These benefits of shifting IT functions to third parties mask a perilous situation: the contraction of IT innovation. The debate over how to maintain IT innovation has never been more relevant.

The idealized outsourcing scenario frees budgets and internal workers for mission-critical or core-competency projects. The truth is more prosaic.

Cost savings are being sucked to bolster slim bottom lines. The net effect is a hollowing out of IT talent, leaving a skeleton staff to pay lip service to the notion that certain IT functions are indeed essential to the enterprise.

There are ways to sustain innovation and continue to outsource. But they’re not free.

“The challenge is to set up relationships – whether they are with internal staff or offshore development teams – that foster innovation,” says Carl Frappaolo, head of knowledge management and co-founder of the Delphi Consulting Group Inc. in Boston.

He says that instead of obsessing about cost savings, companies should be focusing on innovation before their competitors get too far ahead.

One way to do this is to jettison the attitude that IT is merely a service organization and instead treat it as a P&L unit. This directs IT to add value to the business while enabling it to become an active participant with business teams to develop new products and services. In this way IT staffs aren’t merely expected to execute orders; rather, their jobs are defined to deliver creative, sophisticated IT solutions.

Innovative thinking doesn’t happen in a vacuum. If all of IT – outsourced and in-house – isn’t clued into the purpose of the enterprise, the business loses.

Pimm Fox is a freelance writer in San Francisco. Contact him at