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The IT organization is required to be customer-oriented and at the same time flexible and
efficient as well as being able to deliver new systems quickly and at low cost. These new
systems have to be implemented trouble-free within a stable infrastructure. In fact rather a
lot to ask from one single organization. In a relatively immature environment where the
customer’s wishes and the available technology are constantly changing, everything is
becoming increasingly more complex. For an increasing number of IT organizations, it is
just about impossible to keep up with demand. In the Netherlands, the theme for the past
ten years was professionalization of the internal IT function. However, customers are still
not satisfied because far too much is still going wrong. That for one is why IT is increasingly
more often outsourced entirely or partially. Mind you, this usually does not improve the
situation but makes it even more uncontrollable. In order to be able to cope with today’s
challenges, the IT organization has to reinvent itself!
D a r e t o c h a l l e n g e
A challenging context
Social developments have made IT into a virtually indispensable factor in almost every line
of business. In less than fifty years, IT has developed from a tool into a strategic production
factor, an enabler of competitive advantage and the driving force behind many new
business models.
The supply of IT professionals that are qualified for these tasks cannot keep up with the
demand, and a shortage on the labour market is the result. As a consequence projects are
delayed, the capability to innovate is reduced and the costs for IT staff are on the up. In an
average IT department external staff on average accounts for 20 to 70 percent of the total
staff count. Result of this is that the available knowledge becomes increasingly more
fleeting.
Given the abovementioned, the IT organization operates within a challenging context. The
theme of the past ten years was professionalization of the IT function. Nevertheless,
customers are still unhappy. They are not exactly impressed with the attempts for
professionalizing IT. People still find that too many things go wrong in IT. Our own
observations do confirm this idea. “Projects overrun, systems fail and there is an outflow of
people. The IT organization will not survive unless it innovates itself.” (Quint, 2006).
“Most IT organizations are unable to create new value because control is ingrained in their
DNA. Are we predicting the demise of the traditional IT organization? Yes.” (Gartner Group,
2007).
—2—
How it could come this far
Two important developments in the field of play of IT are at the basis of the changes as
described above. These developments are the cause of the tensions within today’s IT
organizations, particularly with regard to 4 factors impacting the IT organization. These
developments and factors and their mutual coherence are schematically represented in
figure 1, and will be elaborated below.
ganization
I T or
Paradigm IT Used
Customer professionals models Technology
demands
Constantly Constantly
changing & changing &
increasingly increasingly
higher more complex
Organization Change
al structure approach
Most IT organizations are constantly struggling with problems regarding staff, concerning
both the quantity (the tight labour market) as well as the quality. Additional, different skills
are demanded of IT professionals.
—3—
All this results in hardly any time remaining for other things, such as planning, responding
proactively to developments in technology or professionalization of procedure and
innovation.
· constantly changes;
· is not made in terms that IT professionals immediately understand;
· is not univocal: every department or Business Unit wants the best IT solution for its
process but that is not necessarily in the interest of the entire organization.
In our opinion, the factors below in their mutual coherence explain why the manner in which
the IT organization deals with ‘outside’ pressure is inadequate in the eyes of the customers.
Models utilized: Given the results so far, it may be questioned to what extent the
predominantly internally focussed models for solving performance problems are effective.
Approach to change: in general, the approach of improvement projects is too little result
and too much activity-focussed.
The paradigm of the IT professional: in professionalization projects there is often
insufficient attention to changing the behaviour and attitude of the IT professionals, whilst
the intended result demands behaviour that is the opposite to the ‘natural behaviour’ of
these professionals.
Organizational structure: the implementation typically leads to a matrix structure that is in
principle not only difficult to manage and demanding a lot of the people, but where on top
of that responsibilities and competencies are often assigned incorrectly.
The remaining question is what this analysis means for the future of the IT organization and
staff. How can IT professionals innovate themselves?
—4—
How it will continue
However, before we can answer that question, it is important to briefly discuss a number of
developments and trends.
In the organization
In an organizational context, IT and business processes become increasingly more closely
interwoven. IT leads to increasingly more and different (virtually) constantly changing types
of organization. The internet provides the technical possibility to outsource parts of the
operational business activities whilst still being in control. For instance, it is relatively easy
to link the information systems of the organization and the supplier, thus putting more end
responsibility with the supplier and creating ‘shorter lines’. Figure 2 provides a diagram of
this shift from the ‘old business model’ towards the ‘new business model’.
