Eight Imperatives for the New IT Organization

Change has become the trademark of the business world in the 1990s. The pace of change is so frenetic that organizational theorists view change management as a critical competency — in some cases, the critical competency — for successful organizations in the future. New customer demands and technological capabilities are causing organizations to undergo transformations that involve redefining their very mission. Not surprisingly, subunits within those organizations, particularly the information technology (IT) function, are also rethinking their roles. The growing importance of information, coupled with the increased distribution of the technology to knowledgeable users, has both IT professionals and business managers reexamining the role of the IT unit. Some wonder whether there will even be a role for the IT function. This article presents our perspective on the future of the IT organization, based on three years of research on IT’s changing role.

Our conclusions are partially drawn from a study of new IT management practices in fifty firms and a comparative study of IT organizations in four countries.1 As part of the latter project, we interviewed IS executives at four large U.S. corporations and twelve European and Japanese companies. Their views on the future of IT organizations in general and, more particularly, their plans and change programs for their organizations, form the basis for our thinking. These CIOs and other IS managers with whom we have discussed the future role of IT offered diverse views of their environments. Most had unique plans for their particular units, but many common themes emerged.

We review these themes first by exploring changes in business and technology that are driving changes in the role and structure of IT units. We then define and discuss eight “imperatives” for IT organizations in responding to these changes. Finally, we suggest the responsibilities that will become core activities of the IT unit and emphasize a major factor necessary to its future success: line management’s assumption of a joint leadership role for IT.

Business Change

Not surprisingly, the CIOs we interviewed said their firms were experiencing an increasingly volatile business environment, driven by greatly intensified global competition, which has major implications for firms. There is less slack time, both in developing new products and in delivering customer orders. Customer satisfaction no longer means just prompt, courteous service; it also means designing products and services to meet individual customer needs. Equally important, costs must continuously go down, not up. Finally, firms increasingly must give multinational customers a consistent product and simplified order and payment processes across their dispersed divisions.

The global competitive environment has, in turn, led to four major changes in how organizations operate and are managed. All involve major process change. All heavily involve IT. And all are necessary to compete in the new environment.

• Reengineering Operational Processes. The combined demands of decreased cycle times, increased customer service, and decreased costs have led to the phenomenon currently called “business process redesign.” The aim is to improve business performance by taking a process view of the functions and activities in the firm’s operational value chain. In essence, firms are redesigning each process by creating cross-functional linkages, eliminating steps that do not add value from the customer’s perspective, and focusing on the horizontal information flows needed to support the process. Although many process redesign experiments have failed, companies like Xerox, J.C. Penney, and Texas Instruments, among others, have demonstrated that redesigning across the value chain can reduce inventories, lower head counts, shorten lead times, increase customer satisfaction, and increase profits.
• Reengineering Support Processes. Similarly, firms are reengineering administrative and support processes that have often been inefficient in both cost and service. Some early exemplars of business process redesign were in the “back office.” For example, Ford and Baxter Healthcare applied automation to remove redundant steps from administrative activities and applied rationalization to create shared service organizations. This drive to improve support processes continues and has evolved to include, for example, the outsourcing of accounting functions at British Petroleum and the creation of service units for internal and external businesses as in the mortgage processing at Guardian Royal Exchange.
• Rethinking Managerial Information Flows. Companies are reorganizing to obtain the advantages of both centralization and decentralization. Formerly decentralized companies (e.g., Johnson & Johnson and Citibank) are centralizing some functions, such as purchasing and logistics management, to take advantage of their size and access to worldwide information and to respond to customer demands for one-stop shopping. Formerly centralized companies (e.g., Frito-Lay and Miller Brewing) are putting more decision-making power lower in the organization to better use both sales information and existing local knowledge about customers and to provide more effective customer service. These companies are moving toward a “federal” organization model that combines elements of both centralized and decentralized structures and processes.2

This increasingly understood need to have both the advantages of global resource management and responsiveness to local market conditions has led organizations to rethink more than just the horizontal (across the value chain) systems. It has also encouraged them to rethink their vertical processes — that is, their key managerial processes such as the planning process, the quality process, the sales managerial process, and so on.3 Managerial processes, which, with the exception of financial management, were rarely designed at all in the past, can now, with IT, be designed to deliver appropriate operational, customer, and competitive information. Companies like Frito-Lay, Miller Brewing, and Xerox have redesigned many managerial processes specifically to deliver information lower in the hierarchy to teams closer to the customers, where decisions can be made with the latest detailed information. We call this “managerial process redesign” (see Figure 1).

