Organizing and Leading the IT Function

Chapter 8: Organizing and Leading the IT Function

• Organizational Issues in the Control of IT Activities
• Two sets of tensions guide policies for developing, deploying, and managing IT systems:
• Innovation vs. control: strategic use of IT requires willingness to take risks.
• IT staff vs. business users:
• Users are often inclined to focus on short-term need fulfillment, solving today’s problems right now, frequently at the expense of long-term IT architectural concerns, maintenance needs, or orderly deployment.
• In contrast, the IT department tends to be preoccupied with standardization of solutions, mastery of technology, maintenance difficulties, and orderly deployment. This is done at the cost of slow response, or no response to legitimate business needs. 
• Balancing the tension between IT staffers and business users requires taking into account many factors, including corporate culture, IT’s potential strategic impacts, and the urgency of short-term problems. When rapid innovation is required, managers must be sure that rigid policies do not interfere with experimentation and learning.
• Table 8.1 (p. 420) illustrates the consequences when either the IT staff or business users inappropriately dominate IT resource allocation and project priorities.
• From Centralized, IT-Driven Innovation to Decentralized, User-Driven Innovation:
• IT department of a major textile company executed a few large, centrally managed, successful projects that assured adherence to companywide standards for software, computing platforms, and communications. 
• Several years later, management decided to move systems development activity from central IT to the divisions, to align the development of new applications more quickly and effectively with the needs of senior division management.
• Because IT standardization problems had already been solved, the company was able to install a new organizational structure that enables the divisions to innovate more rapidly around individual agendas.
• User-Driven Innovation over IT Department Protests
• A large machine tool manufacturer’s engineering department implemented computer-aided design (CAD). With early success, they decided to modify the digital output from the system so tht department personnel could feed it directly to computer-driven machine tools.
• To maximize the speed of deployment, engineers deliberately kept the project separate from concurrent work by the IT department on a related bill of material systems.
• The CAD project was a success, but integration into the bill of material system remained an outstanding requirement.
• Meanwhile, IT department was short-staffed and delayed the integration with the bill of material system. Still, they were afraid engineers would not adhere to standards and that major operational problems would result.
• Engineers, despite objections from IT, received full support from senior management and proceeded on their own and made the project work. The project slashed new product development time by half.
• From Decentralized, User-Driven Innovation to Centralized IT Management:
• A division of a large consumer products company made a substantial investment in desktop services with modest up-front cost justification. IT department encouraged managers and administrative support personnel to use desktop systems. A number of uncoordinated projects emerged within the user community.
• Six months later, IT was asked to develop a program to support these users and bring commonality and order to their disparate activities. IT estimated that it would take 2 years to develop a program to support these fragmented these business application. They wondered if, from the beginning, they should have offered IT-driven desktop services.
• Consensus answer was that an IT-driven desktop services project would have been viewed as an IT initiative and thus would not have been embraced enthusiastically by business users.
• From Decentralized, User-Driven Innovation to Unexpected Centralized Innovation
• Retail division of a large retail chain installed a point-of-sale (POS) inventory tracking systems in each of its 50+ stores. The scope of this project was initially limited, but resulted in significant inventory savings.
• Senior management asked IT to link store POS systems with central systems at corporate headquarters so that project performance could be measured across stores and warehouse stock levels managed.
• Communication protocols used by POS systems were incompatible with those in use by IT at headquarters, making the project expensive.
• Managers asked: Was the expensive incompatibility between POS systems and corporate systems evidence of a deficiency in their planning process?
• Answer: No. A planning process that explored all possible future users of POS data would have taken too long and delayed inventory savings in individual stores. Planning stage estimates of the benefits of linking POS and corporate systems would have been highly speculative, and the excess time would have weakened the cost-benefit case for the project.
• The firm has since used the POS-to-corporate network to implement a customer loyalty card and gain a detailed understanding of the individual buying habits of its key customers.

 

B. Implications and Conclusions

• The above examples illustrated the impossibility of foreseeing the full impact of new technology and the consequent difficulty of specifying a single best way to allocate control over priorities and resource allocation in systems development and deployment.
• Too much focus on prescriptive policies, centralized control, or rapid proof of favorable results in the early stages of the adoption of new technology can prevent important learning that may lead to even more useful applications.
• Neither IT professionals nor business users can always anticipate how new technology will impact on an organization.
• A general manager’s role is to facilitate the assimilation of new technology by continuously monitoring tensions and shifting emphases as appropriate between centralized an decentralized IT and user control-driven innovation.

