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Until recently, efficiency and effectiveness were the watchwords in evaluating corporate ITefficiency in managing IT assets and services, and effectiveness in such measures as client satisfaction and the ability to hire and retain valued personnel. That made sense in a stable business environment where neither the core technology nor the markets in which companies operated changed much over time. But in today's fast-changing digital world, corporations of every stripe face newly hypercompetitive business environments, where globalization, technological innovation, mobility of talent and greater opportunities for customer switching are pressuring firms to be innovative, customer-centric and fast. Agilitythe ability to sense shifts and respond with the appropriate blend of capabilities, business processes, organization structures, and products and serviceshas emerged as a critical prerequisite of success.
In such a world, IT must not only support but also shape every company's ability to manage customer relationships and business partnerships, and to introduce innovative products, services and distribution channels. That's why speed, adaptability, transparency and innovation have become the new measures of IT performance.
What's the best way to restructure in order to meet all the new demands being placed on CIOs? Should IT be centralized or decentralized? Is it best to outsource or to build in-house? Should you buy infrastructure or lease it? The range of restructuring choices is vast. IT is expected both to shape new business initiatives and to organize IT activities so that technology costs can be closely monitored and business value clearly demonstrated. How should CIOs design and build their organization to achieve maximum payoff? How do they ensure that IT is able to meet the competitive challenges of the 21st century digital economy?
A number of forward-looking CIOs are actively experimenting with new structures for their organizations. (See "Central Intelligence.") Among the most vivid examples is the restructuring that took place at General Motors in 1998. GM has more than 25,000 people on its IT staff, but the majority of them are outside contractors. GM's IT has been characterized as a "virtual" organization that employs only about 260 IT professionals, with another 1,200 distributed among its various business units. One of the first tasks undertaken by GM CIO Ralph Szygenda was the creation of an innovative management structure: Divisional information officers were appointed to see to it that the IT organization was aligned with business concerns in each of the company's key geographical and business product markets. Other examples of innovative structuring include Bell Atlantic (now Verizon Communications Inc.), British Petroleum Co. (now BP PLC), and Marshall Industries (now Avnet Inc.).
To discover some answers for the many challenges facing CIOs seeking to create flexible IT organizations, we recently collaborated with the Advanced Practices Council of SIM International on an extensive two-year field study that included a Delphi study of thought leaders from industry and academia, and interviews with CIOs of 30 Fortune 1,000 firms. We asked the CIOs of these companies to explain how they decided to change the structure and governance of their IT organizations and to discuss their experiments with innovative management strategies designed to respond better to the forces shaping competition and business in the digital economy.
We started our research looking for the Holy Grailan IT organizational design that could be presented as a "best practice" model. But our search was futile, so we turned our efforts to finding a new organizing logic and model for thinking about and discussing IT organizational design. We offer what we call "modular logic" as a fresh perspective for CIOs involved in the design of their companies' IT organizations.