To Centralize IT or Not Centralize IT, is it the right question?

I was recently asked “How can I effectively organize my IT organization?”  This seems to be a fairly straight forward question, and with the decades that IT has been part of the business, you would think there would be a good answer.

Unfortunately (or fortunately), there are many effective models, and it really depends on the organization you are in.  So, instead of giving a simple “Jay’s favorite model,” I’d like to explore with you some of the aspects of IT Organization, and see where it takes us.  Should we centralize IT seems to be a key point as an organization grows, so let’s start there.

In my career I have worked in (and led) centralized IT organizations, decentralized IT organizations, and all the variations.   I can give you the pros and cons of each,  and my preferences, but the real question isn’t if centralizing or decentralizing IT is a good idea, but why?

Why do we centralize?

  1. We want to reduce cost  Shared services can certainly save money.    For example, if you have 3 Salesforce Admins for each of 20 business units, you probably have 60 people doing what 20 or less can do.
  2. It’s easier to manage Depending on your management style, and the organization culture, a centralized organization can be easier to manage than a decentralized one.  There can be one chain of command.
  3. CommunicationThough related to the easy of management, ease of communication can be internal (all within IT) and external (internal customers to IT).  Depending on how you centralize, this can be more straightforward for both the IT organization and their internal customers.
  4. StandardizationBy centralizing it can be easier to standardize processes and procedures.  This becomes more critical as the business itself becomes more globalized, and requests cross multiple IT organizations.   If an end-user needs to fill out form X for one organization, and Y for another, they will quickly become unhappy.

Why do we decentralize?

  1. Closer to the business  Though HQ runs the show, and does much of the planning at the high level, in most organizations, the real work is done in the trenches.  By having IT in the business units, you can support local needs more effectively.
  2. It’s easier to manage Depending on your management style, and the organization culture, a decentralized organization can be easier to manage than a centralized one.
  3. It’s easier to charge IT costs to the business unitAgain, all depending on how your IT organization is setup,  budgeted and charge back model, decentralizing can make certain costs much easier to attribute to the business unit.
  4. It’s easier to deal with variabilityAs we centralize, we standardize.  The problem is the standardization may eliminate aspects of value to the local organization.  For example, if a local business unit has been using this great CRM system for years, trying to change them to a “standard” which probably does not have all the functionality of the old system, may be beneficial to IT, but not to the business.

There are valid reasons to centralize, and to decentralize; some beneficial for IT, some for the business.  I would need to do more research, but based on my observations, centralization, to some degree is related to business growth, and the centralization of the overall business.

So, which is the right model for you? The right model will provide most value to your business.

Over the years I have seen IT organizations have budgets slashed, and made easier to manage, BUT lose their value to the organization.  Their focus is incorrect.  If cost is the only factor, anyone can reduce costs until there is no value, but who wants to be the lowest-cost, no value IT organization?

What this means for our organizational discussion is that no matter how you organize your IT, be it centralized or decentralized, the goal has to be how to provide the most value to the business.

Personally, I’d prefer to run a decentralized organization, which is deep into the business.  I want many of the IT resources to live and breathe the needs of the functions and business units.  I still need, however, a centralized group to maintain standards, share services that make sense, and build an infrastructure and application architecture which makes sense for the business.  That said, if it doesn’t meet the needs of the business, it doesn’t make sense.  We need to use the right tool, for the right job.

Jay’s Key Rule of Business IT   Like Life, the business will find a way. If your IT team is unresponsive, Shadow IT appears in the business.  If you can’t supply Shared Network Storage, Google Drive, One Box, Drop Box, accounts will thrive.  No matter what we try to “control” in IT, if the business groups need it, they will find ways to get it.

What are your thoughts?