Balancing Act

Balancing Act 0108 Central Intelligence

Management experts say a federal approach to planning may be the only answer for many large, complex organizations weighed down with thousands of applications, old and decentralized systems and a need to preserve their profitable, but largely change-resistant, local business fiefdoms (see chart). At its heart, federalized planning is a new management response to years of 1970s- and '80s-style decentralization that many large companies used to help them globalize quickly and profitably. But with the advent of the Internet and new information technologies in the 1990s, decentralization has also stymied cost cutting and change. While the Internet is inherently a centralizing technology that lets you "see" information—all in one place, at once, in real-time— it can't work optimally if you can't standardize information, Heisen says. Information networks let you, for the first time, collect information centrally and "use it to your advantage, to customize" your business response to it, Heisen says—depending on who the customer is or, in this case, which business unit you're trying to serve.

It's similar, experts say, to how the federal government is set up in the U.S.—with individual states having say into policies aimed at governing the whole, yet with the power to implement those policies in different ways locally.

"We are decentralized but we're one company, with an obligation as a single company to our shareholders," Heisen says. Adds Jack Rockart, a long-time J&J watcher and a senior lecturer at MIT's Sloan School of Management: "This approach can keep technology costs down and improve how it's used locally to make money for the entire corporation." At J&J, for example, rolling out Windows 2000 in a more centralized way than before saved the corporation an estimated $80 million, Heisen says.

And there's another long-term benefit. Federalized planning also formalizes cooperation between business and technology managers—and makes such back-and-forth over strategy an ongoing ritual. At J&J, for instance, change is not determined solely by Heisen, but via carefully-chosen, close-knit advisory task forces and strategy groups made up of key IT and business executives who report to her but are given the responsibility for rewriting the rules of the game for their areas of expertise, interest and concern. Heisen's 10 strategy groups comprise, in effect, a whole new layer of middle-management—but a virtual one, drawn from existing parts of the business to develop new ways of doing things that are focused entirely on keeping the IT and business people on the same page for a common goal: boosting profits, saving money, and finding new and better ways to do business.

But there's a catch. For federalized planning to work, it requires unusually strong management skills on the part of the CIO—and a commitment to consensus management. "For CIOs, this represents a whole different and tougher way of managing," says management guru Charles Handy. "And it challenges people throughout a large company to surrender control of their domains for the good of the whole. The secret is picking and choosing what should be surrendered and what should stay local."

This article was originally published on 12-01-2001
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