July 31, 2000

http://www.informationweek.com/797/it.htm

The Changing Face Of IT

As IT becomes even more integral to success, companies are rethinking how the organization looks, functions, and interacts with the rest of the business

By Diane Rezendes Khirallah

That doesn't mean her role isn't crucial to IT-far from it. As deputy CIO of external affairs, she leads IT-intensive customer projects at Mitre Corp. The Bedford, Mass., contractor develops government projects that have ranged from a deep-space surveillance system for the Air Force to an intranet for the CIA. When a job comes in, Greenwood draws the technical workers most appropriate for it from any number of business units within the company to create a staff of as many as 12 people. "I'm the focal point," she says. "They don't report to me; they report to our lines of business."

Because Greenwood relies on business units to provide her with staff, she must work with other managers to coordinate those employees' time. "It gets interesting when I have a crisis and they have a crisis," Greenwood says. "But it's a good culture at Mitre-we work it out."

This type of flexibility is more the rule than the exception in today's IT organizations. As IT has become increasingly im portant and integral to a successful business, companies are rethinking the structure of the IT organization-what it looks like, how it functions, and how it interacts with the rest of the business.

In almost every case, the goal is the same: To closely align at least part of the IT organization with a company's overall business goals while continuing to provide support and strategy for the infrastructure that runs the business.

The structure and function of the IT organization vary by company. The recent trend to decentralize and disperse IT management and workers throughout an organization is countered by an even stronger tendency to centralize and focus IT efforts. As IT becomes more associated with business goals and as IT staff works more closely with business managers, the lines of reporting become confused and confusing. And the imperative toward E-commerce and Internet initiatives may be creating two separate-and unequal-IT factions: one charged with leading the E-business push, and the other left holding the maintenance and support bag.

Despite increasing interest in alternative ways of handling various IT functions, such as third-party contractors, application service providers, and traditional outsourcing, the internal IT organization won't disappear. But it may become harder to define. "IT isn't going away anytime soon," says consultant Jill McPherson of Semeron Corp., an IT outsourcing firm. "Two years ago, marketing drove E-business, and IT drove Y2K and enterprise resource planning. Now IT is undergoing a rebirth-it's more focused on undertaking business requirements."

Certainly, IT staffs at most companies are growing. According to an InformationWeek Research survey of 228 IT professionals conducted in June, a majority of companies large and small have increased their IT staffs within the past few years because of company growth, E-business initiatives, and generally increased business demands.

But there seems to be no strong consensus on how an IT staff should be organized. According to the survey, 38% of companies with $50 million or more in revenue are working toward decentralizing their IT departments; the other 62% are sticking with a centralized structure.

Rob Carter, executive VP and CIO of FedEx Corp., is in the throes of an effort to centralize what until recently has been a decentralized IT organization spread out over several subsidiary businesses. After acquiring a number of companies over the last several years (its RPS Ground Service, for example), FedEx began a rebranding effort to bring all the business units under one corporate IT services umbrella. At the heart of the strategy was the decision to allocate as many resources as possible into customer-driven Internet initiatives.

The end result is the reorganization of the IT department into a services organization, launched June 1. The unit includes almost 5,000 workers from the initial IT organization, as well as staffers who worked on Web functions in various business units. Sales and marketing staff also participate in the new organization, but continue to report to Michael Glenn, executive VP of market development and corporate communications. "We're putting as much muscle into E-commerce as we can," Carter says.

For business reasons, selected groups-such as overseas IT-will continue to operate separately. "It's very difficult to stay keenly in tune with Asia systems, for example," Carter says. The company has IT resources in each global region, as well as experts in language support, customs, and regulations.

Instead of a desire to encompass IT resources, some organizations feel the need to push IT processing out to the areas it most affects. For the Cincinnati Public Schools system, centralized IT was a recipe for disaster, says director of IT services Dave Hickey. The reason? About 42% of the city's 48,000 students change schools at least once each year.

In the past, IT kept track of students using a "pony express" system: People delivered information by hand to the main office from each of the city's 77 schools. By the time keypunch operators entered the data into the central database, four to six weeks had elapsed. The delay affected teacher assignments, school bus loads, and allocation of food, supplies, and services. "Some schools would have too many teachers; others wouldn't have enough. The union wouldn't move them after a certain date," Hickey says. The school system couldn't accurately document how many lunches were needed per school, which affected government subsidies for school lunches.

Hickey decided to get IT administration services closer to where they were most needed. But most of his 51 IT staff members were supporting the mainframe, doing data processing or administration. So he tapped management-service provider Integris, a division of Bull HN Information Systems Inc., to take over management of mainframe applications. Hickey whittled his central IT staff down to nine people. At the same time, he hired nine database administrators, each reporting to a different department, such as food services, finance, student information, and human resources; each department supports its own applications. As for tracking students, that's been brought closer to the source: At each school, a clerical worker inputs data such as grades, absenteeism, and school fees, which is sent over a high-speed network to the appropriate department.

Hickey says the new structure creates some challenges. For instance, while IT standards are in place throughout the school system, there's no centralized IT security program.

Decentralization can cause other problems. With a high degree of decentralization, for example, it's natural for ad hoc IT groups (sometimes called shadow or rogue IT organizations) to form-each setting up whatever standards seem most expedient for them. They know their own needs, but they don't necessarily have a companywide context for what they're doing. The problem is at least twofold: They're doing redundant work, and, worse than that, what they create may not be compatible across all departments.

