At the broadest level, managing IT is the practice of overseeing and running a company's information technology (IT) investments and systems. The highest level IT person in a company is usually the chief information officer (CIO), who participates in strategic planning with senior managers to determine how IT can help the company achieve its business objectives. These objectives might include getting to market faster with a new product or reducing the amount of inventory it carries.

At companies of all sizes, IT spending is one of the biggest line items in the budget. Large enterprises typically spend between one percent and 10 percent of revenues on IT, depending on the industry. A large company's major IT systems typically include:

• Enterprise resource planning (ERP). Manufacturing companies use ERP to run the business, tracking and entering orders, transferring them to the factory for production and then out through the supply chain for distribution to the ultimate customer.
• Customer relationship management (CRM). This system collects data directly from the customer (such as demographic data, product preferences and future buying intentions) and uses this data to plan marketing campaigns, improve customer service, and design better products.
• Internetworking. The corporate local area network (LAN) connects employees to databases and applications and lets them share data. The network may be based on wired (traditional) or wireless LAN technology. Corporate offices are connected via a wide area network (WAN).
• eCommerce platform. In the age of the Internet, virtually all companies sell their goods and services to their market (whether consumer or business) via Web sites. eCommerce platforms run the gamut from high-profile retailers' Internet shopping sites to business-to-business (b2b) sites that a company's customers and suppliers can use for self-service functions such as order tracking.

In past years, millions of companies all over the world spent enormous sums of money on technology without realizing a return on investment (ROI). As a result, senior management demanded better oversight of technology purchases with more emphasis on justifying the proposed project before allocating the funds. An alternate form of justification, called total cost of ownership (TCO) analysis, has gained popularity. This involves analyzing not only the initial cost of the hardware and software to determine project costs but also the cost to train employees as well as maintain and run the system over its entire lifecycle.

Outsourcing IT is an outgrowth of the focus on achieving value for money spent on IT. The theory behind IT outsourcing is that an expert third party can handle IT functions most efficiently and less expensively than the company itself. Companies increasingly desire to stick to their "core competencies," the functions that provide them competitive advantage in the marketplace.

Though a related phenomenon, offshore outsourcing, has gained prominence recently, companies have off-loaded IT functions including help desk, IT infrastructure, and data warehouse to outside providers for decades. Another related approach is the application service provider (ASP) model through which companies "rent" software applications or equipment from the provider for a monthly fee. When companies outsource IT functions to outsourcers or ASPs, service level agreements (SLAs) define every aspect of the arrangement between customer and provider, outlining the level of service to be provided (such as 99.9 percent network availability) and the consequences if that level is not met (such as a schedule of fee refunds).

For more information on choosing the right solution for your company, please read our Managing IT First Steps.

Go to Bitpipe Research Guide: Managing IT.