer number of maps involved. Manufacturers often partner with as many as 50 retailers, each of which could shift their EDI requirements in any number of ways. This means that the CPG firm’s internal team’s task just grew exponentially. And as any EDI professional will tell you, retail partners often alter mapping specs at a moment’s notice. Whether this is a way to test their manufacturers, or simply an oversight on the retailer’s part, the fact is that EDI staff is continually put into “emergency” mode—get this map changed now or risk having your trucks turned away at Wal-Mart’s loading dock. Of course nobody wants that, and nobody can afford it. So the IT team sweats, trying to learn in a vacuum how best to get the job done quickly and without error.
That’s when the “ah-ha!” moment usually hits: Why do businesses struggle unnecessarily to maintain complex EDI systems in-house? They’ve invested heavily in EDI and yet, as a result, what they’ve built is a subset of what already exists in the SaaS EDI world. In other words, there are already SaaS organizations specializing in EDI—people who are in tune with these same retail partner’s whims and requirements from handling countless EDI transactions each day. And because these SaaS providers are tapped in to the leading retailers, they’re often the first to know when a retailer is about to change its ASN or purchase order rules and requirements. This early insight means that participating manufacturers benefit from having a vendor that takes on the burden of proactively updating retailers’ maps for them, rather than try and do it themselves and risk costly errors and downtime.
As we face rockier times ahead, companies are discovering that the old in-house EDI model is not only economically unfeasible, but makes poor business sense. As I stated above: EDI is like electricity. In the interest of saving a dollar here and there, it’s just not one of those things you can shut off, and expect to continue to run a business. Each of us could, if we were so inclined, create our own power plants. We could invest in the infrastructure, we could source the fuel to power it, and we could hunt and peck to find the answer when a technical problem reared its ugly head. Fortunately, power companies exist so we don’t have to deal with such things. And similarly for CPG manufacturers, there’s someone on hand to deal with the EDI mess for them as well!
biography
Jim Frome, chief strategy officer and executive vice president, can be reached at SPS Commerce.
Talkback Most Recent of 13 Talkback(s)
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voska18th Dec 2008 -
But what if?
I've seen this methodology used many times over. In
small scale shops, this can work fairly well where
enterprise level solutions are too costly when weighed
against their benefit.
However, when an in-house (or customized open source)
solution is used, more often than not, that business
then becomes dependent on the small group of
individuals that built the software. If they get hit
by the proverbial bus, the company is now up the creek
without a paddle. And because it's custom, you can't
just hire a consultant to jump in and take over.
That's just referring maintainability and not even
scalability/extensibility. Say you have a spike in
demand for your service, or you need a new feature,
are your techs able to drop everything they're doing
and add this in?
The point of centralizing, is that a 100% load
increase to you is probably 1% to your service
provider. They can spread the load out and account
for the unexpected.
Are you gonna put up an extra wind turbine, just
because the microwave is extra popular today?
Kazabet15th Dec 2008 -
RE: Why are you managing your own power plant?
Well, one good reason is that the commercial solutions are one-size-fits all, and thus often fit no one.
I've seen serious trouble at Lucent Technologies and Oxford University after they brought in commercial systems to replace in-house systems. In both cases, we found that the commercial systems really weren't well adapted to the needs of the business. One gets stuck with a system that isn't quite right, and that cannot practically be customized. Large amounts of staff time were spend in training for and dealing with these systems.
The point is that all these systems are designed for bog-standard companies. If your company matches the software, then you may be OK. But, if your company doesn't match the software, then *you* will have to make painful adjustments. The software won't.
garth329th Dec 2008 -
RE: Why are you managing your own power plant?
This author could not be more mistaken about the economics of generating your own power. Because of heat losses, generating power at central power stations by burning fossil fuels wastes more energy than reaches the consumer because of the lower-grade thermal energy that is released into the environment; a central power station that is 50% efficient is doing extremely well. But by combining the generation of electricity with the use of this "waste" thermal heat, co-generating plants can be as much as 80% of more efficient. European nations are far in advance of the U.S. in taking advantage of these higher efficiencies. Increasing the percentage of electricity generated at co-generating plants is one of the key tactics for bringing climate change under control.
richardbelldc9th Dec 2008 -
RE: Why are you managing your own power plant?
