Last month my column addressed the need for a change in the way that information technology (IT) investments are evaluated, arguing that the returns from the IT portion of any business investment cannot be separately measured, nor is it meaningful to attempt to do so. This month I will discuss some of the implications of this change for the IT organization.

From 1960 to the mid- 1980s, the evolution of the IT organization closely mirrored that of information technology itself. Starting in the realms of research and engineering, IT then migrated into the back office as "data processing" became the dominant activity, and the "DP" or "EDP" department emerged as the norm. Around 1985, a major disruptive force emerged in the shape of the personal computer. As PCs started to become widely deployed in business, the effect was to move much of the control of computer processing from the remote and isolated data center to the desktop. Far from disappearing, the data center remained the workhorse for heavy-duty processing; however, the visible focus of IT became the desktop. This shift had a number of effects, not the least of which was to fragment the IT budget to such an extent that as much as 60 percent of total technology costs in some companies were external to the IT budget. Another effect was to place IT directly in front of business management as critical business decisions began to be evaluated using complex PC models and key business processes such as order entry and billing became wholly reliant on the effective operation of computer systems. These changes led to the creation of the chief information officer (CIO) and an elevation in the role of the most senior IT executive, many of whom now reported to the CEO (or, at the very least, became part of the executive management team).

However, little was done to equip CIOs with the tools or knowledge required for effective management of the increasingly complex technical environment. Perhaps not surprisingly, turnover within the ranks of CIOs was high. Further complexity in the shape of client/server computing and enterprise resource planning (ERP) applications did little to ease the situation. Many IT organizations were seen as having little "I" and a lot of "T." A significant barrier arose in some companies between IT and those whom the IT staff often disdainfully referred to as "users."

More recently, the rapid rise of the Internet and the e- business revolution have further compounded the challenges facing IT and dramatically increased the stakes. Technology became mission- critical in nearly every business process. It also became so pervasive that the risks of nonperformance were for the first time directly visible to customers, supply chain partners and other stakeholders; major problems could easily become headlines in the mainstream press.

How are IT organizations responding to these challenges, given the ever-increasing complexity and criticality of their role? We see three major trends occurring in how leading IT executives are thinking about their function's role.

First is a move from an operating focus to a management focus. As the technologies become increasingly complex and critical, companies are recognizing that it is impractical to try to operate all the key computer and communications systems internally. For example, the act of recruiting appropriately skilled staff and keeping their skills up to date is simply too costly for most companies. As a result, many of these activities are being outsourced, with the internal IT organization playing a supplier- and customer-management role focused on setting standards, defining business needs, evaluating sourcing options and managing service delivery. This is being supported by the development of new measurement and management processes that provide a clear scorecard of performance that goes far beyond the traditional metrics such as "uptime" and "estimates to complete." The emphasis is moving toward linking IT capabilities directly to business results, not just to the operational performance of the technology.

Second, IT is adopting a networked, or balanced, organizational model that is neither centralized nor decentralized. Leaders are recognizing that the age-old debate as to whether an organization should be centralized or decentralized is pointless since the answer is "neither" and "both." The truth is that activities that are more homogeneous and location- independent tend to benefit from more central control, while those that are more unique and localized tend to be best managed close to the customer.

Finally, IT professionals are emerging from their bunkers down in the data center and becoming full participants in key business processes such as product development, marketing, logistics and customer support. The traditional approach of users defining requirements that are then thrown over the wall for IT to build is being replaced by a collaborative, cross-functional approach akin to the vaunted "platform" teams that transformed automotive design processes in the late-1980s. These multiskilled teams seek to leverage the collective knowledge of all participants to ensure sharper definition of requirements, better design and faster deployment of technology-enabled solutions. Key to this transformation is a willingness of both IT and non-IT professionals to change entrenched behavior patterns. One notable example has been the need to reach common ground in terms of language. Historically, some

IT professionals' intimidating use of complex technical jargon only served to widen the gulf between IT professionals and their colleagues. That said, however, it is equally true that non-IT professionals have, in many cases, steadfastly refused to make any attempt to understand even the basics of the technology that underpins their business. At best- practice companies, this chasm has been closed by both sides making efforts, resulting in better use of technology at lower risk and cost, surely a laudable objective for anyone.

The net effect of these changes is to weave IT into the very fabric of the business in much the same way as finance or human resources, so that all elements can combine to harness the technology's undoubted potential to create value. Far from having its role diminished, the IT organization is a critical enabler of business strategy.

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