· Redesigning Network Processes.

A fourth type of process redesign underway involves a firm’s external customers and suppliers (see Figure 1). With the advent of more cost-effective communications technology, there is also a need to emphasize the design of improved approaches to what Forrester Research terms “the customer connection.”4 This also often extends in the reverse direction to supply chain integration, as illustrated by the Efficient Consumer Response initiative in the U.S. food industry.

Redesigning processes to serve customers is not new; it has been more than a decade since Federal Express added information to its service. In the 1980s, many organizations provided increased customer contact by giving customers access to their order-entry systems, and some, like Baxter Healthcare, went further by taking over related services at their clients.5 But the magnitude of such opportunities offered by cheaper, broadband communications is now more apparent. United Airlines is moving to a ticketless approach for serving customers. State Street Bank has placed information formerly held in its mainframe files at customer premises in client/server form to facilitate improved, simpler analysis by customer personnel. But the tide of customer-oriented process change is just beginning to swell. The opportunities and perils presented by the Internet and various private networks for companies with established brand names (banks, insurance companies, pharmaceuticals, and so on) are increasingly evident. In the last half of this decade, we will see major attention to such customer-oriented redesign initiatives.

Equally, the movements of quick response and efficient consumer response have seized on the technologies of electronic data interchange (EDI), shared databases, and collaborative systems to take time, inventory, and quality slack out of the supply chain. Wal-Mart’s integration with Procter & Gamble in the United States, 7-Eleven’s fast replenishment system in Japan, and Marks & Spencer’s contract management system in the United Kingdom are examples. We call this integration of processes with customers and suppliers (plus allies) “network process redesign.”

These four major efforts at process redesign are having a major impact on IT organizations. Although pressure for the business changes started in the manufacturing sector, the needs to reduce costs and increase services have spread to all sectors (including service, health, and education), and all IT organizations are affected. On the one hand, information technology enables most effective process change, so the load on IT organizations is becoming much heavier. On the other hand, IT units must reduce costs, raise quality, reduce lead times, and improve customer service. The challenge for IT units is thus to do more with fewer resources. As a result, some top IT executives are heavily engaged in thinking through the reengineering of IT.

Technology Change

The technology environment has undergone a complete change in the past few years. Instead of a fairly stable, benign mainframe environment, IT now has to deal with a user-centered workstation environment supported primarily by server-based storage and processing. New development methodologies, integrated package suites, and exploding technologies create a situation in which IT units must interface with as many as 50 to 100 suppliers (not the previous 5 to 10 major ones) to meet their needs. And the IT industry is complex, uncertain, and ever changing. The key technological issues are:

• Distributed Computing Environment. Current users are well trained and more demanding as they install PCs and portables throughout the organization, often with nonstandard software. Power users abound and frequently are more knowledgeable about PCs than core IT personnel are. They are frequently the application innovators in an organization but often fail to understand what is necessary to provide secure, industrial-strength systems, so the IS staff must reverse-engineer applications they have developed. Unfortunately, even in 1996, client/server environments remain difficult to implement and support. Inadequate software, multiple suppliers, and new languages make the transition from thirty years of mainframe-based COBOL a challenge, and the “legacy systems” still have to be maintained.
• New Development Methods. Software development is moving slowly from COBOL on mainframes to object languages on server platforms. Meanwhile, management’s dissatisfaction with previously costly and slow development, coupled with a sense that basic transaction processing has little competitive advantage, has led to the increased use of integrated packages like SAP. In most companies, IT is not prepared for this revolution. Many COBOL programmers and mainframe operators have difficulty making the transition to more complicated, uncertain technologies. Some CIOs describe new development methods and technologies as “black holes.” Those firms that invest in training IT staff in new tools find that training costs are high and the payback sometimes slow. In addition, there are growing personnel losses as other firms look for people trained in the new development approaches.
• Exploding Technology. While IT staff people are already struggling to implement existing technologies, more technology changes loom. Object orientation, image processing, wireless communication, pen and voice processing, and multimedia are all becoming more useful. Most important are the emerging information highway capabilities, evidenced by the Internet, the World Wide Web, the emerging Microsoft Network, and services like CompuServe and America Online. They are changing the way that business is done and demand new skills and capabilities from the IT organization.
• A New Industry. Less than a decade ago, a few companies, led by IBM, dominated the computer industry and could supply most of the required technologies and services. Today, the many-layered industry includes hundreds of players.6 Not only are there hardware, software, and communications suppliers, but systems integrators, facilities managers, information brokers, and so on. Almost daily, there are new entrants, new alliances, and new product announcements. The old certainties, along with many once successful products and vendors, are gone.
• Availability of Outside Suppliers. The outsourcing industry, once confined to a few firms such as EDS and a number of contract systems developers, has burgeoned. Outsourcing is on the mind of every senior executive who wants to cut costs or shrink (or reduce the perceived or real trouble connected with) the IT organization. While only a few firms, such as British Petroleum, ITT, and Kodak, have outsourced major portions of the IT function, most IT units have identified specific tasks that could be better served by companies specializing in IT services. Learning how to identify tasks that are candidates for outsourcing, negotiating an appropriate outsourcing contract, and managing the outsourcing agreement effectively are major new challenges IT executives face.

