Organization Design – Designing the IT Organization

Sarbanes-Oxley is having a global affect on organizations – even those that don’t operate globally.  Most private sector organizations are finding it necessary to have some governance framework in place.  But how does this impact on the IT organization?  And what has this to do with Organization Design?

Most IT organizations, especially the in-house IT organizations, have really not concerned themselves with the concept of Organization Design in the past.  The structures were fairly traditional silos of related jobs with little or no cross-communication between the silos.  And certainly there was no cross-strategizing.  All this is changing – and changing fast.

Due, firstly, to the downsizing / rightsizing exercises of the 1990s.  This has resulted in organizations optimizing their employee numbers and requiring “more from less”.  More services, faster delivery, quicker service, more systems, more $$$s … more … MORE – from fewer staff!  IT management now has to look a lot more closely at “talent management” issues.  Issues such as key staff shortages, aligning recruitment and selection with roles required, multi-skilling, key staff retention – and … how do we structure this thing in the first place!

The second cause of this shift is the growing necessity for good governance – driven by the Sarbanes-Oxley Act in theUSA.  Sarbanes-Oxley requires public companies – and their auditors – to annually assess and report on the design and effectiveness of internal control over financial reporting.  This impacts, specifically, on the security of the technology and applications used by organizations, that drive the business.  Which, in turn, impacts on the people and systems that create, operate, and maintain these systems.

For many organizations, the applications, technology and staff that support the business processes represent their most valuable asset.  But, organizationally – also the least understood asset.

IT governance is the responsibility of executives and the board of directors, and consists of the leadership, organizational structures and processes that ensure that the organization’s IT sustains and extends the organization’s strategies and objectives[i].

So What is Organization Design?

Organization Design is the deliberate process of configuring structures, processes, reward systems, and people practices and policies to create an effective organization, capable of achieving the business strategy[ii].

From this we can determine that it is an intentional, considered and thought out process, with the strategy of the business foremost in the mind.  This is similar to IT Governance.  IT Governance seeks to link IT strategy and goals to the strategy and goals of the business.

We can also determine that the aim of Organization Design is to create a structure, processes, reward systems and people practices that enable the organization to achieve its strategy and goals.

But the important lesson here is that it is a process!  A process that integrates structure, processes, reward systems, and people practices and policies into a cohesive strategy support system.

But .. How Can this be Applied to IT?

Organization Design is part of a greater process – IT Strategy which, in turn, is part of the even greater organizational strategy process.

So the first step in the process is understanding the organizational strategy and determining the role that IT can play in its achievement.  Then determining the role that IT will play.  The next step is establishing the IT Strategy.  Exactly how will IT play this part?  What does the “end state” look like?  What are the IT goals and objectives?  What are the action plans, what are the outcomes, what are the deliverables?

When the IT Strategy is finally penned and agreed, this is the time to look at Organization Design.  In the IT Strategy process, there would have (or at least should have) been an analytical review of the existing structure.  So the next step is to answer the following two questions:

• What needs to change?
• How will the changes take place?

With Organization Design, there is no such thing as one-size-fits-all.  There is also no such thing as the PERFECT structure or organization.  Best practice is a good guideline and may offer new thoughts and insights.  But the best structure for the IT organization is the one that facilitates the achievement of the IT strategy.  There will also probably be more than one structure capable of achieving this.  The structure to choose is the one that maximizes IT strategy goals and objectives, while minimizing negative impacts.

Possible negative impacts to be considered are:

• How does the structure change the balance of power?
• Does the structure support IT work flow?
• Does the structure support the organization’s value chain?
• Is the structure too complex, too simple?
• Is the structure in line with corporate culture?
• How much change is necessary in the new structure?

Putting it Together

When the structure and roles are determined, before the design can be implemented, the design process needs to be completed.

The next step is, therefore, to define the vertical and lateral processes.  This determines how the IT workflow will function, and how it will be co-ordinated and integrated across structures and into the broader organization.

Next it is necessary to define the measures of success – at individual, team, department and IT organizational level.  Metrics must align individual, team, and department behaviour and performance with the goals and objectives of the IT strategy.

And with success comes reward.  There are two components of reward systems:

Remuneration                   The monetary method of recognizing individual contribution

Reward and Recognition    Monetary and non-monetary methods of rewarding achievement of goals and objectives.

The final stage of the design process is putting into place policies and procedures for the management of the organization’s IT talent.  This determines how IT staff are selected and deployed into the new roles, how performance will be managed, and how further development will be supported.

Ready  ..  Set  .. Go!

The implementation phase of Organization Design is critical to the overall success of the process.  More often than not, if new structures and processes do not function as planned, it is because of the way they were implemented, rather than the structure and processes themselves.

As with any “Change” process, the implementation of a new organizational structure and processes needs to be planned, resistance, scepticism and negativity need to be anticipated and managed, and there needs to be a process to formally assimilate staff into new structures, roles and responsibilities.

How Long Does it Take?

The answer to the question “but how long does it take?” is a bit like the proverbial “piece of string”.  It depends on the amount and the impact of the changes.  However, once IT Strategy is in place, and the current structure has been fully analyzed in terms of the strategy, the following time-table can by used as a general guideline.

 

For some, this time frame might seem too long, for others too short.  This is the dilemma.  For the process to take root and become successful, it needs sustained attention and commitment.  The external environment does not remain stagnant while these changes take place.  The following table shows the possible impacts of the different rates of implementation:[iii]

It used to be said that the only certainties were tide and taxes!  The new certainty is change itself – particularly in the dynamic, fast-paced IT industry.

IT leaders who can align IT strategy with the strategy of the organization and who know how to balance their strategy with appropriate organizational structures, roles, processes and reward policies, will hold the key to developing the flexibility, dexterity, and agility that organizations – no matter the size – need in this fast changing world today.