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Getting the IT Operating Model Right

One of the highlights of our 2012 Executive Forum in London was the presentation by Darryl West, Group CIO for Lloyds Banking Group. For the first time in a public forum, Darryl told the IT story behind the 2009 merger between the then Lloyds TSB and HBOS. By any measure, this was one of the largest mergers in UK business history with each bank having nearly 20 million accounts and over 1,000 branches.

Getting the IT Operating Model Right

While the sheer scale of the integration challenge is impressive, the story is even more compelling when viewed in the context of the financial crisis of the time.

While the sheer scale of the integration challenge is impressive, the story is even more compelling when viewed in the context of the financial crisis of the time. With HBOS in trouble and the UK government keen for a solution, there was little time for the preparation and due diligence one would normally like for mergers of this scale and consequence. As with Barclay’s takeover of Lehmann Brothers and Bank of America’s absorption of Merrill Lynch, enterprise IT essentially faced a fait accompli, which it needed to make work.

Over the next three years, Lloyd’s IT did just that. And while the bank’s overall integration strategy and tactics contain a great many useful lessons, what most struck us was the overriding importance of IT, which was the “spine of the plan”, with Lloyd’s management trusting that – despite the massive scale, deep complexity and unavoidable technology jargon – IT really did know what it was doing. Three intensive years later, when Lloyd’s new merged services went live with virtually no disruptions, IT’s position in the firm was elevated to a new level, with a clear charter to take on new initiatives, backed by ample resources.

In contrast …

Lately, we have had a number of client interactions of a very different nature. We worked with a large transportation and energy firm that has recently disbanded its IT shared services organization, opting for a decentralized business unit approach to IT. We also conducted a workshop with a global consumer durables firm that still has a large shared services group, but is worried that this group finds it so hard to meet the firm’s geographic and product line needs. Similarly, we met with a large aerospace and defence company where the future of the central IT function was an increasing topic of debate.

In all three of these cases, we got the impression that as information technology moves to the front of the firm, there are serious doubts about the ability of central IT to move with it. If these concerns prove true, central IT might someday do little more than provide basic infrastructure services, many of which might well be outsourced. Emerging applications in areas such as mobility, social media, analytics, product IT and various in-field systems would mostly be the responsibility of individual business groups.

Is there a pattern here?

While there have always been a wide range of IT organizational and operating models, as well as a constant ebb and flow between centralized and decentralized approaches, we wonder if the changes we are observing are of a more fundamental and deterministic nature.

For example, when we talk to banks and insurance companies, we often get the sense that IT is becoming more important and influential inside the firm. After all, these industries are essentially information-based. Just about everything they do depends on computers. In this sense, the company’s information and software-based processes can be seen as a more accurate version of the real firm than its physical offices and staff.

In contrast, for firms where the products are mostly physical in nature, it is easier to see scenarios where the footprint of central IT shrinks – to infrastructure, finance, HR, maybe ERP – with relatively little participation in the value-creation, front-office side of our Janus model. For example, social media and analytics would be led by marketing; smart products would be controlled by engineering – and so on. To improve efficiency, these groups would share know-how and pool resources as they see fit.

Are we at a turning point?

What should the role of central IT be? And how can it stay aligned with the business at a time when IT is increasingly both crucial and pervasive?

We raise these alternative scenarios because we have been struck by the number of existential debates we are being asked to participate in. What should the role of central IT be? And how can it stay aligned with the business at a time when IT is increasingly both crucial and pervasive? Perhaps it’s the extended economic downturn; perhaps it’s the rising potential of information technology itself, but, for whatever reasons, a lot of very big questions are suddenly being put on the table. The pressure to get the IT operating model right has never been greater.

How is this challenge playing out in your firm?

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AUTHORS

David Moschella
Research Fellow
David Moschella, based in the United States, is a Research Fellow for Leading Edge Forum.  David's focus is on industry disruptions, machine intelligence and related business model strategies.  David was previously Global Research Director of the programme. David’s key areas of expertise include globalization, industry restructuring, disruptive technologies, and the co-evolution of business and IT.  He is the author of multiple research reports, including Disrupting the Professions through Machine Learning and Digital Trust, 2016 Study Tour Report: Applying Machine Intelligence, There is Now a Formula for Machine Intelligence Innovation,  Embracing 'the Matrix' and the Machine Intelligence Era and The Myths and Realities of Digital Disruption. An author and columnist, David’s second book, Customer-Driven IT, How Users Are Shaping Technology Industry Growth, was published in 2003 by Harvard Business School Press.  The book predicted the shift from a supplier-driven to today’s customer-led IT environment.  His 1997 book, Waves of Power, assessed global competition within the IT supplier community.  He has written some 200 columns for Computerworld, the IT Industry’s leading publication on Enterprise IT, and has presented at countless industry events all around the world. David previously spent 15 years with International Data Corporation, where he was IDC’s main spokesperson on global IT industry trends and was responsible for its worldwide technology, industry and market forecasts.    

CATEGORIES

21st Century
Adaptive Execution
Assets/Capabilities
Identity/Strategy
Proactive, Haptic Sensing
Reimagining the Portfolio
Value Centric Leadership

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