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Wednesday, September 15, 2010

Rumors of the death of corporate IT greatly exaggerated

I came a blog post recently entitled, Is Enterprise 2.0 Helping to Kill Off the IT Department? (For those not up-to-date on the latest fashions, Enterprise 2.0 refers to the use of tools such as blogs, wikis, RSS, mashups, and social networks to capture and manage unstructured information in business enterprises.)

What set me off about this post was not the part about "Enterprise 2.0," but the part about "killing off the IT department." I've been reading articles like this ever since I started working with IT several decades ago.

About every 10 years or so, some new technology comes along that observers trumpet as so radical and innovative that it will result in nothing less than the death of the corporate IT department. And every time, IT ultimately adapts, though at first it may resist.

The PC revolution
As I recall, the first death knell was sounded when PCs arrived. These started showing up in businesses in a big way in the late 1970s. At the time, I was working as a manufacturing systems analyst for an oil field services firm. I was in the midst of gathering requirements for a custom system that would manage tooling inventory on the shop floor.

One day, I went out to visit the tool crib in one of our plants and found that my users had already built their own tooling inventory system using a TRS-80 PC from Radio Shack. They said they didn't need help from corporate IT. I argued with the manager, "Look, I'm not out here setting up my own tool crib--you shouldn't be out here building your own computer systems." Ultimately, we did end up building the corporate tooling system, but not without a lot of resistance from users who felt that what could build themselves was good enough.

It took more than 10 years--some might say, 15-20 years--for IT to figure out how to adapt to the PC revolution. The first big issue was "connectivity." Users were buying personal computers, then spending way too much time re-keying data from mainframe-printed reports into PC spreadsheets. So, corporate IT was given the task of connecting them while still maintaining security and integrity of corporate data.

The next challenge was to harness all that computing power sitting on the desktop, which brought in the era of client-server computing. Centralized systems would maintain master file data, while desktop systems would be used for data entry and analysis. The strengths of the server computer and the client computer would each be used where they were strongest. Response time would be faster on the desktop PC since only local processing was required, and data integrity would be maintained as master files were kept at the server level. Eventually, you had three-tier (client, application server, and database server) and n-tier systems.

Along with client-server computing, we had to deal with the need for graphical user interfaces. As users became accustomed to the Windows GUI in the late 80s and early 90s, they became frustrated with the character-based interfaces of their corporate mainframe and minicomputer systems. Some users, learning Visual Basic on their own, became better PC programmers than those of us in corporate IT. So we had a whole new set of skills to learn. But corporate IT ultimately adapted.

What corporate IT went through to adapt to the PC revolution was much greater than anything it faces today in adapting to the presence of Facebook, Twitter, and iPhones.

The Web revolution
Just around the time corporate IT figured out how to managed PCs and client-server systems, the Internet changed everything. Again, a new technology served to empower users, who were now able to build their own websites and simple web-based applications, bypassing corporate IT.

But the Internet and Web technologies turned out to be a great boon to corporate IT. The first way it helped was in simplifying system design and system management. In truth, client-server was a very cumbersome way to build and manage systems, with code sitting both on the server and on each client. Web technologies made it possible to create thin client systems, with all business logic sitting at the server tier and the desktop PC used only for user presentation. Web technologies allowed systems to be re-centralized--a return to the host-based computing of the mainframe days, but with GUI.

Second, the Internet made it possible to connecting customers, partners, and suppliers in a way that was much simpler than it was with the old electronic data interchange (EDI) technologies--the so-called e-business revolution. Some of this resulted in the dot-com boom and bust, but much still remains and has become part of doing business today.

Once again, the corporate IT department adapted and survived.

The cloud-computing revolution
Today, we're in the midst of another revolution--cloud computing--which is really just an extension of the Internet wave. As Web-based systems became mainstream, it became possible to move an application system with its entire infrastructure--data centers, servers, databases, application code, network gear, and infrastructure support personnel--out of the corporate data center to a third-party provider.

