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Information Technology practice

The Future of Corporate IT


How to Prepare for Five Radical Shifts
in IT Value, Ownership, and Role
Executive Summary
For more information about this research and to discuss the full set of findings,
please contact The Corporate Executive Board Company at 1-866-913-8101 or
EXBD_Support_Tech@executiveboard.com

2010 The Corporate Executive Board Company. All Rights Reserved.


This study may not be reproduced or redistributed without the expressed permission
of The Corporate Executive Board Company.

Executive Summary
The Corporate Executive Boards investigation into the five-year outlook for
corporate IT points to fundamental changes in how the function is organized
and managed. The IT function of 2015 will bear little resemblance to its
current state. Many activities will devolve to business units, be consolidated
with other central functions such as HR and Finance, or be externally sourced.
Fewer than 25% of employees currently within IT will remain, while CIOs face
the choice of expanding to lead a business shared service group, or seeing
their position shrink to managing technology delivery.
After interviewing and surveying hundreds of IT and business leaders, we
find that these changes are already underway. Many IT leaders are optimistic,
seeing changes as no more than the usual swings of the centralization
pendulum or a fad resulting from recent buzz around consumer technologies.
This study argues that the changes will be rapid, permanent, and radical. We
have advocated for a decade that IT leaders become demand shapers, not
order takers. Similarly, we now recommend that IT leaders devote the time,
energy, and resources to actively shape the coming transition.
Backdrop
Five years ago, less than 25% of business leaders rated their organizations
IT function effective at delivering the capabilities they needed. Today the
number hasnt changed. IT functions have strived tirelessly to understand
demand, set priorities, deliver effectively, and capture value, yet the results
still disappoint. Business and IT leaders alike feel they should be getting
moremore efficiency, more innovation, more valuefrom technology.
Unasked Questions
Among all the talk of engagement, alignment, and being part of the
business, one assumption is never challengedthat for information
technology to grow in strategic importance, so must the IT function. But
what if this is not the case? What if a dedicated, standalone IT function is no
longer the best option and the functions resources and responsibilities were
better located elsewhere?
To answer these questions we launched an exhaustive review of business,
social, and technology trends across the next five years, and interviewed
and surveyed hundreds of business and IT leaders. Our work revealed five
emerging shifts in IT value and role that make these questions necessary
and urgent.

Shift 1: Information Over Process


The rise of technology delivered as a service, or the cloud, will significantly
reduce sources of competitive advantage from information technology. In
theory, a start-up could use the cloud to obtain the same functionality, scale,
and quality as an industry leader. Differentiation will lie in how an organization
manages change, integrates its service portfolio, and critically, exploits the
information the services generate.
The nature of demand for information technology also is changing. Most
employees are now knowledge workers. Social media is becoming vital for
customer and internal communication, and data volumes continue to rise.
As a result, in the business areas that drive growthinnovation, marketing,
sales, customer serviceup to 80% of IT enablement opportunities relate
to business intelligence, collaboration, or the customer interface. At the heart
of each of these opportunities is the need to capture, integrate, and interpret
information, both structured and unstructured.
Shift 2: IT Embedded in Business Services
The corporate center is in flux. All corporate functions have the same
problems: their capabilities overlap; they do not control the outcomes
they enable; and after many cuts, they are struggling to find the next big
efficiency. And for organizations growing in emerging markets, no corporate
function has the scale or expertise to provide sufficient local support.
The IT function shares these problems. It has skills in strategy, program
management, business process design, and sourcing. All are valuable, but
none are needed solely for delivering technology, and so they can all exist
elsewhere. Second, no amount of alignment and partnership changes the fact
that the IT function enables business outcomes that someone else controls.
Much value has disappeared down the hole that this situation creates. Finally,
cost pressures mean many CIOs face the unwelcome choice of cutting
delivery resources needed to build things right, or management resources
that ensure IT builds the right things.
The need for efficiency and joint accountability for execution and outcome
will change the IT functions delivery model and organizational location.
Technology will be consumed as part of business services as the IT function
merges into a business shared services group alongside other corporate
functions.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

