Enterprises are increasingly moving services out of the realm of IT, and business units now obtain many services for themselves from providers other than their IT organizations. During and after the process of moving services out of IT, IT and business units may have overlapping responsibilities, and will benefit from establishing formal roles, liaisons, and oversight during transitions in service.
This article continues exploring the move of services out of the IT organization, using industry examples to illustrate topics in the post “What Happens When You Move Services out of IT? (Trends and Insights)”
Thanks to the following people for providing information and feedback for this article: Brad Clayton, Larry Hanthorn, Brian Loomis, Stephen Kell, Blessing Sibanyoni, and Sree Sundaram.
Coordinating between IT and Business Units
To drive moves from internal IT to external cloud-based services, more and more the business units are creating their own CIO-type roles.
Typically, such business units each designate a senior business leader (or someone who reports directly to such a leader) to act as a liaison with the IT organization. These high-visibility liaisons help manage the business units’ supply and demand relationships with the IT organization.
Manufacturing Industry Examples--Sharing Responsibility
For manufacturing organizations, such as chemical and auto manufacturers, functions such as IT are usually centralized; individual business units may have designated “liaisons” to coordinate with the IT organization.
However, business units sometimes run particular applications or services outside of the central IT organization. Such applications or services tend to serve specialized functions or require specialized environments, such as:
- Line of business applications. For example, one chemical company’s Agricultural Science unit runs its own applications, including a web site. These applications are unique to the business unit and are not useful to the rest of the company.
- Work-process applications. For example, human resources and sales units sometimes run their own services, or lead IT-type initiatives.
- Plant operations applications. Typically, manufacturing-specific COE teams manage the software and services involved in product manufacturing. These teams may be part of the central IT organization, or independent.
- Research and development applications. R&D units have different workload needs than the rest of the company (laboratory systems, simulations, connections to academic institutions, and so forth).
- Embedded product applications. For example, at one auto manufacturer, the centralized IT organization does not manage computers and related systems developed for and installed in cars.
For these businesses, running such applications and services outside of IT is not a new development; they have been operating this way for some time. In each case, the decision to run (or at least start) an initiative in a business unit instead of IT originates at a fairly high level; for example, from a sales director who wants to standardize his organization on a common process or product.
In some cases, the business units may hand the new application or service off to IT at a later time, when the new application or service is operating to the business unit’s satisfaction.
Three factors usually determine whether a business unit attempts to run a service on its own:
- “Alignment” between the IT organization and the business unit
- Skills and resources of the IT organization
- Responsiveness of the IT organization
“Alignment” between the IT Organization and the Business Unit
How well does the IT organization understand and respect the priorities of the business unit? The two types of organizations may have significantly different priorities. For example, both may care about saving costs while maximizing value—however, they may define value very differently.
This type of disparity may become especially problematic in companies that use a “tax” model to fund IT (each business unit contributes a percentage of its budget to fund IT). The IT organization uses the resulting budget as it sees fit to provide services to the business units. Unfortunately, if the IT organization does not accommodate the priorities of the business units, the services may not meet the needs of the business units.
If sufficiently dissatisfied, the business units may use their own budgets to seek alternative solutions (and may seek to reduce the contribution they provide to the IT budget to compensate).
Skills and Resources of the IT Organization
Does the IT organization have the appropriate capabilities to provide the services that the business units want? This issue becomes particularly important when the business units need highly specialized or flexible services.
In general, IT provides services efficiently using consolidated, monolithic systems. Custom-tuning solutions for different business units is far less efficient, especially if different business units have significantly different needs. The IT organization may not even have the skills in house that are required to customize solutions in this way.
Some IT organizations find it embarrassing to admit that they don’t have the specific skills needed. However, if it does not have the right expertise, the IT organization may misinterpret the business unit’s requirements and produce a solution that does not satisfy the business unit at all.
Responsiveness of the IT Organization
Is the IT organization willing to work with the business unit to find solutions, and can it develop solutions in the timeframe that the business unit requires? In particular, companies have found this to be an issue when data access and security is involved.
