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Saturday, April 17, 2010

Organizing Your IT Department for Success

Is your IT Department organized to serve you or itself? Is your CIO the right person for the job?

When asked why I needed funding for various IT activities by business unit executives, I would respond that I did not need any funding nor did the IT department. I told them that if they felt the projects that I was asking to fund was important to them then they should fund it.

I dealt with hardware issues from buying disk drives to bigger and faster computers in the same manner. The IT organization did not need these machines, but the end user organization most likely did.

It is imperative for a successful IT organization to turn all costs and activities back to the business community for funding. This short article summarizes some key methods of putting the business community firmly in control and eliminating many of the negative issues regarding budgeting, project selection and control over all IT activities.

The starting point is implementing an IT steering committee that consists of your CEO, CIO and most senior corporate executives who are responsible for each of the key functional areas of your business. In a typical retail organization this might be the VP Sales, VP Marketing, VP Finance (CFO), VP Operations, VP Administration and any other senior executive that I may have missed.

I define functional areas of a company as those operational subdivisions that focus on a particular area of the business (i.e. Sales, Marketing, Finance, Research & Development, Manufacturing, Administration, Operations, etc.). A senior executive whose responsibility spans political and geographic boundaries within the organization runs a functional area. Generally the senior executive responsible for a functional area is responsible for setting policy, procedures, standards, and operational guidelines for specific operating units in their area within the company. There is usually a dotted line relationship between the functional area executive and a line executive responsible for a specific department in a geographical or political organization.

In the insurance industry, a senior vice president of underwriting would be responsible for underwriting policy and procedures across the entire company. The Sr. VP might also be responsible for approving exceptional situations for large accounts that met specific criteria.

So how does all of this affect IT?
The heads of these functional areas should be members of a very real corporate IT steering committee that meets at least once per month and is responsible for approving all IT requests from business units or IT itself along with IT expenditures and budgets.

A policy should be established that creates a discretionary development budget that allows the head of each functional area to review and approve IT initiative requests as long as they do not cross functional areas and fall within predefined spending limits.

So if a project request crosses functional area boundaries or exceeds a specific pre-agreed funding limit, the executive of the area that initiated the request must present the request to the steering committee. Note IT should not be presenting these requests but rather supporting the business with time and cost estimates.

This process places key IT initiatives firmly under the control of the business unit. Financial and functional responsibility for all IT projects should remain with the business units and functional area executive. The IT organization should be viewed as a service organization that provides specific skills and services to the business unit but does not own systems or budget.

In my next post to this blog I will drill deeper into the actual organization of the IT department and key roles they need to be successful.

I hope that in this article I have demonstrated the need for a corporate IT steering committee consisting of the top executives of the company that meets no less than monthly for 30 minutes to 1 hour and controls the IT function throughout the enterprise.

Having senior executives take control over IT projects with responsibility for their funding and success will insure a vastly more responsive IT organization. This is a key first step to a modern and effective IT organization.