Executive Summary (continued)


Shift 3: Externalized Service Delivery
Externalization of applications development, infrastructure operations, and
back-office processes continues, gradually eroding the factory side of the IT
function. The pace will accelerate as the cloud enables the externalization of
up to 80% of application lifetime spend. As this occurs, internal roles will shift
from being technology providers to technology brokers.
Shift 4: Greater Business Partner Responsibility
Technologies for collaboration, business intelligence, and customer interface
all require experimentation and iteration, use non-linear, user-driven
workflows, and offer value from diversity across the organization. None of
this is easy for a central function to fulfill.
A generation of business leaders and end users is emerging with greater
technology knowledge and confidence. They see advanced, userfriendly technology as an everyday occurrence, and can recite stories of
companies gaining industry leadership through technology. At the same
time that business leaders expectations, and their ability to articulate
those expectations, are quickly rising, the cloud gives them access to
unprecedented technology scale and expertise. The fact that cloud services
cannot be extensively customized levels the playing field; business units
cannot customize cloud applications but neither can the IT function.

Organizations that do not make these shifts will be left behind as they
struggle to effectively exploit technology and manage an inefficient IT
function and an underperforming corporate center. For IT leaders too,
the shifts present risk and opportunity. Those who do not adapt face a much
diminished role in a group with little strategic impact. But the opportunity
is also significant. Leading a business shared services organization offers
new levels of resource and accountability for business outcomes. Another
option is a leadership role in a newly empowered business unit that thrives
on exploiting technology for competitive advantage.
This research is just the beginning of our work in this area. Across 2010,
we will help IT leaders navigate the five shifts. We will offer input into
strategic planning, provide readiness diagnostics, and publish tactics for
information and service management, new IT-business divisions of labor,
and agile development.

Together, these trends point to a greater role for business partners in areas
where the value of differentiation outweighs the need integration. This is not
a return to local control of IT resources, rather it is a shift in responsibility for
technology decision making.
Shift 5: Diminished Standalone IT Role
As IT roles migrate to business services, evolve into business roles, or are
externalized, the scope of the IT function will diminish and its headcount
fall by 75% or more. Strategy, architecture, risk, program management, user
support, and relationship management will exist at the business services level,
not within the IT function. The CIO position will expand to lead this broader
group or shrink to manage technology procurement and integration. Roles
remaining in the IT function will organize around build and run, and adopt
an agile operating model to allow rapid value delivery and resource mobility.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

There is no shortage of
analysis into the future
of corporate IT. However,
conventional wisdom
misses the impact of
external change and
tacitly assumes that the
basic shape and remit
of the IT function will
remain the same.

In response, this research


looks beyond technology
trends to understand
business, economic, and
workforce changes that will
affect how organizations use
information technology.
This research also explores
the future structure and
remit of the IT function
relative to other groups
within the organization. It
does not assume that the
growing importance of
technology to organizations
equates to a growing future
role for the IT function.

Which way forward?


Conventional Wisdom on the Future of Corporate IT

What Conventional Wisdom Misses

Technology on Demand

Which Business Changes Will Impact Corporate IT?

Greater externalization and the rise of the cloud


will reduce the IT functions in-house technology
delivery role.

Most analysts describe the impact of technology


trends but miss the impact of changes in the economy,
customers, or the workforce.

Increased Business Alignment

How Will Technology Create Business Value in Future?

The IT function must work ever more closely with


business partners to be effective.

There are many theories about how IT enablement will


create valuedata analytics and customer enablement
are often mentionedbut there is no consistent view.

A Strategist and Innovator

How Will Ownership and Accountability


for Information Management Change?

The IT function (and CIOs personally) must refocus on


business strategy, customer enablement, and business
innovation.

