The centralised IT department has become the preferred way for European companies to
manage their technology, according to a recent study from IT market analyst Forrester
It surveyed 510 European firms to find out how they organise, fund and govern IT. The results showed that 64% of respondents described their IT organisation as centralised, where a single IT department, often based at corporate headquarters, oversees all aspects of technology deployment and management.
In the centralised model, all IT functions - strategy and planning, application development and operations - report directly to a head of department such as an IT director or chief information officer. All of the department's assets, including hardware, software, staff and budget, are controlled by this single, central organisation.
In the UK 54% of those surveyed described their organisation's IT as centralised. Only 10% described it as decentralised - where individual business units or geographic locations have separate IT departments. More than one third (36%) said their IT function was a mixture of both.
The question of how to structure IT organisations has been a topic of heated debate for several decades. In the 1960s and 1970s mainframe-based computing made centralised IT the only viable structure.
In the 1980s the introduction of client/server technology and widespread deployment of desktop
PCs meant that computing became more distributed and IT management more decentralised.
Over the past decade, however, the pendulum has swung back towards the centralised model, with the deployment of large enterprise applications from firms such as SAP and PeopleSoft - not to mention the realisation of the efficiencies and cost savings that are achieved by centralising IT.
"We found there is a solid preference for centralisation of IT governance throughout Europe, but that the UK is a little behind other countries such as France in terms of that trend," said Manuel Mendez, primary author of the Forrester research.
There are two reasons for this, according to Mendez. First, the influence of the financial services and public sectors in the UK, where decentralised IT structures persist; and second, the influence of business managers outside the IT department on IT investment decisions.
Of the UK respondents to the Forrester survey, 94% said representatives from the business played a part in enterprise application decisions, compared to 89% in Europe. So what are the attractions of centralised IT?
Centralised procurement of IT goods and services is one obvious attraction. Organisations are able to get volume discounts from their suppliers. They are also able to avoid duplication of IT functions, such as development teams and helpdesks.
Above all, the executive head of IT is able to exercise a greater degree of control over the company's entire IT infrastructure, said John Handby, chief executive of CIO Connect, a network of IT directors and research organisations.
"IT is now an essential part of the plumbing and the last thing companies need is a proliferation of technology standards and models. If different parts of the organisation are taking different technology routes, that can only lead to problems," he said.
Another major benefit of centralisation is the ability it gives the IT department to ensure that its projects and long-term goals are in tune with the company's business strategy, added Handby. Among CIO Connect's membership, for example, about 50% report directly to the board or executive committee of their company.
But a centralised IT function is not without drawbacks. "The centralisation of IT brings a certain formality into its relationships with these business units and that can create a distance," said Chris Edwards, professor of management information systems at Cranfield School of Management.
Decentralised IT structures are often found where companies have made several acquisitions or undergone rapid global expansion. The benefits of the decentralised approach is that business units can select and manage IT resources to meet their own priorities. "In these situations, there is a closeness and responsiveness that means IT is more likely to be seen as an ally," said Edwards.
But the decentralised model is typically more costly and harder to manage. There is no single point of accountability when a company-wide system fails or IT security is breached at multiple points in the business. Furthermore, decentralised IT often finds it difficult to provide users with information from IT systems elsewhere in the company.
Given the pros and cons of centralised and devolved IT functions some companies opt for a mixture of both - sometimes referred to as a "federal" model.
"This is increasingly common, where companies have recognised that some aspects of IT need to
have a local context for the company to exploit opportunities as they arise," said Andrew Taylor,
vice-president of technology consulting at IT services company Capgemini.
One of analyst firm Ovum's clients, for example, is a major European pharmaceutical company with business units scattered through Europe. It takes a "deliberately inclusive approach" to IT management, said Gary Barnet, an analyst at Ovum. Each business unit is represented on a central architecture group which meets regularly to collaborate on IT strategy.
"Members of this group spend at least half their time working on projects within the business units. At the same time, they actively second people from the subsidiaries into the central architecture group," he said.
Ultimately, the organisation of IT will usually reflect the structure and philosophy of the parent company, according to Phillip Virgo, strategic adviser to the Institute for the Management of Information Systems, "But even in a highly decentralised model you are going to need mechanisms for information sharing between subsidiaries and groups," he said.
Case study: how centralisation works for Mastercare
Mastercare, the customer care arm of consumer electronics retailer the Dixons Group, has its centralised IT structure to thank for some major efficiencies in recent years, according to Neil Manchester, the company's head of IT for European central services.
"We made the decision early on to keep things as simple as possible. Most importantly, we wanted to run IT for all our European locations from a single site in Nottingham," he said.
That is no easy challenge. Every week, Mastercare handles two million customer deliveries, 8,000 field repairs and 11,000 calls into its call centres for customers of Dixons, Currys, PC World and The Link in the UK. Not only that, it is supporting the Dixons Group expansion into Europe as it establishes PC City stores in France, Spain and Italy.
Mastercare's new European customers require technical services and support from local Mastercare centres. However, the company was keen to use its existing IT systems to keep costs down.
To that end, Mastercare uses network management software from Novell to manage desktop computers and servers at its European outposts from Nottingham. "It does not matter if a system is in another country; the same IT staff can support the network, saving us time, resources and overheads," he said.
As a result, Mastercare has been able to expand its business without a dramatic increase in its IT support staff. "Eight years ago we had about 60 people working for our company with two IT support staff. Now we have just four IT managers supporting 1,000 employees in the UK and overseas," said Manchester.
"Only 5% to 10% of that team's time is spent running the network, the remainder can be dedicated to strategic IT projects and supporting external customers, both of which directly benefit Mastercare's business," he added.
This was first published in September 2004