1 MODULE 11 : Organizing and Leading the IT Function Matakuliah: J0422 / Manajemen E-Corporation Tahun: 2005 Versi: 1 / 2

2 Learning Outcomes  In this chapter, we will study:  Centralized IT Driven innovation to decentralized, user driven innovation.  Decentralized, user driven innovation to centralized IT Management.  A number of pressures encourage firms to consolidate IT development resources into a more centralized unit like staff professionalism, corporate data management, and cost estimation and analysis.  Budgets are an important control mechanism. By adjusting the size of budgets and defining their range of acceptable use, companies can increase or decrease constituencies control over priorities and resources.

3 Outline Topic  Organization Issues in the Control of IT Activities.  Implications and Conclusions.  Drivers toward Centralized IT Structure  IT Leadership and the Management of Budgets.

4 Content  Two sets of tensions guide policies for developing, deploying and managing IT systems.  The first set is between innovation and control.  The emphasis a firm should place on aggressive innovation depends on a broad assessment of the potential strategic impact of IT on a firm and on management’s willingness to take risks.  If IT can help a firm achieve its strategic objectives and managers are not too risk-averse, a greater investment in innovation is called for than is the case if IT is considered merely helpful or if managers want to avoid risks.  In today’s IT, benefits promised by real-time Internetworking systems have shifted the emphasis toward more innovation.

5 Organizational Issues in the Control of IT Activities  A second set of tensions may develop between the IT staff and business users.  Users are inclined to focus on short-term need fulfillment, solving today’s problems now, frequently at the expense of long-term IT architectural concerns, maintenance needs, or orderly deployment.  In contrast, the IT department tends to be pre-occupied with standardization of solutions, mastery of technology, maintenance difficulties, and orderly deployment at the cost of a slow response, or no response, to legitimate business needs.  Balancing the tension between the two groups is difficult and must take into account many factors, including corporate culture, IT’s potential strategic impacts, and the urgency of short-term problems.

6 Organizational Issues in the Control of IT Activities  As the following four examples demonstrate, there is no perfect prescription for successful IT innovation.  From Centralized, IT-Driven Innovation to Decentralized, User- Driven Innovation  User Driven Innovation Over IT Department Protests  From Decentralized, User-Driven Innovation to Centralized IT Management  From Decentralized, User-Driven Innovation to Unexpected Centralized Innovation

7  Implications :  Too much focus on prescriptive policies, centralized control, or rapid proof of favorable results in the early stages of the adoption of new technology can prevent important learning that may lead to even more useful applications.  A general manager’s role therefore is to facilitate the assimilation of new technology by continuously monitoring tensions and shifting emphases as appropriate between centralzed and decentralized IT and user control-driven innovation. Implications and Conclusions

8  Conclusions  Address the key drivers in business user’s desire to gain control over IT development, deployment, and management activities.  Analyze the need for centralized coordination of systems development and the pitfalls of uncontrolled proliferation of user-develop systems.  Identify and discuss core policies that IT management, user management, and general management must implement to balance tensions and produce favorable results.

9 Drivers Toward A Centralized IT Structure  A number of pressures encourage firms to consolidate IT development resources into a more centralized unit. These pressures can be grouped into the following categories:  Staff Professionalism  Standard Setting and Ensuring System Maintainability  Envisioning Possibilities and Determining Feasibility  Corporate Data Management  Cost Estimation and Analysis

10 Drivers Toward A Centralized IT Structure  Staff Professionalism Maintaining a central IT department enhances an organization’s ability to recruit and retain specialized technical personnel by providing more obvious career paths for talented IT employees. The inability of some firms to manage the personal development of the IT staff is a key driver for outsourcing IT activities.  Standard Setting and Ensuring System Maintainability Many organizations experience periodic swings of the centralize/decentralize pendulum because over time the benefits of change often given way to new problems. Standardized computing infrastructure pays dividends by reducing the complexity and cost of maintaining a firm’s IT capabilities. Central staff expertise is particularly important for reviewing user- designed systems before they go live. Lacking practical systems design experience, users often ignore data management and security policies, corporate standards, and costing practices that incorporate the full cost of running an application.

11 Drivers Toward A Centralized IT Structure  Envisioning Possibilities and determining feasibility Users often focus on obtaining a specific service to address an immediate need without recognizing the fact that successful first applications tend to generate unanticipated second applications (and then third applications, etc.) The limited experience of the users with IT makes it difficult for business users to see the full implications of the application of a technology; an example is planning that fails to account for possible growth or future expansion of applications. Inability to envision what a system may someday become and to make choices consistent with those possibilities can make future expansion expensive or even infeasible.

12 Drivers Toward A Centralized IT Structure  Corporate Data Management A modern data management strategy requires central coordination of physically distributed databases so that users, regardless of their physical location, can access data file as needed. The narrow perspective of development driven by the short-term problems of a particular business unit may produce data definitions, structures, and systems that lock up data in a nonstandardized format and in inaccessible locations so that they can’t be used enterprise wide. Security issues are best addressed through centralized control. Security standards are more easily achieved with centrally organized electronic files.

13 Drivers Toward A Centralized IT Structure  Cost Estimation and Analysis Users seldom understand the true costs of operating the existing services. Cost analysis and management, using an activity-based computing utility framework, is the only way to assure that local decision making is consistent with overall company objectives. The benefits of central control are long term cost avoidance and technological risk reduction.

14  Budgets are an important control mechanism. By adjusting the size of budgets and defining their range of acceptable use, companies can increase or decrease constituencies control over priorities and resources.  For example, giving business users a larger budget to allocate for IT expenditures increases user power over IT decisions. Limiting the portion on the budget that can be used for, say, outsourcing or for technology that does not confirm to corporate standards reduce control.  Companies with the most decentralized IT management award IT budget control to business units with no strings attached.  Many firms allocate a certain portion of the IT budgets to users while retaining an other portion fo the IT department. The guiding principles is to place decision rights in the hands of those best capable of making certain classes of decisions.  The IT department in a large manufacturing company was interested in phasing out an obsolete computing platform that each year was harder to support and more expensive to maintain.  The whole IT budget was under user control, the phase-out of this platform might not have occurred until the aging systems began to perform badly. IT Leadership and the Management Budgets

15 Chapter Summary  The quality and location of existing IT resources are the basis for future change. According to business users, how responsive and competent are existing IT resources?  Executives can answer the following questions to assess whether they are adequately addressing issues of leadership and organization of IT activities:  What is the appropriate balance of emphasis between innovation and control in your organizations? Do you IT budgets and organizational structures fit well with that balance?  Have the IT staff or business user perspective become too dominant in the organization?  Does your company have a central IT policy group?