1. Make the Case for the Hybrid IT Operating Model
Break the link between the IT operating model and the business structure for a more effective IT division.
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2. Introduction
Rapidly changing business needs, aging infrastructure, emerging technologies, and tech-savvy customers are driving business-led change. IT must organize itself to respond effectively to these taxing demands.
This Research Is Designed For:
This Research Will Help You:
CIOs and other IT leaders who are trying to optimize the structures of their IT departments to deliver tangible business value.
Business and IT leaders seeking to optimize technology, reduce IT spend, and improve IT service delivery.
Business and IT leaders striving to build partnerships to improve the strategic collaboration between business and IT.
Determine the best operating model for your firm.
Adapt your IT governance structure to optimize IT decision rights.
Identify initiatives to improve IT services and processes.

3. Executive Summary
The right IT organization for a dynamic environment is the one that fosters the greatest collaboration with the business.
Traditionally, rapid changes in business demands would have required a decentralized IT operating model with IT resources closer to the changing environment for early anticipation, and to accommodate change more readily.
However, alignment between the business and IT operating models may not provide the most appropriate outcome.
While business units may require decentralized decision making to respond to the rapid changes in their environment, the IT function that may be best suited to support the business in these conditions is a more centralized approach.
The demand for integration across business units is driving increasing levels of standardization, formalization, and centralization of IT.
Demand for integration is driven by six key factors: the firm’s level of acquisition activity, the relatedness of the firm’s businesses, level of vertical integration, government regulation, level of specialization, and the importance of the brand.
Trends toward increased centralization are manifested in more standardization in IT platforms and applications, more formalization of the IT business processes, and more centralization of decision making regarding IT, similar to the decision structure of a hybrid IT operating model.
IT is most successful...
Under a hybrid operating model.
When the business decides which IT services are needed and an IT steering committee decides how the services should be delivered.
When systems are standardized.

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5. Use the pathfinder below to address specific questions about IT operating models and governance
Importance or Answer
Slide
What are the advantages and disadvantages of different IT operating models?
Ensure you are leveraging the advantages to your organization’s current IT operating model. 13
What factors contribute to IT success?
Under a hybrid operating model. 40
When the business decides which IT services are needed and an IT steering committee decides how the services should be delivered. 19
When systems are standardized. 18
What factors affect the decision to increase or decrease centralization?
Regulatory requirements.
Reducing IT costs. 22
Political risk.
Improvements to IT.
Proximity: IT & Business staff.
Availability of skilled IT resources.
How is demand for integration affecting the IT organization?
The trend towards increased centralization is the result of increasing demand for integration, that is horizontal co-ordination across BUs. 23
How can I determine whether I need to change my operating model?
To determine whether you should consider changes to your IT organization take Info-Tech’s Demand for Integration Assessment. 25
What are the steps to improving the IT operating model?
Create an accountability framework, define key objectives, conduct a current state assessment of IT, identify improvement ideas and options, and evaluate options for implementation. 28
What are the challenges to changing the IT operating model?
Length of time for financial payback.
Differentiated business products and services. 36
Business units’ resistance to change.
Managing needs in different geographical regions.
Meeting requirements for around the clock services.
What are the key components of a governance framework for a hybrid IT organization?
Policies, strategic processes, leadership and business relationship management.
41 to 46

6. *Technology Projects Taken on by the Business Without IT
IT is being confronted with new challenges as it continues to manage old ones
As organizations evolve, IT must establish operating models for an increasingly complex and challenging business environment.
IT continues to struggle to accommodate growing business demands within a fixed IT envelope. Most of the IT budget is allocated to maintaining status quo, which means that little is left for innovation and unexpected activities.
There are greater demands on IT by the business to be able to access IT services by any means. BYOD and mobility are forcing IT to change the way it thinks of support – from supporting the technology that delivers the IT services to supporting the consumption of IT services.
IT is challenged to maintain its value proposition to the business in a cloud universe. The business is finding it easier to bypass internal IT to buy services from public cloud providers, with the potential for a mismatch in security levels between public cloud providers and the firm’s security policies.
Excessive centralization is creating rebellious colonies in the business.
+112%
Implementing a more business-oriented IT operating model and governance structure will give IT a line of sight into all business units. With this knowledge, IT can control costs by improving transparency across business units, increase security by reducing “rogue IT,” and boost service quality by better understanding the needs of the business.
Info-Tech Insight
*Technology Projects Taken on by the Business Without IT
Source: Info-Tech Research Group; N = 82

