On the McKinsey Quarterly website, Roger Roberts, Hugo Sarrazin and Johnson Sikes explore a new model for managing IT which combines factory-style productivity to keep costs down with a more nimble, innovation-focused approach to adapt to rapid change.
IT management needs reshaping along these lines, say the authors, because "despite decades of increasingly intensive use of information across industries, IT has remained a black box for many executives. Too often, the link between spending and performance has been unclear, if not problematic".
They add: "As a result, leaders felt that their only course of action was to hire a competent CIO, throw increasing amounts of money at IT, and hope for the best. The economic disruptions of recent years, however, have tightened budgets and placed a premium on action, forcing companies to rethink IT’s fundamental role."
Traditionally, there has been a one-dimensional management approach to IT because it began as a support function in most organisations.
However, IT has now been thrust into the foreground thanks to technology-enabled products, interactive communications and an "always on" information environment, making it critical for business growth, productivity and customer engagement.
Roberts, Sarrazin, and Sikes observe that this deeper recognition of IT's potential has seen the rise of a new management model comprising two categories: "Factory IT" and "Enabling IT".
Factory IT encompasses the bulk of an organisation's IT activities, where lessons from the production floor are applied in an effort to improve efficiency, optimise delivery and lower unit costs.
Enabling IT focuses on helping organisations respond more effectively to changing business needs and spurring innovation and growth to gain a competitive advantage.
The authors comment: "This approach goes beyond simply relabelling functions to include broader leadership, governance, and organisational changes, and IT leaders will need very different skills to manage each model. Business leaders will have to engage with IT in new ways."
The authors point out that the core elements of the typical IT function have evolved greatly over the past ten years, which has enabled the Factory model of delivering more efficient IT services.
They explain: "Ten years ago, a company might have felt compelled to create its own software to manage the supply chain and other activities; today, many configurable products can meet those needs.
"Similarly, expensive, single-purpose servers and the dedicated support staff they require can be replaced by commodity servers, often managed from half a world away."
They add that these standardised platforms mean IT activities can be restructured and continually improved much as any other business process, using a combination of "lean techniques, automation, and outsourcing or cloud computing to drive down costs and improve quality".
There are three elements to Factory IT:
• Applying traditional business management techniques to IT.
• Building IT that's more responsive to changing business conditions.
• Cutting complexity through improved planning.
Although radical restructuring isn't necessary for implementing Factory IT, the success of the model will depend on the engagement of IT executives who have experience in applying lean techniques and driving continuous improvement.
They must also possess the necessary skills for forming effective partnerships across the business.
What's more, external customers should not see a "material degradation" of their experience and business users should be able to see "tangible results in return".
Enabling IT is the "market-facing complement" to the Factory model, focusing on new sources of value. Its emphasis on innovation requires three things: ready access to relevant information; a willingness to test and learn; and close collaboration.
The authors explain: "Enabling IT supports these activities by developing the processes and technologies to launch a new sales channel, design a tech-enabled product feature, or increase customer retention through online offerings."
While Factory IT is housed centrally, Enabling IT’s employees act as an "IT SWAT team" for fresh initiatives or business objectives. They are often closely integrated with business units, and sometimes even embedded in them.
While employees in the Factory model are rated on their ability to deliver low unit costs, Enabling IT employees are rated on metrics such as responsiveness and flexibility.
The Enabling IT model requires "credible, deeply knowledgeable IT leaders and team members who are seen as an integral part of the functions and businesses they enable". The work groups should also be accountable to the chief information officer as well as the business unit.
Roberts, Sarrazin, and Sikes say: "Where lean manufacturing and Factory IT seek to avoid errors, Enabling IT’s mindset tolerates (and even encourages) the mistakes that result from experimentation and iteration as long as they happen quickly, the outcomes are measured, and the lessons are incorporated into the team's thinking."
The authors conclude there is no turning back from these new models of IT management. They say: "Factory IT’s potential to increase efficiency and reduce costs can finance the next wave of Enabling IT’s innovation.
"The combination of functional productivity and business value creation will likely be a major competitive differentiator; the first step in delivering this value is to ensure companies have the right leaders in place for each effort."