Most analysis ignores structural changes elsewhere


in the business that, in turn, will change the location
and ownership of many IT roles.

Wanted: Business Skills


IT staff will need business-centric skill sets and will
often have business backgrounds.
Tacit Assumption: The IT function will
remain a strong central function, led by a
CIO, and grow in importance, if not in size.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

The IT function is
asked to do many roles
that are difficult to do
simultaneously and
are often more closely
related to being central
than to being IT.

The IT function combines


operational roles with roles
related to business strategy
and consulting, despite the
different skills and incentives
required.
Key central IT roles, such as
program management and
business process design,
are not directly related to
technology. The ownership
of these roles by the IT
function has as much to
do with ITs position in
the corporate center as it
does with ITs technology
capabilities. Increasingly,
these roles are duplicated
elsewhere in the corporate
center.
Many of the IT functions
operational roles are being
externalized so thinking roles
will predominate.

Centrifugal Forces
Sources of Tension Between Roles Played by Corporate IT

IT

Think

Central

IT Strategy
Innovation
Enterprise
Architecture
Requirements
Definition

In addition to ITcentric
roles, the IT function
assumes a set of
central roles that have
no natural ownership.

Do

Software Development
and Maintenance
Infrastructure
Operations

Vendor Management

User Support

Business Process
Design
Information
Management
and Analytics

Many central roles


are now duplicated in
Finance, Procurement,
Supply Chain, and other
corporate functions.

Thinking and doing


roles require different
skills, incentives, and
business relationships.

Corporate Strategy

IT doing roles are


being externalized
faster than other
central doing roles.

Program Management

Change Management

Business Shared
Services
Procurement

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

Ten external trends


in IT demand and
supply will change
how organizations use
technology to create
value, and the roles,
structure, and skills of the
IT function.

Trends that are important


but will likely not significantly
change ITs value drivers,
structure, or skills include
green IT and greater
government intervention in
the economy.

Ten external Trends that will Change


Corporate IT
Demand-Side Changes
1. Rise of the Knowledge WorkerWidespread transaction automation and outsourcing, and the resulting
shift in retained skills, mean almost everyone is becoming a knowledge worker.
2. Ubiquitous DataThe rise of smart mobile devices and ubiquitous sensing will drive an exponential
increase in data volume and throughput.
3. Social MediaThe way customers and consumers learn about products and interact with companies is
changing fundamentally.
4. Emerging Market GrowthShifting global demand means emerging markets will be main source of growth,
eventually reaching the scale of developed markets.
5. Efficiency ShortfallsThe corporate center (IT, Finance, HR, Supply Chain, Procurement, etc.) is reaching
the limits of efficiency in its current functionally oriented form.
6. Tech-Savvy WorkforceTechnology knowledge and confidence in the workforce is broadening but losing its
depth (more employees understand how to exploit technology, fewer have a deep technical expertise).

Supply-Side Changes
7. Technology as a ServiceInfrastructure and applications are increasingly available as virtualized,
configurable, and scalable services in the cloud, or will to adopt licensing structures that mimic a service.
8. The Industrialized, Externalized Back OfficeIndustry standards will emerge for back-office business
processes that are then delivered by external providers.
9. A Blueprint for Service DeliveryITILv3 provides a pathway to reorienting IT around service delivery.
10. Desktop TransformationA convergence of virtualization, SaaS, and unified communications combined with
greater workforce mobility is triggering a transformation of the desktop that will enable device-agnostic
service delivery.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

the future of corporate it


Five Radical Shifts in IT Value, Ownership, and Role

Current State

The Future of Corporate IT

1. Value Drivers

Business Process FirstBusiness process automation


absorbs the largest share of IT investment. Business
process design is used to define future capabilities
and drive competitive advantage.

Information Over ProcessCompetitive advantage from


information technology will shift toward customer experience,
data analytics, and knowledge worker enablement;
consequently, information management skills will rise in
importance relative to business process design.

