Ten years ago, CIOs were focused primarily on building and managing IT infrastructure. Today, the role is becoming more complex and more public.

The proliferation of cloud-based services and the increase in user demand for mobility require CIOs to increasingly act as brokers of IT services, managing the integration of in-house IT departments and any number of providers to meet both evolving business needs and company security and privacy standards. As technology moves quickly from a behind-the-scenes support system to a core business enabler, the CIO must also move quickly to become the strategic business thinker the new role demands.

Fragmented IT is not new 

The advent of cloud computing brings back memories of the late 1980s, when business units in large companies first acquired personal computers. Without realizing what they were doing, employees blithely went about creating “shadow IT” organizations much to the chagrin of the centralized IT department. The business units wanted to reduce their dependence on centralized IT and develop newer business applications at a lower cost and in less time.

It was a new kind of freewheeling IT euphoria for business leaders who wanted to leverage technology to achieve their own goals. But what was lost was the realization that, while the business units blindly paved their own way, the total cost of ownership (TCO) associated with personal computers was increasing, and the need for integration with other departments within the company was needed.

In the early 1990s, when senior executives began to realize the need to bring order to the chaos, they directed the central IT organization to acquire and manage the lifecycle of personal computers and related applications. IT managers regained control of the enterprise’s personal computers by implementing a client-server computing model in which personal computers and the centralized servers both played major roles in the company’s IT architecture.

The move from a centralized, mainframe-oriented IT model to a client-server model was a major shift in the industry from both a technological and organizational perspective. A profusion of new, affordable, user-friendly, and productivity-enhancing desktop applications quickly became available to end users.

To control the disorderly growth of new products, IT organizations rushed to create corporate standards for desktop hardware and software. They then quickly created end-user support organizations to manage the desktop environment. Capable IT executives found a win-win solution by keeping the end users happy and productive with their new tools and, at the same time, by maintaining the architectural standards and structure of the IT environment.

Cloud computing and fragmented IT: A case study

The recent growth of cloud computing has brought similar challenges to large organizations today. Business units in enterprises across industries find themselves wanting to exploit a market opportunity, and they need a computing environment to help them to do so at the earliest possible date.

Take, for example, XYZ Corporation. The senior management of XYZ Corporation, a Fortune 500 company, realizes that it has become bureaucratic and staid. It is not able to bring products to the market quickly enough, and employee retention and morale is low.

Leaders decide to create a small pilot division, named Innovation Inc., to reengineer the XYZ Corporation. Innovation Inc. is made up of sales, marketing, engineering, finance and manufacturing departments and has a total employee head count of about 500. XYZ Corporation has staffed it with high-potential personnel and promised full autonomy to the executives of the division who feel that the parent company has been tight with finances, especially the capital investment required to innovate and grow.

Innovation Inc. has come up with a new product, and its leaders feel that opportunity window is small. It needs new IT applications in sales, marketing and engineering to develop and sell the product. It realizes that going to centralized IT to acquire and install the product requires too long of a lead time and that, if it waits, the opportunity may be gone.

Innovation Inc. knows that going through the traditional IT system is capital intensive and, moreover, the success of the product is not certain, so it wants to pay only for the IT services it consumes. Its leaders search the market and find many cloud providers that charge for these applications on a usage basis.

For a successful implementation, they need financial and sales lead data from XYZ’s central IT repository but believe that, for the time being, they can implement a makeshift data path to get around centralized IT and obtain the services from IaaS and SaaS providers.

Meanwhile, as much as the corporate executives support the IT plan of the Innovation Inc. leaders, they must consider the security and regulatory compliance issues associated with cloud implementation. In addition, they are obligated to prioritize the long-term vision and planning of the combined organization above experimental projects. This creates a challenging scenario for XYZ’s CIO.

The Top 10 Challenges for the CIO of XYZ Corporation:

1. Lack of integration. While the CIO wants Innovation Inc. to succeed in its effort to be innovative and bring products to market quickly, its new IT environment is an island of automation. It is not integrated with the rest of the XYZ environment. As the pilot project succeeds and grows, integrating it with the IT environment of the larger XYZ Corporation will get increasingly difficult to pull off.

2. Lack of support. When other business units begin to solve their problems in the same way, XYZ soon will have a disarray of as-a-service solutions running hither and yon throughout the enterprise, similar to what happened during the PC era. This creates a convoluted scenario that is difficult to track, expense, support and plan for.

3. Complexity. Integrating these islands of computing with the rest of the organization is a complex task. Cloud applications will need to coexist with legacy applications for many years to come, but not all applications are cloud-centric. Service integration must include both external service providers (SaaS providers) as well as the internal legacy IT organization.

4. Lack of standardization. When products and services proliferate without a vision or blueprint for the future, the CIO organization is in for trouble. It must quickly exert control by publishing enterprise-wide standards and direction.

5. Cultural differences. Meshing the culture of the two organizations is tricky as most IaaS and SaaS services are “do it yourself” or self-provisioned, while legacy IT organizations tend to be process- and procedure-bound.

6. Difficult budgeting. Legacy IT is typically capital intensive with long planning and development cycles. Within capacity constraints, the user is assured of a fixed price regardless of usage. In the cloud, services are purely transactional, and, if care regarding usage is not exercised, the organization is likely to experience sticker shock. Since usage can vary by time period, those tasked with financial management and budgeting on an annual basis will find their jobs more difficult.

7. Irreconcilable contracting. Because the IT services are delivered in this mixed environment by a combination of external and internal service providers, it’s highly likely that the contract with the external service providers will have SLAs with monetary implications and the contract with the internal legacy side will not. Contract management, therefore, must be reconciled.

8. Contracting terms and conditions. If Innovation Inc. decides to host its applications on a public cloud due to the shared tenancy nature of the delivery, it is highly likely that it will have to agree to standard terms and conditions and contracting language that may be very different than the practices followed by its parent company.

9. Security. The hybrid environment that includes both cloud and legacy IT consists of a combination of services from both internal and external service providers. While the CIO may be confident and comfortable about the security of internal IT, special care may be needed to ascertain the security standards of external cloud providers.

10. Regulatory compliance. While the cloud environment is agile and flexible, the CIO has overall responsibility for the IT regulatory compliance of the entire organization and must make sure the entire IT environment (including the cloud) adheres to regulatory standards.

The proliferation of “shadow IT” in the context of cloud computing is a major challenge to IT executives today. It exists because of the perception among business units that centralized IT is an impediment to progress rather than a desirable partner in finding quick solutions. However, shadow IT serves an important function in every organization and, if encouraged and nurtured properly, it is a catalyst for change and a facilitator for rapid implementation of innovative ideas.

While cloud computing offers services that are agile, elastic, flexible and less capital intensive, IT executives still must have to take a long-term view. Most IT executives are being drawn into the debate about the merits of incorporating emerging technologies and cloud services into their environment.

As in the days of PCs, IT executives will be well-served to stay aligned with the needs of the business units and establish governance policies and processes for smooth integration with the existing IT environment.

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