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.
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.
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.
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.