For many IT execs, the term centralization is a relic of the 1970s, eliciting memories of skyrocketing gas prices, VW Beetles and Donald Rumsfeld. Like all those timepieces, centralization is back. But it’s not your father’s centralized IT organization?this time it has a chance to succeed.

Centralization in the 1970s and early 1980s involved monolithic IT organizations built around a mainframe that served the entire enterprise. Because IT staffers were set apart from the business units, they were usually out of touch with users who saw them?often accurately?as unresponsive and irrelevant. In the late 1980s, with the rise of distributed computing environments, IT departments also became distributed, with IT employees organized to support specific business units at different geographic locations.

Today there are two new breeds of centralization. The first involves organizing IT employees into groups that support specific business processes for the entire enterprise, such as supply chain management or marketing. While that strategy sounds more dispersed than centralized, it dictates that a single IT organization provide services for the entire company, regardless of business unit or location.

The second breed organizes information technology employees by skill set and assigns them to project teams that break up when the projects conclude.

Companies are centralizing now because it is more cost-effective than having a distributed environment; it allows them to create consistent technology standards across the enterprise; and it cuts down on "reinventions of the wheel" that occur when separate business units devise identical solutions to the same problems.

But doing it and doing it right are two different things. Centralization can be a disaster if CIOs don’t address cultural issues and if they don’t have processes in place to determine funding and staffing priorities across business units. (For another take on IT organizational models, see "Let’s Get Organized!".)

The Cult of Functionality

Rather than assign IT workers to handle tasks such as supply chain management, procurement and distribution for one particular unit, companies that are centralizing IT operations by business process are assigning each worker to support one process for the enterprise as a whole.

CIO Jon Ricker is doing just that at Columbus, Ohio-based Limited Technology Services (LTS), a subsidiary of The Limited that supports the company’s retail businesses, including Bath & Body Works, Express, The Limited, Victoria’s Secret and White Barn Candle Co. Previously, each of these brands had its own IT organization. But as the company centralized more of its operations, making The Limited a hub for its other brands, IT followed suit, first implementing a centralized model to handle Y2K issues. Ricker kept the structure in place for future IT projects.