March 09, 2010, 9:52 AM — When the economy plummeted at the end of 2008, the Western U.S. branch of The Salvation Army was ahead of the cost-cutting game. CIO Clarence White had centralized the IT organization a year or two earlier, and he had consolidated the database and storage servers from the business units into a single data center in Long Beach, Calif.
The move wasn't aimed at cutting costs, but "the timing was good," White says. It reduced the charitable organization's technology footprint, encouraged more virtualization and lowered maintenance and power costs. "It was an unanticipated benefit," he says. "We looked like geniuses."
And White says that for the first time he feels that the organization has a strong disaster recovery strategy, thanks to consolidated storage and a fully replicated set of servers in a remote data center in Phoenix.
For decades, the pendulum has swung between centralized IT organizations and decentralized operations featuring small IT groups in each business unit. But with the urgent need to cut costs today, there's a good argument to be made for the former arrangement. With technology assets in one place, it's easier to take advantage of developments such as virtualization, storage de-duplication, cloud computing and outsourcing, all of which promise to lower costs.
Centralization also makes it easier to create an effective disaster recovery strategy, minimize labor redundancies, get volume discounts on technology purchases, and lower maintenance and training costs through standardization, proponents say.
The Org Chart Isn't the Cure-all
In the mid-1990s, pundits favored a hybrid IT organizational structure, with a central, shared-services unit to handle IT supply, plus a distributed network of people at the business units to manage IT demand.
But a 2008 study by consulting firm Booz & Co. concluded that the hybrid model has produced "somewhat disappointing" results.
The consulting firm's survey of 1,500 IT executives and their internal business customers found that the IT organizations perceived as most effective were centralized operations. For example, centralized IT organizations are better at quickly turning executive decisions into action and are more likely to be aligned with business strategy, the study said.
That sounds like a victory for centralization, but the Booz study found that juggling the organizational chart isn't really the key to greater IT effectiveness. Even more important factors, the study reported, are "decision rights" (how technology investment decisions are made) and "information flows" (how IT communicates with the business).