future corporate it

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© 2010 The Corporate Executive Board Company. All Rights Reserved. INFORMATION TECHNOLOGY PRACTICE The Future of Corporate IT How to Prepare for Five Radical Shifts in IT Value, Ownership, and Role Executive Summary For more information about this research and to discuss the full set of findings, please contact The Corporate Executive Board Company at 1-866-913-8101 or [email protected] This study may not be reproduced or redistributed without the expressed permission of The Corporate Executive Board Company.

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  • 2010 The Corporate Executive Board Company. All Rights Reserved.

    InformatIon technology practIce

    The Future of Corporate IThow to prepare for five radical Shifts in It Value, ownership, and role

    Executive Summary

    For more information about this research and to discuss the full set of findings, please contact The Corporate Executive Board Company at 1-866-913-8101 or [email protected]

    This study may not be reproduced or redistributed without the expressed permission of The Corporate Executive Board Company.

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    ExEcutivE Summary

    The Corporate Executive Boards investigation into the five-year outlook for corporate iT points to fundamental changes in how the function is organized and managed. The iT function of 2015 will bear little resemblance to its current state. many activities will devolve to business units, be consolidated with other central functions such as hR and Finance, or be externally sourced. Fewer than 25% of employees currently within iT will remain, while Cios face the choice of expanding to lead a business shared service group, or seeing their position shrink to managing technology delivery.

    After interviewing and surveying hundreds of iT and business leaders, we find that these changes are already underway. many iT leaders are optimistic, seeing changes as no more than the usual swings of the centralization pendulum or a fad resulting from recent buzz around consumer technologies. This study argues that the changes will be rapid, permanent, and radical. We have advocated for a decade that iT leaders become demand shapers, not order takers. Similarly, we now recommend that iT leaders devote the time, energy, and resources to actively shape the coming transition.

    BackdropFive years ago, less than 25% of business leaders rated their organizations iT function effective at delivering the capabilities they needed. Today the number hasnt changed. iT functions have strived tirelessly to understand demand, set priorities, deliver effectively, and capture value, yet the results still disappoint. Business and iT leaders alike feel they should be getting moremore efficiency, more innovation, more valuefrom technology.

    unasked QuestionsAmong all the talk of engagement, alignment, and being part of the business, one assumption is never challengedthat for information technology to grow in strategic importance, so must the It function. But what if this is not the case? What if a dedicated, standalone iT function is no longer the best option and the functions resources and responsibilities were better located elsewhere?

    To answer these questions we launched an exhaustive review of business, social, and technology trends across the next five years, and interviewed and surveyed hundreds of business and iT leaders. our work revealed five emerging shifts in iT value and role that make these questions necessary and urgent.

    Shift 1: information Over ProcessThe rise of technology delivered as a service, or the cloud, will significantly reduce sources of competitive advantage from information technology. in theory, a start-up could use the cloud to obtain the same functionality, scale, and quality as an industry leader. Differentiation will lie in how an organization manages change, integrates its service portfolio, and critically, exploits the information the services generate.

    The nature of demand for information technology also is changing. most employees are now knowledge workers. Social media is becoming vital for customer and internal communication, and data volumes continue to rise. As a result, in the business areas that drive growthinnovation, marketing, sales, customer serviceup to 80% of iT enablement opportunities relate to business intelligence, collaboration, or the customer interface. At the heart of each of these opportunities is the need to capture, integrate, and interpret information, both structured and unstructured.

    Shift 2: it Embedded in Business ServicesThe corporate center is in flux. All corporate functions have the same problems: their capabilities overlap; they do not control the outcomes they enable; and after many cuts, they are struggling to find the next big efficiency. And for organizations growing in emerging markets, no corporate function has the scale or expertise to provide sufficient local support.

    The iT function shares these problems. it has skills in strategy, program management, business process design, and sourcing. All are valuable, but none are needed solely for delivering technology, and so they can all exist elsewhere. Second, no amount of alignment and partnership changes the fact that the iT function enables business outcomes that someone else controls. much value has disappeared down the hole that this situation creates. Finally, cost pressures mean many Cios face the unwelcome choice of cutting delivery resources needed to build things right, or management resources that ensure iT builds the right things.

    The need for efficiency and joint accountability for execution and outcome will change the iT functions delivery model and organizational location. Technology will be consumed as part of business services as the iT function merges into a business shared services group alongside other corporate functions.

