SlideShare uma empresa Scribd logo
1 de 16
Baixar para ler offline
A paper by the Economist Intelligence Unit
sponsored by CA, Inc.
IT operating models: weighing risks and rewards
Aligning business and technology
© The Economist Intelligence Unit Limited 2008 3
IT operating models: weighing risks and rewards
IT operating models: weighing risks and rewards is an
Economist Intelligence Unit briefing paper, sponsored
by CA, Inc. The report is made available exclusively
to readers by the CA Customer Alliance Program and
the Economist Intelligence Unit. The Economist
Intelligence Unit’s editorial team conducted the
interviews and wrote the report. The findings and
views expressed in this report do not necessarily
reflect the views of the sponsor. Shaun Young was
the editor and project manager. Terry Ernest-Jones
was the author of the report. Richard Zoehrer was
responsible for the layout and design.
The paper is part of a research programme launched
in early 2008 to study the alignment of business and
technology. IT operating models: weighing risks and
rewards is the second of three reports in a series on
aligning business and technology. Our research drew
on two main initiatives. We convened an advisory
board of senior technology officers and specialists
in New York City in March 2008. We also conducted
in-depth interviews with chief information officers
and senior technology executives. Our sincere thanks
are due to the advisory board participants and
interviewees for their time and insights.
May 2008
Preface
4	 © The Economist Intelligence Unit Limited 2008
IT operating models: weighing risks and rewards
Executive summary
oday, companies depend on information
technology (IT) to run the vast majority
of their core business processes, yet for many organisa-
tions, the alignment of IT and business has not yet been
accomplished. A recent survey1 carried out by one of
the world’s largest organisations of senior IT executives
finds that IT/business alignment emerges as one of
the top two IT management concerns today. Although
considerable progress has been made in recent years in
harnessing IT to bring value to the business, the issue
remains unresolved.
	 One key obstacle is the accelerating pace of change
facing companies and the resulting urgency for busi-
nesses to adapt continually to new conditions. Firms
not only have to expand their global reach and meet
the needs of increasingly demanding clients, but also
leverage their capabilities and offerings across differ-
ent technological platforms. Furthermore, greater col-
laboration with third parties and faster innovation are
required—not to mention attending to security threats
and regulatory encumbrances.
	 As organisations evolve, IT departments must estab-
lish and maintain operating models for an increasingly
complex enterprise IT infrastructure. To keep ahead of
competitors, executives must determine how best to
manage and leverage IT operating frameworks to bring
maximum value to the company. This may involve a re-
evaluation of archaic practices, but, when successful,
the rewards are substantial.
	 As a result of restructuring its IT operation,
UK-based Harrods department store’s customer loyalty
programme has added 1-2% in annual revenue in its
first year, according to chief information officer (CIO)
David Llamas. “Today we have much better insight as
to who our customers are”, he says. “Now business
insight, which governs the loyalty programme, is one of
the three main streams of our IT operation.” The other
two main areas of Harrods’ IT operation are technology
infrastructure and business processes.
	 Companies’ IT systems need to be able to respond
to market changes. In Harrods’ case, key drivers
were thinner margins, the growth in online shopping
and the challenge of retaining loyal customers. A
company may need to reinvent and transform itself
periodically to prosper—or survive. The IT infra-
structure must be versatile enough to respond: a
system is required that is flexible enough to support
continuing business evolution. The ability to get the
right information to the right place at the right time
is paramount to the alignment of business and tech-
nology. Here are some key steps to consider:
n	 Determine how IT should support business goals
versus its performance according to standards only
relevant within IT. Examine the impact of IT on key busi-
ness metrics: look beyond traditional measures such as
project delivery times and cost per head.
T
To keep ahead of competitors, executives
must determine how best to manage
and leverage IT operating frameworks to
bring maximum value to the company
1 Society for Information Management (SIM) 2007 Survey, October 2007
© The Economist Intelligence Unit Limited 2008 5
IT operating models: weighing risks and rewards
n	 AdjustyourITmodeltoenablestrategicobjectives.
If the two are out of sync, IT cannot be expected to grow
company value. Understand your organisation’s atti-
tude to IT.
n	 Avoidamodelthatclasheswithcompanystructure.
If decision-making takes place at a departmental level,
the IT structure should reflect that reporting line.
n	 Consider a hybrid model, rather than opting
only for purely decentralised or centralised models.
Although not appropriate in all cases, this is the direc-
tion many forward-looking organisations are taking.
Certain functions within the IT operation are likely to
lend themselves more to one method than the other.
n	 Examine how a charge-back mechanism could be
deployed to expose costs. Creating transparency with
costs can lead to more rational decision-making when
selecting an appropriate operating model.
n	 Used with discrimination, best practices such as
Information Technology Infrastructure Library2 (ITIL)
can help sharpen IT delivery, and prevent wasteful
trial and error.
n	 Inevitably, as an organisation evolves, the pen-
dulum will swing between centralised and decentral-
ised models. Current demands may require a slight
leaning to one side or the other. The challenge is to
manage the tilt.
	 Ultimately, “the IT unit has to be an integral part
of the business”, says Robert Shoenfelt, CIO of Celina
Insurance Group, based in Ohio, USA. “Its role is to
serve and move the business forward.”
Sizing up the right model
xecutives are faced with a range of
options when it comes to the crucial
choice of the IT operating model which will bring most
value to the company. For instance, in light of such
challenges as vendor consolidation and outsourcing,
is it preferable to operate with a centralised global IT
team that provides standardised IT services across the
enterprise, bearing in mind the cost of implement-
ing a centralised model? Or is it better to establish
smaller, semi-autonomous teams located regionally
with the attendant risk of highly customised but non-
standardised applications? Alternatively, is it possible
to create a hybrid model to attain the best of both
approaches? Executives face a bewildering range of
options. Answers are rarely simple and are driven by
differing business needs.
	 As a starting point, David Johnson, global infor-
mation officer for a US real-estate firm, Jones Lang
LaSalle, believes that it is important to understand
“what the organisation thinks about technology
and how it assimilates IT”. His company operates in
60 countries, so getting the model right has been
essential for co-ordinating the structure. “There
are four main ways to go”, he says. “Localised,
1 ITIL is a framework which draws on best practice internationally and defines
how IT resources can be organised to deliver business value.
E
6	 © The Economist Intelligence Unit Limited 2008
IT operating models: weighing risks and rewards
iscussion among executives has
continued for some time over the
fundamental question of the value of centralising IT
services. But the debate has sharpened today with
the demands of globalisation and faster innovation.
There is a growing need for better control over an
increasingly diverse operation, staying connected to
multiple partners and being flexible and responsive
as a company to changes in the market. Some say
that many IT managers’ attitudes have not changed
since the mainframe era, when a decentralised, or
“federated”, computing environment was regarded
as a recipe for anarchy. In fact, even in the 1990s
when client/server technology created environ-
ments in which independence and decentralisa-
tion flourished, ultimately IT recentralised many
operations. This “centralised” mindset is unlikely
to be helpful in supporting the business needs of
individual departments and units. However, it may
allow for easier adherence to standards and policies,
better hardware and software procurement deals,
and a more unified vision.
	 By contrast, the ideal of the responsive, de-
centralised IT unit promises better alignment to
specific business goals. Although generally accepted
as useful for supporting both first-to-market and
innovation needs, the downsides are often duplica-
tion of effort across the enterprise, a lack of sharing
valuable information and localised self-interest,
leading to an uncoordinated operation. Decentral-
ised environments generally perform well when it
comes to internal customer service, being closer to
Responding to market forces
D
regional, global and hybrid.”
	 The firm has opted for a hybrid model, with a small
staff at headquarters in Chicago and a higher head-
count at the regional level (USA, Europe and Asia).
The regional IT heads have a “solid” line of reporting
to Mr Johnson and a “dotted” line to the regional
chief operating officer (COO). In addition, a global IT
infrastructure manager reports directly to Mr Johnson.
Recruitment is carried out at the regional level; local
branches are treated as customers. By implementing
a hybrid model, Mr Johnson is able to be “centralised”
for global projects such as implementing a single
cross-enterprise accounting or ERP system, but flex-
ible enough to cater to local needs. He believes that
the present structure has cut the number of different
systems by 30-40% giving “a lot more functionality
for less expense”. He notes, “The IT managers needed
controls—but they didn’t know it.” Before the hybrid
model was implemented, when the systems were overly
decentralised, Mr Johnson found that there were a lot
of redundant systems. “No-one talked to each other”,
he says, “and everyone liked their own system.”
	 Although certainly gaining in popularity today,
the hybrid model itself may not always be appropri-
ate. Firms need to exercise flexibility over whether a
hybrid model is relevant to the business’s needs. Some
top CIOs found that in the case of highly centralised
structures for some banks, a hybrid model may not
adequately serve enterprise-wide priorities such as
governance and data centre management.
© The Economist Intelligence Unit Limited 2008 7
IT operating models: weighing risks and rewards
the targets. In fact, some executives note that when
centralising operations, the same, if not better cus-
tomer service must be provided. When IT organisa-
tions are over-centralised, business units sometimes
compete for IT resources no matter how urgent
their requirements. By contrast, there are instances
where a move to create a company-wide enterprise
