Swinging Toward Centralization

The pendulum is moving toward IT consolidation as CIOs try to save money and gain efficiencies. But it's possible to go too far.

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"IT centralization works best when each aspect of IT is considered separately," he wrote on his blog, "Making IT Clear," back in 2008. He suggested that it's best to centralize functions such as help desks, contracts, high-volume and high-dollar purchasing, standards, disaster recovery planning, data warehousing, and development and support of corporatewide systems such as e-mail and Web servers.

Scottrade Inc. is a good example of a decentralized business supported by a centralized IT organization. The online broker has more than 430 branches throughout the U.S., but the infrastructure to enable online trading and customer support is in a data center in St. Louis, with a disaster recovery center in Scottsdale, Ariz. Front-line support is provided by brokers in the branches, but all other calls are handled by a centralized tech support group.

The centralized model makes it easier to maintain the systems and keep them up and running, says CIO Ian Patterson. This is crucial for a brokerage -- it can't have downtime when the markets are open, he says.

The Other Side

But centralization has its drawbacks, such as possible decreases in innovation and responsiveness to the needs of business units. In report last year, Mark McDonald, an analyst at Gartner Inc., recommended that CIOs consider a hybrid approach that combines the benefits of each model and manages the weaknesses. "CIOs do not have to choose one extreme or the other," he wrote.

For the hybrid model, McDonald conjures the image of a dinner fork, with business-facing IT resources as the tines, and centralized IT services as the base and handle. The goal is to be responsive to business needs while preserving economies of scale.

Indeed, certain functions are better left decentralized, Thrasher says, citing applications that are unique to a particular location, as well as business intelligence activity, even if it pulls from a centralized data warehouse.

A common mistake, he adds, is to pull all the IT people out of the distributed locations and assemble them in one place. "You need to have somebody out there who's actually having lunch with people, talking to them on a day-to-day basis and keeping the relationship managed," he says.

That's a mistake White avoided. The motivation behind his centralization effort at The Salvation Army was to get rid of the "little IT departments" in the business units and transform the formerly generalist IT directors into specialists in particular technologies.

Before, White says, he had dotted-line authority over those directors, whose technology knowledge was more broad than deep, and there was rampant duplication of services. As technology grew in complexity, he says, it was impossible for the directors to know enough about every system to properly strategize. "As an organization, we couldn't leverage their strength and share technologies adequately across the business," he says.

White reorganized the existing staff into a consolidated IT department by assigning a technology specialty to each of the directors, who remained in the business units. Assignments were made based on the directors' areas of interest. One of their jobs as specialists, he explains, is to provide support if they're the closest resource to the problem.

White describes the reorganization as an "astonishing" success, but he acknowledges that the transition had its rough spots. "There was a lot of opposition that had to be worn down over time. People like having their own IT guys, and they don't always trust I'll have their best interests at heart," he says.

Tension and conflict are inevitable when you're balancing the interests of the business units with the broader needs of the organization, White adds. The key is developing trust over time by communicating and delivering on promises. "We publish a road map of what we intend to do and communicate what we've done, while also providing them an opportunity to tell us what they want us to do," he says. "As soon as you do some impressive things, people buy into it more."

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