The IT Operating Model Framework of the Future lays out a complete framework for defining an IT operating model that meets the needs of the modern enterprise.
When it comes to designing or transforming to a new IT operating model, there is a common misconception about the approach. Many focus primarily on updating the organizational structure and consider it a matter of rearranging names in boxes to match the newly defined line management structures.
But the truth is, enterprises should not start with the organizational chart when it comes to updating their operating model.
Instead, organizations should review, define and design the building blocks of their organization from a functional perspective. This allows you to build your organization around capabilities and value generation instead of people and hierarchies.
Enterprises should approach organizational change by taking a step back, gaining a new perspective and defining a functional model first. The organizational chart will follow.
Enterprises are often unsure of the best way to review and ultimately change their organizational setup. The three most common situations that trigger organizational change include ongoing transformative initiatives, lack of transparency and operating model assessment.
Ongoing Initiatives that Trigger Organizational Review or Update
A range of internal or external initiatives can trigger a review of and/or change to the organizational structure, including:
Technology transformation initiatives, such as cloud transformations that lead to different delivery models with regard to hosting and backbone services, and software-as-a-service delivery models that lead to a shift in roles required for delivery
New ways of working, e.g. scaled agile that leads to changes in responsibilities and decision-making authority within teams and management
Sourcing, shoring, carve-out or M&A initiatives that lead to changes in responsibilities and sizing of the organization
Lack of Transparency into the Organizational Structure
A change in (senior) leadership can prompt the need to better understand the current organizational setup. This is especially relevant for organizations that evolved over time – growing and changing for years or even decades. While the organizational structure may be well understood by a group of employees and managers, they are difficult to grasp when leadership roles move in and out of the organization.
When an Operating Model Assessment Prompts Change
During ISG’s Operating Model Assessment, we often discover a need to review the organizational structure. A high-level review at the early stages of an operating model assessment is beneficial, but immediately trying to implement changes to the organizational structure without prior functional breakdown of the operating model is not recommended.
Changes to the organizational structure are often required to drive value generation in IT. But it’s easy to go wrong. Watch out for these common mistakes:
Moving boxes in the org chart without validating their purpose and responsibilities as a result of leadership changes. This can lead to missed opportunities for consolidation and optimization of talent allocation in the organization. Similar outcomes can happen when role and department titles are simply updated and yet the org structure remains unchanged, as is often the case when introducing agile terminology. [ED4] [SW5]
Using an org chart to define functions, roles and responsibilities. Organizational charts are often modeled after business units or regions, depicting them as siloed entities. This bears the risk of not showing dependencies within the organization. For example, teams with cross-functional responsibilities can reach across different areas, but often the org chart fails to reflect these scenarios. These types of “shadow functions” are common in larger organizations, especially after consolidation through M&A.
Building an organization around people instead of roles and keeping responsibilities with existing leadership positions and hierarchies in the organization (sometimes even outside of IT).
Focusing on formal processes instead of outcomes. In our experience, when functional mandates are not clear in process optimization initiatives, enterprises experience a lower success rate for operating model implementation and acceptance.
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