IT Organizational Design is Key to Economic Growth

by Nick Lippis

In Global 2000 companies, IT has organized primarily around silos of technologies. There are different silos: the network, storage, application, server/host, virtualization, security groups and more. This model became popular in the mid 1980s when mainframe computing gave way to mini- and personal computers. Remember Apple’s 1984 Superbowl commercial? Big brother wasn’t just IBM; it was the IT organizational model that created huge barriers of entry for new IT products and ideas from enterprise corporations. But as the mainframe market disaggregated and the IT industry segmented, technical professionals were needed to manage each part of the IT service delivery chain. Each IT group or silo developed processes and tools to manage its specific segment of the IT infrastructure besides cultivating unique relationships with vendors of its choice. The model worked, and for the most part, it still does, but at a heavy cost. But just like the shift away from mainframes drove a new siloed IT organizational model, so too are current mobile and cloud computing technologies, and that new IT organizational design model is the Cloud Infrastructure group.

The heavy cost of a siloed IT organization is found in delays of IT service delivery which translate into lost competitive advantage or the inability to respond to market opportunities or threats quickly. Silos also tend to fall into vendor lock-ins as professionals stake their career on their ability to understand and manage a particular vendor’s products. The larger the market share a vendor has, the more marketable are the professional’s skills in managing that vendor’s product. Vendor lock-in is systemic within all silos because it serves the silo’s professionals. Vendor lock-in tends to increase cost,   and reduce innovation.

Silos don’t tend to work with each other very well. It’s just that they know their silo so very well and going beyond it takes them to unchartered territory. Professionals who built their career skills in buying and managing storage have a difficult time doing the same in networking, servers, or applications arenas and vice-versa. In short, silos encourage professionals to develop deep skills within the silo, and not necessarily between or within another silo. With the siloed approach comes siloed IT expertise, which is inherently one of the barriers for enterprise cloud adoption –  lack of cross-domain expertise. This lack of cross-silo fluidity creates friction, thus delaying delivery of IT services and corporate competitive value.

Some argue that IT is a cost to business that needs to be minimized. Others argue that IT is fundamental to business success. I’m in the second camp. IT is fundamental to productivity and competitive leadership. But how is IT linked to the global economy? Dr. Books, my physics II professor, once asked the class, “What is money?” His answer: “a delta in voltage or a voltage change.”  That is, money is represented, distributed, exchanged electronically and IT organizations develop the applications and infrastructure to enable value movement within and between corporations and their customers. Think of American Express, for instance. Is it a credit card company, or an IT organization that tracks tens of billions of dollars of money and value transactions per year?  Does McDonalds sell hamburgers or is it an IT organization that controls the supply chain, logistics, and local marketing of food sold in some 35,000 outlets in 119 counties?

If IT is fundamental to business success, then its organizational model should enable speed and innovation at the pace of business. It should be cost-conscious and be much lower than today’s silos. It should enable self-service so that business unit managers can roll at their own pace. It should be open to all IT vendors and ideas so as to take advantage of open source projects when appropriate. It should be able to take advantage of new waves of IT innovation, be it mobile or cloud computing, as well as of fundamental changes within silos such as software-defined networking, software-defined storage, cloud storage, among others.

What kind of organizational model enables these properties? To take advantage of the transformations in IT, smart IT business leaders are building cloud infrastructure organizational designs. Cloud infrastructure groups offer a different IT culture that’s younger and rooted in the demands of speed and scale of clouds. Cloud infrastructure groups are not tied to legacy vendors; they tend to leverage open source tools, develop streamlined processes to be more nimble, and quickly build infrastructures at lower cost, and be more agile to business needs without traditional constraints. Let’s be clear, this transformation is occurring because those in the know understand that if enterprise IT doesn’t change, public cloud providers will take over their jobs!

Every major financial institution now has a cloud infrastructure IT group and these professionals cut across technologies, having diversified infrastructure skills. The model was born out of the hyperscale and public cloud provider markets. While many have implemented this IT organizational model to reduce cost and get out from under vendor-lock in, what’s happening now is that this model is proving to deliver competitive differentiation for their corporation and revenue generation. Some cloud infrastructure groups have implemented an open-based private Platform-as-a-Service (PaaS) that’s delivering business enablement, rapid prototyping, and quick time to market and in short, a new set of applications that are revenue generating.

While most Global 2000 firms have implemented the siloed IT organizational models, most over the next decade will have a parallel or separate cloud infrastructure group to support infrastructure. A tussle has developed between the two with one being branded old, and the other new. Some say that IT silos will morph into cloud infrastructure groups or they can create a cloud infrastructure group within the silos. The reality is that some have tried this and either the effort fails or the results are less than expected, thanks to all the constraints built into siloed IT organizational structure. But what will feed the cloud infrastructure groups is success as they deliver not only lower cost and faster IT delivery, but also true fundamental business value.

Over time, the number of silos and the siloed IT organization’s supported workloads will become smaller and smaller while cloud infrastructure groups will take on more and more workload/application responsibility. As this tussle takes place over the years, those corporations that embrace this new IT organizational model will benefit  from the ability to respond to competitive threats faster, offer new products and services on a fast track, and grow stronger than their siloed competitors.

Global 2000 companies will be segmented into the siloed and cloud IT organizations. Over the next ten years, those at the top of the Global 2000 will have cloud infrastructure IT organizations that dominate over the silos.

Nick LippisAuthor Bio

Nick Lippis is an authority on corporate computer networking. He has designed some for the largest computer networks in the world. He has advised many Global 2000 firms on network strategy, architecture, equipment, services and implementation including Hughes Aerospace, Barclays Bank, Kaiser Permanente, Eastman Kodak Company, Federal Deposit Insurance Corporation (FDIC), Liberty Mutual, Schering-Plough, Sprint, WorldCom, Cisco Systems, Nortel Networks and a wide range of other equipment suppliers and service providers.

Mr. Lippis is uniquely positioned to comment, analyze and observe computer networking industry trends and developments. At Lippis Enterprises, Inc., Nick works with entrepreneurs evaluating new business opportunities in enterprise networking and serves as an independent investor and advisor.

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