The IT organization of the future: An enterprise within an enterprise

This is the first in a series of three stories about the factors shaping the IT organization of the future. In this story, CIOs and experts explore the transformation of IT into a services business and potentially into a component of an enterprise business services organization. In the second story, experts describe the business and technology drivers that could change the CIO role significantly, as well as the role of IT within the business. In the third story, Andrew Horne, managing director at The Corporate Executive Board Company (CEB), outlines seven new IT skill sets that reflect "fundamental" changes under way in enterprise IT organizations.

Renaming The Capital Group Companies Inc.'s IT support group the service management group seems insignificant at first glance. A rose by any other name would smell as sweet, right?

Beneath that name change, however, is a shift that's under way at many enterprises to create the IT organization of the future: a services organization within the business that's led by a CEO-like CIO, has its own marketing campaigns and transparent profits and losses, and focuses on developing business value. Further out, some experts predict, the IT services organization will become a component of an even larger business services organization.

At The Capital Group Companies, IT responded to instructions from the business but was not always privy to the big picture. Now the department is part of the decision-making process behind the implementation of corporate strategy. "That dialogue is one of the first steps in changing the perspective of IT to the point where your business is not technology; your business is the business." said Edgar Castro-Perez, senior IT manager at the Los Angeles-based mutual fund firm, which has about $1 trillion in assets under management.

That dialogue began first through an internal IT marketing campaign to promote technology as a business service offered across the company, not a collection of storage or servers. The IT department now lays out its services and pricing -- when an employee goes looking for cloud services, for example, IT's counteroffer is on the table.

"We have the services [our employees] are looking for, but we were just not marketing them enough or marketing them in the right way," Castro-Perez said.

Repositioning IT as an IT services organization

Sunoco Inc.'s IT department set itself on the path to becoming a services organization when CIO Peter Whatnell outsourced Sunoco's in-house email system. Next up is human resources activities. "Within two to three years I see the move [to IT as a services business] overtaking everyone in this industry," he said. "Internal services that do not have tentacles into other data or that are not heavily integrated will start to disappear, and those services that are core will remain in-house."

Whatnell said he also believes that IT will become more of a broker of external and internal services: "In the '60s through the 2000s, IT was about constructing and operating; now it's about deploying services to the business, and there's a lot more services to deploy."

Taking this transition a step further, Andrew Horne, managing director at The Corporate Executive Board Company (CEB), predicts that within a year, IT will start to become a services organization within a larger business services organization. The HR and procurement departments and the CFO is increasingly viewing what they do in terms of services delivery. "Logically, those services begin to come together as a set of business services that involve IT and other components," he said. Washington, D.C.-based CEB is a corporate strategy advisory firm with 5,200 corporate members and a technology strategy practice that advises CIOs.

There are several factors causing IT to align technology services better with business processes and eventually become part of a larger business services organization, Horne said. One is IT cost transparency; another is being able to derive more value from information.

Wrapping technology up as a service -- as desktop productivityor claims processing, for example -- makes what technology does for the business more transparent and helps the business understand what it's paying for, Horne said. Enterprises are trying to drive out costs, and providing transparency into the cost of services will encourage the business to use only the services it needs, he said.

[Technology] was about constructing and operating; now it's about deploying services to the business, and there's a lot more services to deploy.

Peter Whatnell, CIO, Sunoco Inc.

A lot of enterprises' information is siloed in different systems and attached to different business processes. "In theory, when you begin to bundle technology up as a service and describe it in terms of a business service, the information that it generates also becomes cleaner and more usable," Horne said, adding that at this point, this goal is more an aspiration than a reality.

From IT services to business services organization: A long work in progress

Before the IT organization can become a part of a larger business services organization, it will have to start operating more like a business itself.

"You sort of have to look at the IT organization as a standalone services organization within the company, with a standalone [profit-and-loss statement (P&L)]. The CIO automatically becomes the CEO of that organization," said Neal Ramasamy, managing director and CIO at New York Life Retirement Plan Services (RPS), in a recent podcast about his company's IT transformation efforts. "It's all about pragmatic innovation: If you were to spend a dollar, how are you spending the dollar in a way that is going to maximize shareholder value?"

For Ramasamy, the first step was a software portfolio rationalization that lined up IT services with the corporate roadmap. At the same time, his technology investment roadmap corresponded to the value the corporation expected to get from IT, he said.

"We couple this with a strong business alignment, where we've required the senior IT team to live, breathe and understand the core business drivers. That's really the key to where we would like to go and how this will help RPS down the road," said Ramasamy, whose Westwood, Mass.-based company is a division of New York Life Investment Management LLC.

Creating the IT organization of the future as a business services organization will take a phased approach, according to experts. Start off with 10 to 20 services that can be used across the organization, CEB's Horne advised. "Presenting the business with 50 to 100 services is as bad as offering individual technologies," he said. "And make the services link very closely with what [business units] actually do."

Service offerings should derive naturally from business functions so it is easier for the business to sign up for them. This will encourage business units to choose specific internal offerings, as opposed to vendor or third-party service provider offerings, which will be presented in more generic terms, Horne said.

Let us know what you think about the story; email Christina Torode, News Director.