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    ExEcutivE Summary (cOntinuEd)

    Shift 3: Externalized Service deliveryExternalization of applications development, infrastructure operations, and back-office processes continues, gradually eroding the factory side of the iT function. The pace will accelerate as the cloud enables the externalization of up to 80% of application lifetime spend. As this occurs, internal roles will shift from being technology providers to technology brokers.

    Shift 4: Greater Business Partner responsibilityTechnologies for collaboration, business intelligence, and customer interface all require experimentation and iteration, use non-linear, user-driven workflows, and offer value from diversity across the organization. none of this is easy for a central function to fulfill.

    A generation of business leaders and end users is emerging with greater technology knowledge and confidence. They see advanced, user-friendly technology as an everyday occurrence, and can recite stories of companies gaining industry leadership through technology. At the same time that business leaders expectations, and their ability to articulate those expectations, are quickly rising, the cloud gives them access to unprecedented technology scale and expertise. The fact that cloud services cannot be extensively customized levels the playing field; business units cannot customize cloud applications but neither can the iT function.

    Together, these trends point to a greater role for business partners in areas where the value of differentiation outweighs the need integration. This is not a return to local control of iT resources, rather it is a shift in responsibility for technology decision making.

    Shift 5: diminished Standalone it role As iT roles migrate to business services, evolve into business roles, or are externalized, the scope of the iT function will diminish and its headcount fall by 75% or more. Strategy, architecture, risk, program management, user support, and relationship management will exist at the business services level, not within the iT function. The Cio position will expand to lead this broader group or shrink to manage technology procurement and integration. Roles remaining in the iT function will organize around build and run, and adopt an agile operating model to allow rapid value delivery and resource mobility.

    organizations that do not make these shifts will be left behind as they struggle to effectively exploit technology and manage an inefficient iT function and an underperforming corporate center. For iT leaders too, the shifts present risk and opportunity. Those who do not adapt face a much diminished role in a group with little strategic impact. But the opportunity is also significant. leading a business shared services organization offers new levels of resource and accountability for business outcomes. Another option is a leadership role in a newly empowered business unit that thrives on exploiting technology for competitive advantage.

    This research is just the beginning of our work in this area. Across 2010, we will help iT leaders navigate the five shifts. We will offer input into strategic planning, provide readiness diagnostics, and publish tactics for information and service management, new iT-business divisions of labor, and agile development.

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    Which Way fOrWard?

    conventional Wisdom on the future of corporate it

    there is no shortage of analysis into the future of corporate it. however, conventional wisdom misses the impact of external change and tacitly assumes that the basic shape and remit of the it function will remain the same.

    in response, this research looks beyond technology trends to understand business, economic, and workforce changes that will affect how organizations use information technology.

    This research also explores the future structure and remit of the iT function relative to other groups within the organization. it does not assume that the growing importance of technology to organizations equates to a growing future role for the iT function.

    What conventional Wisdom misses

    technology on demand

    greater externalization and the rise of the cloud will reduce the iT functions in-house technology delivery role.

    increased Business alignment

    The iT function must work ever more closely with business partners to be effective.

    a Strategist and innovator

    The iT function (and Cios personally) must refocus on business strategy, customer enablement, and business innovation.

    Wanted: Business Skills

    iT staff will need business-centric skill sets and will often have business backgrounds.

    Which Business changes Will impact corporate it?

    most analysts describe the impact of technology trends but miss the impact of changes in the economy, customers, or the workforce.

    how Will technology create Business value in future?

    There are many theories about how iT enablement will create valuedata analytics and customer enablement are often mentionedbut there is no consistent view.

    how Will Ownership and accountability for information management change?

    most analysis ignores structural changes elsewhere in the business that, in turn, will change the location and ownership of many iT roles.

    tacit assumption: the It function will remain a strong central function, led by a cIo, and grow in importance, if not in size.

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    cEntrifuGal fOrcES

    Sources of tension Between roles Played by corporate it

    the it function is asked to do many roles that are difficult to do simultaneously and are often more closely related to being central than to being it.

    The iT function combines operational roles with roles related to business strategy and consulting, despite the different skills and incentives required.

    Key central iT roles, such as program management and business process design, are not directly related to technology. The ownership of these roles by the iT function has as much to do with iTs position in the corporate center as it does with iTs technology capabilities. increasingly, these roles are duplicated elsewhere in the corporate center.

    many of the iT functions operational roles are being externalized so thinking roles will predominate.