7. - Professor Carl R. Adams, University of Minnesota
The right IT operating model aligns to the business’ needs, improves collaboration, and inspires sharing of ideas
An operating model provides the guidance and structure to support value generation.
Effective IT models have:
Strong governance that provides direction and guidance to the business.
IT resources that are fully leveraged.
IT spending transparency to the whole organization.
Controlled infrastructure compliance with architecture standards.
Ability to deliver business value consistently, predictably, and efficiently.
IT meets the needs and priorities of the business.
There is flexibility to meet unique business needs.
An operating model is an illustration of the IT value chain. It provides a framework to identify and define the major activities, capabilities, and processes required to convert business requirements and requests into the expected outcomes.
Choosing an inappropriate operating model leads to:
A lack of coordination among functions and business units.
Ineffective decision making.
Conflict.
Failure to share ideas.
Ineffectual performance.
Choosing the appropriate operating model leads to:
Effective interactions across functional, business unit, and geographic boundaries to achieve the organization’s strategic goals.
Exchange of better practices within the organization.
Better cost control by increasing transparency.
Increased compliance by reducing “rogue IT.”
Among the benefits of IT adopting an operating model that responds to the increasing demand for integration of the firm is the efficiency and efficacy that results from commonality of practice, the sharing of best practices regarding processes among locations, and having the ability to use that knowledge.
- Professor Carl R. Adams, University of Minnesota

8. Understanding IT operating models
Discussion of IT operating models.
Comparison of effectiveness of IT by IT operating model.
Impact of IT standardization on IT effectiveness.
Impact of where IT decision rights sit on IT effectiveness.
Understanding IT operating models
Getting to the right operating model
Making the hybrid operating model work for you

9. IT operating models can be described along a continuum from centralized to decentralized
IT must find the balance between centralized and decentralized operating models for its firm to respond to the key needs of the business.
Centralized IT Operating Model
Locus of control is centralized to a small IT group in a centralized operating model. Decisions regarding what and how IT services will be delivered are made by that central group. Services are centralized to the greatest extent possible, and reporting is to the corporate CIO.
Locus of control is with the lines of business in a decentralized operating model. Decisions as to what and how IT services will be delivered are made at the local level. IT staff report to the line of business. There may or may not be a corporate CIO with responsibility to set enterprise-wide policies for some functions, for example, architecture standards.
A hybrid IT operating model operates somewhere along the centralized-decentralized spectrum. The corporate CIO sets IT strategy, and works with the business unit leaders to develop and manage governance policies and practices, and allocates decision rights accordingly. Generally, common and enterprise-wide services are centralized, while unique business unit applications are decentralized to that business unit. The business determines what IT services they require; IT decides how best to provide the services.
CIO BU BU BU BU
Decentralized IT Operating Model BU BU BU BU
CIO
CIO
CIO
CIO
Hybrid IT Operating Model
CIO
CIO
CIO
CIO
CIO

10. Each IT operating model is characterized by a variety of advantages and disadvantages
Centralized
Decentralized
Hybrid
Maximum flexibility to allocate IT resources across business units.
Low cost delivery model and greatest economies of scale.
Control and consistency offers opportunity for technological rationalization and standardization, and volume purchasing at the highest degree.
Goals are aligned to the distinct business units or functions.
Greater flexibility, and more timely delivery of services.
Development resources are highly knowledgeable about business unit specific applications.
Business unit has greatest control over IT resources, and can set and change priorities as needed.
Centralizes processes and services that require consistency across the organization.
Decentralizes processes and services that need to be responsive to local market conditions.
Eliminates duplication and redundancy by allowing effective use of common resources (i.e. Shared services, standardization).
Less able to respond quickly to local requirements with flexibility.
IT can be resistant to change, and unwilling to address the unique needs of end users.
Business units can be frustrated by perception of lack of control over resources.
Development of special business knowledge can be limited.
Redundancies, conflicts, and incompatible technologies can result from business units having differentiated services and applications – increasing cost
Ability to share IT resources is low due to lack of common approaches.
Lack of integration makes the communication of data between businesses and common reporting is limited.
Requires the most disciplined governance structure, and the unwavering commitment of the business; therefore, it can be the most difficult to maintain.
Requires new processes as pooled resources must be staffed to approved projects.
Advantages
Disadvantages

11. - Professor Carl R. Adams, University of Minnesota
The IT operating model generally does not mimic the firm’s operating model
Rapid change in the business world demands a more flexible and responsive business model.
The hybrid IT operating model has significant presence regardless of the firm’s operating model.
Traditionally, rapid changes in business demands would have required a decentralized IT operating model with IT resources closer to the changing environment for early anticipation, and to accommodate change more readily.
However, alignment between the business and IT operating models may not provide the most appropriate outcome.
While business units may require decentralized, decision making to respond to the rapid changes in their environment, the IT function that may be best suited to support such business units is one with enough centralization to support enterprise- wide goals.
Response Rate (%)
Despite pressures to conform to most firms' decisions to push decision making out to where the enterprise interacts with an increasingly uncertain environment, most IT groups are concentrating decision making at the corporate level.
- Professor Carl R. Adams, University of Minnesota
Source: Info-Tech Research Group; N = 125
A hybrid IT operating model is prevalent in both decentralized and hybrid organizations. Even in decentralized organizations, decentralized IT operating models are not the norm.
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