Even in an organization whose goal is centralization, such ad hoc efforts are hard to control. "Most CIOs would say that shadow organizations exist," says FedEx CIO Carter. The problem is compounded when organizations turn to outside contractors for quick fixes. "Born out of the IT backlog, it's natural to say, 'bring in a few contractors,'" Carter says. "I spend a lot of personal energy to manage it."

Until the past few years, it was easy to make a distinction between IT and the rest of the business. Indeed, when IT was called the "glass house" many years ago, it was run by technicians literally segregated from the workforce, writing code and maintaining huge computers in isolation. But now IT permeates everything, and even non-technical companies are becoming technical. Consider that almost every packaged-foods manufacturer or large clothing retailer has a Web site and is looking at or is involved in business-to-business or business-to-consumer Internet initiatives. And IT professionals at all levels-once separated from customers by at least two or three layers-now work face-to-face with their colleagues in other business units and with customers.

CarsDirect.com Inc., an E-commerce company that sells cars directly to consumers, is fairly typical of the increasing overlap between business and IT. An IT operations group keeps the infrastructure running, but not everyone in it reports to IT. Several key IT professionals who work on operations report to business units instead. In a similar fashion, a few staff members from business units have moved to the IT department, taking on new responsibilities. For example, a business analyst in the marketing department at CarsDirect.com is working on an IT project with the company's affiliate, Move.com, to share customer data.

Some IT professionals even find themselves reporting to two people: an IT manager and a business-unit manager. But dual reporting can be a risky situation. "No one thinks it through," says Meta Group analyst Maria Schafer. "It's difficult to balance the reporting relationship." Managers, for example, could issue contradictory orders, resulting in confusion, slowed project turnaround, and even internecine turf wars.

In most cases where there's dual reporting, there's typically a "dotted-line" manager. The IT worker has primary responsibility to one manager, but has a secondary support role to another department governed by a different manager. At J.D. Edwards & Co., an enterprise software applications vendor, some of the financial analysts share office space with IT employees. Even though the analysts continue to report to finance, they have a dotted-line report to IT, offering on-the-spot financial expertise. "They can provide the information we need in a more timely fashion," says Ken Migaki, VP of IT infrastructure. "They feel like they're part of IT."

Such division of labor raises the question: What is an IT worker? The traditional IT functions-loading software on desktop PCs, administering networks, and developing internal productivity applications-are just a part of the IT equation now. And a technical background is no longer a prerequisite for a job in IT (see story, p. 48).

The push to develop E-business initiatives has led to a dual IT organization in many businesses. Even within a centralized setup such as FedEx's, a two-part IT department remains. At FedEx, some 3,500 IT employees work on developing customer-oriented projects, while the remaining 1,500 are responsible for traditional IT services and infrastructure. At Mitre, Greenwood's virtual organization is considered half of Mitre's IT division. Bob Boonstra, deputy CIO of information systems, infrastructure, and services, manages a group of 300 IT professionals who handle more traditional duties such as maintaining and updating the company's IT infrastructure. Greenwood and Boonstra report to the head CIO at Mitre, Al Grasso.

Another example of the two-part invention that defines IT today can be found at Discovery.com, which operates the Travel Channel, Animal Planet, and The Learning Channel Web sites. Jeff Craig, senior VP for interactive technology and new media development, oversees a group of 70 IT people who were tapped to work exclusively in those areas. "It allowed us to create a separate department," Craig says. "It used to be just a Web site. Now it's a business." Meanwhile, a second IT group, Information Systems and Services, manages traditional IT functions, including enterprise resource planning and systemwide support and maintenance.

But what impact does the two-part IT organization have on those who remain in traditional IT roles? Not always a good one, say IT managers and staffing experts. While IT support is essential, it doesn't carry nearly the cachet as the business-centric IT job.

Grant Russel, a recruiter with MRI Management Recruiters, says the IT department divided along the lines of business and infrastructure functions is an evolution-brought about by E-business-of a split that always existed between infrastructure and applications. But the morale issues that plague modern IT organizations are even more intense. For one, IT professionals working in strategic IT areas often make more money then those who support infrastructure. And when IT pros with 15 to 20 years' experience see people coming in with only three or four years' experience and earning more money, resentment can brew.

Ambitious IT professionals will make an effort to get a spot on the most exciting projects, Russel says, and those who don't have only themselves to blame. Some workers who choose to stay in IT infrastructure will work their way up the career ladder in that part of the organization, he says. Still, J.D. Edwards' Migaki agrees that the potential for resentment between the two sides is strong.

Just as the glass house disappeared, the more recent iteration of the IT organization, the client-server support organization, is rapidly becoming an historical artifact-or at the very least, it's being subsumed under something new and much more exciting. For one thing, companies finally realize that IT managers are important assets when it comes to planning E-business strategies. More than half of companies surveyed by InformationWeek Research include IT executives when planning E-business initiatives. The more technology-intensive the company, the more likely that IT will sit at the head table. At Mitre, for example, the heads of all technology centers-including operations and business strategy-form the I-Team, as it's called: an "innovation team" to advise the CEO on new business and other initiatives.

There's a common denominator in all of this: IT organizations are at the heart of the pace of change that's affecting businesses, and that pace is accelerating at a dizzying speed. Rules and boundaries no longer apply. Companies must be willing to evolve and adapt their IT organizations-or face the danger of falling behind.

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