Organizing IT for Excellent Service

By Baselinemag  |  Posted 2011-04-06

Imagine how you’d react if you went to a store to buy a refrigerator and the salesperson told you that “Compressors are on the second floor, insulation is on the third floor and shelving is on the fourth floor.”

You would probably turn around and walk out the door. Yet, that’s exactly how most IT organizations treat their internal customers. Instead of being organized to offer holistic services, IT shops are often structured based on their assets or capabilities. Business managers seeking IT services are likely to hear something that basically says, “Applications are on the second floor, servers are on the third floor and networking is on the fourth floor.”

No wonder business users are frustrated with IT. Just as consumers want to buy a whole refrigerator with all of its parts and warranties, so too do business users want one place to go for all their IT needs—including the underlying components. This article discusses the potential options and benefits of building your service-oriented IT organization around the business services that IT provides, rather than around its assets or activities.

Business services provided by IT (e.g., e-mail, credit card processing, claims processing) are often listed in a services catalog and expressed in business terms. Mature catalogs also list the unit price for each service (e.g., $X per e-mail ID per month, $Y per paycheck). Once an IT organization has developed such a business-oriented services catalog, it needs to organize itself to deliver those services with excellence.

Deloitte Consulting LLP researched IT organizations in various industries to assess the adoption of the service-oriented IT model. The findings demonstrate that IT shops are gradually transitioning toward service orientation, and with each step, they are reaping important benefits.

For historical reasons, most organizations have structured their IT departments in one of three ways:

1. organized by technology assets, such as data centers, networks and applications;

2. organized by internal capability or activity, such as analysis, programming and operations; and

3. organized by business function served, such as finance, HR and manufacturing.

These organizational models reflect an evolutionary stage similar to those that manufacturing organizations followed at the beginning of the industrial era. Large firms were structured based on the specialized activities required (such as research, engineering, manufacturing and distribution)—to provide their products. Alternatively, they were structured along product components (such as motors, electronics, displays and casings).

In such organizations, each business unit operated largely independently, with its own operating and profit-and-loss metrics. The challenge was to orchestrate the various functions in order to provide a usable product or service to the customer.

IT organizations often adopt a similar structure, organized by technology assets or capabilities. These models enable business units to easily share technology components and capabilities with one another. However, they require business units to be skilled in negotiating for, and integrating with, the support provided by different departments within IT.

For example, service-level agreements (SLAs) may be created based on business-facing applications in isolation from the supporting infrastructure and other professional service components. The drawbacks of this approach include the promotion of silos within IT, the difficulty business areas face in determining the full range of IT services they will require, and the lack of transparency of the business value of technology.

To deliver end-to-end IT services to the business, the IT organization must combine the relevant IT components into holistic “products” that are described in terms that business users readily understand. The service catalog is a way to provide this kind of business-focused IT support information. For example, it may list e-mail as an IT-provided business service that includes applications, network and data center support, desktop services, voice and communication facilities, and storage management.

Structuring an IT Organization

To deliver these services in an effective manner, IT organizations need to clearly define accountability for service quality, cost and perception. There are multiple ways of structuring an IT organization that makes this accountability clear. The options—which differ mostly by the extent to which common IT capabilities are shared across the services—include the Independent Service Line Model, Leveraged Model and Hybrid Model.

Independent Service Line Model

In the Independent Service Line Model, each IT service line manages its own hardware, software and support staff. For instance, IT may provide accounts receivable and accounts payable processing as two business services that are part of a finance service line. These services can be based on their common financial application and servers.

However, some support functions, such as IT customer relationship management or architecture, might be shared across service lines to ensure consistency and interoperability.

The benefit of such a model is that each service line functions largely independently, with full capacity and control to deliver the service at the levels committed in any SLAs. On the other hand, this model risks having some duplicated technology across the service lines.

Leveraged Model

The Leveraged Model represents the extreme opposite of the Independent Service Line Model. Here, common functions such as architecture, applications support and infrastructure support are leveraged across IT service lines.

The IT service lines establish SLAs with their users to provide a set of services at agreed-upon service levels. They, in turn, negotiate service level or operational level agreements (OLAs) with internal IT groups—such as application support, architecture or infrastructure—to provide internal support at levels that will permit them to meet their SLA commitments.

The benefit of such a model is its ease of implementation, especially in situations where the current organization is structured based on technology assets. While maintaining the asset-based structures, organizations can establish product line management teams with specific responsibilities for the design, roll-out, delivery and evolution of IT’s business services. These product line managers will offer their services through the IT “sales force” or customer relationship managers.

The drawback with this model is that the service line teams may lack sufficient organizational leverage to obtain the required support from the different IT technical areas.

Hybrid Model

In the Hybrid Model, only some of the technology capabilities required to support business services are part of the service line structure. Very often, these are specialized applications teams. Other IT capabilities—including sales, architecture and infrastructure—can be leveraged across service lines to help ensure consistency, interoperability and cost-control. Hybrid models can be structured in a number of different ways to balance the benefits and risks of the independent and leveraged models.

Organizing IT around its services provides these benefits:
• IT service-delivery excellence: The service-oriented structure creates for each service an accountable and empowered champion within IT, who can be rewarded for service excellence while maximizing the efficient use of the hardware, software and people underlying each service.
• Business-IT alignment: As the portfolio of IT services evolves in response to user demand, technology resources can shift dynamically to maintain alignment between IT services and business needs.
• IT focus on business value: By responding to the “market signals” provided by users’ willingness to pay for the services listed in the service catalog, IT can continually focus on what is truly of value to the business.
• IT sourcing flexibility: Once IT has a well-articulated, fully priced services catalog and a service-aligned organizational structure, it is in a good position to make build-versus-buy decisions about its services, and can decide, case by case, what should be acquired from third parties.

With any organizational redesign, achieving the desired results involves more than just assigning new positions. Before implementing the new structure, enabling processes must be defined, new performance indicators must be put in place, and roles and responsibilities documentation must be updated.

An IT organization structured around its services needs a “sales” function to help clients understand the full range of services. It is also helpful to have a mature chargeback process that charges clients based on their usage expressed in business terms.

Progressive organizations have adopted a product- or service-centric structure. For example, banks are organized by bank products, and large retail organizations are structured by their offerings—each led by a responsible manager.

Likewise, progressive IT organizations have begun the journey from an asset-based to a service-based orientation. IT shops are at different stages in that journey, but those that are beginning to emulate the service-based structure of their parent companies are finding benefits at each step along the way. Leading practices show improvements in organizational flexibility, efficiency and customer satisfaction. It’s clear that the organizing principles that have served businesses well for many years can be effectively extended to their IT organizations.

Eugene Lukac, Rajesh Srinivasa and Gerardo Hernandez are consultants at Deloitte Consulting LLP. Devan Farren was formerly with Deloitte.