At first it was a one-for-one replacement, simply picking up the application and moving it offsite--what was called, in the late 90's, the application service provider (ASP) model. Then, providers began to build their own applications that could support multiple customers on a single instance of the application code, so-called multi-tenant systems, or software-as-a-service (SaaS). Some would say this was a return to the old time-sharing or service bureau model of the earliest days of corporate computing.

The rise of SaaS applications, from providers such as Salesforce.com, meant that user departments could go out and buy their own applications as a service, without any involvement from corporate IT.

Earlier this year, Ray Wang did a quick poll of 46 large company CIOs and found only 11 (24%) of them indicating they had SaaS applications running in their organizations. But when he polled the procurement managers from these same organizations, he found that 100% of them reporting the presence of SaaS applications in various business units. Clearly, CIOs in three-quarters of these companies were being cut out of the SaaS procurement decision.

Doesn't this mean the death of the corporate IT department? I don't think so, because nearly every one of these SaaS applications, ultimately, will need to be integrated into an enterprise architecture, just like all those PCs back in the 80's needed to be connected to the corporate mainframe. You can see this happening already. As one respondent in Ray's survey said, "The business heads keep showing up with these SaaS apps and then want us to integrate them. We need to get a handle on all this!”

The architectural role of corporate ITNo one talks about "the death of corporate HR," or "the death of corporate accounting." Why is this thought of "the death of corporate IT" constantly recurring? I think it's because many observers only see corporate IT as a manager of technology. So, every time a new technology comes along that users can deploy for themselves, it would seem to obviate the need for a corporate IT department to exist at all.

Many observers don't realize that information technology--software, hardware, networks--is just one part of "corporate IT." The other major part is designing and managing business processes--especially cross-functional business processes--that utilize technology and developing. This part also includes maintaining the enterprise architecture--the combination of technology and business processes--to support the organization's objectives.

Granted, some IT departments are not very good at the second part. But if they aren't, someone needs to be. I don't care what you call it, or who it reports to. Someone needs to be concerned about the integration of all these systems with one another, and no single user department is in a position to do that.

Back to the beginning
In thinking about these matters, I was reminded of my introduction to corporate IT. My first job was as a programmer trainee at Macy's at Herald Square in New York (as seen in the Miracle at 34th Street). Macy's was one of the first organizations to purchase an electronic computer for business purposes--one of the first National Cash Register (NCR) computers--in the early 1950s.

I reported to some of those first programmers, who were still working there when I started as a trainee in 1974. (In fact, when we had trouble with some obscure piece of logic in those core systems--which had long since been migrated from NCR to the IBM mainframe--these old boys would pull out some dog-eared pages of ancient bubble flow-charts to answer our questions.)

Interestingly, prior to the arrival of its first NCR mainframe, there was no "corporate IT department" at Macy's. Rather, Macy's assigned the responsibility for this new technology to a group that already existed within the organization--it was called (as I believe I was told), the "Systems and Procedures Department."

What was the previous mission of the Systems and Procedures Department? It was to design and maintain all business processes within Macy's. For example, the procedure for handling and accounting for returned merchandise involved several departments and required tight controls. The Systems and Procedures Department designed, tested, and implemented this procedure. When the NCR mainframe arrived, the department simply incorporated computer technology to automate parts of that process.

The "systems and procedures" roots of the Macy's corporate IT department were still in evidence when I arrived in 1974, fresh out of college as a programmer trainee. After two or three days studying programming manuals, bored out of my mind, I was ready for my first assignment--to write a program to print "Holiday Money" (those fake currency certificates that department stores used to mail during holiday season to credit card holders, allowing them to spend them like real money and have the amounts charged to their credit cards).

But rather than give me programming specs, my manager (one of the old guard) gave me my first task: go talk to the users. He said, "Around here, no one is just a programmer--you have to understand the business. Go talk to the users and see what they want. Then write it up and run it by me."

He also told me about a friendly rivalry he had with his counterpart at another well-known department store. From time to time each would visit the other's store and attempt to find weaknesses in the other's business processes.

In fact, just the previous year my manager had discovered a hole in his rival's Holiday Money process! It was possible to return merchandise purchased with holiday money and receive cash back--effectively getting a cash advance on the consumer's credit card, which was a violation of the store's policy. He then notified his rival, who plugged the hole, but lost bragging rights for that round.

