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Centralized or Decentralized?

By Brian P. Watson  |  Posted 12-11-2008 Print

Centralized or Decentralized?

The issue of managing centralized or decentralized structures presents another issue for business. IT executives forcefully proclaim that it will be the former. According to our Future of IT study, more than three quarters of respondents said they expect IT departments will become more centralized in the future.

Hal Sirkin, global leader of Boston Consulting Group's operations practice and former head of the firm's technology practice, sees IT shops becoming simultaneously more centralized and decentralized. On one hand, businesses will have individual systems that aren't integrated on the corporate level. However, to maximize cost reductions, management of those systems will have to become centralized.

Companies are also looking to grow their global footprint, but operating in different countries forces businesses to navigate varying rules and regulations. Doing so through a centralized IT organization can be arduous, so decentralization will have to come into play.

"It's going to be a tough balancing act for CIOs," Sirkin says. "They're already facing cost pressures--and that will get worse--so they have to do more with less."

The issue has become more complicated as IT service providers expand the scope of their capabilities. The wide availability of services--seen today in the rise of cloud computing--presents another question for IT organizations, says Lynden Tennison, CIO of Union Pacific. "There are two ends of the spectrum," he says. "We do it all and are the technology center for the business, or we have a small staff and outsource everything. Everyone is somewhere in between."

In times of economic uncertainty, innovation can become a victim of reprioritization. Some companies decide that information technology is a key business driver, but others opt to farm out IT operations in search of cost and staff reductions.

The result: an identity crisis for CIOs. Forrester's Cameron says almost 40 percent of new CIO hires come from a nontechnical background, which points to a manifestation of companies trying to make their IT leader into more of a business operative than a techie.

At Union Pacific, Tennison straddles the line between technology and business. His role is much like many other CIOs: His primary role is to drive technology for the company's gain, but he also must serve as mediator between the two realms.

Tennison sees flaws in CIOs acting primarily as business managers. "I've seen more of those not work that well," he says. "It becomes a self-fulfilling prophecy of having to go down the path of using third parties. Companies that are more technical tend to recruit more people who are technical."

Diamond's Sviokla sees IT organizations taking one of three forms in the future. The first is a traditional IT shop, which today, in many cases, looks and acts like a utility. Then there's the virtual IT shop, where the CIO takes on more of a systems integrator and contract manufacturer role. The third option is what Sviokla calls a "super-deep, super-invested" customized IT organization, where expert technologists interact with business experts in a truly aligned fashion.

The third option focuses on value-add per em-ployee, which Sviokla says is key. Aggressive companies spend about 8 percent of sales on IT, and few go above 10 percent. But when they get to those levels, they have the ability to create what Sviokla calls "knowledge blacksmiths": technical experts who can build technology internally instead of relying on outside providers. Those shops not only differentiate their company, but look much different from other IT organizations.

"Those high-value-added shops generally are not thought of as IT shops," Sviokla says, "because they don't resemble a utility or systems integrator."

See also: CIO Expert Susan Cramm on Challenging IT's Assumptions

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