    Software Development and maintenance

    infrastructure operations

    Vendor management

    User Support

    iT Strategy

    innovation

    Enterprise Architecture

    Requirements Definition

    program management

    Change management

    Business Shared Services

    procurement

    Corporate Strategy

    Business process Design

    information management and Analytics

    Thinking and doing roles require different skills, incentives, and business relationships.

    many central roles are now duplicated in Finance, procurement, Supply Chain, and other corporate functions.

    in addition to iTcentric roles, the iT function assumes a set of central roles that have no natural ownership.

    iT doing roles are being externalized faster than other central doing roles.

    it central

    do

    think

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    tEn ExtErnal trEndS that Will chanGE cOrPOratE it

    ten external trends in it demand and supply will change how organizations use technology to create value, and the roles, structure, and skills of the it function.

    Trends that are important but will likely not significantly change iTs value drivers, structure, or skills include green iT and greater government intervention in the economy.

    demand-Side changes

    1. rise of the Knowledge WorkerWidespread transaction automation and outsourcing, and the resulting shift in retained skills, mean almost everyone is becoming a knowledge worker.

    2. ubiquitous dataThe rise of smart mobile devices and ubiquitous sensing will drive an exponential increase in data volume and throughput.

    3. Social mediaThe way customers and consumers learn about products and interact with companies is changing fundamentally.

    4. Emerging market GrowthShifting global demand means emerging markets will be main source of growth, eventually reaching the scale of developed markets.

    5. Efficiency ShortfallsThe corporate center (iT, Finance, hR, Supply Chain, procurement, etc.) is reaching the limits of efficiency in its current functionally oriented form.

    6. tech-Savvy WorkforceTechnology knowledge and confidence in the workforce is broadening but losing its depth (more employees understand how to exploit technology, fewer have a deep technical expertise).

    Supply-Side changes

    7. technology as a Serviceinfrastructure and applications are increasingly available as virtualized, configurable, and scalable services in the cloud, or will to adopt licensing structures that mimic a service.

    8. the industrialized, Externalized Back Officeindustry standards will emerge for back-office business processes that are then delivered by external providers.

    9. a Blueprint for Service deliveryiTilv3 provides a pathway to reorienting iT around service delivery.

    10. desktop transformationA convergence of virtualization, SaaS, and unified communications combined with greater workforce mobility is triggering a transformation of the desktop that will enable device-agnostic service delivery.

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    thE futurE Of cOrPOratE it

    five radical Shifts in it value, Ownership, and role

    current State the future of corporate it

    1. value drivers Business Process firstBusiness process automation absorbs the largest share of iT investment. Business process design is used to define future capabilities and drive competitive advantage.

    information Over ProcessCompetitive advantage from information technology will shift toward customer experience, data analytics, and knowledge worker enablement; consequently, information management skills will rise in importance relative to business process design.

    2. delivery Structure it as a Service ProviderApplications and infrastructure are bundled into services that directly reflect business partner technology consumption. The iT function is increasingly centralized as a standalone shared service.

    it Embedded in Business ServicesCentrally provided applications and infrastructure will be embedded in business services and delivered by a business shared services organization.

    3. Sourcing model right-Sourced itDelivery combines external provision with significant internal resources as vendors are uncompetitive for many critical tasks.

    Externalized Service deliveryDelivery will be predominantly externalized as vendors expand service provision and internal resources become brokers not providers.

    4. Business role Pressure for central controlliaison and governance guide business units and end users away from obtaining their own iT capabilities.

    Greater Business Partner responsibilityBusiness unit leaders and end users will play a greater role in obtaining and managing technology for themselves where differentiation has more value than standardization.

    5. it function role fully functional it functionThe scope of central iT function encompasses strategy, governance, and delivery with direct control of almost all iTrelated resources and activities vested in the Cio.

    diminished Standalone it roleiT roles will embed in business services, evolve into business roles, or be externalized. Remaining iT roles will be housed in a business shared service group. The Cio position will expand to lead this group or shrink to manage iT procurement and integration.

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    2010 The Corporate Executive Board Company. All Rights Reserved.CIO5847710SYN

    thE futurE Of cOrPOratE it

    five radical Shifts in it value, Ownership, and role

    5. Diminished Standalone IT RoleiT roles will embed in business services, evolve into business roles, or be externalized. Remaining iT roles will be housed in a business shared service group. The Cio position will expand to lead this group or shrink to manage iT procurement and integration.

    the Infrastructure group focuses on contract and Vendor management

    Security moves away from Securing physical Devices

    project management and Business analyst roles move to BUs

    the applications group Shrinks to legacy maintenance

    all technologists move outside the organization

    2. IT Embedded in Business ServicesCentrally provided applications and infrastructure will be embedded in business services and delivered by a business shared services organization.

