Although Information Technology changes at a rate faster than most corporate business units, the structure of organizations is not keeping up with the times.
It's no surprise that the technology industry reinvents itself every couple of years. IT departments have had their work cut out for them by just attempting to stay current. In an age of static or decreasing budgets, a mandate from the business to "do more with less," the advent of cloud computing, and the overhanging pressures of shadow IT groups, Information Technology has become a much more volatile environment than ever.
Arguably, there are three types of IT departments: cost center, cost reductionist, and revenue generating.
Cost centers are what give me the heebie jeebies, but from what I see they are the minority. They're not modernizing. They maintain the status quo and do only what's required to keep the lights on. They do enough work to stay out of trouble and not enough work to truly make a difference in an organization. In other words, they're probably not reading this article because keeping up with current events isn't their thing.
When I started one of my first jobs as a technical sales representative, I was told that in order to justify my job I had to generate at least three times my yearly salary in gross revenue. That stuck with me over the years. I've always treated Information Technology primarily as a cost reduction vehicle for a business because that's how we can justify what we do. For example, about a year ago we purchased a piece of software called PaperCut. We had no idea how much we were spending on printed paper so we started to dig into it. With PaperCut, we quickly found out how much we were printing along with which users were the highest volume and which printers were the most costly to operate. We were able to educate our users about duplex printing and the cost of color sheets. We put the onus on the users to change their behavior, and they met the challenge very quickly. The solution was only a couple of hundred bucks based on the user count, and it stunningly paid for itself almost immediately. We cut our spend on paper and consumables by about 85% based on one little solution. I can't tell you how much we saved, but I'll say that a few salaries were justified. That's nothing new. It's the IT department doing what it should be doing: paying for itself.
Ideally, one of the primary roles of the modern IT department is to align itself with the business to facilitate success—from the shop floor to the C suite. IT has evolved from a back-office function to a core business component.
At least, that's what should be happening. In many organizations, IT does not have a seat at the table where the major decisions are being made. They hear about company changes after the fact, without consultation or even a heads up. These organizations are primarily where IT is a component of finance groups, not its own entity.
The concept of IT reporting to finance is as old as manual data entry. When companies began adopting "systems" decades ago, they were largely related to finance: accounts payable, accounts receivable, general ledger, invoice processing, and the like. Back then, it made sense for IT to report to finance because it was largely a financial institution. In legacy environments, you often had manual operations that could be put into effect if IT systems were down, and the backlog could be cleared once the systems were back up. This wasn't an alignment with the business, let alone even finance. The relationship was almost parallel, or most likely IT was more of a bolt-on feature for finance.
Then IT began to permeate throughout the enterprise and out to the vendors and customers. EDI, online customer order entry, customer relationship management (CRM), inventory control, logistics, shop-floor manufacturing, warehousing, and even physical security all have hooks into IT.
Today, technology is drastically interwoven into the very fabric of the enterprise, whether it has a seat at the table or not. From Voice over IP (VoIP) to online meetings, social business to mobility, big data to cloud, you can't touch a piece of the business without technology being a part of it. Fire suppression systems, camera systems, and electric generators all have IT components. In fact, I'd argue it would be hard to adopt any solution for a business that doesn't have an IT component. It's a different world, yet the old reporting structure still exists in many companies. When that's the case, IT isn't always aligned; more often it's still a bolt-on group, sometimes viewed as an asset and sometimes viewed as a barnacle. The latter is when concepts like shadow IT come into play. A part of the business gets tired of waiting for IT, so they go out and get the job done by any means necessary, regardless whether it's against corporate IT policy or not. We live in an on-demand world where procedure and protocol is less and less important to the younger generations moving into the workforce. When IT isn't deemed part of the core business, IT policies are much harder to enforce because they're not taken as seriously as, for example, a Human Resources policy.
When IT is tied to finance, it's constrained to the rules of finance. This is probably the biggest argument finance people have to keep IT under its thumb: cost control. If IT was left on their own, they'd spend recklessly, right?
Supporters of IT reporting to finance don't realize that a company ends up spending far more on a solution if it's been bought and paid for without the consultation, let alone approval, of IT than if IT was involved in the process from the beginning. In IT, we've all been there. A business unit purchases some sort of solution without involving anyone from IT and then IT is brought in to implement it, babysit it, or figure out how to make it work. Sometimes it's a simple solution with minimal involvement. Sometimes IT needs to purchase 16 Intel cores and a network upgrade and has to babysit some kind of client software on user computers because the business unit purchased a solution without understanding or reviewing the infrastructure requirements. Hang on...the solution uses Java 5 and Internet Explorer 8! Did the business unit consult about service-level agreements? Did they sign one? What about support? Did they pick the cheapest option or the right option? It's all a mystery that IT eventually has to figure out and deal with.
An IT department fully aligned with the business will not only save money, but even help generate revenue. IT can work to build revenue-generating solutions, but IT needs to be at the table for those types of initiatives to take flight. IT does best when paired with business units for a common goal, without the restrictions of being a finance bolt-on imposed upon it. This is the ideal forum to understand the struggles of sales and marketing, logistics, human resources, operations, and yes, even finance.
In order to maximize the impact IT could have on a business, IT should report directly to the CEO. Then IT can truly become what it needs to be for a business to maximize its investment in technology.