resource planning (ERP) system has helped to bring
dispersed, decentralised company “silos” together.
Organisations must pick and choose the model
according to the characteristics that best address
organisational priorities.
	 Yet despite these differences, both centralised
and decentralised IT operating models must respond
to the key needs of the business. “A lot depends on
the structure of the organisation and what it needs
from IT”, says Bob Keefe, chief executive of the
Society for Information Management (SIM), a CIO
organisation that has more than 3,000 members.
“What is the business trying to achieve? The CIO
needs to work to the same business goals as other
business executives.” For instance, he says that if
the goal is enabling business transformation, the
structure will be different from a company wanting
to make incremental growth. In the case of a com-
pany such as New York-based Leviton Manufactur-
ing, the model may even have to adapt to different
stages of the product lifecycles, as Bob MacTaggart,
vice-president of information management, says.
If a product is at the “incubator” stage IT has to be
able to be “faster, more dynamic and less control-
led”, he says. Speed is of the essence. When prod-
ucts are “steady” and mature, though—as applies
to many of the products at Leviton—then the IT that
supports them has to become more cost-effective.
“You have to be flexible and mould [the operat-
ing model] to support the business objective”, Mr
MacTaggart says.
	 Moreover, IT operating models must not only re-
spond to the current needs of the business, but also
its strategies for growth. “Alignment of the IT op-
erating model has to do with IT understanding the
business’s growth plans and implementation strate-
gies”, says Susan Hwee, executive vice president
of IT at the Singapore-based United Overseas Bank
(UOB). For instance, is the organisation growing
by organic means or through mergers and acquisi-
tions (MA)? “The IT infrastructure and application
architecture needs to accommodate sudden growth
spurts if the growth is via MA”, she adds.
	 The IT structure will inevitably reflect the exist-
ing culture: it will be different for companies in
which primarily business units make decisions, com-
pared with those with strong centralised decision-
making. There is no reason why the IT structure
should differ. But to reposition IT to add value, radi-
cal moves may be necessary. “Don’t underestimate
change management,” warns Mr Llamas of Harrods,
adding “Unless senior executives are in line there’s
very little you can do. A cultural change is needed.”
“A lot depends on the structure of the
organisation and what it needs from IT.
What is the business trying to achieve?
The CIO needs to work to the same
business goals as other executives.
Bob Keefe, CEO, Society for Information Managment
8	 © The Economist Intelligence Unit Limited 2008
IT operating models: weighing risks and rewards
r Keefe points out that
certain industry or functional
characteristics will always steer the organisation in
the direction of a centralised IT model, especially
when it comes to reporting on company data to fulfil
regulatory demands. “Interoperability is the key if you
want effective IT governance”, he says. The heavily
regulated financial services industry tends towards
the centralised model. But regardless of a company’s
IT operating model, in Mr Keefe’s view, there is a
need to stay flexible. For instance, he has found that
providing in-country IT support is usually better, as is
a system that allows considerable flexibility for local
units to work differently depending on the culture.
“Companies that impose their national model in other
countries have not learned lessons”, he warns. “They
haven’t hit the wall. You need to understand the local
way of doing things before making synergies.” He
adds that there is currently a trend towards “leaving IT
teams where they are” rather than moving them to a
central location.
	 Companies such United Overseas Bank have tried
to accommodate local cultural variations by using a
hybrid model. The bank has centralised management
of functions such as global networks, data centres
and back-office work for economies of scale, while
allowing greater freedom with a decentralised model
for applications covering specific customer and sales
applications to allow for innovation. Ms Hwee of
UOB says, “IT executives should use best practices
as a base and adapt them to the needs of the
organisation to accommodate the maturity of the IT
organisation and management philosophy, to meet a
certain set of business objectives.”
	 A US pharmaceutical company, Pfizer, is adopting
a similar philosophy in an effort to streamline the
way it does business, according to Imran Haque,
director of the company’s international IT portfolio
(which excludes the US). Pfizer is moving towards
a federated model for its international operations,
as already established in the US. Around half of
IT decision-making will take place at the regional
level where staff are “closer to the customer, and
know the market, language and culture”. At the
same time, there will be shared services especially
for maintenance and support, which are organised
centrally. “At the end of the day we want to
encourage innovation at the local level, but also
create efficiencies”, says Mr Haque.
	 Duplication will be reduced while scalability and
an exchange of “best of breed” systems within the
organisation will be encouraged. Pfizer is setting
up IT governance to include the involvement of
business managers, senior regional IT staff and
representatives from smaller markets. “The idea is
M
Stay flexible
“The idea is to rationalise where we
should be spending and the ways we
could do better. Cost is a driver for the
model, but the key element is providing
the right data to the right people.”
Imran Haque, director, IT Portfolio, Pfizer
© The Economist Intelligence Unit Limited 2008 9
IT operating models: weighing risks and rewards
op senior technology executives are
increasingly realising the benefits
of not adhering rigidly either to a centralised or
federated model, but drawing from the advantages of
both models for different functions in the company.
For instance, within a retailer’s IT operation, the
group responsible for the website needs to be able
to act fast and creatively with sufficient funds and
resources to put new ideas into effect. For this
function, the model draws from a decentralised
approach but includes central monitoring to
keep it within budgetary bounds and on-track. By
contrast, there is little benefit in allowing functions
such as network and infrastructure operations to
be organised locally, nor in letting let local units
become entrepreneurial about developing contact
management systems. At Leviton Manufacturing
website management is centralised when it comes
to enabling a common “customer experience” across
different parts of the business and leveraging new
technology, but is decentralised under different
marketing departments for content management.
	 Drawing from the advantages of both centralised
and decentralised models may only be apparent after
transitioning between them. Usually in a centralised
model all functions—including application
development and planning, procurement, personnel
and budget—are under the control of the CIO or
chief financial officer (CFO). The benefits of this
model are economies of scale, minimal duplication
of work and well-defined reporting lines. Often,
a centralised model is used if lower costs are the
company’s priority. But when centralising with a
standardised infrastructure it may be appropriate
to “decentralise” temporarily for the development
of new applications by putting IT talent into a
business unit. Once developed and standardised,
the application then moves back to the centralised
model for maintenance and operational efficiency.
	 As a rule of thumb, top senior technology
executives broadly agree that the IT operating model
should not veer far from the overall organisational
structure. Those firms run mainly by their business
units need to make IT decisions also at this level,
whereas those with strong central leanings
should make decisions at the enterprise level.
Accountability and structures should be aligned
between IT and business. Many feel that it is more
effective for leadership to communicate strategic
goals to IT managers so that they can organise their
operations to respond to key corporate priorities.
“The key thing is that the IT plan flows directly from
the business plan,” says Celina’s Mr Shoenfelt.
T
Taking the middle road
to rationalise where we should be spending, and
the ways we could do better”, says Mr Haque. “Cost
is a driver for the model, but the key element is
providing the right data to the right people”, he
adds. He points out that once a pharmaceutical
product has been developed, most of the rest of the
work involves information of some kind—either for
marketing, usage, safety or regulatory purposes. “IT
can provide real value here”, comments Mr Haque.
10	 © The Economist Intelligence Unit Limited 2008
IT operating models: weighing risks and rewards
he hybrid model, set up to align
closely with business requirements
and provide maximum value, makes considerable
demands on the CIO’s skills. The executive needs to
be attuned continuously to the changing require-
ments of the business and to understand how IT can
help fulfil goals, such as entering a new market.
In many ways, the CIO needs also to be a hybrid,
possessing both business and technical knowledge
to make the IT operation model work to the com-
pany’s advantage. Expectations when hiring a CIO
are now similar to the requirements considered
when recruiting for any other frontline position. It
is assumed that a top CIO will be able to craft the
IT operating model based on a firm understanding
of how the business operates, where it is going,
and the market dynamics of the industry. The most
sought-after recruits think first in terms of business
and market, and second about IT delivery.
	 In addition to understanding business needs
and how they can be implemented through the
model, the CIO needs the managerial and diplomatic
skills to handle a diverse global operation. Jones
Lang LaSalle’s Mr Johnson spends about 60% of his
time travelling outside the US. As a company execu-
tive, he is on the global operating committee, and
reports to the board on a quarterly basis. It is little
wonder that the CIO who meets these requirements
is getting harder to find—and more expensive.
Ultimately, the role is essential to aligning business
and technology, as the CIO has a comprehensive
perspective on the organisation’s business proc-
esses. Skills and experience beyond IT are becom-
ing increasingly important for top CIOs. Not only
do growing numbers of computer science degrees
at universities now include business training, but
many companies prefer CIOs that have experience
running non-IT business units.
	 Often management experience takes precedence
over technology backgrounds. For more senior IT
staff, organisations such as SIM are emphasising
skills such as problem solving, communication (oral
and written), collaboration ability, project leader-
ship and business growth. In order to succeed, top
CIOs need to do more than just manage an IT opera-
