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Sam Lowe's blog on Enterprise IT

Sunday, January 08, 2006

Running IT Departments Like Businesses ... what does that actually mean?

It's become increasingly popular over the last few years to propose that Enterprise IT departments need to behave, and be constructed more like businesses. Several companies that I work with are directly or indirectly using this concept to good effect in adapting the processes and roles, or even the operating model itself of their IT departments.

But what does ‘IT departments running like businesses’ actually mean ...?

Of course it can be a vendor marketing strap-line, but putting that to one side, there is some interesting insight in there that Enterprise IT departments can use. Rather than apply general business analogies (valuable as that can be), I like to approach the topic by asking, viewing Enterprise IT departments within the context of the commercial operations they support what type of businesses are they, and what similarities are there in other industries that have those kind of business that we can borrow and adapt ?

The obvious models are those of independent services companies. Various HBR-style business luminaries have spoken about how many types of organisations could benefit from operating more like services companies. IT departments can often be exemplars of this, their demands are extremely similar to those of independent services organisations. In particular independent IT consultancy organisations share a lot of the characteristics in the way they engage their customers (/the business), the way they assign consultants to engagements (/staff to projects) … and so on. So with this in mind, there can often be potential gains from borrowing the best and appropriate bits from the way IT consultancy business models have evolved to be successful in a competitive marketplace. This is not to say that IT organisations are not competitive, just that IT organisations often have not had the same level of direct market-driven pressures, and hence have often not been forced to adopt ‘best-practices’ from others in order to compete.

Perhaps this comparison isn't a new business-model revelation given the work already done on the theory, but what's making it more relevant now is the interest in trying to put it into practice and drive efficiencies and development strategies similar to those demonstrated by consultancies in recent years, by adopting some consultancy-influenced internal structures, processes and roles. There are plenty of fundamental questions to ask here around which types of consulting services provision, project-delivery services provision, and IT systems and infrastructure services provision are required, and which are the important factors in each. But rather than risk getting overloaded in analysis there are some key frameworks to apply.

The structure I’ve found useful in the past is to start by looking for the ‘value chain’ of the IT department ? This may sound academic, but if you think about it, it contains all of the key facets of how the IT organisation works. How do IT departments generate demand from their ‘customers’ (i.e. the business), and how do they orchestrate supply ? How do they manage delivery of their commitments, the relative risk associated with each, and the quality of each ? How do they forecast, source and marshal the (people & technology) resources they have to assign ? How do they build capability and manage relationships with other parts of the business ? How do they formulate strategy and direction, and manage its realisation over time ?

There’s no way to explore all of these aspects and issues in a blog posting, but I wanted to illustrate a couple of ways this can work, and I thought I’d put down a couple of interesting themes which I’ve found in the past have been useful to draw out:-

IT Business Demand Management
One fundamental aspect that is interesting for many IT departments is the change in the interaction with the demand-funnel of the business that the IT department serves. This is to move from the traditional provision of solutions against whatever requests come ‘over-the-wall’, to one of collaborative account management.

This change has a number of interesting implications. For example, it causes IT organisations to have to look more at developing business-focused services that can be promoted into the business rather than just rely on serving the requirements that comes directly from the perceived business needs. This in turn implies the creation of demand, the definition of objectives, and the design of solutions, collaboratively between IT and each line-of-business. Beyond this, it also requires proof of value of each and every initiative, both in terms of the value of the initiative to the business, and also its value to the ‘whole portfolio’ of the IT assets of that business. A consultancy might describe this as asking the question ‘is this business good business? Is this good for our relationship, our strategy and our reputation, as well as being profitable and of acceptable risk?’.

This is of course part of the way that independent services companies work, where it has grown out of the necessity to have to create demand, and also to create sustainable business, in order to survive (rather than more simply serving demand as it arises). But wherever it comes from, it is also applicable to for in-house services companies where it creates a whole new interestingly commercial dynamic.

Some of the benefits an approach like this has is that it gives face-time to foster better relations with each line-of-business, it gives opportunity for IT to promote ideas into suitable scenarios in the business in the formative stages (rather than receiving stuff late that has been thrown over the wall), but above all it also creates a healthy and creative tension - a commercial relationship that gives a point of visibility to measure demand and performance.

