by Mark P. McDonald | February 25, 2013 | Comments Off
Strategy connects with structure and structure influences strategy. The relationship between the two drives organizations to re-align, re-distribute and re-organize, all except for IT. According to the 2013 Gartner CIO Survey, only 30% of CIOs believe that changing business priorities and strategies requires changing the IT organization. In other words, 70% of CIOs believe that their current organization can handle just about everything the business can throw at them. An assumption increasingly challenged by demands for central control and local growth. This is leading CIOs and organizations to innovate how they think about the center/edge relationships in the quest for greater growth and local competitive advantage.
IT Centralization was the dominant model for Global Control.
Traditionally, centralized IT was the way to go, representing 53% of the IT organizations responding to this year’s CIO survey. Centralized IT is not only the most cost effective form of IT, it is also the form best able to manage risk, security, vendors and provide control. Centralized IT makes sense in an environment of continued cost pressured and technologies like cloud and big data that actually reward centralization. However the goals for IT are changing from:
“How does IT deliver low cost, high quality services?”
“How does Technology support growth?”
Answering this new question – the growth question – requires evolving how executives, including the CIO, think about the IT organization. Centralizing IT for cost and control grinds against the expanding diversity of demands made by business units and geographies pursuing local growth strategies. It’s a classic traffic jam issue, there are simply too many cars (local projects) trying to go through a central intersection (IT)
That reality, how to support growth which is local without losing control that is global drives a model for a New Federalism of Technology and a new analogy to explain how that works.
New Federalism – comparing sunflowers and daisies
Discussions around the relationship between business units and corporate can be dryer than wall paper paste, so lets think about the relationship in terms of flowers. The central IT organization is like a sunflower where the large center dominates the small petals representing the business units and geographies. A daisy represents a model for a new federalism for IT. A daisy has a smaller center and larger petals. The center of a daisy is still important, but it is just different in relations to the petals. See the figure below:
These two flowers provide a way to consider new IT operating models based on driving growth, innovation and digital technology.
The Sunflower – a model for global IT control
Most IT organizations are sunflowers in the sense that they have a large and well-developed center or disk and relatively smaller petals. Years of cost cutting, consolidation, standardization and industrialization have concentrated IT into a central shared services organization. The result is a central organization with many parts, roles, responsibilities and boundaries shown in the figure below
Corporate CIOs divisionalize within IT creating petals within the center to incorporate local needs. Business relationship managers, dedicated teams, geographic specific support, these are common practices to try to counterbalance central IT with local needs.
Centralized IT creates a single point of budget, service quality and control. Central IT concentrated IT policy and buying power, both important in a time of increasing risk and the need gain market pricing. Organizations that still view IT primarily as a managed cost of doing business will probably stay a sunflower – large center with small petals.
The Daisy – a model for growth IT
Growth, Innovation and Digital Technology require IT to change and adapt to demands for greater localization and accelerated time to markets. This requires changing the IT model to be more structurally adaptive and attentive to local needs. Otherwise, central IT will come to control only those things that sit at the center – mostly core back office corporate transaction systems of record. The operative question facing CIOs becomes –
What is the IT organizational model that supports growth while continuing to manage cost and quality of service?
The answer is to turn IT’s central sunflower into a daisy.
A daisy based model for IT, shown in the figure below, supports larger petals and a smaller central disk or eye. Decentralization IS NOT the goal of the daisy model as simply transferring IT resources to business units would only result in their eventual re-centralization once the CEO asked, “where did all the money go?”
Adopting a daisy style model reflects foundational differences in business operations, digital technology and effective growth strategies. These shape a model that is different from decentralization in ways that create growth, innovation, efficiency and control. Each of these points is a blog post in its own right, and will be in the future, but here is a short summary.
Business Innovation: Innovation and growth comes from the edges based on their ability to experiment and their proximity to specific customers and needs rather than assuming that new ideas come from studies conducted at the center.
Business Operations: Decentralization creates duplication, variation, cost and risk with units acting as individual owner operators and undermining group or enterprise wide scale, power and efficiencies.
Digital Technology: Mobility, Social, Analytics and Cloud technologies disrupt traditional technology models. While Analytics and cloud technologies value and leverage centralization, the others represent essentially
The trick is to find a model of IT that is centralized where it makes sense to centralize and distributed in ways that meet local needs while providing global scale. That is the goals of the Global Growth IT operating model shown in the figure below:
A new style of federalism to achieve a federation of competing goals
A new federalism seeks to organize IT resources around achieving competing priorities rather than distributing resources across the enterprise. The ‘daisy’ models new form of Federalism represents a model that goes beyond just sub-dividing the IT organization. ITs time for a different way of thinking about the IT organization in light of the competing needs for continued cost and quality controls that are best served through centralization and local requirements to drive innovation and growth.
Related Blog Posts on the IT Organization
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