The Rise of Shadow IT

How to Manufacture Competitive Advantage

IT must evolve its focus from pushing projects to engaging customers via process in order to become an internal outsourcer. IT needs to create an inventory of compatible services knowledge workers can assemble as and when they choose within guidelines established by the business and IT.

IT needs to shift from telling the business what to do, to helping the business choose, implement, and use their solutions the right way. How will traditional IT respond to Wikis and blogs as corporate IT tools of the future? The same way they treated Internet access and IM? Or will IT take its queue from the knowledge-worker?

The answers to these questions are completely under the control of senior executive management.

From a strategic point of view, IT must adopt processes and practices for the right strategic reasons. Along with the change in management philosophy toward increased business responsibility for IT consumption, the IT organization must also change.

A sound model for the future of IT may be found in manufacturing—when organizational structure aligns with production and consumption the result is competitive advantage.

A survey report on the future of manufacturing by Deloitte & Touche reads as if written instead to describe the future of IT. The report states: “To satisfy customers, manufacturers will require a fundamental shift in executive mindsets and organizational cultures.

Manufacturers must eliminate traditional boundaries between customers and integrate more closely with them. This means partnering with customers and emphasizing the co-ordination of research and development (R&D), marketing and manufacturing.

Successful manufacturers will integrate the customer into the fabric of their organization … top performers are proactively changing the rules of competition to their advantage, and to their rivals’ disadvantage.”

IT can learn a lot from manufacturing—they have mastered the sourcing debate, dramatically improved product quality while simultaneously reducing costs in the face of a rapidly changing markets, and have overcome the issues of aligning customer need with production quality to deliver competitive advantage.

These mirror the aspirations virtually every senior leader holds for IT.

So what do manufacturing companies have that corporate IT does not? The answer is maturity. Manufacturing is so pervasive there are branches of economic science dedicated to it. Answers to questions on sourcing, optimum organizational structure, and achieving and sustaining competitive advantage lie in the economic theories and best-practices surrounding manufacturing.

Examining how manufacturing companies evolved and organized to solve problems in pursuit of competitive advantage provides a roadmap to attaining the same from commoditized IT.

Consider hardware manufacturer Dell. Dell transformed how their consumers acquire products by removing barriers and incorporating consumers into their manufacturing process by letting them design their own unique solutions based on a series of interchangeable parts, options and accessories around a core product set.

According to structural dependency theory, there is no one best organizational structure for all companies. However, in 2005 Forrester Research reported that the traditional IT organizational structure supported vertical business units and siloed applications with roles, responsibilities, skills, and budgets driven around project-oriented activities.

This vertical technology-driven structure of most IT organizations is a legacy of the days before IT commoditization and the subsequent dependence of business upon IT, and its one-size-fits-all structure erects a number of barriers which prevent it from working effectively with the business to realize competitive advantage.

Structural dependency theory suggests the best structure is unique to the needs of the organization and that companies perform best when organizational structure aligns with their unique contingencies such as cost, regulation, and marketplace. This is especially true for commoditized IT.