What Happens When You Move Services out of IT? (Trends and Insights)

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07/10/2014

Microsoft Enterprise Architects have observed many businesses moving services out of the realm of IT. In addition to this trend, business units are increasingly obtaining services for themselves from providers other than their IT organizations.

This article explores the consequences of moving services out of the IT organization. What challenges have these organizations faced? What impacts did these changes have (foreseen and unforeseen)? How did business and IT employees respond?

Thanks to the following people for providing information and feedback for this article: Brad Clayton, Larry Hanthorn, Brian Loomis, Stephen Kell, Blessing Sibanyoni, and Sree Sundaram.

How it starts

In general, the process of moving services out of IT starts with utility services such as email, instant messaging, and hosting; these functions are easy to move out of IT to cloud-based services (as opposed to more complex functions such as Business Intelligence). Some companies have gone further, making business units responsible for the LOB applications and services they use (or for whole functional areas), whether they partner with a third party or not.

Why would companies move services out of IT?

The primary motivation behind this trend comes from two drivers:

Companies are pressuring their IT organizations to reduce costs.
Business units are demanding levels of service that their IT organizations find difficult to provide.

CEOs and business leaders are reconsidering the purpose and role of IT, looking for ways to reduce costs. IT requires a significant budget, but the value it adds to the business is often difficult to quantify.

At the same time, in many companies the IT organizations have not met the needs of the business units they serve, and business units are considering whether they can get services from other providers or run the services themselves.

Compared to the services offered by the IT organizations, external cloud providers appear to offer cheaper, faster, more responsive service. Because of the large scale at which cloud providers operate, and because cloud providers do not have the same legacy processes and bureaucracy, internal IT organizations find this level of service difficult to match.

Common approaches to moving services out of IT

This trend encompasses a range of changes in how business units obtain IT-related services, from subscribing to cloud-based services such as email to developing and running their own applications. Many companies are still in an experimental stage, trying to find the balance that works best for them.

Subscribing to third-party cloud services

A common approach is to subscribe to third-party services (such as Office 365) instead of relying on the internal IT organization to provide these services. For example:

Many development organizations started moving in this direction 10 years ago. Most started by moving to cloud-based source control, and moved more of their development environments over time.
Many marketing and customer contact organizations have started proof-of-concept projects using cloud-based CRM services such as SalesForce; some have started more general implementations of these services.

Other companies are outsourcing or “smartsourcing” particular capabilities, ranging from storage synchronization to Helpdesk service.

Moving specialized services to the business units

Some companies have been leaving IT in charge of the more general functions, and moving more specialized functions to the appropriate business units. For example, the IT organization develops and maintains centralized data stores, while business units develop and run the LOB reporting tools, analysis intelligence, websites, or other applications. In addition to outsourcing, some business units run their cloud-based social networking and financial lifestyle management web sites.

Microsoft Architects have observed business units design and develop an LOB system, and then hand it off to IT to run. In other cases, business units may contract with third parties to develop or run the LOB system as a cloud service.

Some companies are also moving whole areas of responsibility out of the IT organization and into the business units. For example, one company made its business units individually responsible for their own information security, moving that responsibility out of the centralized IT organization. Each business unit created a Chief Security Officer role. The IT organization helped the business units set up their information security programs, including appropriate governance protocols and training.

Coordinating between IT and business units

More and more the business units are creating their own CIO-type roles to drive a further move from internal IT to external cloud-based services.

To coordinate this distributed functionality, the business units involved typically each designate a senior business leader (or someone who reports directly to such a leader) to act as a liaison with the IT organization. These high-visibility liaisons help manage the business units’ supply and demand relationships with the IT organization.

Common challenges when moving services out of IT

The move to services that are external to the IT organization is still a new thing for many companies. As was the case when outsourcing emerged as a trend years ago, they are still finding the best balance between internal and external services. Microsoft has worked with companies as they go through the process of dividing functions between the IT organizations and the business units, and noted several challenges.

Business units and IT organizations do business differently. Projects that require them to interact must account for differences in funding models, and differences between business cycles and IT cycles.