Eight Imperatives for IT

What do all these business and technological changes mean for the IT organization? The oft-cited metaphor of “changing an airplane engine in mid-flight” comes readily to mind. The business changes alone are daunting. However, major changes in systems development, in hardware and software, and in the rapidly changing, vastly increasing options for both computing and communications make the technology issues particularly challenging. These challenges are often coupled, however, with inadequate technical and business training in IT units and are compounded by IT spending patterns that disperse IT investment planning throughout firms. In sum, the load on IT organizations is heavier than ever before, and the management of IT is more complex.

Given this environment, we see eight imperatives for the IT organizations of the late 1990s. To be truly successful, an IT organization must excel in each (see Table 1).

Imperative 1: Achieve Two-Way Strategic Alignment

The first imperative is to align IT strategy with the organization’s business strategy. With more than 50 percent of capital equipment investment in the United States now being devoted to information technology, IT has clearly become a major resource for management in carrying out its strategic initiatives. To ensure that investments in IT are targeted at strategic priorities, IT management must be knowledgeable about senior management’s strategic and tactical thinking. The CIO must become either a formal or informal member of the top management team, and other senior IT executives must become members of key task forces. IT people must be present when business strategies are debated.

Alignment, however, is two way. As firms consider their future in an information era of superhighways, multimedia, and information richness, IT executives should contribute more positively to management thinking by identifying the business threats and opportunities that IT poses. It is evident that technology influences strategy as well as vice versa.

Many firms ensure strategic alignment with more than just a new appreciation for the CIO’s role. They also emphasize senior line management’s ability to understand opportunities available through IT. Formal and informal senior management education about IT is underway in many firms that are conducting technology and strategy workshops. Leading-edge organizations have revived IT steering committees that are very different from those of the 1970s and 1980s, when each member argued vociferously for funding for his or her particular function or suborganization. Today’s committees are formally charged with two primary objectives: (1) to ensure that appropriate education is provided for, and absorbed by, all members to enable them to make effective business decisions about information technology; and (2) to require members to take an organizationwide perspective in decisions on IT resources. These new committees reflect the need to support the processes noted in Figure 1 and the increased importance of allocating scarce IT resources effectively.

Imperative 2: Develop Effective Relationships with Line Management

The key people using information technology in any organization are its functional, product, and geographical line managers. They provide the strategic and tactical direction and the commitment to implementation that converts visions of new systems into improved organizational processes. Thus IT personnel at all levels must develop strong, on-going partnerships with line managers. Only through these relationships can the necessary communication occur to ensure that both business and technology capabilities are integrated into effective solutions for each level of the business. In an effective relationship, IT professionals and line managers work together to understand business opportunities, determine needed functionality, choose among technology options, and decide when urgent business needs demand sacrificing technical excellence for immediate, albeit incomplete, solutions. Beath, Goodhue, and Ross note that effective IT-business relationships are one of the three major resources (along with IT human resources and the technology infrastructure) that IT executives must manage well in order to deliver value to a firm.7 These relationships demand that both IT and line managers accept accountability for systems projects, which is achievable only when both parties share their unique expertise.

