You have heard the words: DevOps, Agile, Scrum, Reactive, Proactive, Strategic. You have also read about IT reporting to the CEO and to others reporting to the CFO or COO. I’m sure you also read articles that tell you that you MUST have this one version of IT. Still, is it true? Is there just one way to do IT right?
The short answer is no. There are many ways to run an IT operation, and the right one depends on many factors, including leadership expectations, funding, and company culture. All of these factors need to be considered or you will end up with an ineffective IT organization.
The remainder of this article will expand on the factors, and how it can help lead you to an optimized IT organization.
Not all leaders expect the same things out of IT. Some CEO’s will think …
- IT is just a necessary evil, a cost center that needs to be run at the lowest possible funding level. These CEO’s may have had bad (and expensive) IT experiences, or had major negative operational impacts which cost them … big time.
- IT is valuable, but mainly as an execution arm of the rest of the business. They expect innovation to be coming from the operational areas and IT is expected to execute as quickly as possible.
- IT is Strategic and Innovative. These IT organizations help the business to be innovative by understanding the direction of the business and showing the “art of the possible” to the different parts of the operation.
This first factor matters since the creation of a Strategic and Innovative IT organization in a company where the CEO expects the lowest cost possible is just going to cause issues. Similarly, building a reactive IT organization, when the CEO expects innovation is not going to work.
It is also critical to understand funding. Deloitte found (Driving value creation with technology) that IT as a percentage of revenue is averaging 3.28%, though it has been highly dependent on the Industry. Some industries, like Manufacturing, have much less spend than Banking, but what really matters is how much spend is spread between business operations, incremental business change, and business innovation.
Why this matters is if the funding levels are only enough to keep the lights on (mainly just business operations), the IT organization is not going to be able to help as much in business innovation. An interesting finding from the Deloitte article is that in High Performing Companies, Technology as a % of revenue is less, but the CIO’s have more control over the overall technology budget. Presumably, due to the CIO being able to align the technology spend more strategically, there is less duplication or wasted money.
The last factor we will consider for this article is the culture of the company itself. Some companies are very siloed … and they like it. Working cross-functionally is just not something they are good at. Other companies (especially those who are Six Sigma or Lean), do this very well.
The cultural aspects are important to consider in how you expect the business to work with IT. If a company is siloed, there will be issues with expecting your Marketing folks (for example), to be working hand in hand with IT in an Agile fashion. Similarly, a company which is very cross-functional, will have difficulties with the “request and wait” process of a reactive IT organization.
So, which way do you want to go?
I had posted an earlier article on Reactive/Proactive/Strategic IT, and it may be worthwhile to review here. I believe that to truly get the value out of IT, you want it to be strategic, but it may not fit your organization today, or your desires.
When you consider the above factors, understand they are not all in stone. Transformation is always possible, but it is Organizational Change Management and doesn’t happen by itself. So, if you are, for example, the CEO of a company, you need to understand not just where you are today, but where you want to go.
Leadership Expectations are probably the most important factor since this can drive all of the other factors. If you as a CEO don’t see a purpose for Strategic IT, well, then you are not going to fund IT or change the company culture to make IT strategic. Similarly, if you are a CIO, and want IT to be strategic, you need to start by convincing the C-Suite this is something they want. In any case, before you change your IT organization you need to make sure that the Leadership Expectations and the type of IT are aligned.
A related decision here is where IT should report.
- If your IT is going to be mostly reactive (i.e. the CEO considers it a cost-center), having IT report to the CFO or COO may make sense. It really depends on the CEO, but for a cost-center, involving the top office in the details probably doesn’t do anyone any good.
- If IT is going to be proactive, but not strategic, then, like reactive IT, it depends on the type of CEO, and also the type of CIO Some CEO’s are in their bones COO’s, but normally, unless IT is strategic, the CEO shouldn’t get down to the level of detail need to mage this function. If the CIO is able to communicate at the CEO’s level and is handling all of the details, however, then it makes sense to report to the CEO especially if you are moving from Proactive to Strategic IT.
- If IT is going to be strategic, you probably want your IT leader reporting to the CEO. Though you may have strategic leaders outside of the CEO spot, human nature is that each layer “protects” the next upper layer. The CIO doesn’t want to give bad news to the CFO, and the CFO, certainly doesn’t want to give bad news to the CEO, BUT for IT to be strategic the CEO needs to have the real story since he or she is the ultimate obstacle remover. Adding layers between the CIO and the CEO just will reduce the effectiveness of a Strategic IT team.
Once we are aligned at the Leadership level, we really need to consider the funding.
A reactive IT organization appears to cost the least, but this is because you have very little value creation. In other words, yes, it may cost the least, but you will get the least value out of it. Over the years, costs will go up, mainly because there is little in the way of continuous improvement.
Proactive IT is better, and though it will cost more (mostly on staff), changes will be addressed much faster (reducing the project costs). As an example, with Reactive IT, changing to a new Web Content Management System may take 8-12 months or more from request. In a Proactive IT world, the timing should be closer to 4-6 months since IT would have been expecting the request and did the prework before the business even asks.
A Strategic IT organization is, initially, going to cost more money. Assuming you have a lot of legacy applications that need to be consolidated and are coming from a reactive organization, there will need to be an investment in people, processes, and potentially technology. The good news is once the organization is working, your costs will go down and your value will go up (or you can reinvest and have the value go significantly better). Though I am warning of an initially higher IT investment, it may not have to be. In one of my last roles, we identified millions of savings within my first six months and used those savings to re-invest in the needed staffing.
Leadership and funding are about top-level alignment, which drives the Reactive, Proactive, and Strategic decision, but Culture is about the alignment with how the company really works. This is where we start to talk about Agile, DevOps, etc.
- DevOps is really about how IT operates, and at its core, it is about breaking the silos down within IT to speed delivery. I have never seen a good argument of why NOT to do DevOps, but I have experienced many examples of why you should. When your Operations and Development teams are separated and only come together in a “waterfall” type of model (we pass it to Operations when Development is done), you are building in problems. People will make decisions in Development which Operations doesn’t agree with and re-work becomes essential. You also can run into handoff issues of scheduling – one team finishes, but the next team has a lag before it can address. This is a form of time waste.DevOps requires, however, everyone is involved early and often to reduce these issues. This can be a culture issue in some places, but for me, this is a go-do item that you should already be addressing. There is just no good reason to build problems and waste in your process! If you want too, hey that is okay, but these silos are not needed.
- Agile. Unlike DevOps, Agile involves everyone. IT can’t do Agile alone, it fundamentally needs alignment between IT and the different operational groups. Some IT groups do Agile themselves, but this isn’t Agile, it is just planning your work in short intervals. The idea of Agile is great, but there is a danger. Without a strategy, you can end up with ‘tactical innovations’ which do not tie up strategically. You will get short-term value, but there can be a longer-term cost. Since Agile requires the business to be involved, your organization’s culture needs to support it. If the business just wants to dump a request to IT and wait until IT is finished, Agile isn’t going to work.
To summarize, there are many ways to run an IT organization, and though you will get the most value from a Strategic IT organization which is running DevOps, and working with your operations in an Agile fashion, this requires the Leadership Expectations, Funding, and Company Culture to align for it to be effective. Running your IT organization in another way is okay, but again, all the factors have to align with what you want to get out of IT.
For a Digital Transformation, this is the first step. Without aligning Leadership Expectations, Funding, and Company Culture and how IT will work, you will end up spending money, but not getting what you want out of it.