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Centralise IT

Centralise IT

Source: Mark Strauch, Business Engine

Forrester reports centralised IT groups take top honours in organisational structures and budgeting. Mark Strauch, chief operating officer at Business Engine outlines the benefits of such an approach for financial services firms.

Forrester's latest report into IT governance and how well IT meets the needs of its customers reveals that centralised IT groups still take top honours in the 'IT Organisational Structure and Budgeting' stakes.

The reality is that financial services firms have decreased their spending and are more cautious about how they invest. A stagnant global economy has tainted IT and business executives' perceptions of future growth. This pessimism comes from a history of full-blown, expensive IT initiatives versus the current atmosphere of tackling projects as part of an aligned portfolio. As a result, firms are yet again centralising IT and streamlining internal operations, with less focus on initiatives unnecessary to improving the business.

The Forrester research revealed that 53% of companies surveyed with a centralised IT structure claimed to be responsive to business needs, while only 39% of firms with decentralised IT agreed that IT is responsive. This highlights a real sea change in how enterprises organise and govern IT. It is often the assumption that a firm with decentralised IT is the most responsive to its business needs, as the IT staff work for their own business unit.

However, this disparate approach to IT can get bogged down in reacting to individual user requirements, making it difficult to look long term and align IT with the overall business strategy.

The centralised approach to IT governance has been in vogue previously. The advent of distributed computing pushed technology organisational structures in the opposite direction. Current economic and geopolitical concerns have shifted the pendulum back towards the cost containment approach. Indeed, the savings can be really significant when like items are collapsed. Examples here are combining call centres or data centres.

The unique twist to financial services firms is the layering of a project and portfolio management based approach to running the business of IT. In this scenario, intellectual capital and information becomes the asset. Thus, when an organisation combines information in a central place, the savings in speed and efficiency of deliverables and work products are compounded.

The impact of a centralised technology function to a financial services firm can leave its impression in variety of areas:
  • A centralised structure requires an effective decision and resource allocation process. This is a necessity as each business unit can have different and conflicting needs for the IT workforce and operations capacity.
  • Clarity of purpose and alignment with overall company strategies improve as a result of simpler organisational communications. The technology facilitator plays an important part here.
  • Centralised control means better alignment within the IT organisation. This approach will allow IT to create a single face for IT consumers, business units, and business partners, through a single version of the truth.
  • Responsiveness is the key to success. If a centralised operation is responsive to the needs of the business, the approach makes sense.

Financial management and budgeting plays an integral role as well. Consider that the typical billion-pound company's finance staff spends nearly 35,000 hours a year supporting the planning, forecasting and reporting process, with half the time devoted to collecting and validating data. Enterprises that do not rethink and retool this process will annually spend 75 percent more effort than enterprises that do. Centralising the process aids in business and IT alignment.

A centralised IT department seeking variability to be able to dial costs up and down as business demands shift will be able to do so by pulling together the required information rapidly, from a central information source, allowing the firm to quickly adapt to changing requirements or market conditions, prioritise its portfolio of projects on a continual basis, start critical initiatives faster, and most importantly eliminate low priority projects sooner.

Finally, a centralised technology approach and the culture within the financial services industry sector will ensure that technology becomes an enabler of the business, yet accountability lies within business unit sponsors. Although the tools component is used to measure and manage IT, technology does not operate in a vacuum. These items will help drive a culture shift towards 'Business Technology' rather than Information Technology, and help in running the business of IT.

A Real World Example
An example from one of the world's largest financial services institution helps illustrate the centralised marriage of technology and process. The organisation in question had an inability to align and rationalise project costs against organisational budgets. The CIO wanted visibility into only the top 50 initiatives within the department, while the CFO was seeking a unified budget planning process between project and finance teams.

These are not new problems in large financial services firms. There was also a need to reflect the true costs of a project, with meaningful chargebacks between IT and business units. The chargeback piece was particularly critical.

The results from a centralised technology and process approach have been staggering. The company saw an immediate annual payback of $15.5 million. This was made up of $6.75 million in reduced heads (27 FTEs), and $8.75 million in killing failing/redundant projects. A peripheral benefit was the real-time visibility and financial control across all projects and resources, not to mention transparency of spend, ROI and a focused effort on strategic high return investments.

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