C. Drivers Toward User Dominance

• Pent-Up User Demand
• IT departments and suppliers often do not have the staff and budget needed to handle the volume of IT activities and projects.
• Existing systems require sustained maintenance to accommodate changing regulatory and business requires. As systems age, and need to be adapted to changes in IT architecture like enterprise and internetworking systems, the volume of change requests increases.
• These conversions are expensive, strain IT staff resources, starve other departments of resource, and force IT departments to expend resources for maintenance of existing systems, to the neglect of innovation.
• Talented IT staff often leave the company, and it is hard to acquire replacements.
• Delays caused by these factors lead users to take matters into their own hands.

• The Need for Staff Flexibility
• When an IT department and its vendors appear unresponsive to users’ demands, users see developing systems themselves as a nonconfrontational way to get work done. They deploy their own staff in IT roles or engage services from outside integration or application service companies.
• To avoid this, base IT staff in business users’ department to help educate them to IT’s value-adding potential and reduce communication problems between developers/deployers and users.
• This practice makes it easier to rotate IT staff to non-IT jobs and end users to IT positions, when necessary and appropriate, much easier.

 

• Growth in the IT Services Industry
• Thousands of commercial off-the-shelf software packages are now available for specific IT applications—from simple accounts payable products to complete enterprise systems products to over-the-Net applications and other outsourcing options.
• Users are often tempted to acquire systems through these vendors, in order to avoid delays that result from going through IT.

• Users’ Desire to Control Their Own Destiny
• Users can exercise direct control over systems development priorities. By using either their own staff or software and services companies they select, users hope to obtain a system with vastly improved features in less time than it would take to navigate the priority-setting process in the corporate IT department. Users can discuss problems and trouble-shooting together, facilitating experimentation and learning during development.
• As business conditions changes, business users may wish to control systems maintenance priorities. If managers are evaluated by how well their business units perform, the desire to have more complete control over change priorities is understandable.

 

• Fit with the Organization
• As global companies’ operations become more disperse, users often feel compelled to control systems development and deployment, because their local concerns increasingly diverge from corporate IT initiatives.
• Decentralized development, deployment, and management avoid the high levels of coordination effort required to keep centralized IT departments attuned to local needs.
• In addition, if a company decides to divest a unit, the process will be easier if IT activities are not completely integrated with the rest of the company.

D. Drivers Toward a Centralized IT Structure

• Staff Professionalism

• Maintaining a central IT department with clear career paths makes it easier to attract talented staff.
• Staff can be more easily updated with the latest technologies and necessary skill sets.
• A central IT department can more easily focus on the technical competence and expertise.

• Standard Setting and Ensuring System Maintainability
• Standardized computing infrastructure reduces the complexity and cost of maintaining a firm’s IT capabilities—by up to 40%.
•  When IT resources are not centralized but report directly to business user organizations, setting companywide standards almost always takes a backseat to short-term business concerns, resulting in inefficiencies in maintaining IT infrastructure.
• Central IT staff expertise is very important for reviewing user-designed systems before they go live, to make sure that the systems are documented and that data management and security policies, corporate standards, and costing practices have not been ignored.

• Envisioning Possibilities and Determining Feasibility
• Most business users are not adept at envisioning the possibilities inherent in new technologies or expert in judging the feasibility of technical applications.
• They focus on obtaining a specific service to address an immediate need without recognizing the fact that successful first applications tend to generate unanticipated future applications.
• Ex: Some users thought the Web would just be a better way to manage documentation.
• User-driven feasibility studies may contain major technical mistakes, resulting in a system that does not handle growing processing requirements or is not cost effective in operation.
• Users sometimes acquire products with attractive visible features from unstable vendors.

 

• Corporate Data Management
• Modern data management strategy requires central coordination of physically distributed databases so that users, regardless of their physical location, can access data files as needed.
• Data sharing needs vary with a company’s activities. Conglomerates need much less data sharing across the firm than do functional organized, one-product companies. However, most firms need companywide, fully interoperable, email, videoconferencing, video streaming, and financial systems, data base components, and enterprisewide interoperability and data exchange. Only a centralized IT department can cost effectively develop and distribute such systems to users or coordinate distributed development projects in a way that assures interoperability.
• Major risk of decentralized development is loss of ability to manage and control data flows between disparate applications. Solution: modern data management and communication standards make it easier to avoid such outcomes, with responsive decentralized development and products that interoperate through centralized data management hubs.
• Data security is also best addressed through centralized control, and security standards are more easily achieved with centrally organized electronic files.
• Cost Estimation and Analysis
• A centralized IT group usually has a better chance of producing realistic systems development and deployment estimates than do decentralized user-based groups.
• Charge-back schemes for allocating the centralized costs of IT services back to business use departments are historical remnants of frameworks convenient for cost accountants—and for this reason, they are unfathomable for business users.
• Although much of a company’s IT budget is fixed, the charge-back system makes users think it is a variable cost that could be reduced. Because they feel overcharged, they often prefer to do their own local development.
• Cost analysis and management, using an activity-based computing utility framework, mounted from with a centralized IT group, is the only way to assure that local decision making is consistent with overall company objectives.