tion. They must also thoroughly understand how a
business operates and the market dynamics of their
industry.
The most sought-after recruits think
first in terms of business and market,
and second about IT delivery
T
Reliance on a multi-faceted CIO
© The Economist Intelligence Unit Limited 2008 11
IT operating models: weighing risks and rewards
n considering various IT models, a CIO
is consistently aware of cost and ac-
countability. The charge-back approach, in which
individual business units pay IT for its services, is
a controversial method that seeks to capture the
performance and contribution of the IT function.
Although some see it as a wasteful exercise of
putting money “from one pocket into another”, the
charge-back model for IT services does allow the
company to monitor and measure the contributions
of the IT department. When chargeback is working
to its potential, the IT department can find itself
competing with third-party suppliers in supplying
services. A charge-back approach is often chal-
lenging to administer. For example, the system can
become complicated when it comes to working out
how to charge other departments that request an
application that was developed initially, and paid
for, by a peer. “Charge-back can mean expending
too much time and effort on administration”, says
Mr Keefe. “But shared services should be metered by
usage—like software sold on demand. Other systems
should be determined on who’s reaping the benefit.
Charging has to be consistent.”
	 When implementing chargeback, the IT depart-
ment can bill other departments for its services at
the going market rate, or can charge them at cost
instead of writing off its services to overhead. At the
extreme end, the IT department becomes a profit
centre in its own right, free to sell services to other
organisations. Some are adamant that IT should be
paid for. “IT should always charge back—absolute-
ly”, says Egon Berghout, professor of business  ICT
at the University of Groningen in The Netherlands.
“If not, the company doesn’t have a clue about the
financial situation regarding IT”, he says. “I’m only
aware of one organisation which has a problem with
charging back.”
	 IT spend has to be tracked closely—this is espe-
cially true for a company such as Pfizer whose rev-
enue reached US$48.6bn in 2007. “It is critical to
have transparency of costs”, says Mr Haque. “Based
on that information, the business can make rational
decisions. The objective is understanding cost.”
For IT, factors such as management hierarchies and
reporting structures for regional or “embedded”
teams may help to define how the IT department jus-
tifies its services and is accountable to the company.
The methods by which IT accounts for its services
influence all tiers of the company using its services.
	 Some companies insist that profit and loss
(PL) responsibility should be brought to the
local level, whereas others have had less success
with a charge-back approach. In such cases, the
companies have established IT as a cost centre that
focuses solely on whether it meets the needs of
the business. In addition to fundamental measures
I
The charge-back model
“IT should always charge back—
absolutely. If not, the company
doesn’t have a clue about the
financial situation regarding IT.”
Egon Berghout, professor of business, University of Groningen
12	 © The Economist Intelligence Unit Limited 2008
IT operating models: weighing risks and rewards
Best practices and measuring the impact
pplying best practice techniques
such as ITIL can be a useful way
for IT organisations to benefit from others’ experi-
ence and insight about managing IT service mod-
els. “Common sense is always best, though”, says
Mr Johnson. “Best practice needs to be applied
situationally.” In addition to its own methodology,
his company uses Control Objectives for Informa-
tion and related Technology (COBIT), systems
development from PricewaterhouseCoopers, and
PMI (Project Management Institute) standards.
“There’s a difference between a US$20m project
and a US$3,000 one. We apply best practices at dif-
ferent levels—for larger projects they will be used
in all parts.” Mr Berghout agrees: “Everyone should
apply best practices where they’re worthwhile”,
he says. “ITIL and Prince2 have been successful.
They’re all very expensive to administer, though.”
He adds that no-one follows all of the best practice
techniques.
	 Measuring the impact of different models and
approaches to IT governance is not easy. Many
CIOs go by metrics such as cost per head, customer
satisfaction or whether a project is completed on
time, but do not tend to calculate comparative
costs of different models. The typical view is that
a system fits if it is delivering on expectations set
by leadership. In these cases, the types of meas-
urement are likely to revolve more around overall
business results and trends. For example, why has
an insurance company found that calls from agents
have dropped by 20% owing to a new Web applica-
tion, or that headcount has come down by 10%?
Ultimately, the CIO will evaluate his department
based on how he is measured. If the CIO’s compen-
sation is based on the company’s overall financial
performance, the executive will tend to evaluate
his operations in the same way.
	 Some, like Mr Berghout, are convinced that it
is possible to establish meaningful metrics, but
that “no-one is looking backward to measure value
versus investment.” He adds, “IT people dislike
looking back.” Thus one of the most important op-
portunities for learning is lost and, consequently,
every business case “feels like the first one”.
A
such as on-time delivery of projects, success is
viewed in terms of the level of satisfaction among
customers in different business units, how new IT
projects have added to profitability, and whether
IT is enabling secure, global expansion at the re-
quired pace. “Business people have to take owner-
ship”, says Mr MacTaggart. “We supply the services
and tools to augment business processes. We drive
ownership back to the business—senior manage-
ment is on board with that.”
© The Economist Intelligence Unit Limited 2008 13
IT operating models: weighing risks and rewards
Overcomingthebusiness/IT“languagebarrier”
lthough helpful, structural models
and best practices have their
limitations. Nothing in an organisation will replace
effective communication between IT leadership and
the rest of the business in bringing better align-
ment. There are still significant communication ob-
stacles in many companies, which explains the high
number of new applications that fail to deliver on
promise: for the majority of firms, about half of IT
projects fail to deliver positive business outcomes.
Poor project management and inadequate busi-
ness requirement definitions are usually the other
main reasons why IT initiatives fall short. “Business
people don’t explain what’s required of IT, and the
IT staff is overly technology-focused, asking, ‘What
can we do with this?’ They’re too insular”, says Mr
Berghout. No model will overcome this gridlock: a
shift in company culture is required.
	 As one risk expert puts it, there is a tendency
for executives to lob an idea over the wall, and
expect IT to use osmosis to understand it. Al-
though communication is improving, the language
barrier remains. The CIO is taking a far larger role
in overall company management. In some com-
panies, Mr Berghout has found an unconstructive
attitude prevailing amongst senior management:
“We’ve hired an expensive CIO; we don’t want to
hear any more about IT.” These companies are less
successful as a result. Even the best IT operating
model will flounder under these circumstances. In
efforts to bridge the gap between IT and the rest of
the business, some companies have placed a busi-
ness analyst in the IT department who can act as a
liaison with strategic planning, sales, marketing
and other functions.
	 Celina’s CIO Mr Shoenfelt believes that, regard-
less of the IT operating model, IT can only help
move the business forward if there is change of
mindset among IT staff. “We’re not designing
systems—we’re designing business solutions”, he
says. “Business knowledge is critical for IT peo-
ple.” They need to be trained in business issues,
and know the many dimensions of a business
problem. “Some get the concept, some don’t”, says
Mr Shoenfelt. “Those that don’t aren’t here any
more.” Moreover, he indicates that the attitude
of just doing what one is told simply doesn’t work
anymore. The culture and structure must be in
place for IT staff to be motivated to explore and
innovate—for example how to adapt Web 2.0 and
social networking to tap expertise for the benefit
of the business. “The challenge is building the con-
fidence of IT staff and getting trust from the user
community”, says Mr Shoenfelt.
A
“We’re not designing systems—we’re
designing business solutions. Business
knowledge is critical for IT people.”
Robert Shoenfelt, CIO, Celina
14	 © The Economist Intelligence Unit Limited 2008
IT operating models: weighing risks and rewards
Conclusion
n most organisations, IT has moved a
long way from its role as a utility and
businesses have gradually come to recognise its
importance. “The business perception of IT has
changed entirely from ‘black hole’ to ‘vital part’,”
says Mr Shoenfelt. “But we still have to push
forward.” IT now has the potential to transform the
business. It can make vital customer and market
intelligence more accessible, connect sources of
talent and skills in niches around the world, and
create a supply chain driven by data captured
directly at checkout points. Gains are to be made
by orienting IT to increase value and competitive
advantage, but to make that happen, the right
operating model and organisational infrastructure
must be established. Essential to success is an
understanding on the part of business executives
of what IT can achieve, and by senior IT staff of the
company’s key business objectives.
	 Ultimately, no-one can dictate a model that
works for every organisation across its geographic
presence, business units or organisational devel-
opment. However, to support business aims, most
organisations are striving to incorporate advan-
tages offered by different models depending on the
priorities and expectations of both the chief execu-
tive officer (CEO) and the CIO. The choice of model
is a crucial one, with support for the company’s
business model as the top priority. A firm’s success
today depends on how well its business leader-
ship and its information systems perform and are
aligned.
I
While every effort has been taken to verify
the accuracy of this information, neither The
EconomistIntelligenceUnitLtd.northesponsor
of this report can accept any responsibility
or liability for reliance by any person on this
report or any of the information, opinions or
conclusions set out in the report.
LONDON
26 Red Lion Square
London
WC1R 4HQ
United Kingdom
Tel: (44.20) 7576 8000
Fax: (44.20) 7576 8476
E-mail: london@eiu.com
NEW YORK
111 West 57th Street
New York
NY 10019
United States
Tel: (1.212) 554 0600
Fax: (1.212) 586 1181/2
E-mail: newyork@eiu.com
HONG KONG
60/F, Central Plaza
18 Harbour Road
Wanchai
Hong Kong
Tel: (852) 2585 3888
Fax: (852) 2802 7638
E-mail: hongkong@eiu.com

