June 12, 2012

The practice of vertical integration has been on the outs for a decade or two, as companies shed or outsourced ancillary operations in order to focus on their "core" expertise. That thinking has extended to IT, especially in the era of cloud computing: Why tie up internal resources building and managing data centers, infrastructure, and applications, the argument goes, when third parties can provide that technology more efficiently and effectively?

The decision comes down to your company's definition of core business. Is Ford a car and truck manufacturer, or is it the operator of one of the world's most sophisticated supply chains, requiring a wide range of IT competencies from start to finish? Is Amazon.com an online retailer, or is it a for-profit technology company whose world-class infrastructure underpins a variety of external as well as internal businesses?

Scores of companies, including NYSE Euronext, Sears, United Stationers, The Associated Press, Zynga, Google, and Union Pacific, not only are innovative users but also committed builders and sellers of IT systems, software, and services. NYSE Technologies, for instance, is pitching a range of transaction, infrastructure, and data services and software, mostly to other financial companies. The MetaScale unit of Sears, launched in April, aims to sell Hadoop and other big data management services to "traditional brick-and-mortar enterprises" across all industries.

Union Pacific, the largest railroad company in the U.S., now generates $35 million to $40 million in annual revenue by selling, leasing, and licensing various technologies it owns and/or develops. For example, it was going to buy communications radios for its locomotives from a specialty manufacturer, but the engineers who work in UP's technology R&D lab said they could do the custom electronics for less. By developing the 8,000 radios it needed in-house and farming out their fabrication to a contract manufacturer, UP not only saved $7 million to $8 million, says CIO Lynden Tennison, but the subsequent sale of about 5,000 of those radios to a couple of competitors generated enough money to more than cover development costs.

To read the entire original article, visit InformationWeek.