Understand, these were not two "business managers." These were two IT managers.

So I learned from my first week on the job: corporate IT is not just about technology. It's about "systems and processes." So, if "systems and processes" pre-dated the introduction of computers to business, it means that this role for corporate IT will survive, even if we get rid of the computers.

Related posts
The inexorable dominance of cloud computing
IT departments face extinction
The end of corporate computing

by Frank Scavo, 9/15/2010 07:09:00 AM | permalink | e-mail this!

 Reader Comments:

What an excellent blog post! I'm glad someone is getting the word out on how the cloud makes it very difficult to integrate all those applications out there. One of our clients is seeing the daylight right now. They decided to go with one of our competitors (SaaS only solution) about a year ago and then couldn't figure out how to integrate it with their change control, asset management and HR systems. Why didn't they consider that in the first place? Because the CFO didn’t consult IT before acquiring the solution. Sometimes non-IT executives fall for the hype and sexy pictures of these solutions and forget to do the due diligence when it comes to integration. It seems as if since "everyone" is doing it, it must be right.

I agree that IT Departments as we know them are not going the way of the dinosaur. It's just another example of IT needing to bail out the rest of the company because they aren't making decisions that are in the best interest of the company as a whole. IT decisions should always be made either by IT or with IT and never inside a silo. I mainly work in the CFO area of companies and too often IT is seen as the enemy and not consulted when they should be. Having come from IT, I can usually bridge that gap and get them working together. The real issue for most IT organizations is to improve their relationship with the other business units so they can be involved in the decision making process.

The more things change… the more I keep getting that déjà vu feeling all over again.
Thanks for the comment. Yes, integration is essential. But just to be clear, the lack of integration suffered by many organizations today is not limited to cloud solutions. I'm sure you you have seen cases where various business units chose different on-premise solutions without an overall architectural roadmap.

And, to be fair, the more modern SaaS solutions do a very good job of allowing integration with other SaaS solutions or even on-premise systems. Salesforce.com comes to mind as an example.

So, the problem is not cloud-based products. The problem is the lack of a roadmap.
Great post Frank. But ... wait ... NCR ... punch cards ... you CAN'T be that old ... you look so young in your picture !
Hi Frank,

Thanks for sharing this. Very interesting.

If SaaS and PaaS are reducing the size of Corporate IT, I think it’s fair to say that blogs, wikis, RSS, mashups, and social networks are helping to reduce it also.

But killing it?

There is much animosity toward Corporate IT - not unlike the animosity toward software vendors. But the software vendors are not going away, and neither will Corporate IT. Instead they will both change.

As in-cloud software vendors take work away from Corporate IT, more work will come in its place, because as technology advances, business expectations increase – thanks to a constant drive for competitive advantage.

Corporate IT needs to focus and market itself as a service provider to minimize the image of Corporate Roadblock - and generally become more aware of who is funding their existence. This would also help to avoid the temptation to outsource Corporate IT, which brings with it a whole set of other problems.

I think Business will wrestle-back control of business processes and the “standard operating procedures” that go with them.

What would Corporate IT do if everything is in the cloud? I think integration expertise and governance expertise are the two big ticket items. Technology advisory and business process advisory are also significant.
Hi Matthew. Thanks for the thoughts. Actually, our long term study of IT spending trends does NOT show a significant change in the size of corporate IT over the past 15 years or so. On a percentage of revenue basis, the median spend is about the same. And on a per-employee basis, it has actually risen.

On the one hand, as you point out, there are factors at play that are taking work OUT of corporate IT. The rise of end-user computing (with introduction of the PC) was one of the early factors). But at the same time, the footprint of IT in the organization is growing and more and more business processes are automated/supported by IT. The two trends balance each other out, or actually are increasing IT's share of the business.

However, the nature of the work of corporate IT has been evolving, with less devoted to low-level hardware/infrastructure management and more going toward higher end skills, like business analysis, data warehouse/BI, and architecture.

Search our research at www.computereconomics.com for more on all of the above.

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