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Divide and Conquer

Divide and Conquer

IT has two main jobs: Designing technology strategy and keeping the trains running. CIOs are dividing their staffs to do both well

Reader ROI

  • Why IT departments are being split
  • How to divide up strategic and tactical work
  • How to evaluate the long-term payback of dividing supply from demand

IT is splitting up. It's not petty squabbling that's causing the break-up. No, this is a sign of maturity. CIOs in larger organizations are dividing their staffs into two major groups: one that negotiates with the business on IT strategy and IT project choices and manages the delivery of those projects (among other management consulting-type duties), and a second group that manages the infrastructure and delivers new applications (among other traditional tactical IT duties).

This trend of materially distinguishing demand from supply in IT is a grassroots phenomenon, rather than a coordinated response to consultants or guru-propagated wisdom, according to two McKinsey consultants.

"We were at a gathering of [US] West Coast CIOs in 2006 talking about this and everybody looked around the room and said: 'Hey, we're actually doing this. We actually thought we were doing this on our own,'" says Diogo Rau, a McKinsey consultant. "People had different kinds of names for it: account managers, or relationship managers or business process owners. But somehow all these organizations were independently stumbling upon the idea of this new function whose role was to develop or to manage demand."

This trend of materially distinguishing demand from supply in IT is a grassroots phenomenon, rather than a coordinated response to consultants or guru-propagated wisdom

We recently sat down with Rau and his colleague, David Mark, a director for McKinsey, to discuss this trend further.

CIO: Why must the management of IT demand be split off from supply?

DAVID MARK: This is a part of a 10- to 15-year trend that we're seeing. A lot of this started with the centralization of infrastructure services. Many companies have gone to a utility-type model for infrastructure and have been formalizing chargeback mechanisms. And that goes all the way back to the mainframe era.

The difference today is that you have the emergence of business processes. And as companies have tried to integrate business processes across different units and functions, we're starting to see the same discipline that was applied to the lower level of the technology stack being applied to application development and business process. The split between demand and supply is being driven by a desire to get better economics or responsiveness out of resources that are shared.

What are the roles and goals of the demand unit?

DIOGO RAU: The first role the demand group plays emerges in the funding stage of projects. It focuses on portfolio management — helping decide what projects should be in your portfolio and making sure that you're getting the maximum value out of them. The second role comes into play during the software development lifecycle, where the demand unit is acting as the business's expert overseeing the supply organization as it builds software. The demand unit represents the business's interests, much like a general contractor oversees the construction of a house.

Then there's a third role around vendor management. So, the demand unit is not only managing project delivery, but it may be negotiating contracts with outside providers such as outsourcers and contract developers.

What about the supply organization?

MARK: The supply organization is where you will perform many of the traditional IT services such as the technical design, building, testing and deployment of applications. This is where all of your application developers are living, for example. In terms of structure, sometimes we find that the supply organization is a centralized group that serves the entire organization. In other cases, especially in large companies with diverse business units, it is [replicated across the organization to serve] specific business units. Regardless, it's a good idea to separate demand and supply, even when the capabilities are not shared across multiple business units.

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