Taking IT reorgs to the extreme

IT departments are constantly reorganizing, but a few companies have gone so far as to break the traditional IT department into pieces

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Credit: Jeffrey Green

Get ready for the disappearing IT department. Companies including Zappos, GameStop, Aetna and AccuWeather have restructured IT, sometimes radically, to respond to some harsh economic and technologic forces bearing down on CIOs.

Zappos, which has been called "one of the most blissed-out businesses in America," is exploding its entire hierarchy to replace it with what might be the equivalent of a corporate commune. The company spent 2014 reinventing itself as a holacracy, embracing an organizing principle akin to democracy--including a 31-page constitution.

Spontaneity and distributed power are hallmarks of holacracy, where people work in groups, or circles, according to their enthusiasms. The circles are rearranged as new projects emerge or colleagues choose to pursue something else. Employees take suggestions, not orders. Decision-making is pushed down, often to the lowest rungs (if there were rungs). Former managers become "lead links" who offer coaching but don't approve or reject ideas.

"It's a radical approach, and we're passionate about trying it," says Brent Cromley, CTO at Zappos. "We want everyone thinking about how we can improve things, not just a select few at a time or a group set aside to do innovation."

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Zappos reorganized into a holacracy, which emphasizes spontaneity and distributed power. "It's a radical approach and we're passionate about trying it," says CTO Brent Cromley.

Traditional org charts show lines and boxes, but a holacracy has clots of circles meant to merge and divide like amoeba under a microscope.

Not every revamp goes to the Zappos extreme but some CIOs are feeling pressure to change the IT group amid new business realities. Marketing chiefs and other non-IT executives now encroach, or want to encroach, on technology decisions. Tech is changing faster than ever, while financial slumps and internal bureaucracy can inhibit quick response. And customers won't wait. Walt Disney Parks and Resorts reorganized its global IT operation in October, aiming to double the share of technologists working on innovation from 30 percent to more than 60 percent. General Electric has formed agile and sometimes self-governing teams. Other CIOs have abolished IT groups focused on technologies, such as email or the data center, and have reorganized to target business goals, such as customer acquisition or globalization, says Andrew Horne, a managing director at the Corporate Executive Board.

Companies are struggling to transform into digital versions of themselves, often with no clear idea of what they will look like at the end. The IT group, Horne says, must be ready for anything.

"We see companies trying to create a structure that is flexible enough to be able to succeed regardless of the type of demand for technology, the type of economy or the direction the company goes," he says.

Done well, a dramatic overhaul can make IT responsive to the unknown. Done poorly, you fertilize staff resentment about too much change or dead-end jobs on legacy systems. There are no best practices for the bleeding edge. Just a few intrepid CIOs.

Born to Change

As soon as corporate IT was born six decades ago, someone no doubt wanted to change it. We've seen the pendulum swing from centralized to decentralized and back. Invisible backroom mechanics became service providers, who became business partners.

What's different today is the degree of uncertainty about what the IT group is if virtually all companies are now built, top to bottom, on technology. CIOs themselves are divided about their own futures. In our 2015 State of the CIO survey, 49 percent of 558 IT leaders said they're destined to become managers of contractors and cloud vendors--hardly strategic. Indeed, sometimes old ideas and established leaders don't cut it. RSA Insurance Group in London cleaned house last year, replacing several senior executives, including all IT leaders and the CIO.

RSA also created the position of chief digital officer as it tries to move to "more disciplined and effective use of technology."

At Aetna, a move to explore ways of generating new revenue led the health insurer to spin out a new business unit, with its own IT organization, in 2011. The unit, rebranded as Healthagen in 2013, includes technology and health companies Aetna had acquired, and it offers new services based on data analytics. Hospitals, physicians and employers buy software and data products from Healthagen, essentially making it a vendor, says Brian Garcia, CTO of the unit. It could offer an alternative career path for Aetna's IT professionals--Garcia used to be Aetna's chief architect for software.

Race for Creativity

Innovation--the desire to nurture it, the fear of it fizzling--is a prime driver of big IT reorganizations. But finding the best IT structure for promoting innovation is a problem that continues to vex CIOs. Seventy-four percent of the respondents to our State of the CIO survey said it's challenging to find the right balance between business innovation and operational excellence.

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