To centralise or decentralise is one of the key management issues of the past decade. When next you hear whisperings of a restructure, there are compelling reasons to adopt a different organisational model for the information technology organisation.
The IT function is not optimised in either a centralised or decentralised structure. Many businesses have in fact adopted IT organisation models that have "sub optimised" the two key functions of the IT organisation: the ability to positively influence business outcomes and the ability to support business units with varying needs.
A.T. Kearney has identified four generic IT organisational models. The key criteria for selecting the appropriate model is the product and market characteristics of the business. The technology in place should not drive the IT organisational model - the business should.
Centralised This type of structure has its foundation in the "glasshouse" mode of operations associated with the mainframe culture of the 60s and 70s. In this model, IT planning, control and execution decisions are made by a central group on behalf of operating units, which are in turn bound to accept and fund these decisions. While this model tends to have a high degree of control, it does tend to be unresponsive, with minimal business unit ownership of systems or management of cost.
The centralised model works most effectively when there is a single product line or service available at all locations.
Decentralised The decentralised model developed as a reaction to the rigidity and slow response of the centralised environment in a business world where speed and responsiveness are increasingly important. In the decentralised model, control and funding are the responsibility of the individual business units. However, this model usually results in a higher overall IT spend due to duplication of some functions and limited leverage across business units.
The decentralised model works well for portfolio companies with independent profit centres, product lines and customers. Where there is minimal opportunity for leverage of core processes, the decentralised model provides the responsiveness that portfolio companies require.
Dispersed In this model, centralised systems are used for enterprise-wide data, while business units have the flexibility to use other computers for specific value-added local processes. A central group maintains and supports the enterprise information systems. Costs are either charged back to each business unit or borne as a head office overhead. The central group is also responsible for planning and implementing an adequate architecture that focuses on business objectives, while the business unit IT functions are responsible for ensuring their processes/data meet central interface and control standards.
The dispersed organisational model is typically found in multi-site and single product line businesses with complex or highly engineered products such as aircraft. This model also works for multiple product line businesses employing a client/server architecture.
Federal In the federal model, a co-operative effort is made between the central group and the business units to achieve critical mass and maximise the value of corporate information while maintaining flexibility for each business unit to deploy local value-added systems. This is achieved by examining the IT activities and systems in terms of their criticality to business operations, contribution to business positioning, and uniqueness to each business unit. The establishment of strategic direction and standards, along with purchasing and/or control of non-unique commodity items, is performed by the central group. All other decisions are left to the business units, who must comply with group direction and standards.
The federal model is best for businesses with multiple independent product lines that share some element of support facilities or information.
The federal model is optimal for multi-product, multi-site and multi-unit businesses, as it provides sufficient flexibility for each business unit to adopt new and differentiating technologies and, minimises risk through common standards and control, and lowers operating and capital costs through economies of scale.
The IT organisation should reflect the business organisation, products and market characteristics. The optimal organisation for IT should not be decided by misplaced desire for control. The optimal organisation is that which provides the best possible support to the business units. So when next you hear of restructuring plans, ensure you know which model is best for your business.
Stuart Black is a manager with A.T. Kearney, Australia
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