In fact as a colleague of mine said, in-house IT departments should be able to be far more effective at this than independent companies because they should be able to convert a far higher proportion of their 'leads' or 'prospects' from the lines of business into ‘sales’ than an external company could do through their sales force (with their client base). They have the kind of predictability and visibility for planning that executives of independent services companies would kill for.

IT Service Innovation and Incentivisation
Another fundamental aspect of independent services companies that is of interest is the way that the commercial necessities of an independent services company force its innovation. If they don’t innovate to create new services or develop new capabilities, or if they somehow otherwise balance their short-term profitability with the slightly-longer-term state of their intellectual assets and market-offerings, then they inevitably will at some point struggle to compete.

Because services companies rely on this and are inherently internally based on market economics, they adapt their incentivisation-policies and performance-measurements around encouraging these behaviours, to the extent that they reward the required mix of innovation, improvement, and operational health. This is in many ways parallel to the challenges that Enterprise IT departments face in how they need to develop the services they can offer to their customer-base (the business), and how they can focus on improving their portfolio of intellectual and virtual assets (e.g. the systems, data, infrastructure in their estates etc). All the while satisfying the short-term demand for project work that needs to be done of course in the true spirit of balancing the project view with the enterprise-view ...

For an independent business, the intellectual property and assets they possess are a major differentiator in establishing credibility in winning business, in completing work faster and therefore competing in the market, and maximising profitability. The market drives this behaviour. But for an in-house services organisation, such as an Enterprise IT organisation, this dynamic is not necessarily incentivised, and the status quo can reign.

Of course ‘short-termism’ does often have the highest priority and innovation has to take second place to business imperatives, but by linking the innovation and business-demand management to the view of the ‘pipeline’ of ‘sales’ it is possible to link the investment required to the successes that are desired, and it becomes possible to show trends in how ebbs and flows in the ‘sales’ tend to follow ebbs and flows in the ‘pre-sales’ effort. And of course, ebbs and flows in the ‘business’ of the IT department tend to mean underutilised assets (people & technology) which makes the effective cost of the IT higher.

One final thing worth mentioning on this theme is how IT consultancies gain greatly in the flexibility of what they can offer to their clients by partnering with their internal business/management consulting practices. There can be clashes of culture and personality in trying to making these partnerships happen, as each side may want to be in control, they may have very different cultures, and they may have a tendency to be dogmatic and inflexible in what the right way to work is. But if you can manage your way through these issues, the combined capabilities of a broadly-skilled and collaboratively-working business and IT team, focused on driving change and improvement is a tremendous force to unleash on an organisation. I think the parallels with the possibilities for internal IT departments are obvious.

What are Some of the Other Themes from Consultancy Models
Of course these are only a couple of themes that illustrate the model, we havn’t touched upon many others such as the importance of Delivery Management and Programme Management functions, and how to align the supply from Capabilities to the Demand-Generation and Solution-Generation channels. Plus there are other aspects from business that aren’t really particular to services businesses, such as the place of Portfolio Management approaches and how to structure the Corporate-style Governance. All these aspects are probably aspects to pick up on in future postings rather than attempt to build them into this one.

Automation & Integration
But one final point probably worth mentioning is the old IT favourite of automation and integration. Many of the aspects of ‘running IT like businesses’ can be combined together into IT systems that have integrated data capture, workflow and reporting to provide what effectively becomes the equivalent of ERP (Enterprise Resource Planning) for the IT department (I’d recommend blogs like Charlie Betz’s great erp4it on the topic).

Various tools vendors are colliding on this space from other adjacent spaces, and quite a lot of the buzz in the software industry about ‘running IT like businesses’ is coming from promotional activity around these tools. However, it's far too easy when tools get involved for the implementation of the tool to become the goal, rather than actually working in a way in which it adds value and has a chance of being successfully used and I would always advocate focusing on the business objectives, the organisation, process and ways-of-working changes rather than the package. This of course, has many parallels with the 'change management' and 'stakeholder management' lessons learnt in the ERP/CRM/etc projects of the relatively recent past, but then given the similarities that shouldn’t be a surprise.

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