This "shared-services" model, where IT works on internal and for-hire projects, offers advantages yet is difficult to execute, says Don Walker, former CEO of The Information Technology Company (ITCO), a subsidiary of United Services Automobile Association (USAA), a financial services company in San Antonio, Texas. ITCO, USAA's 3,000-employee shared-services division, earned $612 million in revenue in 1999.

During his tenure as ITCO CEO, Walker was concurrently chief information officer of USAA. He left those positions in May 2000 to launch and become CEO of Veritect, a Reston, Va., division of security consulting giant Veridian.

Shared services converts IT from overhead to a profit-and-loss business, Walker says. "There is no better way to benchmark performance than in the outside marketplace." Eventually, the IT group can spin-off and gain the advantages of stock options, such as the ability to attract top talent.

In ITCO's case, the department had no internal budget and could accept only 5% of its work from outside sources. The remaining revenue had to be earned from USAA, Walker recounts. USAA departments could choose another consultant, but with Walker as CIO, that was unlikely.

"I had to approve all outsourcing, because the CIO is responsible for everything. We couldn't have each department building its own network," Walker says.

In the long run, USAA wanted its IT talent all for itself and ITCO management ceased pursuing contracts.

Others faced similar hardships. One Fortune 500 company recently suspended outside consulting, in operation since January 1998. "We were meeting with considerable success and we did it for all the right reasons, like providing people with a growth opportunity," says a senior vice president of the shared-services division. "But we got to the point where we had to decide the long term. What is the sustainability? Are we really going to go out and compete with the major firms, like [Electronic Data Systems] and Andersen Consulting?"

A former senior vice president of the same firm concurs. "If you want to do it, you have to decide to do it. You need to look at resource allocation, look at the clients, internal and external, in the same way."

Still, it can be done. Look at Sabre, now an independent company following an initial public offering in 1996. It began life as the IT arm of American Airlines, owned by American's holding company AMR Corp.