Analyst Outlook: Centralized: the new shape

Enterprises are changing rapidly in response to global competition. IS organizations, bound by their functional silo roots, are having trouble just keeping up, much less enabling competitive differentiation. So CIOs are tearing down their silos and building more responsive IS organizations.

So what changes are CIOs making to become more agile and to exploit these changed IT capabilities? At the enterprise level, IS traditionally mirrored the structure of its parent. This meant using one of three basic organizational models: centralized, decentralized and federated. Now things are different. The recent tough economic conditions, combined with expanded capabilities of the IT industry, are driving CIOs to recentralize many of IS’s activities, especially infrastructure operations.

But centralization is not without its drawbacks – drawbacks that were so severe that centralization was all but abandoned last time around. This time, things are different. To minimize the drawbacks of centralization, CIOs are redesigning IS units by mixing a combination of six basic structures.

Six organizational structures

Functional structures are the traditional way to organize around functional skill sets or technology platforms. But because work is passed from function to function, it is difficult to improve the speed and quality of service delivery. Most CIOs interviewed are shifting away from functional structures and using a combination of other structures.

Customer-centric structures support specific sets of customers, usually lines of business, sectors, divisions or geographies. A customer-centric structure is most appropriate for account management and development units that support a set of customers.

Competency centers, also known as centers of excellence, are formed to leverage best practices. The skills are housed in one location, developed, mentored and made available to units that need them, usually on a just-in-time consulting basis.

Process-based structures are staffed by specialists who work in integrated teams that cut across functions to deliver a result of value to customers. The team may include business as well as IS staff.

IS Lite organizations, those that have outsourced significant portions of their work, have learned that they need an in-house structure to develop and manage the outsourcing relationships.

Service-based structures organize around what customers are willing to pay for. They are most appropriate for IS organizations wanting to operate like a business, internally or for profit.

Vertical structures, as shown in organization charts, facilitate goal setting, budgeting, reporting and performance management. But vertical structures aren’t flexible, and they may not reflect the way work is actually done in process-based and service-based organizations.

In addition to mixing functional structures, CIOs are also developing horizontal structures to enhance effectiveness, improve coordination, workflow and learning, and aid communication and flexibility.

Although these horizontal structures rarely appear on organization charts they are in effect a formalization of something that people naturally create anyway. They include teams and communities of practice, informal information flows and shadow organizations.

It is possible to combine horizontal and vertical structures. The resulting matrix provides dual reporting relationships. Matrix structures have definite advantages. They force a multidimensional view of issues, create a mechanism for balancing conflicting views and negotiating solutions without always resorting to escalation, and they make more effective use of specialized technical resources. But they also have disadvantages. They introduce complexity and conflict, reduce organizational clarity, and can lead to decision paralysis when it’s not clear who can decide what. CIOs need to exercise care when selecting people to put in a matrix structure and must realize that this structure needs significant oversight.

IS is center stage in a business world characterized by global competition and the need for sense-and-respond flexibility. This is clearly the time for CIOs to ensure that their organizational structures are in tune with the times.

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–Andrew Rowsell-Jones is vice president and research director for Gartner’s CIO Executive Programs.

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