Wednesday, November 13, 2013

A Hybrid IT

A hybrid of centralization and decentralization is counter-balance of delivering effective IT Capabilities.

IT plays a significant role in modern businesses today, touches almost every key business processes, especially with the trend of SMAC (Social, Mobile, Analytics, and Cloud), IT consumerization and internet of things. The effectiveness of IT can be derived best when overall IT Organization reflects on how the business is structured for responsibilities and accountabilities of key decision makers. In other ways, IT can not architect itself in isolation. So to effectively deliver IT capabilities, centralized, decentralized, or hybrid IT, which is the right way?

A hybrid approach to deliver IT capabilities works best to fit most organizations: Often, centralized or decentralized IT capabilities are the perpetual dilemma as paradoxically, centralizing & standardizing what makes sense enables flexibility without chaos. And it’s not a black or white decision. It always depends on several factors like the firm’s culture, strategy, IT budget, IT maturity and so on. It relates much to who makes IT decisions and If done right, that you can get the best of both worlds is the best approach. How IT services are delivered (centralized or decentralized) shouldn’t matter to the business if the CIO makes right decisions since for users that should be really transparent if service is not being impacted. Some guidelines include 1) Centralize what makes sense from a decision-making perspective - strategy formulation, common and shared services like Economies of scale and Unification across the business, risk/disaster management initiatives, standards, architecture, engineering, security, infrastructure, even governance to a certain extent.
2) Decentralize using the same criteria - implementation of strategy, transaction like customization, local digitization services like document management and endpoint management, end-user support, service delivery, Agile/rapid development, collaboration.

To deliver IT solutions effectively, organizations should align to the business structure by showing how business is organized and communication thoroughly. The main challenging area with centralizing IT is business facing resources and culture issues. The overall function may fit into a centralized management structure (direct/indirectly) although there’s need to have the resources which are local based, the conduit between the local business and centralized IT groups, business requirement definition etc. Company’s culture plays a critical role in such decision. Established companies with existing decentralized IT departments may brace for a difficult battle against centralization. Regional IT departments will perceive consolidation as a political matter. The business lines supported by these regional IT departments will protest out of fear their service levels will drop.

Overall the approach should be to have the right mix of centralized & decentralized IT services as per business requirements. As with most things, the answer is the middle path between extremes. One must never forget that there is a part of IT that may need to remain local. And the idea of IT centralization is to lower cost, to increase quality and to have better control while attaining standardization.
The advantage of Centralizing IT capability
- more control
- more standardization
- simple IT systems

- more vertical organizations
- faster to make changes rolling out to all the distributed sites of the firm
- Fewer security risks
- higher IT maturity
- More efficient way to manage IT budget
-The advantage of Decentralizing IT capability
- More flexibility to adapt to local changes
- More responsive and ‘customer intimate’ IT capability
- Better focus on local customer services (region focus vs overall firm focus)
- Less focus on technology and more on business (IT-centric vs business-centric)

The challenge is having a harmonized vision about overall IT capabilities and maturities in an IT organization. This is a strong point of costs reduction and uniformization of the technologies, in other words, provide economies of all kind of resources (material and human). As Peter Drucker pointed out: "There is no one right organization structure. Rather the task, it is to select the right organization for the task and mission at hand." The key to recognizing is layering. Functions that need the agility and customer intimacy can be decentralized and perhaps even embedded in business units. Functions that are common to the enterprise or commodity services can be centralized to drive scale benefits. That said, the lower you go on the technology stack the more it makes sense to centralize. The functions closest to the business are best federated. Where the line crosses is driven by the complexity of the business model.In short there is no single right answer; hybrid options must be considered, and organizational context is key.

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This is good, clear thinking on a structure for reorganizing IT to exploit the possibilities of multi-sourcing and cloud.

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