IT organizations have made major efforts to move toward more effective relationships. In many companies, IT education now includes interpersonal skill-building, such as active listening, negotiation skills, or team building. Many IT executives are assigning high-level “account managers,” chosen for their knowledge of the business and technical capability, to focus specifically on IT-business communication and understanding. In addition, IT staff are strengthening contacts with the power users in each organization, not only to manage what they do, but also to learn from them.

In an article on CIO effectiveness, Earl and Feeny identified the IT-business relationship as critical to an IT organization’s ability to add value to the business.8 They observed that building the IT-business relationship overlaps with six other factors to enable a CIO to provide business value. We have adapted Earl and Feeny’s framework by concentrating on the relationship variable and three others: focusing on business imperatives, concentrating development efforts on strategically important initiatives, and establishing a credible IS performance track record. We have added another variable, increased business knowledge (see Figure 2), which often underpins the efforts by some companies, such as British Petroleum, to turn systems professionals into business consultants.

These five strategies combine in a feedback loop that leads to ongoing IT success. IT managers utilize in-depth business knowledge to build strong executive relationships, which allow them to focus on business imperatives and then concentrate IT development efforts on those imperatives. Successful systems built for priorities then enhance IT’s track record, which, in turn, improves business relationships at all levels. Successful systems and improved relationships in turn add to greater business knowledge, and the cycle continues to build. Earl and Feeny’s targeting of relationships as a critical imperative for IT management is certainly appropriate.

Imperative 3: Deliver and Implement New Systems

Although the primary function of the IT department has been the development and operation of systems, today’s approach to system development is radically different from the past. The task has changed from developing mainframe-based transaction-processing systems that support a single function to delivering desktop systems that address the integrated data needs of knowledge workers supporting redesigned processes. The environment has also changed, as internal clients have lost patience with long development times, inflexible interfaces, and cost overruns.

IT executives are responding to these challenges with a variety of strategies. Some have introduced time-box approaches, which require the delivery of usable system components at regular intervals. Time boxes force developers and their business partners to focus on functionality, thus avoiding overengineered solutions and unnecessary delays. Another way to avoid delays and target critical functionality, as noted above, is to recognize that high-level line managers must be the ultimate project leaders, thus ensuring that the business people who will use the system take responsibility for its implementation.

But faster cycle times and the need for data integration and sophisticated interfaces have led to more revolutionary changes as well, particularly in the extent to which firms rely on outside sources. For example, more IT units enlist the help of contractors, especially in areas where their tools and technologies are needed; two prime examples are client/server systems and Internet applications. Some subcontract all specialist application development to niche third parties. Others use externally developed templates, i.e., CASE-based tools that they customize to meet their specific needs.

Firms are increasingly recognizing that they do not have the time, money, expertise, or inclination to develop large integrated systems in-house and are relying on integrated packages. As noted earlier, they are purchasing software from firms like SSA, SAP, Baan, and others to address their needs for integrated systems. Package implementation is decidedly different from in-house development. IT staff people must understand the system, adapt it to the platforms it can utilize, and troubleshoot code or table-driven procedures that were written outside the firm. More importantly, because packages inevitably require changes in business processes, IT must work even more closely with functional managers who are responsible for making the systems work in practice. Integrated systems projects require near equal staffing of technical and functional personnel.

Thus systems delivery often involves procurement and requires the experience and skills of an informed buyer. Purchased software provides a solution for organizational processes that offer no particular competitive advantage (or where competitive advantage accrues, it does from use, not ownership). However, firms are still identifying applications that offer unique competitive features, in particular, those that improve customer connections, and thus they are still developing software internally.

In sum, systems delivery now includes not only systems development but also procurement and integration. The total systems delivery load in most firms has increased greatly and shows no signs of slowing down, mostly because of the business and technology changes we have identified.

Imperative 4: Build and Manage Infrastructure

IT is currently charged with creating an “IT infrastructure” of telecommunications, computers, software, and data that is integrated and interconnected so that all types of information can be expeditiously — and effortlessly, from the users’ viewpoint — routed through the network and redesigned processes. Because it involves fewer manual or complex computer-based interventions, a “seamless” infrastructure is cheaper to operate than independent, divisional infrastructures. In addition, an effective infrastructure is a prerequisite for doing business globally, where the sharing of information and knowledge throughout the organization is increasingly vital.

