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IT Organization

The CTO Group has assisted a number of organizations in the process of examining, auditing and changing their IT organization. As part of this process, we commonly find that an Operating Model representing the current organization and a future operating model is critical.

There is substantial debate inside IT circles about what model for organizing IT works best: centralized or decentralized. In the past, centralized IT was the norm because of the cost of large corporate mainframes. In the centralized model, top- down responsibility for solutions delivery, conceptualizing, developing and implementing IT solutions for all parts of the business is controlled by some central authority. A centralized model is economical from both a skill and an overhead standpoint, but does little to build client relationships, foster business knowledge in IT staff, or further align IT with business needs since customizing the solution to fit the business can be difficult.

As personal computers became a significant part of organizations, computing was thought to be more decentralized. The decentralized model is the loosest of the organizational choices. In the decentralized model, solutions delivery is aligned with the line of business and IT managers report to the business director. When coordination happens, it is achieved in IT management and executive councils. The decentralized approach gives the line of business the most control over IT direction and closely aligns IT service delivery with business needs.

The cost of the decentralized approach is high. This model does little to leverage enterprise knowledge, information, or processing. Duplicate IT operations are likely and costly. A decentralized approach leads to pockets of innovation and excellence with little ability to respond to strategic initiatives. Generally, IT staff have little opportunity for career development or training since they are fragmented across a large number of separate organizations.

Most IT organizations are neither fully centralized nor totally decentralized. Instead they have analyzed core IT activities and fit them to the most appropriate governance structures which results in a modular IT organization. These frequently result in a Federated model with a series of both centralized and decentralized activities. In the federated model, a IT unit such as the CIO's office has primary responsibility for architecture, common infrastructure and services, and standards decisions, while each business IT department has primary responsibility for application resource decisions. Business IT managers report into the business director as well as the central IT organization. The federated model gives good balance between enterprise and local innovation. Also, it is quite effective at aligning IT with the needs of the business. The disadvantages of the federated model are the complexity of coordinating among so many players, the problem of dual reporting relationships, and, most importantly, the high administrative and staff costs of supporting multiple IT organizations.

The governance process is essential in managing to consistently deliver services to the agreed Service Levels. Clearly defined and documented processes provide a template for the decentralized functions to assure consistency of capability.