Mais conteúdo relacionado

Mais procurados

IS Issue: IT Integration during M&A
IS Issue: IT Integration during M&AIS Issue: IT Integration during M&A
IS Issue: IT Integration during M&AAmit_Pawar
 
Gilbert Silvius on Business IT Alignment
Gilbert Silvius on Business IT AlignmentGilbert Silvius on Business IT Alignment
Gilbert Silvius on Business IT AlignmentGilbert Silvius
 
IT Service Management (ITSM) Model for Business & IT Alignement
IT Service Management (ITSM) Model for Business & IT AlignementIT Service Management (ITSM) Model for Business & IT Alignement
IT Service Management (ITSM) Model for Business & IT AlignementRick Lemieux
 
2016-state-of-the-cio-executive-summary
2016-state-of-the-cio-executive-summary2016-state-of-the-cio-executive-summary
2016-state-of-the-cio-executive-summaryMichael Jenkins
 
Open it sm solutions final
Open it sm solutions   finalOpen it sm solutions   final
Open it sm solutions finalRick Lemieux
 
Challenges in Business and IT Alignment
Challenges in Business and IT AlignmentChallenges in Business and IT Alignment
Challenges in Business and IT AlignmentVidur Pandit
 
Trends in Technology for the year 2014
Trends in Technology for the year 2014Trends in Technology for the year 2014
Trends in Technology for the year 2014Winston DeLoney
 
CIO Insights from the Global C-suite Study
CIO Insights from the Global C-suite StudyCIO Insights from the Global C-suite Study
CIO Insights from the Global C-suite StudyCasey Lucas
 
Fostering Best Financial Strategies and Practices for Enterprise IT
Fostering Best Financial Strategies and Practices for Enterprise ITFostering Best Financial Strategies and Practices for Enterprise IT
Fostering Best Financial Strategies and Practices for Enterprise ITIBM India Smarter Computing
 
2011_bsm_benchmark
2011_bsm_benchmark2011_bsm_benchmark
2011_bsm_benchmarkRick Berzle
 

Mais procurados (20)

IS Issue: IT Integration during M&A
IS Issue: IT Integration during M&AIS Issue: IT Integration during M&A
IS Issue: IT Integration during M&A
 
8 b alexandersetchin
8 b alexandersetchin8 b alexandersetchin
8 b alexandersetchin
 
Gilbert Silvius on Business IT Alignment
Gilbert Silvius on Business IT AlignmentGilbert Silvius on Business IT Alignment
Gilbert Silvius on Business IT Alignment
 
IT Service Management (ITSM) Model for Business & IT Alignement
IT Service Management (ITSM) Model for Business & IT AlignementIT Service Management (ITSM) Model for Business & IT Alignement
IT Service Management (ITSM) Model for Business & IT Alignement
 
201505 IT Trends 2015
201505 IT Trends 2015 201505 IT Trends 2015
201505 IT Trends 2015
 
Am Cham 110616 Final
Am Cham 110616 FinalAm Cham 110616 Final
Am Cham 110616 Final
 
Sourcing I.T. Value
Sourcing I.T. ValueSourcing I.T. Value
Sourcing I.T. Value
 
2016-state-of-the-cio-executive-summary
2016-state-of-the-cio-executive-summary2016-state-of-the-cio-executive-summary
2016-state-of-the-cio-executive-summary
 
Open it sm solutions final
Open it sm solutions   finalOpen it sm solutions   final
Open it sm solutions final
 
Lecture 8 (information systems and strategy planning)
Lecture 8  (information systems and strategy planning)Lecture 8  (information systems and strategy planning)
Lecture 8 (information systems and strategy planning)
 
CIO Value
CIO ValueCIO Value
CIO Value
 
Challenges in Business and IT Alignment
Challenges in Business and IT AlignmentChallenges in Business and IT Alignment
Challenges in Business and IT Alignment
 
Trends in Technology for the year 2014
Trends in Technology for the year 2014Trends in Technology for the year 2014
Trends in Technology for the year 2014
 
CIO Insights from the Global C-suite Study
CIO Insights from the Global C-suite StudyCIO Insights from the Global C-suite Study
CIO Insights from the Global C-suite Study
 
Fostering Best Financial Strategies and Practices for Enterprise IT
Fostering Best Financial Strategies and Practices for Enterprise ITFostering Best Financial Strategies and Practices for Enterprise IT
Fostering Best Financial Strategies and Practices for Enterprise IT
 
