This is an MIT Sloan Management Review article. For many years now, companies seeking to deliver higher business performance by harnessing IT have focused on alignment--the degree to which the IT group understands the priorities of the business. In practical terms, that means there must be shared ownership and shared governance of IT projects. However, the authors contend that their research reveals a troubling pattern: Even at companies that were focused on alignment, business performance dependent on IT sometimes went sideways, or even declined. That's because underperforming capabilities are often rooted not just in misalignment but in the complexity of systems, applications, and other infrastructure. The complexity doesn't magically disappear just because an IT organization learns to focus on aligned projects rather than less aligned ones. On the contrary, the authors say, in some situations it can actually get worse. Costs rise, delays mount, and the fragmentation makes it difficult for managers to coordinate across business units. The research also showed that almost three-quarters of respondents are mired in the "maintenance zone." IT at these companies is generally underperforming, undervalued, and kept largely separate from a company's core business functions. Corporate management budgets the amounts necessary to keep the systems running, but IT doesn't offer enough added value to the business and often isn't expected to. Drawing on the experiences of Charles Schwab & Co., Selective Insurance Group, De Beers, First Data Corp. and National City, among others, the authors identify a group of best practices that constitute "IT-enabled growth."

As globalization changes the basis of competition, sourcing is moving from the periphery of corporate functions to the core. Always important in terms of costs, sourcing is becoming a strategic opportunity. But few companies are ready for this shift. Outsourcing has grown so sophisticated that even critical functions like engineering, R&D, manufacturing, and marketing can--and often should--be moved outside. And that, in turn, is changing the way companies think about their organizations, their value chains, and their competitive positions. Already, a handful of vanguard companies are transforming what used to be purely internal corporate functions into entirely new industries. Companies like UPS, Solectron, and Hewitt have created new business models by concentrating scale and skill within a single function. As these and other function-based companies grow, so does the potential value of outsourcing to all companies. Migrating from a vertically integrated company to a specialized provider of a single function is not a winning strategy for everyone. But all companies need to reassess rigorously each of their functions as possible outsourcing candidates. This article presents a simple three-step process to identify which functions your company needs to own and protect, which can be best performed by what kinds of partners, and which could be turned into new business opportunities. The result of such an analysis is a comprehensive capabilities-sourcing strategy. As a detailed examination of 7-Eleven's experience shows, the success of the strategy often hinges on the creativity with which partnerships are organized and managed. But only by first taking a broad, strategic view of capabilities sourcing can your company gain the greatest benefit from all of its sourcing choices.

Grant Newman, CEO of Regional Medical Center (RMC), expected the worst from the meeting that was scheduled to begin in less than an hour. The anesthesiologists were at the end of their rope, and the hospital's surgeons and obstetricians were pretty riled up too. Eighteen months earlier, Newman had made the decision to outsource RMC's anesthesia services, and he had signed a contract with Physicians Development Services (PDS), a contract management company. At the time, PDS seemed a good fit. It had a reputation for providing high-quality physicians both on a permanent basis and for temporary assignments. Unfortunately, however, PDS was undercapitalized and chronically mismanaged. PDS's paychecks to the anesthesiologists began arriving late and then bounced several times over a three-month period. In addition, the contract between the anesthesiologists and PDS had expired three months earlier, and the anesthesiologists were providing services without a contract. What can Newman do to resolve this conflict? In 95309 and 95309Z, Ken Alvares, Anthony R. Kovner, Joellin Comerford, Rudy Puryear, Vaughn Hovey, Tom Chapman, and Gary P. Pisano offer advice on this fictional case study.

Grant Newman, CEO of Regional Medical Center (RMC), expected the worst from the meeting that was scheduled to begin in less than an hour. The anesthesiologists were at the end of their rope, and the hospital's surgeons and obstetricians were pretty riled up too. Eighteen months earlier, Newman had made the decision to outsource RMC's anesthesia services, and he had signed a contract with Physicians Development Services (PDS), a contract management company. At the time, PDS seemed a good fit. It had a reputation for providing high-quality physicians both on a permanent basis and for temporary assignments. Unfortunately, however, PDS was undercapitalized and chronically mismanaged. PDS's paychecks to the anesthesiologists began arriving late and then bounced several times over a three-month period. In addition, the contract between the anesthesiologists and PDS had expired three months earlier, and the anesthesiologists were providing services without a contract. What can Newman do to resolve this conflict? In 95309 and 95309Z, Ken Alvares, Anthony R. Kovner, Joellin Comerford, Rudy Puryear, Vaughn Hovey, Tom Chapman, and Gary P. Pisano offer advice on this fictional case study.