IT Centralization versus Decentralization: The Trend Towards Collaborative Governance
Is IT becoming more centralized or more decentralized? The industry has been wrestling with this issue for decades. Centralized IT relies on a governance structure where information management reports up through a single chain of command. Decentralized IT, on the other hand, distributes the management of IT through a multitude of functional and regional command chains. According to a recent Cutter Consortium survey, most IT organizations utilize either a centralized (45%) or a combination of centralized and decentralized (48%) governance structures.
This survey and my experience indicate that IT organizations almost universally deploy elements of centralization, even in cases where the management of certain IT functions is decentralized. Given that the Internet puts information at everyone’s fingertips, third parties increasingly perform IT-related tasks and business units control a variety of computer-related functions, the idea of a fully centralized IT governance structure appears to be at odds with today’s reality. Explaining this dichotomy requires the recognition that the trend is not towards centralization or decentralization – neither of which are sustainable in a pure sense.
The real IT management trend is a shift towards governance structures that enable the best attributes of centralization and decentralization to be applied based on the requirements of a given function or business unit. In other words, IT is moving towards a scenario where centralized IT and decentralized IT can coexist and flourish under the same governance structure.
Centralization versus Decentralization
Examining the underlying issues that drive IT centralization and
decentralization help frame the trend towards creating an environment where
these seemingly diverse philosophies can peacefully coexist. Arguments for
centralization focus on coordination, standardization and consolidation of
equipment, processes, technology, customer and vendor management. Centralization
also enables the creation and execution of a shared vision of how IT should
support and drive market opportunities and growth. Centralization also provides
significant economies of scale, reduction of redundancies and improved
management efficiencies.
At the same time, arguments for decentralization center on allowing business units to make autonomous decisions about information and customer-related requirements. One of the most contentious areas between IT and the business community has focused on the inability of IT to understand and fulfill business information requirements. This is exemplified by business units independently pursing application, e-business, supply chain and outsourcing strategies that have traditionally fallen within the IT domain.
In some cases, business units launch information-related initiatives under a decentralized governance model sanctioned by IT. In other situations, however, business units pursue these initiatives without the knowledge or blessing of IT. In this latter scenario, business units circumvent organizational inadequacies stemming from the rigid limitations imposed by hierarchical, command and control governance structures. Unfortunately, hierarchical governance structures, which emerged during an era of Newtonian deterministic thinking, evolved long before the information age and are heavily imprinted on the minds of today’s executives.
There is a definite trend towards peaceful coexistence of centralized and decentralized IT. Many advocates of centralization concede the need for business units to play a role in the application management function. Hence the statistic showing that 48% of IT executives surveyed combined elements of decentralization with centralization. And advocates of decentralization typically support the need for a core team of IT professionals to support and standardize the technological infrastructure that enables broader information management functions.
In practice, most enterprises distribute the responsibility for information management among business units, outsourcing vendors, application service providers (ASP) and the central IT organization. This reality has frustrated executives who are attempting to manage distributed information functions under hierarchical management structures. Efforts to address this situation using the traditional tool – the reorganization – have been largely unsuccessful. If you disagree with this assertion, ask yourself how many times your IT function has reorganized over the past five years. More than once demonstrates that you are struggling with these issues.
The Reorganization Yo-Yo
IT is stuck on a centralization-decentralization yo-yo. IT tends to
centralize, decentralize and re-centralize again and again in an attempt to fix
a more systemic problem – the inadequacy of hierarchical governance structures
as a vehicle for managing an information infrastructure. A typical
reorganization rearranges blocks on the hierarchy chart, which some people
compare to rearranging the deck chairs on the Titanic.
Most reorganizing efforts are conceived behind closed doors, lack input from those individuals most affected and tend to be politically motivated. The need to command and control has obscured the need for greater collaboration, communication and coordination. The desire for control is characterized by the need to increase the number of people or business units reporting to a given individual. Many managers are, in fact, promoted or compensated based on the size of their team.
Business units may also feel that they cannot do their jobs effectively unless they "own" a given IT function, which is again an issue of control. The individual and collective desire for control, and the motivation behind receiving and doling it out, creates a politicized atmosphere that lowers morale and has other unintended results. Reorganizations tend to make things worse. Petronius Arbiter (AD 60) made this clear when he said "We tend to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralization."
Ongoing reorganization initiatives, related politicking and unintended outcomes detract from time better spent solving information-related challenges through collaborative efforts across an increasingly virtual enterprise. Getting off the reorganization merry-go-round requires changing the motivational factors behind it. There must be a shift from a control-oriented environment towards a collaborative mindset where achieving a common purpose is the overriding goal. And this means people must shift from an "I" mentality to a "We" mentality.
As executives tire of the reorganization yo-yo, they are beginning to seek substantive solutions to the challenge of how to best govern the information management function. The yo-yo reorganization trend is giving way to a more measured strategy where executives design and deploy an information governance structure that accommodates the best of elements of centralized and decentralized IT where appropriate. This collaborative structure must be adaptive and have the capacity to self-organize so that internal and external dynamics do not trigger yet another reorganization. Most of all, management must embrace collaborative forces already at work and enable those forces through an effective information governance structure.
Enabling Collaborative IT Governance Structures
Executives recognize that the roles and tasks of information management are
evolving. IT is becoming more critical, especially given the explosion in
e-business, and IT is becoming more virtual, no longer functioning as a
stand-alone operation. Change brings new challenges including proliferation of
poorly integrated web sites, a high rate of dissatisfaction with outsourcing
relationships and the need for IT to support customer relationship management (CRM)
and supply chain strategies.
These challenges magnify the need for management to enable a governance structure that can work more collaboratively, while adapting to the increasing pace of change in an unpredictable world. Examining how management can enable this trend requires looking at how various IT functions and relationships might evolve under a trend towards collaborative IT governance.
Evolution of this governance process begins with core IT functions. For all of the reasons stated earlier in support of centralizing certain IT functions, the governance structure must cast its influence over IT-related functions without trying to control the teams performing those functions. This means eliminating the IT hierarchy in favor of a governance structure based on a constitution. Under the constitution, various functional units (i.e. hubs) fulfill clearly defined purposes within their domain. Hubs self-adapt by collaborating, expanding or disbanding in order to more effectively fulfill their stated purpose.
Under this governance structure, the traditional IT organization, including network, facility, systems and communications management, evolves into a series of hubs comprised of representatives from across the enterprise. Business units, also incorporated into this structure, play a key role in helping draft the IT constitution. Incorporating business units into the governance structure will help eliminate the "us versus them" atmosphere that has historically subverted the relationship between IT and the business community. Business units would form their own IT hubs and place representatives on central hubs as defined under the constitution.
External entities also play a role in the new governance structure. Outsourcing vendors, application service providers (ASP) and other external support functions become hubs in the governance model, working towards a defined purpose under the IT constitution. Supply chain, marketplace, vendor, customer and other external consortiums, driven by Internet-based strategies, would also be integrated into this governance structure. The role of external entities is set forth in the IT constitution, but should be expressly defined within the governance structure.
Under this adaptive, collaborative environment, new concepts quickly come to light, while mistakes are shared and therefore not repeated by other working units. Areas where new strategies could quickly take hold include proliferation of new IT infrastructure components, such as light methodologies and extreme programming, deployment of an integrated e-business solution, streamlining of the supply chain and a coordinated CRM strategy.
Centralization and decentralization can flourish under this trend towards collaborative, adaptive governance. As the trend towards coexistence and collaboration gains steam, executives will hopefully see it coming and help enable the deployment of these new and exciting ways of working together – or get out the way as quickly as possible.