2011_bsm_benchmark
2011_bsm_benchmark2011_bsm_benchmark
2011_bsm_benchmark
 
sb61_10404
sb61_10404sb61_10404
sb61_10404
 
Dit yvol3iss48
Dit yvol3iss48Dit yvol3iss48
Dit yvol3iss48
 
Your Path to Innovation
Your Path to InnovationYour Path to Innovation
Your Path to Innovation
 
Tech trends-2014 final-electronic-single.2.11
Tech trends-2014 final-electronic-single.2.11Tech trends-2014 final-electronic-single.2.11
Tech trends-2014 final-electronic-single.2.11
 

Semelhante a The Economist Intelligence Unit

8 Strategies for IT Transformation
8 Strategies for IT Transformation8 Strategies for IT Transformation
8 Strategies for IT Transformationkenaibarbosa
 
A Data-driven Maturity Model for Modernized, Automated, and Transformed IT
A Data-driven Maturity Model for Modernized, Automated, and Transformed ITA Data-driven Maturity Model for Modernized, Automated, and Transformed IT
A Data-driven Maturity Model for Modernized, Automated, and Transformed ITbalejandre
 
Strategic Business IT alignment
Strategic Business IT alignmentStrategic Business IT alignment
Strategic Business IT alignmentJulen Mohanty
 
It human resources considerations in kenya
It human resources considerations in kenyaIt human resources considerations in kenya
It human resources considerations in kenyaAlexander Decker
 
201305 CIO-transform it - transform the enterprise
201305 CIO-transform it - transform the enterprise201305 CIO-transform it - transform the enterprise
201305 CIO-transform it - transform the enterpriseFrancisco Calzado
 
Leveraging IT to create business agility: Why leading IT organisations are re...
Leveraging IT to create business agility: Why leading IT organisations are re...Leveraging IT to create business agility: Why leading IT organisations are re...
Leveraging IT to create business agility: Why leading IT organisations are re...3gamma
 
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...IJMIT JOURNAL
 
Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...
Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...
Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...IJMIT JOURNAL
 
The Role of IT in Supporting Mergers and Acquisitions
The Role of IT in Supporting Mergers and AcquisitionsThe Role of IT in Supporting Mergers and Acquisitions
The Role of IT in Supporting Mergers and AcquisitionsCognizant
 
erp-x3-five-quick-wins-to-help-cios-drive-growth
erp-x3-five-quick-wins-to-help-cios-drive-growtherp-x3-five-quick-wins-to-help-cios-drive-growth
erp-x3-five-quick-wins-to-help-cios-drive-growthEdward Vaughan
 
Five quick wins to help CIOs drive growth
Five quick wins to help CIOs drive growthFive quick wins to help CIOs drive growth
Five quick wins to help CIOs drive growthBurCom Consulting Ltd.
 
The Strategic CIO
The Strategic CIOThe Strategic CIO
The Strategic CIOEMC
 
Solving the CIO's disruption dilemma—the blended IT strategy
Solving the CIO's disruption dilemma—the blended IT strategySolving the CIO's disruption dilemma—the blended IT strategy
Solving the CIO's disruption dilemma—the blended IT strategyThe Economist Media Businesses
 

Semelhante a The Economist Intelligence Unit (20)

Optimize the IT Operating Model
Optimize the IT Operating ModelOptimize the IT Operating Model
Optimize the IT Operating Model
 
8 Strategies for IT Transformation
8 Strategies for IT Transformation8 Strategies for IT Transformation
8 Strategies for IT Transformation
 
Well Tailored IT
Well Tailored ITWell Tailored IT
Well Tailored IT
 
A Data-driven Maturity Model for Modernized, Automated, and Transformed IT
A Data-driven Maturity Model for Modernized, Automated, and Transformed ITA Data-driven Maturity Model for Modernized, Automated, and Transformed IT
A Data-driven Maturity Model for Modernized, Automated, and Transformed IT
 
Strategic Business IT alignment
Strategic Business IT alignmentStrategic Business IT alignment
Strategic Business IT alignment
 
It human resources considerations in kenya
It human resources considerations in kenyaIt human resources considerations in kenya
It human resources considerations in kenya
 
201305 CIO-transform it - transform the enterprise
201305 CIO-transform it - transform the enterprise201305 CIO-transform it - transform the enterprise
201305 CIO-transform it - transform the enterprise
 
Leveraging IT to create business agility: Why leading IT organisations are re...
Leveraging IT to create business agility: Why leading IT organisations are re...Leveraging IT to create business agility: Why leading IT organisations are re...
Leveraging IT to create business agility: Why leading IT organisations are re...
 
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...
 
Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...
Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...
Managing It Innovation: Recessionary and Post-Recessionary Service and Staffi...
 
The IT archipelago
The IT archipelagoThe IT archipelago
The IT archipelago
 
201605 R&P on Digitization
201605 R&P on Digitization201605 R&P on Digitization
201605 R&P on Digitization
 
The Role of IT in Supporting Mergers and Acquisitions
The Role of IT in Supporting Mergers and AcquisitionsThe Role of IT in Supporting Mergers and Acquisitions
The Role of IT in Supporting Mergers and Acquisitions
 
IT Infrastructure - Importance of IT to Business
IT Infrastructure - Importance of IT to BusinessIT Infrastructure - Importance of IT to Business
IT Infrastructure - Importance of IT to Business
 
erp-x3-five-quick-wins-to-help-cios-drive-growth
erp-x3-five-quick-wins-to-help-cios-drive-growtherp-x3-five-quick-wins-to-help-cios-drive-growth
erp-x3-five-quick-wins-to-help-cios-drive-growth
 
Five quick wins to help CIOs drive growth
Five quick wins to help CIOs drive growthFive quick wins to help CIOs drive growth
Five quick wins to help CIOs drive growth
 
Analytics in the boardroom
Analytics in the boardroomAnalytics in the boardroom
Analytics in the boardroom
 
The Strategic CIO
The Strategic CIOThe Strategic CIO
The Strategic CIO
 
A Guide to CIO Advisory Services
A Guide to CIO Advisory ServicesA Guide to CIO Advisory Services
A Guide to CIO Advisory Services
 
Solving the CIO's disruption dilemma—the blended IT strategy
Solving the CIO's disruption dilemma—the blended IT strategySolving the CIO's disruption dilemma—the blended IT strategy
Solving the CIO's disruption dilemma—the blended IT strategy
 