2. Delivery Structure

IT as a Service ProviderApplications and infrastructure


are bundled into services that directly reflect business
partner technology consumption. The IT function is
increasingly centralized as a standalone shared service.

IT Embedded in Business ServicesCentrally provided


applications and infrastructure will be embedded in business
services and delivered by a business shared services
organization.

3. Sourcing Model

Right-Sourced ITDelivery combines external provision


with significant internal resources as vendors are
uncompetitive for many critical tasks.

Externalized Service DeliveryDelivery will be predominantly


externalized as vendors expand service provision and internal
resources become brokers not providers.

4. Business Role

Pressure for Central ControlLiaison and governance


guide business units and end users away from obtaining
their own IT capabilities.

Greater Business Partner ResponsibilityBusiness unit


leaders and end users will play a greater role in obtaining and
managing technology for themselves where differentiation
has more value than standardization.

5. IT Function Role

Fully Functional IT FunctionThe scope of central IT


function encompasses strategy, governance, and delivery
with direct control of almost all ITrelated resources and
activities vested in the CIO.

Diminished Standalone IT RoleIT roles will embed


in business services, evolve into business roles, or be
externalized. Remaining IT roles will be housed in a business
shared service group. The CIO position will expand to lead this
group or shrink to manage IT procurement and integration.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

The Future of Corporate IT


Five Radical Shifts in IT Value, Ownership, and Role
Value
Low

1. Information Over Process

Competitive advantage from information


technology shifts toward customer experience,
data analytics, and knowledge worker
enablement; consequently, information
management skills will rise in importance relative
to business process design.

2. IT Embedded in Business Services

Centrally provided applications and infrastructure


will be embedded in business services and
delivered by a business shared services
organization.

3. Externalized Service Delivery

Delivery will be predominantly externalized as


vendors expand service provision and internal
resources become brokers not providers.

4. Greater Business Partner Responsibility


Business unit leaders and end users will play
a greater role in obtaining and managing
technology for themselves where differentiation
has more value than standardization.

Risk
High

Low

High

The IT Function Focuses on Enhancing End-to-End Customer Experience


The IT Function Focuses on Boosting Knowledge Worker Productivity
The IT Function Focuses on Delivering Information Analytics Capability
Information Technology Converges with Production Technology

Information Technology Is Delivered as a Service


The Central IT Function Becomes Part of Business Shared Services

Most of the Infrastructure Portfolio Will Migrate to the Cloud


Back-Office Business Processes Will Become Entirely Commoditized
and Outsourced

Business Units Plan and Procure Their Own Technology


End Users Acquire Their Own Collaboration and Knowledge Sharing Tools
End Users Provision Their Own End-Point Devices

The Infrastructure Group Focuses on Contract and Vendor Management

5. Diminished Standalone IT Role

IT roles will embed in business services, evolve


into business roles, or be externalized. Remaining
IT roles will be housed in a business shared
service group. The CIO position will expand
to lead this group or shrink to manage IT
procurement and integration.

Security Moves Away from Securing Physical Devices


Project Management and Business Analyst Roles Move to BUs
The Applications Group Shrinks to Legacy Maintenance
All Technologists Move Outside the Organization

n = 127 IT leaders.
2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

The majority of IT
enablement opportunities
in innovation, sales and
marketing, and customer
service do not involve
traditional process
automation.

Information Over Process


Breakdown of IT Enablement Opportunities by Business Process

9%

15%

18%

27%

Analysis of 550 level


three and four processes
determines whether and how
each process could be IT
enabled.
Overall, almost half the
opportunities do not involve
process automation. In
innovation, marketing and
sales, and customer service
processes, enablement
opportunities are mainly at
the customer interface or
using business intelligence
and collaboration.

