Chapter 8

Organizing the IT function

For the next six weeks much of our focus will be on the functions of the IT area and how the area can best be managed. While many of you may have little interest in this as a career path, you may find some value in learning how this area handles staffing and management functions, so you have a basis of comparison to your own area. And, as you assume larger leadership roles, it should be useful to you know what is going on in an area you depend upon for resources.

I have taken the book chapters out of order, since I like to start at the top down, and then work toward detail. Therefore the logical place for me is to start with the basic organization of IT. Next week we will also look at a central issue for IT – how much should be handled by the department, and how much should be outsourced? In short, what is the scope of the department?

The essence of Chapter 8 is shown in the table on page 545. We have two cultures in permanent opposition: IT and users. Each as its own background, and its own values. They will always clash. They have clashed for forty years.

In the 1970s the IT people had the upper hand because computers were incredibly expensive and hard to use. So IT (then usually called data processing) controlled the one mainframe computer and users came crawling to IT to beg for a few scraps of information.

In the 1980s microcomputers became available and users saw a shortcut around the IT bottleneck. They bought a desktop machine and created their own programs, often in Lotus 1-2-3 or Excell. Who needs IT? They would ask. Users would take care of themselves.

In the 1990s companies started networking these independent machines together and discovered that data could not be exchanged between departments and that a lack of hardware standards drove up the costs of networks. IT gained ascendancy as the giver of hardware and software standards.

In the 2000s most companies are working to centralize information through Enterprise Resource Planning Systems (ERPs) or other means, while they adjust to the realization that IT must now be real-time 24/7 with complete security. All these trends have further pushed the centralization of the IT function.

Now we are struggling to find a balance so that there is easy access to information, real-time information, and complete security, yet there is freedom of innovation. The examples from the chapter no doubt look much like the system development efforts you have seen in your own companies. Finding balance is not easy, and each company is working out its own strategy.

Organizational Models

Currently there are three variations on how IT can be organized in response to this balancing act. In some measure each addresses how IT employees are assigned and managed.

Centralized- IT hires everyone, trains them, supervises them, and determines which projects they will work on.	Decentralized IT workers may be hired by IT, but they are assigned to business units and work for area managers	Matrix IT workers are assigned to business units either temporarily or permanently, but they are supervised jointly by an IT manager who also supervises their training.
Advantages- IT has better control over its employees, keeps their skills up to date, keeps them busy on priority projects, and makes sure that company standards are being followed. This approach is the best at keeping worker’s technical skills current.	Advantages- Business units feel better having “their” IT people available to resolve problems. IT workers are taught how the business operates, and understand how IT fits into corporate strategies.	Advantages- IT workers learn about both IT and the business. They are available to meet local needs, but also have the support of fellow techies.
Disadvantages- Business units are often impatient with the services they receive from IT, and may be unsure whether IT understands business needs.	Disadvantages- IT workers may feel alienated from their technical roots, may grow obsolete, and may not understand latest IT developments. Much organizational infrastructure is centralized and must be managed as such.	Disadvantages- No one likes working for two bosses. Performance appraisal is more complicated. While the structure may be labeled “matrix,” it may really be centralized or decentralized with lipservice paid to matrix principles..

Other Issues

Besides the question of whether IT should be centralized or not, companies also have to determine:

Leadership – Does the head of IT report directly to the CEO and sit on the executive committee? If so, that person oft en takes the title of CIO – Chief Information Officer. Or, does the head report up through accounting or the CFO? If the former, IT is being considered more strategic, if the latter, IT is being considered more support.

Budgeting – Are costs centralized, or are costs distributed to departments? If centralized, departments make requests for resources (new computers, new software, new network or web functions), and IT determines if the department gets what it wants. If distributed, departments get what they are willing to pay for.

Planning – We assume some connection between IT budgets and goals and organizational budgets and goals. This connection is often made by an executive committee that analyzes IT projects and selects which ones to fund based on larger goals. But sometimes, IT managers are just given a budget and allowed to spend it as they please.