The Economist Intelligence Unit

  • 1. A paper by the Economist Intelligence Unit sponsored by CA, Inc. IT operating models: weighing risks and rewards Aligning business and technology
  • 2.
  • 3. © The Economist Intelligence Unit Limited 2008 3 IT operating models: weighing risks and rewards IT operating models: weighing risks and rewards is an Economist Intelligence Unit briefing paper, sponsored by CA, Inc. The report is made available exclusively to readers by the CA Customer Alliance Program and the Economist Intelligence Unit. The Economist Intelligence Unit’s editorial team conducted the interviews and wrote the report. The findings and views expressed in this report do not necessarily reflect the views of the sponsor. Shaun Young was the editor and project manager. Terry Ernest-Jones was the author of the report. Richard Zoehrer was responsible for the layout and design. The paper is part of a research programme launched in early 2008 to study the alignment of business and technology. IT operating models: weighing risks and rewards is the second of three reports in a series on aligning business and technology. Our research drew on two main initiatives. We convened an advisory board of senior technology officers and specialists in New York City in March 2008. We also conducted in-depth interviews with chief information officers and senior technology executives. Our sincere thanks are due to the advisory board participants and interviewees for their time and insights. May 2008 Preface
  • 4. 4 © The Economist Intelligence Unit Limited 2008 IT operating models: weighing risks and rewards Executive summary oday, companies depend on information technology (IT) to run the vast majority of their core business processes, yet for many organisa- tions, the alignment of IT and business has not yet been accomplished. A recent survey1 carried out by one of the world’s largest organisations of senior IT executives finds that IT/business alignment emerges as one of the top two IT management concerns today. Although considerable progress has been made in recent years in harnessing IT to bring value to the business, the issue remains unresolved. One key obstacle is the accelerating pace of change facing companies and the resulting urgency for busi- nesses to adapt continually to new conditions. Firms not only have to expand their global reach and meet the needs of increasingly demanding clients, but also leverage their capabilities and offerings across differ- ent technological platforms. Furthermore, greater col- laboration with third parties and faster innovation are required—not to mention attending to security threats and regulatory encumbrances. As organisations evolve, IT departments must estab- lish and maintain operating models for an increasingly complex enterprise IT infrastructure. To keep ahead of competitors, executives must determine how best to manage and leverage IT operating frameworks to bring maximum value to the company. This may involve a re- evaluation of archaic practices, but, when successful, the rewards are substantial. As a result of restructuring its IT operation, UK-based Harrods department store’s customer loyalty programme has added 1-2% in annual revenue in its first year, according to chief information officer (CIO) David Llamas. “Today we have much better insight as to who our customers are”, he says. “Now business insight, which governs the loyalty programme, is one of the three main streams of our IT operation.” The other two main areas of Harrods’ IT operation are technology infrastructure and business processes. Companies’ IT systems need to be able to respond to market changes. In Harrods’ case, key drivers were thinner margins, the growth in online shopping and the challenge of retaining loyal customers. A company may need to reinvent and transform itself periodically to prosper—or survive. The IT infra- structure must be versatile enough to respond: a system is required that is flexible enough to support continuing business evolution. The ability to get the right information to the right place at the right time is paramount to the alignment of business and tech- nology. Here are some key steps to consider: n Determine how IT should support business goals versus its performance according to standards only relevant within IT. Examine the impact of IT on key busi- ness metrics: look beyond traditional measures such as project delivery times and cost per head. T To keep ahead of competitors, executives must determine how best to manage and leverage IT operating frameworks to bring maximum value to the company 1 Society for Information Management (SIM) 2007 Survey, October 2007
  • 5. © The Economist Intelligence Unit Limited 2008 5 IT operating models: weighing risks and rewards n AdjustyourITmodeltoenablestrategicobjectives. If the two are out of sync, IT cannot be expected to grow company value. Understand your organisation’s atti- tude to IT. n Avoidamodelthatclasheswithcompanystructure. If decision-making takes place at a departmental level, the IT structure should reflect that reporting line. n Consider a hybrid model, rather than opting only for purely decentralised or centralised models. Although not appropriate in all cases, this is the direc- tion many forward-looking organisations are taking. Certain functions within the IT operation are likely to lend themselves more to one method than the other. n Examine how a charge-back mechanism could be deployed to expose costs. Creating transparency with costs can lead to more rational decision-making when selecting an appropriate operating model. n Used with discrimination, best practices such as Information Technology Infrastructure Library2 (ITIL) can help sharpen IT delivery, and prevent wasteful trial and error. n Inevitably, as an organisation evolves, the pen- dulum will swing between centralised and decentral- ised models. Current demands may require a slight leaning to one side or the other. The challenge is to manage the tilt. Ultimately, “the IT unit has to be an integral part of the business”, says Robert Shoenfelt, CIO of Celina Insurance Group, based in Ohio, USA. “Its role is to serve and move the business forward.” Sizing up the right model xecutives are faced with a range of options when it comes to the crucial choice of the IT operating model which will bring most value to the company. For instance, in light of such challenges as vendor consolidation and outsourcing, is it preferable to operate with a centralised global IT team that provides standardised IT services across the enterprise, bearing in mind the cost of implement- ing a centralised model? Or is it better to establish smaller, semi-autonomous teams located regionally with the attendant risk of highly customised but non- standardised applications? Alternatively, is it possible to create a hybrid model to attain the best of both approaches? Executives face a bewildering range of options. Answers are rarely simple and are driven by differing business needs. As a starting point, David Johnson, global infor- mation officer for a US real-estate firm, Jones Lang LaSalle, believes that it is important to understand “what the organisation thinks about technology and how it assimilates IT”. His company operates in 60 countries, so getting the model right has been essential for co-ordinating the structure. “There are four main ways to go”, he says. “Localised, 1 ITIL is a framework which draws on best practice internationally and defines how IT resources can be organised to deliver business value. E
  • 6. 6 © The Economist Intelligence Unit Limited 2008 IT operating models: weighing risks and rewards iscussion among executives has continued for some time over the fundamental question of the value of centralising IT services. But the debate has sharpened today with the demands of globalisation and faster innovation. There is a growing need for better control over an increasingly diverse operation, staying connected to multiple partners and being flexible and responsive as a company to changes in the market. Some say that many IT managers’ attitudes have not changed since the mainframe era, when a decentralised, or “federated”, computing environment was regarded as a recipe for anarchy. In fact, even in the 1990s when client/server technology created environ- ments in which independence and decentralisa- tion flourished, ultimately IT recentralised many operations. This “centralised” mindset is unlikely to be helpful in supporting the business needs of individual departments and units. However, it may allow for easier adherence to standards and policies, better hardware and software procurement deals, and a more unified vision. By contrast, the ideal of the responsive, de- centralised IT unit promises better alignment to specific business goals. Although generally accepted as useful for supporting both first-to-market and innovation needs, the downsides are often duplica- tion of effort across the enterprise, a lack of sharing valuable information and localised self-interest, leading to an uncoordinated operation. Decentral- ised environments generally perform well when it comes to internal customer service, being closer to Responding to market forces D regional, global and hybrid.” The firm has opted for a hybrid model, with a small staff at headquarters in Chicago and a higher head- count at the regional level (USA, Europe and Asia). The regional IT heads have a “solid” line of reporting to Mr Johnson and a “dotted” line to the regional chief operating officer (COO). In addition, a global IT infrastructure manager reports directly to Mr Johnson. Recruitment is carried out at the regional level; local branches are treated as customers. By implementing a hybrid model, Mr Johnson is able to be “centralised” for global projects such as implementing a single cross-enterprise accounting or ERP system, but flex- ible enough to cater to local needs. He believes that the present structure has cut the number of different systems by 30-40% giving “a lot more functionality for less expense”. He notes, “The IT managers needed controls—but they didn’t know it.” Before the hybrid model was implemented, when the systems were overly decentralised, Mr Johnson found that there were a lot of redundant systems. “No-one talked to each other”, he says, “and everyone liked their own system.” Although certainly gaining in popularity today, the hybrid model itself may not always be appropri- ate. Firms need to exercise flexibility over whether a hybrid model is relevant to the business’s needs. Some top CIOs found that in the case of highly centralised structures for some banks, a hybrid model may not adequately serve enterprise-wide priorities such as governance and data centre management.
