More on the benefits of specialization....
IT Functions Requiring Specialists
Virtually everything an IT function does benefits from the value of specialization. For example:
- A Business Relationship Managers are trained to help people translate their business strategies and operational imperatives into high-value opportunities, a discovery process. They're like having an IT strategist on your team.
- A Digital Business evangelist (Chief Digital Officer) can help every part of the business uncover tech-enabled opportunities to enhance customers' journey.
- A Data evangelist (Chief Data Officer) can drive an ethos of fact-based decision-making throughout the enterprise, bringing years of study of data science to help the business extract meaning from data.
- Business Analysts are trained to translate business needs into detailed requirements which are needed to ideate, design, and implement solutions.
- There's a lot more to acquiring a solution than just buying a license or subscribing to a service. IT Engineers are skilled at integrating solutions into the broader technology environment, including configurations and all the linkages to other existing solutions.
- IT Engineers are also trained to develop custom solutions (where needed).
- IT Engineers also manage and optimize the entire network, and the broader ecosystem of solutions.
- A centralized data lake can provide the enterprise with shared truth.
- An Information Security team is highly skilled at protecting the enterprise against the threats we get every day, and helping IT engineers design solutions and craft policies that mitigate risks.
- An Operations team is trained in the profession of service management. And it knows how to manage external vendors to your shareholders interests. And it continually assesses the "market" (enterprise) as a whole for opportunities to add more value with shared services.
- A Standards and Planning team are specialists in technology standards and design patters, IT planning, business continuity planning, regulatory compliance, and information policies. None of these should be left to people who work for other shareholders.
The fact that IT products and services are available on a retail basis does not make these issues associated with decentralization any less relevant, nor does it make highly trained specialists less relevant.
Fragmented Solutions
Fragmenting staff inevitably fragments their services. For example, where IT is decentralized, it's not uncommon to find different financial, customer, and procurement applications in each business unit.
When solutions are fragmented, costs rise for many reasons:
- There's duplication of sustenance tasks (indirect costs). It requires parallel training, product R&D, policy formulation, and business support functions.
- There's also a duplication of work products, instead of sharing common components (even in customized solutions).
- Fragmentation also foregoes many opportunities for savings through sharing licenses and assets.
Furthermore, economies of scale are lost.
- This certainly applies to assets (infrastructure).
- But it affects staff too. Imagine three business units, each of which needs a certain specialty for roughly two-thirds time. Instead of each hiring their own person, the three could share just two people.
- "Safety stocks" (in inventories) must be larger; consolidation can reduce inventory carrying costs. This affects staffing, too. One business unit's peak load may occur at a time when other business units are slow. Thus, total demand is less than the sum of each's peak.
- And bargaining power with vendors is diminished. Almost always, a bigger organization can drive a better deal.
- Beyond just costs, decentralization typically impairs the quality of service. Small groups cannot adequately support a broad, diverse product line. They find it difficult to provide support globally, 24 by 7. And small groups can't afford senior executives who bring strategic leadership to the function.
More insidious, enterprise synergies (across business units) are lost.
Corporate synergies can be found in every external interface. Business units may share customers, vendors, investors, regulators, media, and the community. Synergies can be attained when they collaborate, and common solutions, services, data, and policies make that easier.
Fragmenting an IT function undermines these enterprise synergies. It leads to dis-integrated and redundant systems.
As business units find themselves using disparate solutions and services, they find it harder to collaborate across boundaries. The implications for enterprise strategy are as profound as the reasons why these business units are under the same corporate umbrella in the first place.
Mini case study: decentralizing IT....
I personally experienced the effects of decentralization of IT as a customer of an insurance company.
The decentralization of its IT function resulted in multiple customer databases. Since customer-numbers varied, the enterprise was not able to spot customers who bought from multiple business units.
One day, the Specialty Automotive business unit cancelled the policy covering my vintage sports car, saying they were no longer interested in that type of business.
Annoyed, I moved all my insurance to another company -- the policies for my other cars, my home, my personal liability umbrella, and my corporation.
Of course, they never knew this. Because their customer databases were fragmented among their business units, they knew me as a few discrete policies, not as one customer with diverse needs.
Also note that a greater degree of consolidation of shared services like IT provides more interesting career paths for technical professionals. That attracts top talent, and motivates people to succeed.
But What About Local Solutions?
Some critics of IT would relegate the central IT department to enterprisewide infrastructure (e.g., networks), commodities (e.g., PCs), shared applications (e.g., ERP), and governance (e.g., security and compliance).
This misses the whole point of the value of specialization.
Trained Business Relationship Managers can uncover high-payoff digital business opportunities better than generalists imbedded in the business who lack methods of strategy-driven opportunity discovery, who aren't aware of the full array of IT solutions, and who don't study the linkages between technology and business.
And as long as they're customer focused and business driven, teams of centralized IT specialists can engineer custom solutions for specific business units better than local generalists.
This view also misses the whole point of the harm in fragmentation. Even if a solution is highly tailored to the needs of a specific business unit, it likely shares data throughout the enterprise, and should be integrated with other downstream and upstream business functions elsewhere in the enterprise.
Furthermore, custom solutions can be built on existing solutions (such as an ERP), or at least employing reusable components.
The Department of NO
But what if you have a poorly run central IT department? Isn't that a valid reason for the decentralization of IT?
First, ask yourself why an IT department would gain the reputation of "department of NO." Two obvious possibilities come to mind:
- The IT department doesn't have sufficient resources to satisfy the needs of the business.
This could be the result of poor budgeting practices. If so, the solution is investment-based budgeting.
It could also be the result of poor demand-management (priority-setting) processes.
In any case, if the business has headcount to devote to IT tasks, it's far better to spend that on specialists in a central IT department than generalists in the business.
- The IT department is badly managed.
There are still some IT leaders who think their job is to look after technologies on behalf of the enterprise, rather than serve their business clients with high-value products and services.
So, do you give up on central IT just because it's badly managed? Or do you install a CIO who knows how to drive a transformation?
Giving up on central IT departments (rather than investing in their transformation) is expedient in the very short term, but leads to high costs, slower innovation, business dis-synergies, loss of talent, and a technology mess.
The right answer is to invest in building a customer-focused, strategic central IT department based on the business-within-a-business paradigm.
Bottom Line
Attacking centralized IT departments (perhaps because some of them are poorly led) may get pundits some press, but it misses the fundamentals of organizational design. Amateurs and generalists can't perform as well as teams of specialists, even with regard to software-as-a-service and retail information technologies.
Centralized IT departments are critical to the success of the enterprise, especially in this era of digital business.
Equally critical are CIOs who know how to drive transformations and install agile, customer focused, and highly specialized organizations. There are indeed many IT departments that are insular and technology driven. But good leaders know how to fix that.
The right answer is to fix the root causes of dissatisfaction with centralized IT, not to give up on it and relegate it to non-strategic, back-room functions.
Shall I save this rebuttal for the next such spurious attack, next decade?
More on how to transform an organization into a customer-focused business-within-a-business....
