Opportunity on the pendulum swing

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The Economist had a short article in their November 15th, 2008 paper titled “Centres of attention”. The gist of the article is that with downsizing, more decentralization is coming. It sites Nortel, which recently let its marketing and technology chiefs go and moved more activities into the business units, and Smiths Group, which is not only pushing activities into the business units, but further detailing the costs of its headquarters. The article discusses the pendulum of centralization/ decentralization swinging back towards decentralization because many companies are “trimming the fat” of their headquarters.

The premise of this discussion is that reducing centralized resources (which decentralizes activities) is being used by many companies reduce costs. Interesting. There are many advantages to decentralization: it increases accountability of business units, it facilitates better decision making for individual business units, and it can make the overall company more nimble in its ability to sell specific business units. But reducing costs is not often the reason for decentralization; in fact, the biggest advantage of centralization is usually cost. Yes, many companies have bloated HQs and few have good visibility into their centralized costs, but effective centralization reduces costs through economies of scale and better, coordinated decision-making.

I digress. Whether or not the reasoning is sound, this move towards decentralization is happening and it will impact IT organizations and IT investment decisions. One of my CIO friends is delaying his organization’s plans to create shared services for IT. Another CIO friend was chartered last year with creating a centralized IT group to serve several different businesses; he is now looking for a job.

Most CIOs prefer centralization, not because they are empire builders, or just want to have a job, but because they see opportunities to reduce costs, optimize overall investment decisions and improve service delivery. But opportunity abounds in this trend towards decentralization, assuming CIOs can help their executive team focus on the right methods for it. The executive team wants increased business unit accountability for investment decisions. This is a perfect opportunity to tighten demand management and begin enforcing the tracking of actual benefits achieved from projects. Executive teams are looking to trim costs everywhere. This is an opportunity to further allocate IT costs and highlight abuses of spend. It is also an opportunity to review centralized services and review the business cases for allocating them to business units, improving their centralized delivery or outsourcing them to another organization. IT organizations that see these opportunities can implement rigor into demand management and service delivery that will help the company for many years to come.

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