Provider
Organization
Intermediary Customer
On the one hand, organizations outsource increasingly more of their non-core activities and
on the other hand, they strive for horizontal and vertical chain integration (supply chain
management). Tapscott writes: “The new business is a network of widespread operating
teams that act as customers and suppliers for each other.” Hagel and Singer call this the
‘unbundling’ of organizations: the unravelling of the three core processes (‘customer
relationship’, ‘product innovation’ and ‘infrastructure management’). The organization is at
the front (front office, customer relationship) constantly on the lookout for the optimum
between flexibility, quality and customer orientation. At the back (back office, central parts
of the organization, infrastructure management) they pursue maximum efficiency through
scale (operational excellence). With regard to product innovation – the designing and
marketing of attractive new products and services – it pursues maximum speed and
creativity. Maximum performance of each of these three requires ‘unbundling’.
—5—
In technology
The development of technology is typified by:
· increasing intelligence, which requires less support and operational management;
· the possibility to procure functionality in the market that previously had to be produced
made-to-measure;
· increasing convergence, which means that previously separate domains like computers
(information technology), communication (communication technology) and contents have
become interwoven;
· increasing specialisation and physical distribution of components. Information or
functionality can be distributed over several separate IT infrastructures on the basis of
technical and in particular organizational considerations, whilst these present themselves
as one single virtual entity;
· integration of old and new technology, where in most organizations, the use of new
technology does not mean that the old one is discarded.
—6—
Cooperation
Stable
Customers with
systems Technology
business Increasing
Increasing
intelligence,
outsourcing convergence,
‘’unbundling’, specialization and
dependence physical distribution
and integration of
on IT old and new
technology
Fast
Integral development
management of new
systems
Segre n
gation and integratio
Given these developments, continuing down the same road, will not help IT organizations
to break out of the dire situation described in Chapter 1. A different solution is required.
How it should be
Recently, the combination of constant pressure as described in Chapter 2 and the trends
described in Chapter 3 have lead to an entirely different approach than customary up until
now. This involves the IT organization reinventing itself and organizational innovation
becoming the driving force behind performance improvement. In all of this, governance is
the key word. Generally speaking, excellent governance will result in a breakthrough as far
as performance is concerned, meaning that it possible to meet the wishes and
requirements of today’s customers.
Through this the governance function adds value in three different ways:
· the governance function promotes the organisation’s flexibility;
· the governance function promotes the organisation’s cooperative capacity;
· the governance function promotes standardization.
Besides that, the governance function promotes the cooperative capacity for business
growth. With regard to business growth a distinction can be made between:
· autonomous growth: the governance function supplies the competencies for
selecting, contracting and controlling cooperative partners that increase
scalability or are able to deliver larger volumes;
· growth through mergers or acquisitions: mergers or acquisitions often involve
integration of the IT organizations of the merging partners. The governance
function contributes to the integration of IT delivery organizations.
—8—
Front-End Governance
Assembler
Contract Contract
structure structure
External
demand
provider External
Governance
External
demand provider
services function
External
customers provider
services Governance
External customers function provider
provider External
provider
Internal service
provider
broker
Back-end supply management Contract Contract
structure structure
External External
demand demand provider
provider Governance
Internal External
customers External function
Prime
services service Governance customers provider
function provider
provider External
vendor External
provider
services provider
Partly Complete
Scope outsourcing
1. Back-end supply management. In this form, the governance function is positioned at the
back-end of the internal service provider. The governance function focuses on
management of external providers and definitely has no direct customer interface.
2. Front-end governance. In this form, the governance function does have a direct customer
interface and manages both the internal service provider as well as external providers.
The governance function integrates the contributions of the various different providers
into end-to-end services for the customer.
3. Assembler. The assembler configuration is the most extensive governance function. All
services are provided by external providers. None of the providers bears end-to-end
responsibility. The governance function integrates the contributions of the various
different providers into end-to-end services for the customer.
4. Broker. In the broker configuration, services are outsourced to one or a few external
providers. One of the providers acts as prime vendor and delivers end-to-end services.
Within this model, organizations can develop from left to right and from bottom to top. To
this purpose, different routes are possible.