IT units must address four challenges in developing and supporting their firms’ IT infrastructure. First, they must develop an architecture that defines the planned “shape” of the infrastructure. While hardware and software capabilities are obviously part of that architecture, the treatment of data (what is to be standardized, where it is to be located, and so on) and the treatment of applications – in particular, decisions on the embedding of applications into the infrastructure itself (e.g., office suites, e-mail) – are more important. Interestingly, some European companies in our study included the information processing skills required of users in their conceptualization of infrastructure.

Second, IT units must establish technology standards for implementing the architecture. This requires constant screening and testing to determine which technologies meet organizational needs for integration and support. The rapid pace of change in information technologies means that IT units must develop the ability to establish, support, reevaluate, and, as appropriate, change technology standards. What is extremely clear is a movement toward increased emphasis on standards for improved cost and effectiveness. The time, energy, and expertise needed for making appropriate selections is slowly driving every major company to have a headquarters group, often in conjunction with a committee of IT personnel from local organizations, select a small set of corporate standards.

Third, IT executives must understand and communicate the value of the infrastructure. In most decentralized, federal organizations, local management is taxed for infrastructure support, so it becomes important that the value of the infrastructure is as apparent as the cost. The value of any infrastructure, however, depends on management’s strategic vision for its use. Consequently, the infrastructure design and the money invested in it, and the infrastructure services that IT provides, have become senior management business decisions.9

Finally, IT units must operate an increasingly complex infrastructure. The user with a problem cares not at all about whether the error is located in telecommunications, mainframes, servers, routers, a database, or the application itself. He or she needs help. While there are currently no capabilities to look seamlessly through all aspects of the network, the responsibility for building and operating a full network will increasingly become the role of a new “super operations manager” — a chief network officer (CNO). Reporting to the CIO, this person will have end-to-end responsibility for one of the organization’s critical assets. In effect, the CNO will be the IT chief operating officer, while the CIO handles the externally related activities such as vision, relationship, education, and consulting.

Imperative 5: Reskill the IT Organization

For almost two decades, the basic approach to systems development did not change. COBOL was the major language, and the mainframe was the major platform on which systems were developed. Today, by far the largest number of systems are being built for client/server use. Developers in this environment must regularly learn new programming languages, operating systems, and communications protocols. Support personnel are similarly challenged. And network operators find systems and network management to be particularly challenging as they migrate from hierarchical network environments to peer-to-peer networks. These changes have resulted in large gaps in the IT staff’s technical skills.

Equally important, as IT becomes ubiquitous in all organizations and a critical element of new business strategies and tactics, most IT leaders have found that their staff people are woefully lacking in business knowledge and skills. If the necessary relationships are to be built (as noted in Imperative 2), IT reskilling must go beyond technology skills to business skills. None of these skills will be easy to develop among the current ranks. There are estimates that up to 50 percent of existing IT personnel will not be able to make the technical transition, much less be able to learn the appropriate business skills.

There is, as yet, no consensus on how to make the skill transition. Some companies, such as Morgan Stanley in New York City, are funding an extensive education program to reskill existing staff. Some are working with “new” client/server software companies, such as Cambridge Technology Partners, to both build systems and educate their people. Others are merely hiring people with the appropriate new skills and assigning existing staff primarily to the care and feeding of older systems. Whatever the approach, reskilling is underway in all IT organizations, at a very significant cost.

Imperative 6: Manage Vendor Partnerships

Outsourcing some IT responsibilities to computing services firms can compensate for skill shortages in IT units and relieve management of the need to oversee tasks that are not competitive strengths or core competencies. As a result of their economies of scale, many vendors in principle can provide more reliable, cost-effective support than in-house units, while allowing top IT management to focus on strategic priorities. However, making outsourcing work is a different proposition from deciding to outsource.10 IT managers must be at least as skilled as the outsourcer in each area, be informed buyers and prime negotiators, and derive satisfaction from seeing a job done well —not just from doing it. They are a different breed of IT manager, with the critical ability to recognize whether a vendor relationship is purely transactional and contractual or more strategic and joint.11 Vendors and customers have suffered from confusion on this point.

Imperative 7: Build High Performance

In the 1990s, IT units, like all other functions in the firm, must strive to meet increasingly demanding performance goals and improve their economic and operational track record. In Figure 2, we showed the importance of an IT track record in relationships with business management.

