For the past ten years many IT organizations and technologies have centralized. Multiple cycles of economic growth and recession have led companies to centralize IT to gain scale efficiencies, improve service consistency and consolidate IT expenditures.
At the same time, core technologies and the tech industry have consolidated and centralized. Consolidation is expected to continue for economic reasons. Technical forces are driving consolidation as well given the nature of emerging technologies such as cloud commuting, software as a service, social and mobile computing.
All of this centralization and standardization made sense in the context of an emerging global economy and the need to cut costs. Centralization makes sense in an environment of contraction. However as growth moves back to top of the agenda, such centralization moves will be under pressure for two simple reasons.
1) The world is not becoming the global homogenous market we all expected. Trade barriers have fallen levelling the playing field in administrative and logistical terms. A level administrative playing field increases the importance of other distinctions based on industry, regional and enterprise differences that cannot be easily served with global standard solutions. Some have called this creating a multi-polar world.
2) Information and technology are essential parts of product offerings and therefore must respond to industry/market/geographic and other needs. The enabling and supporting technologies of the past still exist, but additional front office technologies have to provide a differentiated experience.
Business unit leaders and country/regional presidents can easily see the need to meet locals market needs at the point, place anytime of value as being incompatible with centralized and standardized IT.
The tension between their demands for local support and localized solutions and corporate insistence on global solutions will put pressure on IT organizations to move back toward decentralization and federation. This will happen either formally through reorganizing IT or informally through shadow IT but more likely the use of SaaS style solutions.
Here is why
Conventional wisdom concerning growth strategies call for greeter growth from external or oversees markets rather than domestic customers. Business leaders expect IT to play an important role in that growth. Growth outside your core market conflicts with solutions optimized for your current business.
While there are similarities between markets, the ability to capture market share and revenue will come from recognizing and serving locals differences. The world may be flat, but that does not mean that the world is all the same. This is a particular blind spot for U.S. based and led firms.
The economic recovery is uneven with different industries, companies and countries recovering at different rates. This will place a premium on speed of execution and local responsiveness to capture those market opportunities. This will create additional pressure on products, services and business practices to be delivered with greater local diversity.
IT organizations have lost their ‘small project muscle.’ Centralization, consolidation, ‘single instance’ projects are large projects that can easily lead IT groups to lose their ability to deliver Leaving them ill prepared to respond to a diversity of demand, a shortening of cycle times and the need to meet local customized needs/
Consolidated and outsourced IT operations that save money in a stable environment may prove inflexible and expensive to meet emerging local needs and regulatory requirements.
In the light of these factors executives will face a tough choice — to what degree do we allow for local customization to capture and grow local revenue?
The economics and realities of supporting growth will trump the need to maintain centralized IT operational discipline. BU heads will claim that they cannot deliver their revenue targets without more specific IT support. They will want greater control over how their dollars are spent. In emerging high growth markets, they will see the ‘overhead’ associated with home country solutions as unnecessary and demand lighter approaches. In many organizations they will get this resources, autonomy and priority.
CIOs should be thinking about how they can best support demands for local solutions to support growth while preserving their recent hard fought scale efficiencies. People who say that this is just a pendulum swing and there is not much you can do about it, should give up their leadership position as such an opinion just follows the crowd and leaves the enterprise a victim of fate.
This is not a matter of a pendulum swinging between centralized and decentralized. It is a matter that goes to the heart of the changing nature of IT, new technology capabilities and new management approaches.
Some thoughts on how they can do that in the next post.