GMA Question: "IT (information technology) doesn't matter" any more, says Harvard Business Review. Like the railway network, the phone system and the power grid, IT is merely "a transport mechanism -- it carries digital information just as railroads carry goods and power grids carry
electricity." Soon, "IT will offer no strategic advantages. It will be a commodity," and CPG companies will fulfill their IT requirements by purchasing fee-based "Web services."

Do you agree or disagree? Why? What IT functions will be "outsourced" in this way, and what will not -- ERP systems, data bases, analytics, financial / accounting, back office, human resources, sales management, promotion management, CPFR, etc.-- and why? In view of this potential "sea change," where should CPG executives invest today, and where should they not?

Synectics Group Response: Like the commoditization of the rail system, power lines, and telephone lines in our economic history, we agree that common and generic IT components of a CPG manufacturer will evolve to a fee-based web service environment. As business sectors mature and begin to realize margin compression, all operating areas of the organization need to be scrutinized for cost efficiency, including IT. In the past 20 year period, the CPG industry has been confronted with overhead reduction necessities in various operational areas. Many departments have already utilized outsourcing and experienced dramatic reductions. For example, due to the escalating cost of sales, most direct sales forces fell by the wayside and are now managed by retail food brokers.

The IT department of the typical CPG manufacturer has grown exponentially during this same 20 year time period with the promise of increased intelligence and profit payback. Initially the IT investment resulted in the automation of information flow and business processes that actually reduced headcount. Recently however, our industry has realized consistent margin erosion even though the investment in hardware, software and IT resources has continued to grow.

The time is now to scrutinize the IT area for cost reduction opportunities via the outsource strategy utilized years ago by other operational areas. The key to this strategic move will be the ability of senior management to identify and outsource the commodity driven areas of IT. This will accomplish two critical objectives; 1) reduction of overhead expenses, 2) reallocation of IT intelligence to the strategic integration of all corporate applications for real-time information flow.

The trend toward IT outsourcing has already started, and there are few functions where outsourcing should not be considered. For example, years ago the typical favored approach by IT departments was to build software applications internally. Today, most IT departments do not develop applications in-house unless an affordable off-the-shelf software package with the desired functionality does not exist. Likewise, years ago most software vendors just sold software. Today, many vendors also host their software application and provide ongoing IT support services.

Once the outsourcing has been accomplished, the freed up resources and financial investment should be focused on the strategic integration of supply chain/forecasting, trade promotion management, and electronic collaborative management with the retail partner. This focus will result in maximizing the significant cost of sales tied to these areas. A 3%-5% return on investment, which is realistic and attainable, could make the difference between remaining an independent CPG entity or being a merger/acquisition statistic.