E. Coordination and Location of IT Policy
The tension between IT staff and business users can be managed by establishing clear policies that specify the user domain, the IT domain, and senior management’s role.

• IT Responsibilities
• Develop/manage the long-term architectural plan and ensure that new projects fit within the plan. Periodically review/revise the plan and be sure IT stakeholders agree about the objectives and details of the plan.
• Develop a process to establish, maintain, and evolve company standards in the following areas:
• Telecommunication protocols and platforms
• Client devices and client software configurations
• Server devices, middleware, and database management systems
• Programming and configuration languages
• Documentation procedures and formats
• Data definitions, especially for data elements used throughout the company
• Storage redundancy, backup, and disaster recovery procedures
• Information security policy and incident response procedures
• Establish procedures that consider outsourcing options when new IT projects are proposed. Ensure that outsourced or user-executed projects adhere closely to corporate standards, are consistent with overall corporate objectives, and take into account interfaces to corporate systems.
• Maintain an inventory of installed and planned systems and services. Reexamine the total benefits and costs of operating and maintaining these systems and services for consistency with business objectives.
• Identify career paths for IT staff—lateral transfers within and between IT units, upward movement, and outward movement from IT to to other functional units.
• Establish internal marketing efforts that help business users understand the challenges of IT support and hidden costs of maintaining IT systems. Encourage modernization, but also encourage business units pursuing innovation to take account of their full exposure to risks and costs.
• Include questions about compatibility with existing architecture and standards in RFPs for acquiring new hardware/software.
• Identify and maintain relationships with preferred systems suppliers. Be sure that company standards enforcement policies are included in contracts with new vendors and that vendor pricing and planning take into account the need to comply with standards.
• Establish education programs for business users that introduce the benefits and pitfalls of new technologies. Define user’s roles in ensuring the successful introduction of new technology  in their departments.
• Set up a process for ongoing review of legacy systems to determine when they should be redesigned and/or replaced.

 

 

• User Responsibilities
• Seek to understand the scope of all IT activities supporting business users. Figure out the IT charge-back systems and pressure IT department to establish an activity-based overhead allocation system that users can understand and use in decision making.
• Develop realistic estimates of the amount of user personnel investment required for new project, during development/deployment and in ongoing operation and use.
• Ensure comprehensive user input for all IT projects that support vital aspects of the unit’s operations.
• Ensure that the nature of staffing interfaces is consistent with a new technology’s strategic relevance to a business unit. For important projects, staffing interface must be close, customized, and based on personal relationships.
• Periodically audit system reliability standards, communications services performance, and security procedures.
• Participate in developing and maintaining IT plans that set new technology priorities, schedule the transfer of IT among groups, and evaluate projects in light of the company’s overall strategy.
• General Management Support and Policy Overview

Increasingly, long-range discussions about IT planning must involve senior general managers supported by talented technology specialists.

• Ensure an appropriate balance between IT and business users to prevent one group’s perspective from dominating. Transfer personnel, reorganize, or create new organizational bodies to keep tensions in balance.
• Make sure the company has a comprehensive corporate IT strategy, based on an overview of technology trends, assessment of the company’s current IT capabilities, and the potential of IT initiatives to support overall corporate goals.
• Manage the inventory of hardware and software systems and services and assure that a corporate orientation extends to purchasing relationships and contracts.
• Establish standards for acquisition, development, and IT systems operation. Ensure that the standards are applied appropriately.
• Facilitate the transfer of technology from one unit to another. Use staff visits across business units, periodic corporate conferences on IT themes, and other communication means, such as newsletters and streamed audio or video programs to facilitate technology transfer.
• Actively encourage technical experimentation.
• Develop an appropriate planning and control system to link IT to a company’s goals.

 F.  IT Leadership and the Management of Budgets

• Adjusting size of budgets is a way to reduce constituencies’ control over priorities and resources.
• Many companies allocate a certain portion of the IT budget to users, while retaining another portion for the IT department. Deeply technical or infrastructure expenditures are decided by the IT group, while IT expenditures that directly affect the frontline business remain under the control of business users.

Questions for Discussion

• What are the two sets of tensions that guide policies for developing, employing, and managing IT systems?

 

• Describe a real-world example of each of the following IT innovation scenarios:
• From centralized, IT-driven innovation to decentralized, user-driven innovation.
• User-driven innovation over IT department protests
• From decentralized, user-driven innovation to centralized IT management
• From decentralized, user-driven innovation to unexpected centralized innovation

• Discuss the drivers toward user dominance of IT projects.

 

• Discuss the drivers toward a centralized IT structure.

• Discuss major IT responsibilities.

 

•  Discuss responsibilities of users regarding IT.

• Discuss the responsibilities of corporate IT policy groups regarding IT.

 

• Describe how budgets are used to control IT use and development in an organization.