Last week we concluded a seven week series discussing Change Management. Throughout the conversations the overriding theme was PEOPLE. It is almost silly to state it but without people companies cannot function. People can compensate for wrong process or wrong technology. Process or technology cannot compensate for having the wrong people in place.
Many times we hear “People are our greatest asset. You will see it stated as a core value or culture statement on some of the most visible companies annual reports and website. My interpretation of these core values is recognizing the essential importance of people to the success of their business based on a mutual respect and benefit. It is employees who deliver value to customers, customers bring profits to the business, profit brings growth, growth returns opportunity back to the employees. It is all very circular. Note, I don’t believe it assumes job stability or entitlement. The reality of business cycles and circumstances no longer allows for that promise.
With that we begin a new series discussing matters pertaining to IT People. I will start the conversation sharing the most common organizational structures. Organization structures provide the foundation of how people work and interact with each other, the way work is divided, including how the IT resources interact with the business. Despite variations of flavors, there really are only three basic structures – centralized, decentralized, federated.
Let’s get started by providing an over view of the basic structures.
Centralized IT brings all technology decisions, cost and management into one shared service operation. This structure is favored by some CIO’s as there is the perception of the most control. The promise of a centralized IT organization is reduced costs and risk, as well as increased information visibility and business process consistency across the enterprise. Unfortunately the benefits are rarely realized. Successful centralized IT Service Delivery is dependent on IT’s ability to respond to the business units and local operations needs without sacrificing the benefits of centralized control and prioritization.
Decentralized IT organization is the exact opposite of Centralized. You will most often see this structure in large organizations built through acquisition. It was most common in the 80’s and 90’s during the height of the merger and acquisitions era. IT operations are allowed to remain intact under business’ operating as wholly owned subsidiaries. Basically the only central IT function is financial reporting. The promise is a faster time to delivery due to decisions remaining locally. This promise drives expense 40-60% higher due to increased technology, labor costs, and decentralized procurement at the same time inconsistent functionality impacts integration between business units. There is generally a divisional CIO with a dotted line reporting back to a corporate CIO. Having sat in this divisional CIO seat I can attest that it is a tough seat to fill.
The Federated organization structure is an approach that allows interoperability and information sharing between semi-autonomous decentralized business units through shared information technology architecture. The intent is to provide the highest level of autonomy in order to manage complexity and costs, while at the same time allowing agility at the local business unit whenever possible. A Federated model has a small core team that manages technologies to be shared by all of the business units.
One of the largest issues the CEO has is a frustration with CIOs when IT is not in touch with the business. If all IT resources are pulled into a single shared services group in the name of greater cost, production control and risk management they risk losing connection to the business. A Federated structure seeks to preserve the strengths of the centralized models (economy of scale) and decentralized (flexibility) models. It promises centralized cost and control benefits but maintains alignment contact through business-relationship managers, who make sure that business needs are heard and addressed.
Each organizations unique business needs will determine what IT functions are centralized and what stays within the business unit. With a federated organization, you centralize those things that everybody would agree makes sense to centralize: infrastructure, networks, databases, common systems such as email, collaboration, financial, payroll, HR, etc. The things you decentralize are the applications that are directly in support of meeting the business unique objectives. Then there’s a whole bunch of stuff that people could debate whether it makes sense to centralize or decentralize, like help desks and application maintenance.
While the organization structure is in design an important parallel activity is to address the IT Governance process. With a federated organization you also want a federated governance process. Such a process says that IT decisions — such as what projects are done, what projects aren’t done, how much money is invested in certain projects — those decisions are made jointly by the IT and business unit people.
There is no right or wrong design nor will one design always be static. Organizations are always evolving. And these structures are NOT exclusive to IT nor driven by CIO’s decisions alone. The business organizational structure and practices will provide the first clue as to which IT structure will make the most sense. I’ve personally witnessed the chaos created when IT leadership attempted to move a high decentralized IT organization to a federated model while trying to avoid the challenge of addressing the overall governance model at the business leadership level. It just doesn’t work.
This was just a high level view of the basic structures. Please feel free to contact me if I left questions in your mind.
Along with these three basic structures there is a new model budding referred to as “end to end service delivery” coming out of CEB’s research efforts. I will not go into depth during this discussion as my experience with it is limited to reading. I encourage you to reach out to CEB for more information if you are interested in learning more the end to end service delivery model
From there we will weave our way through the back alleys of recruiting, sourcing, team building, performance management, and where ever else our interests might take us. I am really hoping this will be more than me talking to you. This is about you. Not about me. So please – talk to me!
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