*yawn* yet another article about the benefits of outsourcing. It started out interesting, but forgot to mention when NOT to outsource an IT project, and then turned into a rant about companies managing edi systems in-house.
starfire42@...9th Dec 2008 -
Missing the Point
It never ceases to amaze me what a recalsitrent group my collegues can be. each response has missed the point, Money drives The Train. IT is there to support the business, not run the business. We are making ourselves extinct because we do not fully support the business models, we beat the drum that only we can do it right. Each of the talk backs gave examples of buying applications and running them in house. That has nothing to do with the article. I've been doing IT for over thirty years now and the evaluation is to fit IT to the business and budgets. SaaS is definitely the answer in an increasing number of applications. While I would have liked to seen more examples, the author's example is a perfect example of what should be SaaS. Voice over IP is another. Cisco and Nortel solutions require significant management operations, while VoIP can be purchased as service from companies like Verizon and AT&T for a fraction of the cost. It's for the IT community to wake up and smell the coffee, jobs are disappering like crazy in a large part because we refuse to truly support the business. We're more interested in our jobs prtection program. Which if you haven't noticed is failing miserably.
chuck.russell@...9th Dec 2008 -
Missing the Point
It never ceases to amaze me what a recalsitrant group my collegues can be. each response has missed the point, Money drives The Train. IT is there to support the business, not run the business. We are making ourselves extinct because we do not fully support the business models, we beat the drum that only we can do it right. Each of the talk backs gave examples of buying applications and running them in house. That has nothing to do with the article. I've been doing IT for over thirty years now and the evaluation is to fit IT to the business and budgets. SaaS is definitely the answer in an increasing number of applications. While I would have liked to seen more examples, the author's example is a perfect example of what should be SaaS. Voice over IP is another. Cisco and Nortel solutions require significant management operations, while VoIP can be purchased as service from companies like Verizon and AT&T for a fraction of the cost. It's for the IT community to wake up and smell the coffee, jobs are disappering like crazy in a large part because we refuse to truly support the business. We're more interested in our jobs prtection program. Which if you haven't noticed is failing miserably.chuck.russell@...9th Dec 2008 -
RE: Why are you managing your own power plant?
I have been an Enterprise IT/Communications Consultant for over 10yrs. IT Solutions and decisions are made and put in place to follow/compliment business policy, procedure, or process. There are instances where you would use existing products or services and there are instances when it could make since to develop your own. It all depends on application, need, avalible products and costs. I have yet to see 1 large or enterprise level company that can do business using only "out of the box" solutions. So there are many factors it comes down to other than up-front cost, etc...
cavants10th Dec 2008 -
RE: Why are you managing your own power plant?
I believe the author has a good analogy using electrical generation and distribution but he applied it to the wrong layer of IT. The data center and network are analogous to a utility and can benefit from standards and economies of scale. For example for the Widget Manufacturing Company, electricity is the utility, but the value of the company is the design, build, and support of widgets. Using my analogy that would be the application layer. The real question is where one draws the line between utility and value add applications of that utility? That is, where do the "tools" fit into the picture? For IT, the question is where does the middleware fit into the picture?
mreyer10th Dec 2008 -
RE: Why are you managing your own power plant?
The point of the article is relavent. Outsourcing can save money. Always bugs me when they get their science wrong though.
Many major manufacturers *DO* generatore their own power onsite. Because it saves/makes money. Step outside the climate controlled server room and look around. But maybe that's the point of the article too... If you don't earn more for the company than you cost, eventually you will be eliminated.
tallrusty@...11th Dec 2008 -
Management should be the common utility
Integeration with external businesses is not complex because of IT groups but because of FAILED management. Does the management give the business a competitive advantage when it idiotically allows 50 different methods of integration with outside businesses? Can a management mistake like this be corrected by hiring some outside group to cover over it? Not likely. Businesses need to invest in their knowledge centers instead of attacking them. And yes, having internal business knowledge will give you a competitive advantage in today?s market because so many businesses have decimated their IT groups.
LukeH12th Dec 2008 -
Terrible metaphor!
Distributed power generation is both efficient and robust
(in the true scientific sense of "stands up to perturbations
and disruptive influences"). If we lose long-distance power
lines in an ice storm, it'll be sweet to have at least a trickle
of power and a plug to stick a space heater into--too bad
we don't have a few thousand panels in the neighborhood.
I don't know if this means every company should have at
least one or two IT guys, however--metaphors are not a
form of logic, they are a form of rhetoric. They are all, by
definition, imperfect parallels to some degree.
Joy_in_Pgh13th Dec 2008 -
RE: Why are you managing your own power plant?
Having your own source of electric power is not such a bad idea in todays times. Simple solar could provide many with electricity witout permits or plants. A solar heater provides warmth also: see http://land.vstore.ca
shirleybill13th Dec 2008
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