  • 7. © The Economist Intelligence Unit Limited 2008 7 IT operating models: weighing risks and rewards the targets. In fact, some executives note that when centralising operations, the same, if not better cus- tomer service must be provided. When IT organisa- tions are over-centralised, business units sometimes compete for IT resources no matter how urgent their requirements. By contrast, there are instances where a move to create a company-wide enterprise resource planning (ERP) system has helped to bring dispersed, decentralised company “silos” together. Organisations must pick and choose the model according to the characteristics that best address organisational priorities. Yet despite these differences, both centralised and decentralised IT operating models must respond to the key needs of the business. “A lot depends on the structure of the organisation and what it needs from IT”, says Bob Keefe, chief executive of the Society for Information Management (SIM), a CIO organisation that has more than 3,000 members. “What is the business trying to achieve? The CIO needs to work to the same business goals as other business executives.” For instance, he says that if the goal is enabling business transformation, the structure will be different from a company wanting to make incremental growth. In the case of a com- pany such as New York-based Leviton Manufactur- ing, the model may even have to adapt to different stages of the product lifecycles, as Bob MacTaggart, vice-president of information management, says. If a product is at the “incubator” stage IT has to be able to be “faster, more dynamic and less control- led”, he says. Speed is of the essence. When prod- ucts are “steady” and mature, though—as applies to many of the products at Leviton—then the IT that supports them has to become more cost-effective. “You have to be flexible and mould [the operat- ing model] to support the business objective”, Mr MacTaggart says. Moreover, IT operating models must not only re- spond to the current needs of the business, but also its strategies for growth. “Alignment of the IT op- erating model has to do with IT understanding the business’s growth plans and implementation strate- gies”, says Susan Hwee, executive vice president of IT at the Singapore-based United Overseas Bank (UOB). For instance, is the organisation growing by organic means or through mergers and acquisi- tions (MA)? “The IT infrastructure and application architecture needs to accommodate sudden growth spurts if the growth is via MA”, she adds. The IT structure will inevitably reflect the exist- ing culture: it will be different for companies in which primarily business units make decisions, com- pared with those with strong centralised decision- making. There is no reason why the IT structure should differ. But to reposition IT to add value, radi- cal moves may be necessary. “Don’t underestimate change management,” warns Mr Llamas of Harrods, adding “Unless senior executives are in line there’s very little you can do. A cultural change is needed.” “A lot depends on the structure of the organisation and what it needs from IT. What is the business trying to achieve? The CIO needs to work to the same business goals as other executives. Bob Keefe, CEO, Society for Information Managment
  • 8. 8 © The Economist Intelligence Unit Limited 2008 IT operating models: weighing risks and rewards r Keefe points out that certain industry or functional characteristics will always steer the organisation in the direction of a centralised IT model, especially when it comes to reporting on company data to fulfil regulatory demands. “Interoperability is the key if you want effective IT governance”, he says. The heavily regulated financial services industry tends towards the centralised model. But regardless of a company’s IT operating model, in Mr Keefe’s view, there is a need to stay flexible. For instance, he has found that providing in-country IT support is usually better, as is a system that allows considerable flexibility for local units to work differently depending on the culture. “Companies that impose their national model in other countries have not learned lessons”, he warns. “They haven’t hit the wall. You need to understand the local way of doing things before making synergies.” He adds that there is currently a trend towards “leaving IT teams where they are” rather than moving them to a central location. Companies such United Overseas Bank have tried to accommodate local cultural variations by using a hybrid model. The bank has centralised management of functions such as global networks, data centres and back-office work for economies of scale, while allowing greater freedom with a decentralised model for applications covering specific customer and sales applications to allow for innovation. Ms Hwee of UOB says, “IT executives should use best practices as a base and adapt them to the needs of the organisation to accommodate the maturity of the IT organisation and management philosophy, to meet a certain set of business objectives.” A US pharmaceutical company, Pfizer, is adopting a similar philosophy in an effort to streamline the way it does business, according to Imran Haque, director of the company’s international IT portfolio (which excludes the US). Pfizer is moving towards a federated model for its international operations, as already established in the US. Around half of IT decision-making will take place at the regional level where staff are “closer to the customer, and know the market, language and culture”. At the same time, there will be shared services especially for maintenance and support, which are organised centrally. “At the end of the day we want to encourage innovation at the local level, but also create efficiencies”, says Mr Haque. Duplication will be reduced while scalability and an exchange of “best of breed” systems within the organisation will be encouraged. Pfizer is setting up IT governance to include the involvement of business managers, senior regional IT staff and representatives from smaller markets. “The idea is M Stay flexible “The idea is to rationalise where we should be spending and the ways we could do better. Cost is a driver for the model, but the key element is providing the right data to the right people.” Imran Haque, director, IT Portfolio, Pfizer
  • 9. © The Economist Intelligence Unit Limited 2008 9 IT operating models: weighing risks and rewards op senior technology executives are increasingly realising the benefits of not adhering rigidly either to a centralised or federated model, but drawing from the advantages of both models for different functions in the company. For instance, within a retailer’s IT operation, the group responsible for the website needs to be able to act fast and creatively with sufficient funds and resources to put new ideas into effect. For this function, the model draws from a decentralised approach but includes central monitoring to keep it within budgetary bounds and on-track. By contrast, there is little benefit in allowing functions such as network and infrastructure operations to be organised locally, nor in letting let local units become entrepreneurial about developing contact management systems. At Leviton Manufacturing website management is centralised when it comes to enabling a common “customer experience” across different parts of the business and leveraging new technology, but is decentralised under different marketing departments for content management. Drawing from the advantages of both centralised and decentralised models may only be apparent after transitioning between them. Usually in a centralised model all functions—including application development and planning, procurement, personnel and budget—are under the control of the CIO or chief financial officer (CFO). The benefits of this model are economies of scale, minimal duplication of work and well-defined reporting lines. Often, a centralised model is used if lower costs are the company’s priority. But when centralising with a standardised infrastructure it may be appropriate to “decentralise” temporarily for the development of new applications by putting IT talent into a business unit. Once developed and standardised, the application then moves back to the centralised model for maintenance and operational efficiency. As a rule of thumb, top senior technology executives broadly agree that the IT operating model should not veer far from the overall organisational structure. Those firms run mainly by their business units need to make IT decisions also at this level, whereas those with strong central leanings should make decisions at the enterprise level. Accountability and structures should be aligned between IT and business. Many feel that it is more effective for leadership to communicate strategic goals to IT managers so that they can organise their operations to respond to key corporate priorities. “The key thing is that the IT plan flows directly from the business plan,” says Celina’s Mr Shoenfelt. T Taking the middle road to rationalise where we should be spending, and the ways we could do better”, says Mr Haque. “Cost is a driver for the model, but the key element is providing the right data to the right people”, he adds. He points out that once a pharmaceutical product has been developed, most of the rest of the work involves information of some kind—either for marketing, usage, safety or regulatory purposes. “IT can provide real value here”, comments Mr Haque.
  • 10. 10 © The Economist Intelligence Unit Limited 2008 IT operating models: weighing risks and rewards he hybrid model, set up to align closely with business requirements and provide maximum value, makes considerable demands on the CIO’s skills. The executive needs to be attuned continuously to the changing require- ments of the business and to understand how IT can help fulfil goals, such as entering a new market. In many ways, the CIO needs also to be a hybrid, possessing both business and technical knowledge to make the IT operation model work to the com- pany’s advantage. Expectations when hiring a CIO are now similar to the requirements considered when recruiting for any other frontline position. It is assumed that a top CIO will be able to craft the IT operating model based on a firm understanding of how the business operates, where it is going, and the market dynamics of the industry. The most sought-after recruits think first in terms of business and market, and second about IT delivery. In addition to understanding business needs and how they can be implemented through the model, the CIO needs the managerial and diplomatic skills to handle a diverse global operation. Jones Lang LaSalle’s Mr Johnson spends about 60% of his time travelling outside the US. As a company execu- tive, he is on the global operating committee, and reports to the board on a quarterly basis. It is little wonder that the CIO who meets these requirements is getting harder to find—and more expensive. Ultimately, the role is essential to aligning business and technology, as the CIO has a comprehensive perspective on the organisation’s business proc- esses. Skills and experience beyond IT are becom- ing increasingly important for top CIOs. Not only do growing numbers of computer science degrees at universities now include business training, but many companies prefer CIOs that have experience running non-IT business units. Often management experience takes precedence over technology backgrounds. For more senior IT staff, organisations such as SIM are emphasising skills such as problem solving, communication (oral and written), collaboration ability, project leader- ship and business growth. In order to succeed, top CIOs need to do more than just manage an IT opera- tion. They must also thoroughly understand how a business operates and the market dynamics of their industry. The most sought-after recruits think first in terms of business and market, and second about IT delivery T Reliance on a multi-faceted CIO