13%

12%
14%

14%

28%

16%

20%

34%

30%

4%

11%
3%

13%
46%

13%

54%

3%
28%

Finance
and HR

44%

Production
and Supply
Chain

None

Customer Interface

Collaboration

Process Automation

18%

Customer
Service

Business Intelligence

Marketing
and Sales

13%
Product/
Service
Innovation

In customer service, marketing and sales, and


innovation, more than half the opportunities for
IT enablement are at the customer interface or
involve business intelligence or collaboration.

Source: Analysis based on APQC Process Classification Framework v5.0.

Note: May not equal 100% due to rounding.


information technology practice
2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

The business shared


services group subsumes
many IT activities within
business services, or
in overarching service
strategy and service
architecture groups. A
smaller, more operational
IT function remains within
the business service
group.

IT Embedded in Business Services

1. IT strategy,
architecture,
and risk are
owned by
groups under
the head
of business
services.

Business Service Strategy and Portfolio Management


Service Architecture (Business, Information, and Integration)
Risk Management and Security
Group IT

Remaining internal IT
resources are organized into
groups for build and run.

2. Services
requiring
business
knowledge
to realize
value are
managed
outside IT.
3.
Technology
services are
managed by
functionally
aligned IT
resources.

Integrate

Test

Manage external
run and maintain

Retire

6. Business
service managers
define their IT
requirements and
work directly with
external providers.

Finance

Business Services

PMO and Change Mgmt. Service

Business Analytics Service

Sourcing and Contracting Service

Communication/Collaboration Service

Connectivity and Hosting Service

Business
Units
Help Desk

IT development and
operations are externalized
to outsourcers or the cloud.

Design/procure
applications and
technology

HR

Account Managers

Account management and


help desk are shared across
all business services, not just
IT.

Supply
Chain

5. Account
managers and
help desk are
shared by all
business services.

Integration Layer
and Standards

4. External providers
deliver commoditized
business processes
and technologies.

External Service Providers (IT/Business Process Outsourcers and Cloud)

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2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

10

Greater business leader


responsibility does not
entail a swing of the
pendulum back to local
or rogue IT functions.

It is a shift in responsibility
from the IT function to
business partners, not a shift
in resource from central to
local.

Greater Business Partner Responsibility

What Greater Business Responsibility


Entails

What Greater Business Responsibility


Does Not Entail
Rogue Local IT StaffNo local, rogue
IT groups of dedicated IT headcount.

+ Business-Led Opportunity
IdentificationBusiness leaders are
responsible for identifying technology
enablement opportunities and defining
needs.
+



Servers Under the DeskNo


business unitowned, on-premise
application or technology portfolios.

Business Responsibility for Processes,


Programs, and ChangeBusiness
process design, project management,
and change management become
business roles.

+ Selective Business-Owned
Technology SourcingBusiness
leaders can obtain IT capabilities
directly from the cloud when the
value of differentiation outweighs
standardization.

Unintegrated DataNo relaxation of


central information and integration
standards when the value of
integration outweighs differentiation.

Security RiskNo relaxation of


central security policy where business
unit actions create organizationwide risk.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

11

Headcount in standalone
IT roles will likely
shrink to 25% or less of
current totals by 2015 in
organizations where the
five shifts have taken full
effect.

In many cases, the number


of staff in standalone IT roles
will be less than those with
responsibilities related to
technology in the business
shared services group.

Diminished Standalone IT Role


Estimated Reallocation of IT Headcount at Progressive Organizations by 2015
As a Percentage of Total Central IT Headcount in 2010

4575%
20%
External

25%
80%
Internal

1325%

1025%

Central IT
Function in 2010

Externalized

Business Units

Business Shared
Services Groups

Indispensible IT

Source: Analysis based on CIO Executive Board 2009 IT Budget Benchmark.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

12

Five short-term actions


and investments pave the
way for the five shifts.