Affordability and cost efficiency have become vital issues as IT budgets continue to rise, especially when companies discover that more than 50 percent of expenditures is with the end user. Outsourcing and downsizing are two responses to this challenge. Companies are also installing new cost metrics to promote IT cost-consciousness, such as IT cost per unit of product or service, activity-based costing of IT services, and distribution cost analysis of IT-intensive operations.

Operational performance improvement has followed manufacturing trends. Companies have transferred TQM and customer service programs into the IT unit. For example, Motorola has introduced six-sigma performance goals in an IT quality program. Information-intensive service businesses are using customer surveys, simulated customer queries, and customer complaint analysis.

Finally, in manufacturing terminology again, “time to market” has become a primary issue. Systems can no longer constrain business development. A wait of two or more years for application development is unacceptable when markets are changing so fast. As mentioned earlier, new systems development methods, greater use of packages, and time-box projects are some approaches to shorten development time. Other approaches include prototyping, “80/20” requirements definitions, targeted deployment of enduser software tools, and Internet technologies.

These dimensions of IT performance not only affect the credibility of the IT unit but also show that IT is no different from other organizational units. IT must also perform effectively to enable the total competitiveness of any business.

Imperative 8: Redesign and Manage the Federal IT Organization

For the past three decades, IT organizations have struggled with the “centralization-decentralization” issue. The exact locus of all or part of IT decision-making power is critical, and getting the right distribution of managerial responsibilities is, thus, the eighth imperative.

Our research suggests that, increasingly, these responsibilities are distributed to both local organizations and the central IT unit, as Handy described.12 Handy designated a “federal” organization that follows the political model of the division of power between a central authority and local governments (e.g., the federal government versus the states in the United States). His model allows for significant autonomy at the local level in business organizations but also the “scale” necessary for organizationwide planning, resource allocation, centralized purchasing, and other benefits.

Hodgkinson, in applying this theory to the IT organization, noted that both decentralized IT and centralized IT have real disadvantages (see Figure 3).13 Both, however, provide many advantages (see the central ellipse in the figure). Decentralization of some decisions fosters user control over IT priorities and business unit ownership of their systems, for example. But, on the other hand, economies of scale and control of standards can be gained only from centralized activities. Hodgkinson illustrates a federal organization that delegates some responsibilities to the center and much to the local organizations. What ties all this together is a well-thought-out IT vision, effective leadership, and groupwide IT strategy and architecture. These, in turn, enable the benefits of both centralization and decentralization and allow strategic control and synergy throughout the organization. Moving from the status quo to an effective federal organization, however, is not easy, especially in formerly decentralized organizations. Once a federal structure is in place, though, it can be easily modified as the requirements of the host organization change and technological learning evolves. It is thus a relatively stable structure.14

Past research on federal IS structures assumed a multidivisional context. However, single-line businesses are now also discovering the advantages of federalism. The model here is devolution of systems analysis and consultancy activities to departments, functions, or processes, and a unifying central responsibility for strategy and operations. In other words, federal structures help achieve alignment with the business, together with economy of scale and architectural integrity.

The New Core IT Activities

While it is simple to describe the eight imperatives, putting everything in place to be effective in each area is much more difficult. Unfortunately, most IT organizations cannot succeed in all areas. Because of a lack of skills or just inadequate staff for all the IT-related efforts underway in most major organizations, outsourcing is increasing rapidly. In fact, most of the activities that the old IT organization once did — running the network, managing the utility, developing and maintaining systems, and managing workstations — can now move to an external vendor (see Figure 4). What, if anything, are the current and future roles of the IT organization?

No matter how many or how few of the old organizational activities are outsourced, the IT organization itself has shifted from being primarily a “doing” function to a more business-centered, advisory, and management function. In large organizations, IT management will increasingly see its new primary roles as: (1) ensuring that line managers at all levels understand IT’s potential and how to use the IT resource most effectively in carrying out their strategies; and (2) providing advice and expertise to ensure effective implementation of the business strategies and tactics. In other words, IT management will work with line management to ensure that the business is doing the right things with information technology.