—9—
What is required for this
Introducing a governance organization is an organizational change project and therefore
not unique. Having said that, because this all takes place within IT, we can learn a lot from
the improvement and professionalization projects of the last ten years. In Chapter 2, we
named four factors that in our view in the past provided insufficient result. In this chapter,
we state for these aspects how these problems relating to the implementation of IT
governance may be avoided. Quint has compiled five years of best practices (processes,
competencies, governance and organization) within the field of governance in the Demand
Supply Organization model (or Sourcing Governance framework). The DSO model has
been used by dozens of organizations when setting up a governance function for their
organization. Amongst other things, the best practice includes a set of standard processes
with corresponding templates, a set of standard competencies and matching role
descriptions.
The processes and competencies required for a IT governance organization are basically
the same for every governance organization.
Processes
The processes within the IT organization that relate to governance can be clustered into
five ‘management flows’: the main process flows. The model below is aimed at IT services
but is also applicable to other (shared) services.
Every flow includes a number of processes. A picture of the model is included below.
— 10 —
The schematic representation of the model shows three columns.
· Left column – the left column is the domain of the customer: purchasing divisions and
staff. This is where the functionality for each division is decided and designed. Important
with regard to this, is the role as played by Information managers that are supported from
the governance organization for making and obtaining the right specifications for the
required functionality.
· Middle column – the middle column is the domain of the governance function: This is
where Demand and Supply are attuned.
· Right column – the right column is the domain of the internal and external IT providers.
Within the model, we distinguish five main process flows. These flows
Five management
apply to all types of service providing organizations
flows
1. Policy and strategy Processes that result in definition of the strategic goals with regard
to IT, the IT architecture and taking care of and demonstrating compliance with laws and
legislation. The strategy block defines the scope in which the governance function
operates;
2. Demand Management The business processes define their needs (the demand role).
This may involve the need for new IT services (innovation) but also smaller changes with
respect to the existing functionality (preservation). The demand management function of
the governance function focuses on clear-cut definition of those needs, translation of
functional needs into IT services, research at a early stage of the possibilities for
bundling those needs, channelling of the needs towards the correct decision-making
procedures, setting up and maintaining a Products and Services Catalogue (PSC) and
recording agreements with internal customers in Service Level Agreements (SLAs);
3. Supply Management As soon it has been decided which services the organization
wishes to purchase, it is necessary to introduce these services – within the context of
the sourcing strategy – to the (internal or external) market. The core activity within
Supply Management consists of concluding sourcing contracts and managing the
contracts (contract management);
4. Innovation Business requirements that relate to new services (innovation) are provided
with a business case and are dealt with in an IT decision-making process. In that
decision-making process, the following comparative assessments amongst other things
are made: do we want this (functionally)?; do we wish to allocate means?; what priority
do we give this need?; etcetera. Within the decision-making process, things are checked
against the IT policy, the architecture and the annual IT plan. Part of the strategy is an
annual IT plan in which activities and budgets for innovation and management are
planned. With regard to innovation, this results in a project portfolio and a project
calendar. The actual project realization can be placed with an internal or external IT
provider but can also be placed partly or entirely within the governance function. In any
case the governance role includes the portfolio and program management;
5. Exploitation The management activities and budgets for preservation of the existing
services result in an annual IT delivery plan. This delivery plan form the framework for the
execution of IT service provision. The main part of the execution of the services is done
by internal and/or external IT providers. The governance function focuses on control of
the service provision and - within the context of the selected sourcing strategy - manner
of contracting and on service integration. If this for example includes a ‘multi vendor’
sourcing model, then the governance function will play a part in integration of the
services of the different vendors into one single service to the internal customer.
— 11 —
Setting up the governance function: various possibilities
Although the processes, competencies and KPIs needed for governance are the same for
every organization, the actual set-up of the governance function certainly is not. A number
of factors influence the design and set-up of the governance function.
Outsourcing
(MSP)
Co-sourcing
Internal IT
organization
Figure 6
— 12 —
The set-up of the governance function can be divided into two parts: design and
Who is
implementation. In practice, design decisions boil down to answering the
governing?
following questions: who is going to govern and where is the main responsibility?
(see figure above).
