Digital transformation’s impact on IT shared services

Enterprises realized value in IT shared services organizations for the past three decades. Over the past two years, I’ve delved into the nuances of capturing the promise of digital transformation. As I think about the impact of digital transformation on shared services, it becomes clear that shared services are in for substantial changes.  

I blogged before about SaaS and SaaS-like products driving the collapse of the IT technology stack (server, operating system, middleware, applications, etc.). For those of you who have not read or can’t remember what I wrote, the following is a quick recap. Much of the innovation in technology over the last few years has been aimed at integrating and automating the IT stack. For example, SaaS combines the infrastructure middle layer of the database and applications layer into a single consumable product. In doing this, it automates and integrates many otherwise automatous components, resulting in lower TCO and tighter alignment with business functions. It may be less clear that this same collapsing IT stack will inevitably set in motion other significant changes in both the enterprise IT organization and it business model.

Enterprises created IT shared services organizations to centralize IT functions, professionalize services and sell high-quality services back to the enterprise at lower prices. The concept worked well improving the reliability and performance of IT, lowering unit cost of IT components and creating a professional team of technology experts for the wider organization to rely on. These enterprise IT functions naturally aligned around the technologies they supported broadly organized by infrastructure, middle ware, application maintained, application development, security, project management and so forth. Each functional team organizes around creating high quality functional services which are then resold to the broader organization. All of this makes a great deal of sense until we consider the collapsing stack which now integrates and automates much of what the functional teams currently do.

As the technology stack collapses, it challenges the organizational structure and operating assumptions upon which enterprise IT was built. As I examine these inevitable changes, I find the future of shared services will be very different than the functionally aligned organizations that currently dominate the space. I expect IT shared services will align their organizations to the new collapsed stack realities, enabling much better alignment with business needs and supporting the move into agile operations while delivering a significantly lower TCO to the business.

Maintaining the functional organization undercuts the power of the integrated and automated stack. Finally, the imperative for enterprise IT is to create more business value and do it at the speed of business.

All this suggests that an IT organization aligned with business need would be far more effective if it were structured on the same basis as the now collapsed stack.

The new enterprise IT service model will take full advantage of the collapsed stack and develop road maps to accelerate the collapse by buying technology that is already collapsed. Think of a PaaS or SaaS product collapsing its own stack through automation and integration (such as Thinkpuppet, ServiceNow, Robotic Process Automation). At the same time, I expect they will deconstruct the functional organizations, replacing them with end-to-end, persistent journey teams aligned against objectives that are important to the business.

This deconstruction will recast the IT shared services away from a factory model that provides low-cost IT units into one of a business partner driving organizational goals at speed. The new digital models will focus on providing highly automated services that are heavily integrated into the daily business to enable addressing business needs faster. It isn’t that enterprises no longer value high-quality, low-cost IT. But they want it in a services structure, not in a functional construct. Focusing on customer needs and experiences is now more important than focusing on cost and reliability.

Why is it important to realize this change? Because IT shared services cannot deliver on the promise of digital: far more flexibility, tight alignment with the business, close to functionality on demand and focusing on the business impact of technology. These are the enterprise expectations today, and any construct that doesn’t deliver these outcomes is no longer effective in delivering new value. It’s a hard truth, but we’re seeing that digital transformation is leading to the death of IT shared services and enterprise IT as we know it.