Structuring Global IT Organizations
This paper identifies the adoption of appropriate IT organizational structures as a necessary precondition for IT effectiveness, and recommends methods to structure IT departments in global corporations. Without minimizing the importance of culture, skills, processes, team work, personal relationships and informal networks, organization charts define the framework on which businesses are built. They lay out the formal structures that channel employee efforts towards the firm’s best interests, and they set bounds on what can be achieved. In this way, organization charts are to organizations what financial statements are to accounting: they may not say everything that needs to be said, but they say a lot and are widely understood.
The importance of IT organizational structures
IT organizational structures are particularly important right now. The IT honeymoon is over and businesses are scrutinizing the value of IT in the same way that they have always scrutinized other business functions. CEOs are challenging IT and business leadership to demonstrate the value generated from their IT investments1. This is never easy. However, effective organizational structures offer a partial solution. The largest component of IT budgets is typically the cost of people, both internal and external. With a sound organizational structure, you can at least show that your IT staff is organized in a way that should result in business value. In other words, clearly aligning your IT organization with business needs is a significant and necessary step towards confirming the value of IT.
However, we will see that such alignment is not without risks. Structuring your IT organization to fit your business requirements can bring about changes in responsibilities that can either reinforce or undermine key IT leadership positions including that of the CIO. It also has important implications for the way that outsourcing may or may not be appropriate.
This paper presents an objective approach to structuring IT in the best interests of any given company. The format of this paper mirrors the evolution of our research. We first introduce some of the many factors known to play a role in managing IT in global businesses. Within this wide field, we assess the experience of a number of major corporations and identify some clear patterns. We then present a powerful new decision-making model that draws on this analysis and can be applied to virtually any company to produce an appropriate IT structure.
Later sections demonstrate the model’s effectiveness in four large multinational companies that are generally regarded as having ‘good practice’ IT units. Finally, we summarize the core ideas in the model and recap how you can apply them to your own organization.
The challenge of structuring IT in a global business
- Examine what an IT department does, from both the IT and business perspectives
- Understand the forces affecting the structure of a modern IT department
- Appreciate what IT issues really matter in today’s business environment
- Recognize the variables at our disposal when structuring an IT organization
These steps by themselves solve nothing, but they provide an overall picture of the key factors involved in structuring global IT operations. Later in our research, when we interviewed leading global firms, we went informally through these four steps to establish the overall IT landscape before validating our model for structuring IT organizations.
Figure 1 - Core IT services and functions viewed from business demand and IT supply perspectives
- Step 1 examines what an IT department really does from both an IT and business point of view. From a traditional IT perspective, IT is a complementary set of expert activities ranging from database administration through server operations to running help desks. By contrast, from a business perspective, an IT department runs IT infrastructure and business applications, and integrates new solutions. These are respectively the ‘supply’ and ‘demand’ views. Both are important. However, the demand view should set the tone when determining the high-level structuring of IT. The supply view is relevant at a lower level, for organizing skills and resources once the overall direction has been set.
- Step 2 is to understand the generic forces that act on every IT department, whatever the size of the business served. There is always a force pushing to pool IT resources to improve IT efficiency and professionalism. This force was often the main driver behind the creation of an IT function in the first place. Opposing it is a fragmentary force pulling IT resources into the business functions. This is usually driven by the business units’ desire to direct IT projects or services themselves. A third force, at a tangent to both of these, is towards outsourcing – taking IT activities right out of a business and placing them in the hands of a third party. Such decisions are typically driven by an executive view that someone else can do the job.
Figure 2 - Forces shaping IT organizations
- Step 3 is to appreciate that these generic forces alone are unlikely to create an IT structure that optimally fits your business requirements. Multinational businesses exist on a spectrum from a loose collection of independent national organizations held together by a holding company, to closely integrated global corporations with business processes cutting across national boundaries. How a company is actually run will define the range of IT structures that are likely to be successful. In addition, the relationship between business and IT governance must also be assessed.Where is P&L responsibility, and to what extent are IT investments global in scope? Local and/or national IT investment control has often been the downfall of company-wide IT initiatives that were intended to fine-tune globally consolidated processes but did not add sufficiently tangible local business value.
- Step 4 identifies the variables at our disposal when structuring an IT organization. The structure can be oriented by geography, by business function, by business process or by IT expertise. In most global IT organizations, one of these parameters will dominate and dictate the top-level split in the IT organization chart.
Most IT organizations take their cue from the business structure.Within the basic organizational structure, there is then the question of where the bulk of IT resources are accumulated and controlled. This is not just where they appear on the organization chart but where they are physically located, which (as shown by offshore outsourcing2) is not always the same thing. Firms with a mainframe history or a large domestic market in their head office country tend to be centralized, while others are more distributed. Additionally, there are many other organizational issues that need to be juggled, including supplemental governance instruments such as steering committees and accounting architectures, as well as pooling approaches such as competence centres, centres of excellence and shared service centres.
1. For further information, see Valuing the IS Contribution to the Business, CSC’s Research & Advisory Services, February 1999.