Decentralize IT, Once Again??
Monday, 09 April 2012 19:33

Decentralize IT, Once Again?

Jim Champy, Vice Chairman

The question of whether to decentralize or centralize IT is a never ending debate. I have seen it go on for forty years – at times with different results. The issue is with us once again as software apps become more available and as technology vendors target individual customers with products and services. The economics and increasingly easy access to technology seem to be arguing for the decentralization of parts of IT.

Many of the earlier debates have also been triggered by technology itself. As hardware became cheaper and smaller, divisions and functions within companies argued for control over their own IT capabilities. Technology was enabling the dispersal of IT assets. This first happened years ago when mini-computers began to replace room-size mainframes.

The argument for dispersing control over all sorts of business processes is a natural act for multi-divisional companies where division leadership is held accountable for performance. “If you are going to hold me accountable for the profitability of my business unit, then give me control over all of the contributors to that profitability,” so the argument goes. And the stronger the leader of the division, the more the argument is made. Even within a business unit there can be a push for “decentralizing” IT.

But today technology is making the case for control going both ways. The availability of apps and the potential to reach customers through social networking supports putting more control of technology into local markets. The phenomenon of Cloud computing offers the potential for centralizing processing and achieving dramatically lower cost levels. The Cloud also enables decentralization – anyone in an enterprise can just put an application in the Cloud. But without some form of governance and central control, those apps cannot be harmonized to work together and chaos may be ahead.

The decentralization of IT has almost always led to higher costs. The question today is whether that decentralization might lead to much higher levels of return. To help decide what parts of IT remain centralized and what may get dispersed, let me suggest four questions for you to ask.

How uniformly must we be experienced by our customers? In many industries – like banking, travel, and hospitality – consumers expect they will have the same experience independent of the location in which service is rendered. That means certain processes and systems must be standardized and integrated, and it often implies that applications must be centrally run. There may be opportunity for minor local variations, but certain systems need to be global. An airline might offer different regional flavors in its lounges, but its ticketing system had better be the same globally – or be prepared for chaos.

What processes must be held centrally to insure operating integrity? Finance and certain HR processes come to mind. Again, there may be some allowable local practices, but when performance numbers need to be rolled up, everyone has to be playing by the same rules – and systems. Quality argues that financial systems and some HR processes must be centrally maintained.

Are there local practices that might uniquely engage customers? Here’s where sales and marketing folks will want to get creative, and they will want some amount of freedom in what they do. It’s now possible, with social networking, to build local communities of customers with shared interests in products or services. Giving regional freedom to this kind of front-end marketing will become increasingly important as companies increasingly target individual customers for closer relationships.

Where can we consolidate processing to drive down costs dramatically and improve service levels? Here’s where the cloud offers a change in the fundamental economics of computing. We all know how much excess computing capacity companies pay for. The cloud offers the opportunity to consolidate operations and making the cost of computing a variable expense. But with it comes some central control and oversight of infrastructure, if not applications.

All this implies that neither decentralization nor centralization wins in the current debate. Companies need to operate in both worlds simultaneously. This will take strong management oversight, but the result could be IT’s delivering much more business value.