Companies may struggle to define the new relationships and boundaries between the business units and IT, including the roles of liaisons. The issues to address may include:

How to maintain data sovereignty and IP ownership
How to manage risk in a new environment
How to maintain change control and other service management processes
Business units may find that managing or obtaining a service outside of IT is more difficult than they anticipated, and IT may in fact have been right about the difficulties involved in providing specific functions.
Business units may need to balance the benefits with new costs (such as increased bandwidth requirements).
Cross-business functions that were originally orchestrated by IT may be lost if IT is no longer involved.
As with any major initiative, personality issues can affect decision-making processes.
Companies that have a service oriented architecture (based around business processes rather than IT processes) and consistent data and customer models can distribute functions in this way more easily than companies that have a more traditional IT structure.
Frequently, such initiatives have required more time to implement than originally planned (or promised).

A big factor that makes this process difficult is that many companies do not have enough information to make the best decisions:

Most companies do not fully grasp the possibilities of cloud computing and how they may use it to their greatest benefit.
Many business units are shopping for external services without a full understanding of the logistics and infrastructure that they’ll need to support the services (for example, they may need to contract for help desk support separately from the main service, and this need may not be immediately obvious).

Impacts of moving services out of IT

In general, these changes can have a transformative impact on an organization, and for employees and IT they require a shift in mindset similar to the historical move from mainframes to desktop PCs and servers.

Cost savings vary depending on the type of change; for example, moving from internal IT-managed stores to cloud-based storage services can produce massive cost savings. Other services may not necessarily be cheaper when moved off of internal servers, but are definitely more agile. Faster provisioning and reduced time to market for new services are crucial for organizations in highly competitive markets.

Both the business units and the IT organizations can benefit from this distributed arrangement. Business units can get better, more responsive services without taking responsibility for the whole infrastructure involved. IT organizations may lose some headcount and some control over the service systems, but the more enlightened organizations are aware that they cannot meet all of the needs of all of the business units they serve. By narrowing their area of responsibility, they may be able to better achieve their overall objectives.

How do business units react to these changes?

Business unit consumers seem to be largely happy with the results of moving to cloud-based services. By and large, they aren’t worrying about bigger, longer-term issues (even though some groups, such as Marketing, probably should be).

How do IT organizations react to these changes?

The attitude of the IT organization to moving services to the business units can range from positive to overwhelmingly negative. The culture of a company and the implementation approach it takes may be the most important factors controlling the reaction.

In some cases, IT organizations have supported the transfer of functions to the business units; these IT organizations are fully aware that they are not able to meet all of the needs of the business units, and can see how by moving functions they can focus more effectively on the services that remain in their jurisdiction and still control costs.

However, IT organizations often feel that they are competing against cloud-based services, and in some companies other business units have in fact used cloud services as leverage against IT in conflicts over resources. Other more specific reactions include:

Operations personnel tend to be skeptical that business units will get their preferred level of service from the cloud
Architects and security personnel tend to be more panicked about the change, although for different reasons: architects see the possibility that they will no longer be needed, and security personnel see significant threats to the company’s data. Some companies have faced backlash from their IT organizations over the real or feared loss of responsibility or power. These companies have also faced “brain drain”—IT personnel have seen changes coming and left (these are often the best personnel).

In general, the IT organizations have concerns about security, reliability, integrity, and so forth that the business units may not consider. Such concerns (in addition to potential loss of budget or headcount) may deter IT organizations from supporting the business units in these changes—or at least motivate the IT organizations to bring such changes under their control.

Comments

Anonymous
July 16, 2014
Enterprises are increasingly moving services out of the realm of IT, and business units now obtain many
Anonymous
July 21, 2014
Big Data is at the forefront of the minds of many business leaders, in different domains and industries
Anonymous
July 23, 2014
Customer insight is a prime objective for many business scenarios using Big Data. Such scenarios also
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July 25, 2014
The “Internet of Things” is made up of connected sensors and devices for just about any type
Anonymous
July 29, 2014
Recently, we surveyed a group of Microsoft Enterprise Architects to collect their observations about
Anonymous
July 31, 2014
In the prior post “ Six Keys to Succeeding in the Changing Role of Enterprise CIO (Trends and Insights
Anonymous
August 04, 2014
The comment has been removed
Anonymous
August 11, 2014
This post is the first in a series about using business capabilities to support strategic business transformation
Anonymous
August 14, 2014
In the prior post, “ Driving Business Transformation through Business Capabilities (Trends and Insights
Anonymous
August 20, 2014
How do you build relationships with business executives? Often times your opportunity to shift from a
Anonymous
August 25, 2014
A number of change management tools and models are not only useful when transforming a business or landing

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