The right strategy for IT industrialization
Companies often have an evolved and practice-proven form of corporate leadership that promotes initiative and entrepreneurship in their individual divisions. So their IT needs to align with this management philosophy and support entrepreneurial action. The big challenge here is to find an optimal balance between flexibility and cost-efficiency of IT services.
In practice, businesses have tackled this challenge in different ways. So far there does not seem to be a common model of IT organization and governance that companies generally accept and implement. Nevertheless, we can identify certain patterns that allow companies to reach a balance between flexibility and cost efficiency in IT.
Process industrialization: a must for infrastructure
At the level of IT infrastructure, industrializing the processes is a must. This goes above all for IT service domains like service desk, desktop and distributed infrastructure, data center and communications. Many companies have already succeeded in bundling responsibility for service definition and delivery. For them, the industrialization of IT infrastructure often concerns further steps:
- Defining a uniform IT service catalog – including service description and service level agreements (SLA)
- Standardizing and largely automating the delivery processes for each IT service
- Introducing a multi-stage IT delivery model, which may consist of both global and local IT production centers
- Making selective use of low-wage locations (near-shoring, far-shoring) for the global IT production centers
Bundling responsibility for office IT and process IT
Companies are using their industrialized IT infrastructure operation to see how their own vertical integration is working. Rather than opting for "full outsourcing", they often choose a selective approach, i.e. only outsourcing individual activities from the IT production centers. Typical examples here are on-site activities like break-fix and IMAC/D, image generation for the desktop and innovation technologies.
Firms tend to be more cautious when it comes to bundling process IT and office IT. The term "process IT" refers to the use of IT for controlling systems and processes such as in manufacturing. Historically, office IT and process IT have been seen as separate worlds. But the convergence of technologies in the area of, say, hardware and operating systems means that stronger economies of scale can be leveraged. Moreover, the demands placed on integrated information flows – for instance as companies optimize goods flows and supply chain management – are growing constantly.
IT applications: focus on business model
At the level of IT applications, the business context plays a bigger role than it does for IT infrastructure. The more heterogeneous and internationalized a corporation's business portfolio, the more differentiated is the IT governance model it requires. So attempts to bundle all responsibility for the applications is not necessarily considered an ideal solution by heavily diversified businesses.
Rather, it often pays for companies to split their IT application architecture into domains. An application domain covers a set of interlinked business functions. The question is how far responsibility can be centralized for each domain. Application domains to be treated as unified and synergetic right across the company can be consolidated to form core areas of responsibility. This will mainly apply to cross-divisional functions like finance and controlling, HR and purchasing.
Depending on the industry, firms are also seeking to harmonize selected parts of the value chain by setting up a central application domain. Energy utilities, for instance, are bundling their power generating and trading functions. Likewise, we often see supply chain management being defined as the central application domain in processing industries or credit handling as the central application domain in the financial services sector. On the other hand, responsibilities usually remain dispersed for parts of the value chain where it is important to retain specific business practices and exceptional flexibility in response to changing requirements.
When a company has to define specific responsibilities for the domains, it should always distinguish between budget and resource responsibility. Who do the funds belong to and who does the spending (budget) or the allocation (resources)? This approach can produce an IT governance model differentiated by applications domain and geared to the specific business context.
A new IT organization and governance model can only be developed individually for each company. The first step is to determine the status quo and identify where the existing model could be optimized. The next step is to work out the strategies for improvement in each field of action. The individual strategies must then be consolidated to form a holistic model. Once this overall model has been agreed, the details of the individual strategies can be worked out until the new model is ready for implementation.
Switching to a newly defined IT organization and governance model is not any easy step. After all, implementation usually demands adjustments in terms of both organizational structures and processes. For instance, the IT operations model for IT infrastructure must be modified. There are two phases in the process of implementing a new IT structure: transition and transformation. First of all, people and inventories have to migrate from the existing structures into the new target model (transition). In most cases a date is fixed for the switch and the transfer of responsibility. However, the existing IT operating model is kept going as far as possible.
The second step, the transformation, then aims to translate the existing IT operating model into the new logic. The special challenge here is to identify the functional, technical, HR and budgetary linkages and translate them into a coherent transformation plan. Only by carefully following all the implementation steps will a company ensure the successful rollout of its new IT structure.
CIO Expert Column
This edition of our Retail Banking Survey has a focus on digitization, a make-or-break... >>