    Information technology Is Delivered as a Service

    the central It function Becomes part of Business Shared Services

    low high low high

    1. Information Over ProcessCompetitive advantage from information technology shifts toward customer experience, data analytics, and knowledge worker enablement; consequently, information management skills will rise in importance relative to business process design.

    the It function focuses on enhancing end-to-end customer experience

    the It function focuses on Boosting Knowledge Worker productivity

    the It function focuses on Delivering Information analytics capability

    Information technology converges with production technology

    4. Greater Business Partner ResponsibilityBusiness unit leaders and end users will play a greater role in obtaining and managing technology for themselves where differentiation has more value than standardization.

    Business Units plan and procure their own technology

    end Users acquire their own collaboration and Knowledge Sharing tools

    end Users provision their own end-point Devices

    3. Externalized Service DeliveryDelivery will be predominantly externalized as vendors expand service provision and internal resources become brokers not providers.

    most of the Infrastructure portfolio Will migrate to the cloud

    Back-office Business processes Will Become entirely commoditized and outsourced

    Value Risk

    n = 127 iT leaders.

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    infOrmatiOn OvEr PrOcESS

    Breakdown of it Enablement Opportunities by Business Process

    the majority of itenablement opportunities in innovation, sales and marketing, and customer service do not involve traditional process automation.

    Analysis of 550 level three and four processes determines whether and how each process could be iT enabled.

    overall, almost half the opportunities do not involve process automation. in innovation, marketing and sales, and customer service processes, enablement opportunities are mainly at the customer interface or using business intelligence and collaboration.

    Source: Analysis based on ApQC process Classification Framework v5.0.

    Finance and hR

    production and Supply

    Chain

    customer Service

    marketing and Sales

    Product/Service

    innovation

    none Customer interface

    Collaboration process Automation

    Business intelligence

    3%

    13%

    13%

    44%

    28%

    46%

    9%

    13%

    16%

    28%

    34%

    18%

    20%

    30%

    18%

    13%

    4%

    15%

    54%

    14%

    11%

    14%

    27%

    12%

    In customer service, marketing and sales, and innovation, more than half the opportunities for It enablement are at the customer interface or involve business intelligence or collaboration.

    3%

    note: may not equal 100% due to rounding.

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    it EmBEddEd in BuSinESS SErvicESthe business shared services group subsumes many it activities within business services, or in overarching service strategy and service architecture groups. a smaller, more operational it function remains within the business service group.

    Account management and help desk are shared across all business services, not just iT.

    iT development and operations are externalized to outsourcers or the cloud.

    Remaining internal iT resources are organized into groups for build and run.

    Supply chain

    financehrGroup it

    Design/procure applications and technology

    integrate

    Test

    manage external run and maintain

    Retire

    integration layer and Standards

    Business Service Strategy and portfolio management

    Risk management and Security

    Service Architecture (Business, information, and integration)

    Acco

    un

    t man

    agers

    help

    Desk

    External Service providers (iT/Business process outsourcers and Cloud)

    Business Services

    pmo and Change mgmt. Service

    Business Analytics Service

    Sourcing and Contracting Service

    Communication/Collaboration Service

    Connectivity and hosting Service

    Business units

    4. external providers deliver commoditized business processes and technologies.

    1. It strategy, architecture, and risk are owned by groups under the head of business services.

    3. technology services are managed by functionally aligned It resources.

    2. Services requiring business knowledge to realize value are managed outside It.

    6. Business service managers define their It requirements and work directly with external providers.

    5. account managers and help desk are shared by all business services.

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    GrEatEr BuSinESS PartnEr rESPOnSiBilityGreater business leader responsibility does not entail a swing of the pendulum back to local or rogue it functions.

    it is a shift in responsibility from the iT function to business partners, not a shift in resource from central to local.

    What Greater Business responsibility Entails

    What Greater Business responsibility does not Entail

    + Business-led Opportunity identificationBusiness leaders are responsible for identifying technology enablement opportunities and defining needs.

    + Business responsibility for Processes, Programs, and changeBusiness process design, project management, and change management become business roles.

    + Selective Business-Owned technology SourcingBusiness leaders can obtain iT capabilities directly from the cloud when the value of differentiation outweighs standardization.

    rogue local it Staffno local, rogue iT groups of dedicated iT headcount.

    Servers under the deskno business unitowned, on-premise application or technology portfolios.

    unintegrated datano relaxation of central information and integration standards when the value of integration outweighs differentiation.