Way Stations
Key Intermediate Steps Toward the Five Shifts

1. Information ArchitectureReemphasizing information architecture and data management


creates a foundation for future investment in business intelligence and collaboration.
2. ITIL v3The development of management processes, structures, and metrics for
technology services paves the way for subsequent moves to business services. This can
be done through selective adoption of ITIL v3 or by defining a similar model internally.
3. Private CloudsVirtualized internal infrastructure allows organizations to gain shorterterm scale advantages and prepare for eventual migration to the public cloud.
4. New ITBusiness Divisions of LaborEmerging capabilities for business architecture and
program management readies business units for greater responsibility.
5. Agile DevelopmentGreater use of agile development concepts (formally or informally)
allows greater rapid service enhancement and mobility for remaining internal IT resources.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

13

The Corporate Executive


Boards Information
Technology Practice can
help you to exploit the
trends explored in this
research.

For more information on any


of the resources described
on this page contact your
account manager or the
Member Support Center at
+1-866-913-8101 or EXBD_
Support@executiveboard.
com.

How to Use The Research


Uses for the Research

Which Volumes
to Look At

How We Can Help

1. Update Your IT Strategic Plan


Use The Future of Corporate IT to refresh
your three- to five-year strategy for IT
value delivery.

All

Initiate a Strategic Planning Engagement


with the CIO Executive Board or have
us lead a discussion on The Future of
Corporate IT findings at your strategy
off-site.

2. Broaden the IT Organizational Design


Conversation
Initiate conversations with company
leadership on the future role and
structure of IT and ITs relationship
to other corporate functions.

Volumes 2, 4, 5

Benefit from CEBs cross-functional


reach to keep up-to-date on parallel
organizational changes in other
corporate functions through our work
on the Business Agenda for IT.

3. Pressure-Test Your Sourcing Model


Ensure your sourcing strategy is ready
for greater externalization and a move
by providers to the cloud.

Volumes 3, 5

Use the Emerging Technologies Roadmap


from the Infrastructure Executive Council
to get real-world data on adoption rates
and risk assessments for new technologies
and sourcing models.

4. Clarify IT Staff Career Paths


Accelerate development and boost
engagement by giving IT staff clear
direction on the direction of the function
and the skills they need to succeed.

Volumes 2, 5

Provide your team with targeted training


on the skills they will need most with our
online training modules and IT Business
Leadership Academy.

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2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

14

We would like to thank


the IT and business
leaders who helped
guide our work through
interviews and survey
responses.

With Sincere Thanks


Partial List of Participating Organizations

The ideas and opinions


contained in this research
are those of The Corporate
Executive Board and do not
necessarily reflect the views
of the organizations listed
here.

information technology practice


2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

15

The research used an


outside-in approach that
starts by determining
business, social, and
technology trends
that will affect how
organizations use and
manage information
technology, before
developing hypotheses
on how the IT function
itself might change.

The research also relied on


input from IT and business
leaders, both through oneon-one interviews and online
surveys.

AppendixA Business-Driven Methodology


The Future of Corporate IT Research Process 2009/2010

1. Identify Business, Social,


and Technology Trends

Review academic and general


business literature and data on
business, economic, and social
trends with a three- to fiveyear horizon.
Review Corporate Executive
Board research into future
of Finance, Shared Services,
Sales, Marketing, etc.

2. Hypothesize Implications
for Corporate IT

Review analyst, consultant,


and trade press analysis of the
future of the IT function and
technology.
Interview 40 CIOs and other
IT leaders on changes in ITs
value drivers, ownership, and
role.

3. Test and Validate

Conduct online survey to test


hypotheses with 127 IT leaders
and 58 business leaders
globally.
Convene small group of
leading CIOs for direct
discussion feedback.

Interview 20 business unit


general managers and heads
of Sales, Finance, Procurement,
and HR.

Output: List of Ten External


Trends That Will Change
Corporate IT

Output: Hypotheses on changes


in IT value drivers, ownership,
and role over three to five years

Output: The Future of Corporate


IT study

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2010 The Corporate Executive Board Company.
All Rights Reserved.CIO5847710SYN

16