IT Organization Structure and Operating Models

Reorganizing IT departments and questions on choosing the right IT organization structure, or the right IT organizational chart, are still common issues. They are also issues filled with many traps and potentially career limiting decisions.

I have shared my thoughts with a few of you on how to reorganize an IT department, assuming you should, based on my work guiding IT reorganizations over the years. So I thought it was time to share a little of that here.

IT Organizational Models

Gartner and others have suggested CIO’s should not think in terms of an IT organization model (re: IT organization chart). Instead, CIO’s should think in terms of an IT operating model. The reason is simple.

An IT operating model  defines IT service delivery ownership and responsibility. In this way the IT operating model is an accountability framework, not a service delivery model. Choosing the right IT operating model (re: IT organizational structure) involves trade-offs between monopolistic economies of scale from centralized IT organizational models and the entrepreneurial flexibility of decentralized IT organizational models.

Centralized IT Operating ModelCentralized IT

In the centralized IT operating model, all IT infrastructure and application services throughout each line of business (LOB) in the organization are delivered by a single internal IT organization.

Decentralized IT

Decentralized IT Operating Model

In the decentralized IT operating model, every line of business potentially has its own dedicated internal IT department. At the enterprise level, there appear to be multiple, redundant IT organizations, but from the perspective of an individual line of business, IT is centralized.

Federated IT

Federated IT Operating Model

In the federated IT operating model, also referred to as a hybrid model, some services (usually infrastructure services) are offered centrally to the entire organization, and some services (usually application services) are offered by dedicated IT organizations distributed within individual lines of business or departments.

Choosing the IT Operating Model

Centralization can improve costs because it tends to lead to reduced complexity and better economies of scale. Centralization also improves accountability because ownership is always clear.

But a centralized IT operating model has no inherent effect on service quality. To improve service quality, CIOs must examine how work is actually performed in accordance with the requirements of a business driven service delivery model. Here are some additional considerations:

  • If the CIO reporting relationship is under the CEO/President versus the CFO, COO it may signal a receptiveness to centralized or federated IT.
  • If the company wide view of the business value of IT is a more homogeneous or utility oriented view, IT is more likely to be centralized.
  • If the view is more heterogeneous or innovation-centric, IT is more likely to be decentralized.

Operating models indicate at a macro-organizational level “who” will deliver which services to which business groups.

IT Organizational Structure

The same principle of an IT operating model can be applied within the IT organization. Armed with this perspective, a CIO can focus first on the service requirements of the organization followed by the IT capabilities required to fulfill those needs.

Remember, the IT operating models provide no insight into how IT services will be delivered or how collaboration will be achieved across distributed IT organizations. So in an era of virtual teams, and shared service delivery models, CIO’s need to focus much more on the service capabilities than on the hierarchical IT organizational structure.

Fool’s Errand – IT Department Reorganization

IT department reorganizations can be very tempting to a CIO. Sometimes IT reorganizations are done to simply shake things up or create the impression of doing something visible to solve service quality or performance problem.

And new CIO’s sometimes reorganize to show the new team that they can or to make it look like their last place in order to find some sort of comfort in the familiarity.

In nearly every case, a decision to reorganize IT is a fool’s errand.

An IT reorganization is incredibly disruptive to staff and your customers. And the risk of making the wrong changes can be an unrecoverable unforced error for a CIO.

The decision to reorganize IT requires careful and deliberate consideration after fully understanding many factors. I offer that as a caution since IT reorganizations are traps for CIO’s, especially new CIO’s.

Recall the idea that the IT operating model is an accountability framework. Most of the time the IT organizational structure used is for the managerial benefit (responsibility & accountability) than it is for any customer benefit.

How you organize your teams should be based more on what allows you to move your IT service capabilities forward based on your vision than it is about managerial efficiency or a ‘typical’ IT org chart.

So, unless you can demonstrate the business case for the IT reorganization – the specific business benefits (i.e. service improvement, new capabilities, lower cost, agility, etc) in a way that outweighs the disruptive cost of the change – don’t do it.

New CIO’s Planning an IT Reorganization

People will be scrutinizing what you decide to make as your top priority in your first 90 days on the job. So reorganizing IT with no demonstrable benefit to your customers’ signals your focus may be more internal rather than on the business. That may not be an accurate conclusion or the one you want to create, but it will happen.

I would encourage a new CIO, as part of your 90 day plan, to diagram all IT services across all organizational structures and any virtual teams. Common examples are web services, social media, desk side support, even records retention.