  • 11. © The Economist Intelligence Unit Limited 2008 11 IT operating models: weighing risks and rewards n considering various IT models, a CIO is consistently aware of cost and ac- countability. The charge-back approach, in which individual business units pay IT for its services, is a controversial method that seeks to capture the performance and contribution of the IT function. Although some see it as a wasteful exercise of putting money “from one pocket into another”, the charge-back model for IT services does allow the company to monitor and measure the contributions of the IT department. When chargeback is working to its potential, the IT department can find itself competing with third-party suppliers in supplying services. A charge-back approach is often chal- lenging to administer. For example, the system can become complicated when it comes to working out how to charge other departments that request an application that was developed initially, and paid for, by a peer. “Charge-back can mean expending too much time and effort on administration”, says Mr Keefe. “But shared services should be metered by usage—like software sold on demand. Other systems should be determined on who’s reaping the benefit. Charging has to be consistent.” When implementing chargeback, the IT depart- ment can bill other departments for its services at the going market rate, or can charge them at cost instead of writing off its services to overhead. At the extreme end, the IT department becomes a profit centre in its own right, free to sell services to other organisations. Some are adamant that IT should be paid for. “IT should always charge back—absolute- ly”, says Egon Berghout, professor of business ICT at the University of Groningen in The Netherlands. “If not, the company doesn’t have a clue about the financial situation regarding IT”, he says. “I’m only aware of one organisation which has a problem with charging back.” IT spend has to be tracked closely—this is espe- cially true for a company such as Pfizer whose rev- enue reached US$48.6bn in 2007. “It is critical to have transparency of costs”, says Mr Haque. “Based on that information, the business can make rational decisions. The objective is understanding cost.” For IT, factors such as management hierarchies and reporting structures for regional or “embedded” teams may help to define how the IT department jus- tifies its services and is accountable to the company. The methods by which IT accounts for its services influence all tiers of the company using its services. Some companies insist that profit and loss (PL) responsibility should be brought to the local level, whereas others have had less success with a charge-back approach. In such cases, the companies have established IT as a cost centre that focuses solely on whether it meets the needs of the business. In addition to fundamental measures I The charge-back model “IT should always charge back— absolutely. If not, the company doesn’t have a clue about the financial situation regarding IT.” Egon Berghout, professor of business, University of Groningen
  • 12. 12 © The Economist Intelligence Unit Limited 2008 IT operating models: weighing risks and rewards Best practices and measuring the impact pplying best practice techniques such as ITIL can be a useful way for IT organisations to benefit from others’ experi- ence and insight about managing IT service mod- els. “Common sense is always best, though”, says Mr Johnson. “Best practice needs to be applied situationally.” In addition to its own methodology, his company uses Control Objectives for Informa- tion and related Technology (COBIT), systems development from PricewaterhouseCoopers, and PMI (Project Management Institute) standards. “There’s a difference between a US$20m project and a US$3,000 one. We apply best practices at dif- ferent levels—for larger projects they will be used in all parts.” Mr Berghout agrees: “Everyone should apply best practices where they’re worthwhile”, he says. “ITIL and Prince2 have been successful. They’re all very expensive to administer, though.” He adds that no-one follows all of the best practice techniques. Measuring the impact of different models and approaches to IT governance is not easy. Many CIOs go by metrics such as cost per head, customer satisfaction or whether a project is completed on time, but do not tend to calculate comparative costs of different models. The typical view is that a system fits if it is delivering on expectations set by leadership. In these cases, the types of meas- urement are likely to revolve more around overall business results and trends. For example, why has an insurance company found that calls from agents have dropped by 20% owing to a new Web applica- tion, or that headcount has come down by 10%? Ultimately, the CIO will evaluate his department based on how he is measured. If the CIO’s compen- sation is based on the company’s overall financial performance, the executive will tend to evaluate his operations in the same way. Some, like Mr Berghout, are convinced that it is possible to establish meaningful metrics, but that “no-one is looking backward to measure value versus investment.” He adds, “IT people dislike looking back.” Thus one of the most important op- portunities for learning is lost and, consequently, every business case “feels like the first one”. A such as on-time delivery of projects, success is viewed in terms of the level of satisfaction among customers in different business units, how new IT projects have added to profitability, and whether IT is enabling secure, global expansion at the re- quired pace. “Business people have to take owner- ship”, says Mr MacTaggart. “We supply the services and tools to augment business processes. We drive ownership back to the business—senior manage- ment is on board with that.”
  • 13. © The Economist Intelligence Unit Limited 2008 13 IT operating models: weighing risks and rewards Overcomingthebusiness/IT“languagebarrier” lthough helpful, structural models and best practices have their limitations. Nothing in an organisation will replace effective communication between IT leadership and the rest of the business in bringing better align- ment. There are still significant communication ob- stacles in many companies, which explains the high number of new applications that fail to deliver on promise: for the majority of firms, about half of IT projects fail to deliver positive business outcomes. Poor project management and inadequate busi- ness requirement definitions are usually the other main reasons why IT initiatives fall short. “Business people don’t explain what’s required of IT, and the IT staff is overly technology-focused, asking, ‘What can we do with this?’ They’re too insular”, says Mr Berghout. No model will overcome this gridlock: a shift in company culture is required. As one risk expert puts it, there is a tendency for executives to lob an idea over the wall, and expect IT to use osmosis to understand it. Al- though communication is improving, the language barrier remains. The CIO is taking a far larger role in overall company management. In some com- panies, Mr Berghout has found an unconstructive attitude prevailing amongst senior management: “We’ve hired an expensive CIO; we don’t want to hear any more about IT.” These companies are less successful as a result. Even the best IT operating model will flounder under these circumstances. In efforts to bridge the gap between IT and the rest of the business, some companies have placed a busi- ness analyst in the IT department who can act as a liaison with strategic planning, sales, marketing and other functions. Celina’s CIO Mr Shoenfelt believes that, regard- less of the IT operating model, IT can only help move the business forward if there is change of mindset among IT staff. “We’re not designing systems—we’re designing business solutions”, he says. “Business knowledge is critical for IT peo- ple.” They need to be trained in business issues, and know the many dimensions of a business problem. “Some get the concept, some don’t”, says Mr Shoenfelt. “Those that don’t aren’t here any more.” Moreover, he indicates that the attitude of just doing what one is told simply doesn’t work anymore. The culture and structure must be in place for IT staff to be motivated to explore and innovate—for example how to adapt Web 2.0 and social networking to tap expertise for the benefit of the business. “The challenge is building the con- fidence of IT staff and getting trust from the user community”, says Mr Shoenfelt. A “We’re not designing systems—we’re designing business solutions. Business knowledge is critical for IT people.” Robert Shoenfelt, CIO, Celina
  • 14. 14 © The Economist Intelligence Unit Limited 2008 IT operating models: weighing risks and rewards Conclusion n most organisations, IT has moved a long way from its role as a utility and businesses have gradually come to recognise its importance. “The business perception of IT has changed entirely from ‘black hole’ to ‘vital part’,” says Mr Shoenfelt. “But we still have to push forward.” IT now has the potential to transform the business. It can make vital customer and market intelligence more accessible, connect sources of talent and skills in niches around the world, and create a supply chain driven by data captured directly at checkout points. Gains are to be made by orienting IT to increase value and competitive advantage, but to make that happen, the right operating model and organisational infrastructure must be established. Essential to success is an understanding on the part of business executives of what IT can achieve, and by senior IT staff of the company’s key business objectives. Ultimately, no-one can dictate a model that works for every organisation across its geographic presence, business units or organisational devel- opment. However, to support business aims, most organisations are striving to incorporate advan- tages offered by different models depending on the priorities and expectations of both the chief execu- tive officer (CEO) and the CIO. The choice of model is a crucial one, with support for the company’s business model as the top priority. A firm’s success today depends on how well its business leader- ship and its information systems perform and are aligned. I
  • 15. While every effort has been taken to verify the accuracy of this information, neither The EconomistIntelligenceUnitLtd.northesponsor of this report can accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in the report.
  • 16. LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8476 E-mail: london@eiu.com NEW YORK 111 West 57th Street New York NY 10019 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 1181/2 E-mail: newyork@eiu.com HONG KONG 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com