Sunday, March 15, 2009

The Foolhardy Rush to Consolidation

Is your organization under a mandate to consolidate some aspect of IT?

Most likely it is. Consolidation is a mania that has spread across organizations of all kinds, in all sectors. It is usually driven by the business or financial side, and approved by the CIO - after all, who can argue with cutting costs through economies of scale?

But in the process, are we losing some important advantages of decentralization? Is this even part of the business case? That is, did the business case even attempt to account for the enterprise value of the existing decentralization?

Most likely not, since those benefits are usually somewhat intangible, and business cases for consolidation almost always focus on direct costs: the costs of servers, IT personnel, and software licenses.

Recently I was involved with two different calls for consolidation. One was a consolidation of IT operations: for IT to take ownership of all of the computing applications in the field and move them into a single data center, and have IT take over the apps and combine them when possible. The field is no longer allowed to write their own apps. The other effort sought to consolidate all HR functions and create a single "self-service" system: field HR personnel were eliminated or moved to the central location. The business case was based on reduced direct cost of HR personnel.

These looked compelling on paper, but both efforts foundered. Let's look at the HR effort. It turned out that people in the field did not want a self-service approach: they were accustomed to having someone to ask about HR matters. This allowed the people in the field to focus on their primary jobs. In the new approach, line of business managers found that they were spending all of their time working HR functions and were not able to focus on their own respective missions. The business case did not account for this loss of mission effectiveness, but in the words of one of the senior field managers, "the business case is flawed".1

In the case of the IT systems consolidation effort, the same mistake was made: the value of decentralization was not accounted for. As a result, people in the field will no longer have the flexibility to respond tactically to meet their own needs. The effort is still underway so we shall see what happens, but the symptoms are all looking familiar....

1. See chapter 11 of my book for techniques on how to model the value of "intangibles".

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