In one case, a business unit was working with experts outside the company and needed to share data with them. The IT organization refused to grant the outside experts access to the data. The business unit found a way to share the data anyway, going around IT to do so.
In another case, a company wanted a secure central repository for IP. The IT organization took on this project, but worked in isolation without getting feedback from the business units that would be using it. As a result, the repository was not ready when the business units needed it. Long before the project was complete, a scientist left the company (and the country) taking confidential information with him to use for his own purposes. The company suffered a substantial loss of business and had to give up that line of research entirely.
Impacts of Moving Services Out of IT
In general, these changes can have a transformative impact on an organization, and for employees and IT they require a shift in mindset similar to the historical move from mainframes to desktop PCs and servers.
Cost savings vary depending on the type of change; for example, moving from internal IT-managed stores to cloud-based storage services can produce massive cost savings. Other services may not necessarily be cheaper when moved off of internal servers, but are definitely more agile. Faster provisioning and reduced time to market for new services are crucial for organizations in highly competitive markets.
Both the business units and the IT organizations can benefit from this distributed arrangement. Business units can get better, more responsive services without taking responsibility for the whole infrastructure involved. IT organizations can narrow their areas of responsibility to better achieve valuable objectives.
Finance Industry Example—Sharing Responsibility, with Exceptions
One particular finance company is moving line of business (LOB) applications and services out of its central IT organization. The decision to do so was made at the vice-presidential level.
The heads of the business units determined that the internal IT organization was not responsive enough to the needs of the business units: it was not flexible enough, and what changes it did make were far too slow.
From the point of view of the IT organization, the changes that the business units wanted would not be cost effective (for IT). Therefore, the IT organization helped the business units move services:
- The business units may subscribe to cloud-based services for general applications (such as Office 365). The final decision on this move depends on governance, regulation, and compliance (GRC) issues (described later in this example).
- The business units assumed responsibility for LOB applications. They outsource development tasks to external partners, and then maintain the applications themselves.
- IT maintains centralized services such as data stores.
The change did not involve any change in budget or resources for the IT organization, although it may be able to redistribute its focus to produce cost savings in the long term.
Preliminary indications are that both the business units and the IT organization are satisfied with the progress so far. The services do not necessarily cost less, but the business units are happier with the quality of service. They can make changes to their services more quickly, and their external partners can provide solutions specific to them (instead of general solutions that have to serve all of the business units). The new arrangement has eased tensions between the business units and the IT organization.
So far, the main challenge that the company has faced involves GRC. Previously, the IT organization was responsible for GRC and data security issues. However, the new arrangement moved PII data out of the IT organization’s domain, and the business units were not familiar with GRC issues. The new services and applications potentially put PII data at risk. To resolve this problem, the IT organization stepped back in to monitor GRC and to work with the business units to maintain data security.
How do Business Units and IT Organizations React to these Changes?
Business unit consumers seem to be largely happy with the results of moving to cloud-based services. By and large, they aren’t worrying about bigger, longer-term issues (even though some groups, such as Marketing, probably should be).
In general, the IT organizations have concerns about security, reliability, integrity, and so forth that the business units may not consider. Such concerns (in addition to potential loss of budget or headcount) may deter IT organizations from supporting the business units in these changes—or at least motivate the IT organizations to bring such changes under their control.
Government Example—Duplication and Potential Conflict
A national government identified IT as one of many areas where the government must reduce costs. To implement this initiative, the government established a network of leaders for the digital initiatives, consisting of a leader from each main government department.
This new organizational structure overlaps the existing IT structure, in which each main government department has a CIO who runs an IT organization, which includes data centers and outsourcing agreements with external system integrators. The new digital leaders (Chief Digital Officers, or CDOs) in each department have organizational ranks equal to or higher than the CIO, though they have a smaller organizational budgets.
Responsibilities are being divided between the two structures:
- CIOs are retaining responsibility for legacy systems.
- CDOs are responsible for external web sites and other new projects, emphasizing cloud services and open source technology.
One unforeseen impact has been the departure of CIO personnel. CIOs tend to see the CDOs as rivals, especially as the CDOs’ areas of responsibility grow.
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