    Security riskno relaxation of central security policy where business unit actions create organization- wide risk.

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    diminiShEd StandalOnE it rOlE

    Estimated reallocation of it headcount at Progressive Organizations by 2015As a Percentage of Total Central IT Headcount in 2010

    headcount in standalone it roles will likely shrink to 25% or less of current totals by 2015 in organizations where the five shifts have taken full effect.

    in many cases, the number of staff in standalone iT roles will be less than those with responsibilities related to technology in the business shared services group.

    20% External

    80% internal

    4575%

    25%

    1325%

    1025%

    Central iT Function in 2010

    Externalized Business Units Business Shared Services groups

    indispensible iT

    Source: Analysis based on Cio Executive Board 2009 iT Budget Benchmark.

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    Way StatiOnS

    Key intermediate Steps toward the five Shifts

    five short-term actions and investments pave the way for the five shifts.

    1. information architectureReemphasizing information architecture and data management creates a foundation for future investment in business intelligence and collaboration.

    2. itil v3The development of management processes, structures, and metrics for technology services paves the way for subsequent moves to business services. This can be done through selective adoption of iTil v3 or by defining a similar model internally.

    3. Private cloudsVirtualized internal infrastructure allows organizations to gain shorter-term scale advantages and prepare for eventual migration to the public cloud.

    4. new itBusiness divisions of laborEmerging capabilities for business architecture and program management readies business units for greater responsibility.

    5. agile developmentgreater use of agile development concepts (formally or informally) allows greater rapid service enhancement and mobility for remaining internal iT resources.

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    hOW tO uSE thE rESEarchthe corporate Executive Boards information technology Practice can help you to exploit the trends explored in this research.

    For more information on any of the resources described on this page contact your account manager or the member Support Center at +1-866-913-8101 or [email protected].

    uses for the research Which volumes to look at

    how We can help

    1. update your it Strategic Plan Use The Future of Corporate IT to refresh your three- to five-year strategy for iT value delivery.

    All initiate a Strategic Planning Engagement with the Cio Executive Board or have us lead a discussion on The Future of Corporate IT findings at your strategy off-site.

    2. Broaden the it Organizational design conversationinitiate conversations with company leadership on the future role and structure of iT and iTs relationship to other corporate functions.

    Volumes 2, 4, 5 Benefit from CEBs cross-functional reach to keep up-to-date on parallel organizational changes in other corporate functions through our work on the Business agenda for it.

    3. Pressure-test your Sourcing modelEnsure your sourcing strategy is ready for greater externalization and a move by providers to the cloud.

    Volumes 3, 5 Use the Emerging technologies roadmap from the infrastructure Executive Council to get real-world data on adoption rates and risk assessments for new technologies and sourcing models.

    4. clarify it Staff career PathsAccelerate development and boost engagement by giving iT staff clear direction on the direction of the function and the skills they need to succeed.

    Volumes 2, 5 provide your team with targeted training on the skills they will need most with our online training modules and it Business leadership academy.

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    With SincErE thanKS

    Partial list of Participating Organizations

    We would like to thank the it and business leaders who helped guide our work through interviews and survey responses.

    The ideas and opinions contained in this research are those of The Corporate Executive Board and do not necessarily reflect the views of the organizations listed here.

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    aPPEndixa BuSinESS-drivEn mEthOdOlOGy

    the future of corporate it research Process 2009/2010

    the research used an outside-in approach that starts by determining business, social, and technology trends that will affect how organizations use and manage information technology, before developing hypotheses on how the it function itself might change.

    The research also relied on input from iT and business leaders, both through one-on-one interviews and online surveys.

    1. identify Business, Social, and technology trends

    Review academic and general business literature and data on business, economic, and social trends with a three- to five-year horizon.

    Review Corporate Executive Board research into future of Finance, Shared Services, Sales, marketing, etc.

    interview 20 business unit general managers and heads of Sales, Finance, procurement, and hR.

    Output: list of Ten External Trends That Will Change Corporate iT

    2. hypothesize implications for corporate it

    Review analyst, consultant, and trade press analysis of the future of the iT function and technology.

    interview 40 Cios and other iT leaders on changes in iTs value drivers, ownership, and role.

    Output: hypotheses on changes in iT value drivers, ownership, and role over three to five years

    3. test and validate

    Conduct online survey to test hypotheses with 127 iT leaders and 58 business leaders globally.

    Convene small group of leading Cios for direct discussion feedback.

    Output: The Future of Corporate IT study