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Issue of March 2006 

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Re-Drafting IT & the ITO

The ITO gears up for the future

Evolving business needs such as corporate and IT governance are transforming the role of the ITO into that of a service provider. Kumar Dawada reports

Initially, the role of an IT organisation (ITO) was restricted to hardware and systems management. But today, companies are totally IT-dependent and hence the importance of an ITO has grown.

Evolution of the CIO and ITO

Contemporary CIOs are proactively helping business growth. Their job is to improve customer relationships, increase the organisation’s competitiveness and raise overall efficiency, along with IT management. “Today’s CIOs are on par with CFOs and CMOs and report to CEOs directly,” says Amitabh Satyam, Country Head, Mobi Apps.

So how can an IT person be good at managing business? This is a question which is being raised infrequently these days. As Anil Khopkar, GM, MIS, Bajaj Auto says, IT has become more business-focused as it is composed of functional people and the senior management. The IT team’s main job has changed to that of understanding the environment in which business leaders operate and function. “The role of IT is to make business leaders successful rather than show how technologically superior IT is. As long as IT can make the marketing or manufacturing VP successful, IT itself is successful,” says Vikas Gadre, CIO, Rallis.

CIOs are now involved in the company’s long-term strategy and major policy decisions. These days they spend more time in relationship-building and expectations-management rather than hard-core technology. In the near future, the ITO will evolve into business teams and manage service levels to ensure expected business outcomes

CIOs are now involved in the company’s long-term strategy and major policy decisions. These days they spend more time in relationship-building and expectations-management rather than hard-core technology. In the near future, the ITO will evolve into business teams and manage service levels to ensure expected business outcomes. “They will contribute more in managing IT business processes and compliance-related operational risk, and less to managing hardware, software and applications,” predicts Captain Felix Mohan, Director, SecureSynergy.

Emergence Of Corporate And IT Governance

The need for corporate governance has created increasing transparency and integrity of financial reporting. It has become critical for IT to adopt well-defined, mature and repeatable procedures. “Compliance requirements have extended IT’s role into operational risk management, for which it has to work hand-in-glove with financial, legal and business operations,” says Mohan.

To ensure that IT is aligned to business needs, CIOs are taking the help of IT governance frameworks. IT governance aligns IT with business objectives, manages IT risks and controls IT performance. Implementing IT governance and making IT policy from scratch is difficult. “It is better to choose from a framework what is relevant, what can be implemented at present and how much later,” says Khopkar.

IT governance defines the acceptable use of IT resources and assets of the company. So having a compliance framework in place does not necessarily make the job of a CIO more difficult. “It actually frees the CIO to do better things which creates stakeholder value,” says Gadre.

COBIT and IT governance structure have helped create a very well defined policy framework. However they are guidelines and not actionable blueprints. “It cannot be taken and implemented directly. The organisation has to modify it to suit its needs,” adds Gadre.

Getting More With Less

Extracting business value is the primary objective of the CIO whether the business of an organisation is on growth, sustenance or survival path. “If it is on the survival path then extracting maximum value of current ITs asset is mandatory,” says Gadre.

No matter how efficient the ITO, declining budgets and rising responsibilities require them to do ‘more with less’. “It can be done by outsourcing IT technical operations, vendor contract negotiation, systems and process standardisation, technology retirement, tiered pricing, service levels, enterprise architecture, automated tools, SOA, and integrating and reusing IT resources,” outlines Mohan.

Getting more for less also applies to manpower. How much value can be extracted from existing IT staff is crucial. It is difficult to retain talent. In manufacturing companies, the salary structure of IT staff is in tune with the company salary structure and not with what the market offers to IT staff. The IT staff can get a job with better salary elsewhere. “The operating cost in terms of salary is high, but the cost incurred when a person leaves is higher. It may result in lack of service or inefficient service, both detrimental to the organisation. We have no choice but to go for outsourcing,” reveals Gadre.

Why Outsource?

When implemented properly, outsourcing of non-core IT functions can result in significant cost savings and risk mitigation. “It helps achieve standardisation, replace legacy capabilities with state-of-the-art technologies, free up internal resources, and provides competitive advantage by facilitating focus on core capability,” says Mohan.

For non-IT companies it makes better sense to outsource critical routine work, which requires a minimum uptime at all times. “Only the strategic and core capabilities which create business value are retained in-house,” explains Gadre.

Outsourcing’s Twin Side

Outsourcing depends on a proper service level agreement (SLA) and statement of work (SOW). “Your expectation and delivery of service must match. It is necessary to have a well-defined SLA and SOW. Identify and rectify the inefficiencies because if they are not clear there is dissatisfaction,” says Khopkar.

The improvement in cost, operations and business performance through outsourcing can be obtained only if outsourcing goals align with business goals, outsourcing SLAs are well defined and contracts managed properly. Though outsourcing adds value by best practices, it is a double-edged sword as it has manpower problems. “Its competent staff too may go elsewhere so the providers need to have a good knowledge mechanism and sharing of best practices to deliver consistent performance,” says Gadre.

The COBIT Framework
COBIT is an IT governance framework that helps organisations gain competitive advantage by bridging the gap between IT and overall business objectives. It has four main sections—the executive overview, framework, core content and appendices. The core content is divided according to 34 IT processes. Each process is covered in four sections such as high-level control objective for the process, detailed control objectives for the process, management guidelines and maturity model for the process. COBIT’s controls toolset provides means to implement an effective feedback-driven process to manage IT risk and meet regulatory compliance demands. It supports the overall business objectives by improving IT systems.

At present COBIT has become the focus of interest due to Clause 49. The CEO and CFO have to give a personal declaration and there is heavy penalty in terms of imprisonment if they are not up to the mark. “Now not only the organisation, the business leaders too are dependent on IT initiatives, which are the CIO’s domain,” reveals Vikas Gadre, CIO, Rallis.

Specialisation Moves In

Vikas Gadre

Having a separate team to manage specialised functions brings accountability, focus and core competency. There is a need to identify and compartmentalise the pain points faced by an organisation.

Hence, many of these are choosing dedicated teams for specialised functions like security and compliance. The role of IT is limited to resolving pain points, so specialisation in that function is a necessity. “Specialisation is happening in IT governance, storage and security. They are all so vast that it is difficult to find a know-it-all person who can manage everything,” observes Gadre.

Anil Khopkar

Since the functions of specialised teams cover not only IT but also other business processes, the question is, whom should they report to—the CIO or CEO? “From the business point of view, they are responsible to functional heads. But from a project point of view they are responsible to the CIO,” says Khopkar.

The contemporary CEO wants to limit his controls because he has to take care of functions like finance, marketing, sales and procurement. Many CEOs insist that only internal audit and quality report to him directly because they are the watchdog departments. “The CIO is responsible for lapses in security, BI and IT governance. So it makes more sense for specialised teams to report to him,” says Gadre.

IT Turns Provider

As more companies gear up to provide better service, IT is also adapting its role to that of a service provider. The traditional ITO, structured around functions like network, server and applications, is making way for a new structure.

The movement towards service management is creating functions and roles based on relationship management, customer and vendor, governance and security, ownership and management of processes, process control and quality. “We are all becoming CSOs (Chief Sourcing Officers). This is because contracting provides service rather than development,” says Khopkar.

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