Quo Vadis IT? Structuring the IT Organization of the Future

The IT organization is undergoing dramatic changes. The business perceptions about IT as a resource have shifted from impassioned exaltation of IT’s potential to dispassionate scrutiny of IT as a commodity. Global market realities of comparative advantage offer new options and challenges for IT. Services that once were the domain of internal IT departments can be easily purchased from outside vendors. Competitive pressures drive businesses to be vigilant about their IT spending and the business value IT delivers. In view of these developments, how should the IT function be provided to businesses and how should it be structured?

IT enters businesses as a generic, undifferentiated resource that acquires its strategic meaning through its complementarity with strategy. This allows businesses to produce strategic outcomes in concert with IT that, without it, would be different, inferior, or infeasible. Whether IT is strategic or not is not driven by the particular technology being adopted but rather by the nature of the specific IT investment in the context of the organization’s strategy, culture, and processes. When IT enables or enhances an organization’s strategic differentiation, it should be viewed as a strategic resource. When it does not, it should be viewed as a commodity, albeit an expensive one.

There should be only two reasons to invest in IT: to enable, enhance, or protect competitive advantage or to maintain competitive parity and prevent competitive disadvantage. Instead of adopting blanket “lead” or “follow” postures with respect to IT investment, organizations’ decisions should be guided by the following four tests:

Can the investment enable or strengthen the company’s competitive advantage? If yes, proceed swiftly with the business case and, if determined desirable, the investment itself.

Can others use the technology to weaken the company’s competitive advantage? If yes, proceed swiftly with an antidote.

Does the investment detract from existing strategy or competitive advantage? If yes, skip the investment, but do so after addressing potential competitive-parity disadvantages.

Is the investment required to maintain competitive parity? If yes, invest after others pioneer the adoption of the technology but before any disadvantages set in.

The IT function in business is being reconfigured. Instead of the traditional distinction between IT and the business, the separation is now between those IT functions that are pulling closer to the business to the point of being inseparable from it and those IT functions that gravitate away to outside vendors and service providers. To maximize value from IT investments, businesses must recognize which IT functions should be kept inhouse and which can be outsourced.

To begin with, the following functional areas of IT should be attended to in every organization:

• Business innovation leads the organization in identifying and responding to strategy-consistent IT investments
• Business integration leads the organization in the successful, value-maximizing delivery and adoption of IT investments
• Implementation provides the technical delivery service for each IT investment
• Architecture designs and oversees IT architecture that supports agility and effectiveness in business operations and in IT investment
• Operations maintains and operates IT assets to maximize their value to the business and minimize operational risks
• Support enhances value of IT investments by providing end-user support in the use of IT assets
• Education enhances organizational ability to select, adopt, and integrate IT investments through IT education programs
• Information security, privacy, compliance, and ethics protects the information asset from internal, customer, and regulatory perspectives

The full report from Cutter Consortium proposes grouping the functional areas of IT into four related but independently structured branches of IT management, each reporting to a senior manager in the organization, as follows:

1. Information Security, Privacy, Compliance, and Ethics
2. IT Business Innovation (including architecture and education)
3. IT Business Integration
4. IT Services (including implementation, operations, and support)

Whether it is the individual business units or the enterprise that controls IT depends on the branch of IT management and on the strategic thrust of the organization. Regardless of the pursued strategy, competitive pressures will likely push businesses to further consolidate and standardize on infrastructures, data, processes, and operations and will make complete business-unit independence in IT management too costly to sustain.

Because of the business pervasiveness of IT as well as its cost and potential, the ultimate authority in setting IT direction and making IT investment decisions belongs with a group of executive-level business managers, chaired by the CEO, COO, or CFO and aided by the participation of leaders of the relevant branches of IT. IT governance committees and business participation are required to ensure optimal use of and investment in IT.

IT functions that do not require business knowledge specific to the organization do not have to be maintained internally. Out of the four branches of IT management, large portions of IT Services, such as implementation, operations, and support, can be and already are being outsourced. IT functions that should stay internal to the organization are those that pursue organization-specific and strategy-relevant uses and management of IT. IT Business Innovation and IT Business Integration stand out as the two functions immune to being reduced to service-level agreements and to the prospects of outsourcing.

With upcoming changes to the IT organization and the IT services industry, the nature of available IT careers will be closely tied to how businesses decide to manage IT. Those individuals capable of and interested in combining business and IT insight will find their career options expanded even as the internal IT departments continue to shrink and technical jobs continue to shift outside toward the IT services sector.