Identify any departmental IT services or rogue IT groups including those that go directly to the web or cloud. This will help reveal any complexities that need to be addressed in improving services or developing new future state capabilities.

I would also encourage you to diagram the physical workflow of the IT services. Often times the physical arrangement of the IT team and the IT service partners (the virtual teams) has more of an effect on service performance than the reporting structure or the operating model.

  • Would commingling the functional teams increase collaboration, innovation and trust more than changing the reporting structure?
  • What about embedding IT resources out in their primary customer’s department?
  • What about a business analyst or report writing in Finance or HR?

Sure it would mean a bit more effort from the manager but not more than using a remote resource. Besides, the manager’s effort is not what your customer will care about.

In this way you can realize the benefits of a decentralized or federated operating model without having to actually create one. You may even develop a compelling argument for moving more under IT using a hybrid operating model.

By taking a broader view of all IT functions you may be able to make one reorganization recommendation that solves larger issues of efficiencies or service quality which also demonstrates you are a thoughtful, deliberate, strategic thinker.

I know this post is running a bit long but I would never dream of discussing an IT reorganization without pointing out the need to also do the organizational change management work that goes along with it.

You need to at least sit down and plan the transition including the timing and developing a communication plan.

In the end, whatever IT operating model you choose or what your IT organization chart ends up looking like, all that really matters is that it results in an improvement in your performance and capabilities – benefits according to your customers.

PS – If you are still itching to reorganize IT, instead of moving staff or teams, rotate your managers. It helps with creating consistency, accomplishes ascension planning and uncovers weakness in your management team.

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8 Responses to IT Organization Structure and Operating Models

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  3. Bob Cancilla says:

    Today most IT organizations have lost their focus on supporting the business enterprise and have become self-serving empires of technology. Restructuring and refocusing on meeting business objectives, paralleling the business LOB structure and eliminating waste, bureaucracy, and redundancy from the organization is a viable objective and can be hugely beneficial to the enterprise.

    Look closely at various organizations like your “Architecture” group and their products. Are they an obstacle or an asset? Do you need all of the technology specialists you employ? Can you out source much of work done in house and create dramatic savings and productivity?

    What is the quality of the people in your organization? How much is invested in legacy systems and can you find a more cost effective means of supporting these systems than in-house staff?

    The bottom line is that reorganizing for the sake of reorganizing is indeed a “fools errand” as stated by the author, but reorganizing with fire axe to cut bloat and waste out of your organization then by all means reorganize!

  4. The Higher Ed CIO says:

    Well said Bob. I do wonder though if most CIO’s, upon reflection or self-inspection, even recognize the signs of their empire oriented tendencies.

  5. Immy says:

    Yep, get rid of all the red tape, dead wood and time wasters in the organisation. We need people who know what they are doing, deliver, are strategic but tactical in their implementation. IT must deliver faster business value and higher service level; you need the right structure and people for that

  6. Sanjay R Chadha says:

    Generally good thoughts, but I would respectfully disagree! There are many different elements that come into play in a successful organization and reorganization is one of them. One of the most successful IT organizations I was a part of early in my career reorganized itself every year! It helped that the CIO had a background in HR and understood that organization design is a function of organization need and available resources. So as people grew, our needs changed, our technologies changed, we re-organized. Obvious examples are MF DASDI Manager, IO Manager to Server Administrator, more recently from Network Manager and Telephony Manager to “Communications Manager” and so on..The way we were organized was key to why we could do IP Telephony way back in 1999, why we could do a single global instance of SAP for a large global company, whu we had one OS image across the globe and so on…

    In doing so, none of us got vested in the domain we were entrusted with as our personal fiefdom, and since all of us ended up doing more than one function in time, we had a much better appreciation and respect for the other function’s value and challenges. Today, almost all my peers from that time are CIOs and we continue to use well thought our reorganization as a powerful tool.

  7. The Higher Ed CIO says:

    You have shared is an interesting experience. It makes me think of those that believe in having very specific jobs (positions) anchored to a technology as compared to those who use broader, more general, position descriptions that transcend any one technology. One creates constant maintenance and focuses on the technology (inward) the other focuses usually more on the service (outward). Then there are those that are now adopting a way of thinking where people have skills that are matched to requirements (needs) using more of a matrixed approach than the traditionally rigid organizational model.

    In the end, the results are what matters. Reorganize annually, monthly or as every project is launched as long as you can rationalize and justify the cost of the change which is often an indirect soft cost.

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