When an organization has all the competencies and means to be able to perform the
governance in-house, then it will be very easy to go for “do-it-yourself”. In the case of multi
vendor outsourcing in a complex customer organization (divisions with strongly differing
areas of attention) the governance function can be for a large part largely be outsourced
as an integrator role. In some cases this function is sourced from a partner that is also part
of the consortium of vendors to which the services are outsourced.
The “where” issue applies to strategy and the manner in which the
Where lies the
customer organization is organized. In the case of an organization
responsibility
with several business units (with different business processes) which
are also geographically wide spread, the introduction of a central model becomes
extremely difficult. Contrasts between line and functional control and physical distances
(and differences in time zones) do make control complicated.
When organizations target cost savings, this is usually done through standardization and
centralisation. Innovation benefits more from a solid and customer intimate relationship
with the business and therefore also from decentralisation. It is therefore important to have
strategy, design and set-up of the governance function, as well as a possible governance
organization run parallel to the sourcing decision (“make or buy”). To the governance
organization, it makes quite a difference whether an organization itself takes care of the
application management or outsources this. The decision to go for offshoring also has
substantial impact on the design and the set-up of the governance organization.
With regard to this, it needs to be noted that “sourcing” is a continuous process: the “make
or buy” decision should not be made once-in-a-life-time but needs regular “reassessment”.
1. “train internal people as much as possible but do not hesitate to attract fresh talent from
outside”
2. “Pay sufficient attention to change management and attitude change. It does not all
happen by itself.”
3. “When working with external advisors, make sure that transfer of knowledge and
coaching are explicitly part of the service provision”
4. “Make sure you involve all stakeholders from day one (when building a vision).”
5. “Together with the business, try to define a number of KPIs that express the business
value and monitor, report and act on these.”
6. “Even after the set-up phase, continuous relation management with internal customer is
crucial”
7. “Be aware that the governance role involves balancing a conflict of interests, for instance
between corporate and individual divisions. Therefore, governance is of critical
importance. The responsibility for demand bundling should be explicitly defined and
allocated.”
8. “Governance depends on your counterpart in the business. Your business counterparts
will also have to meet certain requirement”.
— 13 —
If the governance function as described in Chapter 4 is the solution for meeting the
developments and trends as described in Chapters 2 and 3, then it is a logical conclusion
that the governance function needs to be set up and embedded in the organization. Next
question that needs tackling is what is required for successfully setting up such an IT
organization.
Implementation of governance
Significance for IT
We will use the Demand Supply Organization model (DSO) as a framework
organizations
for illustrating the set-up of an IT governance organization. The set-up is
performed in three phases via a focus on the supply side, followed by an extension to the
demand side, finally realizing an IT governance organization with a maximum performance.
These phases are schematically shown in figure 7.
— 14 —
The DSO model enables a result-oriented implementation. The approach
Change approach
uses the DSO model and is aimed at a quick result, which is next used to
build on. Through this goodwill for the change trajectory is realized quickly
through short-term achievement of visible and noteworthy results. This result oriented
approach is essential for ensuring the necessary commitment and support. This is
schematically shown in figure 8.
5.
Improving
Improving
Controlling and
measuring
4.
Structuralizing 3. Governance
and rationalizing Insight and
quick wins
Centralising of
portfolios
2.
1. Central
Local portfolios
chaos
Operational DSO
— 15 —
Conclusion
In our opinion, the transition from a traditional IT organization to an IT governance
organization offers many traditional IT organizations a way out of the problems they
experience in their present-day context,. The combination of ‘how it came this far’ and ‘how
iwill it continue’ leads to this insight. Through putting the focus on governance, IT
organizations are able to better control their own fate and maximise the added value
towards customers. In order to achieve that, they do however have to cease improving and
professionalizing. They will have to actively innovate and reinvent themselves. “It is not
necessary to change, survival is not mandatory”, is a famous statement by W. Edwards
Deming. Luckily, the main ingredients for a successful change are already available in this
case.
Literature:
· Tapscott, D., De Digitale economie: beloften en gevaren in het tijdperk van de netwerkintelligentie, Scriptum
management, 1998
· Hagel & Singer , Unbundling the corporation, , 1999
· Quint Wellington Redwood , The CIO role in the post-outsourcing era, 2006
· Gartner Group, Research note, 2007
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