For many of UK's CIOs, the burning question today is how to unlock the next level of competitive advantage for their organisation.

Having already maximised efficiency though the creation of shared service centres and cost-efficient outsourcing agreements, many IT leaders are starting to discover the next wave of competitive advantage: Centres of Excellence.

Centres of Excellence (CoEs) have been gaining popularity for the better part of a decade. The momentum has quickened as a result of the subtle rebalancing of IT outsourcing strategies that has been sweeping across the world.

Many organizations are starting to realise that, in their zeal to cut costs during the financial crisis, they may have cut more muscle than fat by outsourcing some of their most productive technology assets.

As a result, an increasing number of their more non-transactional, complex and creative activities (particularly those that require greater levels of judgement, knowledge and expertise) are slowly but surely flowing back into the business and coalescing into CoEs.

Anything but a shared-service centre
Many IT leaders seem to confuse the tenets of the shared-services model with those of a CoE. In reality, the two could hardly be more different.

Shared services excel at managing high-volume, rules-based transactional processes. CoEs are focused on applying their combined insights to processes and activities that are much more complex and judgement-based.

Shared service centres operate within a well-defined set of established policies and procedures. The core objectives of CoEs should constantly be evolving to mirror the needs of the organisation.

For example, where a shared services model may be a perfect match for a user help-desk service, activities such as customer data analytics will often be better suited to a CoE.

That's because CoEs are single-minded about using their knowledge and expertise to drive value and efficiency throughout the organization.

In this way, they are able to deliver greater consistency of service delivery and lessen duplication that may have occurred across disparate locations and decentralised teams.

CoEs encourage the idea of a single point of contact for all highly-technical or complicated IT activities and in return, delivers improved responsiveness and adaptability to the needs of the organization.

The key to successful CoEs lies in their ability to deliver deeper business insight in order to help the organisation make better business decisions.

Building CoEs for success
Building a CoE takes more than just co-locating all of your boffins in Swindon. CoEs require a careful balance of key success factors to achieve their objectives. Of particular note to CIOs should be:

 - Sponsorship and leadership: With shifting objectives and the need to stay closely aligned to the business, CoEs require strong leadership with a clear vision as to the role that the CoE plays in the organization. The vision must be pursued relentlessly, and the leaders must work to promote the centre both internally and externally to ensure the necessary investment and collaboration is provided to achieve the vision.
 - Knowledge and capabilities: Operational knowledge and functional expertise are critical 'inputs' into the CoE. But the centre's expertise must extend beyond process to include commercial awareness, business insight and industry know-how. What's more, to remain valuable to the business, knowledge must constantly be gained through interaction with customers, suppliers and leadership.
 - Process insight: Clearly, CoEs must own the processes for which it is accountable. But to respond effectively, it must also understand the processes belonging to their customers and suppliers as well. Knowledge must therefore extend beyond the scope of their own processes to include a complete picture of the issues and challenges facing other parts of the organisation.
 - Location selection: Given that the focus on CoEs is on value creation (not just cost reduction), CoEs must be located wherever the most appropriate pool of skills and talent are available. For certain industries and services, proximity to customers may also be a key consideration. But this does not necessarily mean on-shoring: the market for talent is global and many emerging and developing countries are proving to have both the skills required and a low-cost location.
 - Culture: The culture of a CoE is quite different from that of a shared-service or traditional IT department. Teams are managed and incentivised for their collaborative efforts and accomplishments. Skills are unique, ways of working are dynamic and value is generated in a myriad of ways.

Many CIOs will quickly find that CoEs are at their most effective when they are catalysts to innovation and where the output and value they provide becomes greater than the sum of their parts.

It is hardly surprising therefore, that many IT leaders are starting to discover that the next wave of competitive advantage lies in a Centre of Excellence.