As a result, the IT organization’s core responsibilities as we move toward the year 2000 will increasingly include understanding and interpreting technology trends; working with line managers to help them develop IT-enhanced strategies; educating and consulting with line management to ensure that the strategic direction is carried out; taking responsibility for, or supporting at the very least, effective process innovation; developing relationships that permit useful internal partnerships; managing suppliers to whom parts of IT have been outsourced; and developing and managing the IT human resource (see central box in Figure 4). The old core IT activities, many of which are being subcontracted to the marketplace by outsourcing or joint ventures, are the “doing” activities; they may be retained in-house (insourced) but are managed very much as a commodity (see left-hand box in the figure). User-management responsibilities are both traditional — carrying ultimate responsibility for applications strategy and for systems implementation — and new — personal and local computing, and increasingly, business-oriented experimentation with new technologies (see right-hand box)

Given this division of activities, IT management not only is responsible for the new IT core but also has to assist line and user management in managing IT activities. In addition, IT management has to ensure that the “old” tasks are efficiently and effectively carried out, either internally or externally. While both these concerns have always been part of the IT mission, too few organizations have successfully addressed the need for business-oriented IT personnel capable of building relationships necessary to work effectively with line managers and third parties. Today, this job is becoming the primary or “core” role of the IT organization.

Line Leadership

The success or failure of an organization’s use of IT, however, is only partially dependent on the effectiveness of the IT organization. It is even more dependent on the capability of line managers at all levels to understand the capabilities of the IT resource and to use it effectively.

Information and information technology have become the fifth major resource available to executives for shaping an organization. Companies have managed four major resources for years: people, money, materials, and machines. But, today, information has become the source of product and process innovation and the wellspring of new businesses. IT is thus a major resource that — unlike single-purpose machines such as lathes, typewriters, and automobiles — can radically affect an organization’s structure, the way it serves customers, and the way it communicates both internally and externally.

Only line managers are close enough to their business segments to see the most effective ways to utilize this resource. Only they possess the clout to embed IT into their strategies and to commit the necessary financial resources. Unless IT is included in line managers’ strategy and tactics, and unless line managers can effectively understand and implement a process view of the world, the best IT organizations are almost powerless. For the past decade, we and others have pointed out that line leadership is an absolute necessity.15 However, far too few organizations have delivered the appropriate education and training necessary for line managers to assume this responsibility.

In addition to effective planning for the use of the IT resource, line managers are also responsible for effective implementation of information technology. Although building good information systems is seldom easy, it is far easier than revamping the processes by which people work, their roles, their reward systems, the organization’s accounting systems, or even the organization’s structure or culture — all of which need to be altered to install today’s process-based systems. About thirty years ago, Harold Leavitt emphasized that an organization’s strategy, its structure, people and their roles, and its technology had to remain in balance (see Figure 5). If any of the four variables changes, Leavitt noted, the others must also change to keep the organization balanced.16 A decade ago, Rockart and Scott Morton added a fifth variable to the balancing act: organizational processes – not only horizontal and vertical processes but also reward processes, accounting processes, and so on.17

With this diagram in mind, it becomes painfully obvious that to implement systems successfully, line management must be heavily involved. IT management can change only one variable, the technology, in accord with a strategic or tactical change. The CIO has no power to effect the other necessary changes (in the center section of the figure) — the changes in structure, culture, processes, and people’s roles — and therefore no power over the most crucial factors in an implementation process aimed at vastly improving an organization’s efficiency and effectiveness. Only line management has the responsibility and power to effectively change these variables. For an organization to successfully use IT today, IT management must respond to the changing business and technology environment through effective efforts in each of the eight imperatives. However, this alone is not enough. Line management must also shoulder its twin roles of effective planning for the fifth resource and for the implementation of new IT-based processes. If it does not, all the herculean efforts that IT managers make to respond to the new environment will be in vain.

Conclusion

The future IT organization must address the dual demands of improving the performance of its services while increasing the impact of those services on the firm’s bottom line. In most firms, the IT unit will become smaller over time but will necessarily possess greater expertise in both technology and business processes. Most important, IT resources will be aimed at the organization’s strategic needs.

The outsourcing of IT tasks seems likely to grow if IT management learns how to handle all the challenges. Then IT executives will focus their time and energies on the highest value-adding responsibilities, such as helping top management identify strategic opportunities and developing the blueprint for a solid IT infrastructure.

The IT unit of the future, even if smaller, will be more critical to its firm’s operations. Effective IT units will help their firms apply IT to redesign processes and access needed information on a tight budget. Those who fail to address the eight imperatives, or who are unable to convince line management to undertake its leadership role in both IT-enabled strategy development and systems implementation, will be unable to support their organizations in a fast-changing, competitive world.