August 5, 2015

Dance of the Elephants: Extending IT Into Shared Services

CIO Strategy Exchange, New York, 2005

Opening Volley

At the request of the CIO Strategy Exchange members, we prepared this briefing paper to examine the optimal links between the IT organization and its end users. Personal interviews with accomplished CIOs, ready to share new insights, were absolutely central to this effort. These sessions were conducted in a cross-industry representation of CIOSE membership: [REDACTED]. We are deeply appreciative of the time these members (and colleagues in their enterprises) gave to our visits. The case snapshots presented here reflect their candor in discussing what works – and doesn’t work – in interacting successfully with their business counterparts. Their experiences and hard-won learnings have broad applicability across the CIOSE spectrum, regardless of industry or sector. We hope you find them useful.

Today’s climate is surprisingly fresh and positive – especially considering the punditry’s past insistence that CIO stood for “Career is Over.” And the post-bubble/hangover article by Nicholas Carr: “IT Doesn’t Matter” that generated such fierce controversy a year ago. Writing in the Harvard Business Review, the journalist argued that IT had become so commoditized (and hence, easily replicable) it could no longer trigger competitive advantage. His three counter-prescriptions were “Spend less; follow, don’t lead;” and focus less on opportunities and more on the vulnerabilities created by growing dependence on outsourcers. Carr closed: “IT management should frankly become boring. The key to success… is not to seek advantage but to manage costs and risks meticulously. If like many executives, you’ve begun to take a more defensive posture towards IT recently, spending more frugally and thinking more pragmatically, you’re already on the right course. The challenge will be to maintain that discipline when the business cycle strengthens and the hype about IT strategic value rises anew.”

Our readers will find both agreement and dispute with his views. Many fundamental applications have indeed become ubiquitous, affordable and generically accessible. And unquestionably, money is being saved through the declining costs of computer power. But the enterprises described here are not, in fact, managing defensively when they use IT to leverage global business processes for considerable competitive advantage. And they are still harnessing the occasional breakthrough technology that clearly adds economic value.

Most striking is IT’s widening organizational reach over the core business. At [REDACTED] for example, the CIO now has responsibility for supply chain, procurement and customer service. Headcount for his organization expanded from approximately 2,000 (including outsourced staff) to 6,000 people. At [REDACTED] the corresponding organization grew from 5,000 to 20,000 employees as the CIO assumed responsibility for all back office functions, focusing the business units on product definition, marketing and sales to corporate customers. With these enlarged responsibilities, IT Management is hardly “boring.”

The interviews focused on five typical and ongoing interactions between IT and the business that are common sources of friction over responsibility and accountability:

  • Identifying technology-enabled opportunities for either/both cost reduction and product/service differentiation.
  • Determining priorities for IT funding when they span business units and end users.
  • Promoting common systems, or systems components, to improve IT productivity.
  • Installing new applications and optimizing business processes.
  • Monitoring, measuring and achieving of originally projected cost reductions and product/service differentiation.

Our opening hypothesis assumed IT would, on matters of global infrastructure, have sole responsibility for all five interactions. But in the applications arena, the IT organization’s role generally would be confined to searching for common systems or components to enhance productivity. Business units would dominate decisions on identifying applications, priority setting, oversight of new systems installation and measuring outcomes. And these assumptions may still be correct for many enterprises.

But an entirely different structure and relationship between IT and business units is evolving, driven by two fundamental corporate imperatives: efficiency and speed. To these ends, the current generation of CEOs is demanding standardization (rather than frivolous diversity), consolidation (rather than duplication) and critically, enterprise- wide business processes (rather than stovepipes). How else to compete globally, both on costs and accelerating pace? Technology strategy and corporate strategy must be tightly linked. So in some enterprises, IT and line operations are being united in a single organization called “Shared Services” which goes well beyond technology infrastructure. Indeed, CIO has come to mean “Career is Over” – over much of the business. And this trend seems more than a swing of the centralize/decentralize pendulum or the new CEO’s personal preferences.