In Part 1 of this post I pointed out why I’d named this blog “IT Organization Circa 2017” and why I’d picked 2017. I then offered some musings about the nature and shape of the IT Organization Circa 2017.
I set this up by examining the major disruptive forces acting on the IT organization today:
- Disappointment with IT organizational performance
- Cloud Computing
- Consumerization of IT
- Global Sourcing
The bottom line is that many IT organizations are at risk of being disintermediated – victims of the inextricable forces mentioned above.
“You cost too much and add too little value!”
is the familiar cry – but one that is more about the IT organization than it is about information technology.
The End of the IT Organization?
My view of the next five years is that in extreme cases, the IT organization as we know it will be gone – supplanted by a constantly shifting landscape of outsource providers, consultants, cloud solutions and “shadow quasi-IT groups” embedded in business units and taking care of local business needs. I can safely predict this because it’s already happened. In fact, when I started my IT career in 1970, working for International Computers Limited, (ICL) one of our major national accounts was British retailer Marks & Spencer. At that time, Marks & Spencer had no computers or IT department, even though they were highly computerized. Founder Michael Marks believed the firm should stick to what it knew – retailing – and hire experts to do the things it needed but did not know how to do. Consistent with that philosophy, ICL ran all Marks and Spencer’s computing. Nowadays, we call that “core competence.” As an aside, contrast that with another great British retailer and food manufacturer, J. Lyons & Co. who in the early 1950s had developed their own computer, the LEO, which eventually became part of my employer, ICL!
Already today, many companies around the globe have slashed the size of their IT organizations – some by 80-90%, taking advantage of global sourcing options and shifting the headache of running an IT shop to one or more outsourcing partners. There has, of course, been some backlash, and a small proportion of these outsourced IT shops bring their work back in house. In some cases, this is part of a long term strategy – pass your IT capabilities over to an outsourcer (or several) for a few years to have them “fix it” then bring those capabilities back in house. But even with the ebb and flow of the outsourcing movement, the trend is clear. As companies become more networked and try to become more agile, they are less inclined to sustain large internal IT groups.
Similarly, the value proposition for cloud computing and the rapidly growing base of ‘software as a service’ is just too compelling, and the general satisfaction with internal IT capabilities too underwhelming. Why make huge capital investments in core systems, and carry the depreciation, maintenance and operational costs when I can ‘rent’ these and ‘pay by the drink’? Just as application packages have tended to supplant custom software development, software as a service is tending to supplant applications packages. As more computing moves to mobile, costly application packages become relatively inexpensive (or at least, value priced) “apps.” And the key issue with emerging computing models such as cloud and mobile is that they do not necessarily depend upon a permanent, in-house IT department.
The Ebb and Flow of Centralization and Decentralization
Organizational models tend to go through cycles of centralization and decentralization. There is always a tension inherent in finding the proper balance between the efficiency and scale of centralized, shared capability models and the responsiveness and customer-intimacy of decentralized models. This tension is never resolved – it is simply held in some sort of uncomfortable balance until the forces on one side outweigh the forces on the other side. This imbalance is often triggered by changing market conditions or by other disruptive forces such as new technologies.
The Mainframe Era – Centralization Rides High!
We’ve seen this through many cycles of technology shifts and their impact on IT organizational models. Back in the early days of the mainframe computer (early 1960s) virtually all IT professionals either worked for vendors/solution providers or worked in a centralized IT group. (Back then it was typically called Data Processing.)
The Minicomputer Era – Departmental Computing Catches On!
With the advent of the minicomputer in the mid-1960’s, so-called “department computing” came of age, sometimes with the blessing of central IT groups, but often behind their backs.
Enter the Personal Computer – Departmental Computing Evolves into Decentralization of IT
As minicomputers gave way to personal computers and with IBM‘s launch of the IBM PC in the early 1980’s, the genie was further out of the bottle and the swing to what was euphemistically referred to as “distributed computing” was all but unstoppable. IT was becoming decentralized!
Inevitably, cracks in the distributed computing wall quickly appeared as users tackled issues such as mainframe connectivity and enterprise data management, and wrestled with the practical realities of back-up, security, integrity and privacy.
The Realities and Complexity of Enterprise Computing Surface – Centralization of IT Makes a Comeback – Sort Of!
By the early 1990’s the pendulum had begun to swing back to centralization. It seemed on the face of it that the old guard of the central IT group had returned in force. But look under the covers, and what you see is not simply a return to the monolithic central IT group. The new IT operating models had novel features such as:
- Business-IT governance boards that moved ownership of prioritization and, in the best cases, value realization out to the business.
- Business relationship managers bridging between the IT organization and business groups.
- Business and Enterprise Architects focused on Business Operating Models and process management.
- Sourcing and Vendor Management Groups.
- Security and Privacy Groups reporting to senior business executives, embracing IT but not limited to it.
In other words, the centralized IT model of the early 1960’s had given way to a hybrid model that sought a more even-handed balance between local and global computing models. With the ascendance of cloud and mobile computing and the rise of global sourcing, I believe we are on our way to a new generation of computing model.
The Emerging IT Operating Model
I think it’s important to think of an IT Operating Model as an enterprise-wide construct – i.e., an IT organization is but one component. Many more IT functions are being distributed and dispersed – witness the so-called rise of Bring Your Own Device (BYOD). Here, functions that were performed by a central IT group are being performed by the business individual. And this move towards ‘self-service’ and ‘business embedded’ functions will only expand with emerging technology. As such, we can think about IT Operating Model components as comprising centralized, decentralized and hybrid components. These might fall along the following lines:
Centralized Capabilities: Shared IT Services; Value Proposition = Standardization, Operational Excellence
- Enterprise Architecture
- Enterprise Shared Infrastructure
- Enterprise Shared Solutions
- Security and Privacy
- Sourcing and Vendor Management
Decentralized Capabilities: Business-dedicated IT Services; Value Proposition = Customer Intimacy, Innovation)
- Business Architecture
- Local and Departmental Solutions
- Business Analytics
Hybrid Capabilities: Networked IT Services, Communities of Practice; Value Proposition = Integration, Shared Learning
- Business-IT governance/value realization boards
- Innovation Centers
- Organizational Development and Change Leadership Centers
- Business Relationship and Sourcing Management
- Data Visualization
- Process Management
Why This Is Good News for the IT Profession
I will explore some of the implications of this shift for the IT profession in a future post, but by and large, given the many ways that I’ve seen IT professionals trapped in the past by their employers, I’d say the changes we are experiencing, while painful, will be beneficial at many levels.