Microsoft Enterprise Architects have observed many businesses moving services out of the realm of IT. In addition to this trend, business units are increasingly obtaining services for themselves from providers other than their IT organizations.
This article explores the consequences of moving services out of the IT organization. What challenges have these organizations faced? What impacts did these changes have (foreseen and unforeseen)? How did business and IT employees respond?
Thanks to the following people for providing information and feedback for this article: Brad Clayton, Larry Hanthorn, Brian Loomis, Stephen Kell, Blessing Sibanyoni, and Sree Sundaram.
In general, the process of moving services out of IT starts with utility services such as email, instant messaging, and hosting; these functions are easy to move out of IT to cloud-based services (as opposed to more complex functions such as Business Intelligence). Some companies have gone further, making business units responsible for the LOB applications and services they use (or for whole functional areas), whether they partner with a third party or not.
The primary motivation behind this trend comes from two drivers:
CEOs and business leaders are reconsidering the purpose and role of IT, looking for ways to reduce costs. IT requires a significant budget, but the value it adds to the business is often difficult to quantify.
At the same time, in many companies the IT organizations have not met the needs of the business units they serve, and business units are considering whether they can get services from other providers or run the services themselves.
Compared to the services offered by the IT organizations, external cloud providers appear to offer cheaper, faster, more responsive service. Because of the large scale at which cloud providers operate, and because cloud providers do not have the same legacy processes and bureaucracy, internal IT organizations find this level of service difficult to match.
This trend encompasses a range of changes in how business units obtain IT-related services, from subscribing to cloud-based services such as email to developing and running their own applications. Many companies are still in an experimental stage, trying to find the balance that works best for them.
Subscribing to third-party cloud services
A common approach is to subscribe to third-party services (such as Office 365) instead of relying on the internal IT organization to provide these services. For example:
Other companies are outsourcing or “smartsourcing” particular capabilities, ranging from storage synchronization to Helpdesk service.
Moving specialized services to the business units
Some companies have been leaving IT in charge of the more general functions, and moving more specialized functions to the appropriate business units. For example, the IT organization develops and maintains centralized data stores, while business units develop and run the LOB reporting tools, analysis intelligence, websites, or other applications. In addition to outsourcing, some business units run their cloud-based social networking and financial lifestyle management web sites.
Microsoft Architects have observed business units design and develop an LOB system, and then hand it off to IT to run. In other cases, business units may contract with third parties to develop or run the LOB system as a cloud service.
Some companies are also moving whole areas of responsibility out of the IT organization and into the business units. For example, one company made its business units individually responsible for their own information security, moving that responsibility out of the centralized IT organization. Each business unit created a Chief Security Officer role. The IT organization helped the business units set up their information security programs, including appropriate governance protocols and training.
More and more the business units are creating their own CIO-type roles to drive a further move from internal IT to external cloud-based services.
To coordinate this distributed functionality, the business units involved typically each designate a senior business leader (or someone who reports directly to such a leader) to act as a liaison with the IT organization. These high-visibility liaisons help manage the business units’ supply and demand relationships with the IT organization.
The move to services that are external to the IT organization is still a new thing for many companies. As was the case when outsourcing emerged as a trend years ago, they are still finding the best balance between internal and external services. Microsoft has worked with companies as they go through the process of dividing functions between the IT organizations and the business units, and noted several challenges.
Business units and IT organizations do business differently. Projects that require them to interact must account for differences in funding models, and differences between business cycles and IT cycles.
Companies may struggle to define the new relationships and boundaries between the business units and IT, including the roles of liaisons. The issues to address may include:
A big factor that makes this process difficult is that many companies do not have enough information to make the best decisions:
In general, these changes can have a transformative impact on an organization, and for employees and IT they require a shift in mindset similar to the historical move from mainframes to desktop PCs and servers.
Cost savings vary depending on the type of change; for example, moving from internal IT-managed stores to cloud-based storage services can produce massive cost savings. Other services may not necessarily be cheaper when moved off of internal servers, but are definitely more agile. Faster provisioning and reduced time to market for new services are crucial for organizations in highly competitive markets.
Both the business units and the IT organizations can benefit from this distributed arrangement. Business units can get better, more responsive services without taking responsibility for the whole infrastructure involved. IT organizations may lose some headcount and some control over the service systems, but the more enlightened organizations are aware that they cannot meet all of the needs of all of the business units they serve. By narrowing their area of responsibility, they may be able to better achieve their overall objectives.
Business unit consumers seem to be largely happy with the results of moving to cloud-based services. By and large, they aren’t worrying about bigger, longer-term issues (even though some groups, such as Marketing, probably should be).
The attitude of the IT organization to moving services to the business units can range from positive to overwhelmingly negative. The culture of a company and the implementation approach it takes may be the most important factors controlling the reaction.
In some cases, IT organizations have supported the transfer of functions to the business units; these IT organizations are fully aware that they are not able to meet all of the needs of the business units, and can see how by moving functions they can focus more effectively on the services that remain in their jurisdiction and still control costs.
However, IT organizations often feel that they are competing against cloud-based services, and in some companies other business units have in fact used cloud services as leverage against IT in conflicts over resources. Other more specific reactions include:
In general, the IT organizations have concerns about security, reliability, integrity, and so forth that the business units may not consider. Such concerns (in addition to potential loss of budget or headcount) may deter IT organizations from supporting the business units in these changes—or at least motivate the IT organizations to bring such changes under their control.