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When centralizing avoid the “same mess for less” approach

by Mark P. McDonald  |  March 17, 2009  |  1 Comment

Centralizing the IT organization and operations is a common action as enterprises look to cut IT costs.  Moving disparate IT groups, data centers and applications together increases ITs critical mass and potentially opens the door to scale and consolidation efficiencies. 

Centralization initiatives can easily become internal versions of outsourcing contracts with the corporate CIO in the position of the outsourcer and making the promise that I can deliver the same service to the business units for less cost.  This ‘your mess for less’ proposition has not worked well for external outsourcers and chances are it will not work for the CIO as internal service provider.

CIOs on the receiving end of an IT centralization initiative need to take a fresh view on what they are receiving.  John Johnson, the former CIO at Intel who completed a major IT transformation in 2008 put it this way.  “You need a fresh perspective, you need to look at this in a new way.  Our team decided to walk out of the building and stand in the parking lot for a few minutes, then walk through the door with the mindset that we had never worked for the company before.”  Adopting a fresh perspective gives the CIO and the team an opportunity to do things differently rather than aggregating current activities into a single management structure. 

Centralization is an opportunity to restructure the IT organization and establish new cost drivers, organizational structures, processes and results.  This means that centralization is more than redrawing the organizational chart.  Centralization is more than meeting with the BU heads to let them know that everything will be ok and that you promise the same service levels as before.  Centralization means more than putting the majority of IT spend in a single cost center for the CFO to stare at and manage.

Sure putting everything into a single organization will cut some costs. If the gains from centralization of contracts, purchase decision and investments are sufficient to achieve your company’s goals then congratulations success is managing the ‘mess for less.’  However, if the goals go beyond managing an aggregated spend then this requires restructuring IT through the context of centralization.

Centralization is a unique style of transformation that changes the operation without making significant capital and operational expenditure.  That entails an approach organized around the following principles and steps:

  •  Keep the company running.  This is the primary objective during the transition period.  Notice the idea of keeping the company running by concentrating on current operations and services.  Notice it says nothing about executing current investment projects or road maps.  Those may change, but the business cannot go ‘down’ during the transformation process.
  • Put the right people in the right roles.  The first step in centralization is organizational.  Do not be shy or overly respectful for tradition, you have a new pool of talent and new opportunities to get people in the right positions.
  •  Centralize and reform IT governance.  I know that sounds like a broken record, but the context for IT and the IT behaviors across the enterprise have changed.  You need new, more senior IT governance as you will soon find yourself arbitraging requirements across business units as you have demand from multiple places and a single set of centralized resources.  (See an earlier blog entry on this)
  • Centralized IT means consolidated IT governance bodies into a single group that provides a unified list of IT demand grounded in principles that outline ITs role and decisions regarding the level of shared versus BU-specific infrastructure.
  • Avoid establishing overlay roles and processes meant to coordinate across disparate IT groups.  They are indicative that you do not have the right governance or that you simply consolidated IT teams into a common reporting structure rather than recognized them to achieve new performance levels.  Besides these process and roles add non-productive cost to your operation without an apparent offsetting increase in productivity or throughput.
  • Getting the right organization and governance is a start, but cost management requires addressing IT cost structure and that means consolidating data centers, servers and applications.  Tools like virtualization and new hardware will help in the effort, but it’s important to manage a consolidated IT footprint. 
  • Have an active ‘end-of-life’ program for retiring duplicative applications and operations.  Set a goal for retiring applications and make the goal public.  Remember each application retired not only reduces your cost structure, but also increases the consistency and value of information across all systems.
  • Improve IT processes.  With the resources in place and properly focused, the goal shifts to getting the work done and that involves process improvement.  IT is in essence a process across operations, services, infrastructure, maintenance and delivery.
  • Manage for throughput.  What you accomplish is the primary concern customers have when centralizing IT.  Often expressed as  ‘how will you deliver me the solutions I need?’  The business units are asking for throughput – defined as the number of completed projects performed with the same resources.  Manage IT for throughput by eliminating bottlenecks in IT processes, concentrating IT resources on doing fewer projects faster.  

Centralizing IT is a common response to tough economic times.  Gathering IT resources and budget into a single entity gives the CIO and CFO greater visibility and focus.  It also increases the size of the IT target.  CIOs on the receiving end of centralization face a choice, they can run the current operations for less, or they can restructure the IT organization and its costs.  The option to do more than run the ‘same mess for less’ offers the CIO an opportunity to reposition IT’s value and role in the enterprise.

Category: cio  economy  leadership  

Tags: centralization  cio-leadership  cost-cutting  it-organization  

Mark P. McDonald
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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