Saturday, August 16, 2008

Service Organizations and the Pyramid

Most corporations larger than a few hundred people grow pieces of the organization that serve other parts of the corporation instead of their primary customer. This approach is so common-place, that author Max Barry was able to use it as a backdrop to his plot in his third book, Company. This book takes things to the extreme and the hero of the book finds the company he works for actually has no external customers, each department is just selling their services to other departments within the same company.

I have worked in a few companies as they have gone through growing pains of building shared service organizations. I have spoken with friends from other companies who have had similar experiences. I think of the desired and actual outcomes of a shared services organization as a pyramid.

Pyramid: For the purposes of this example, we will limit our discussion to corporate IT. In that case, the narrowest point of the pyramid is the group that works directly with the business group they support. In the case of the manufacturing & supply chain, these are the IT people who sit with the business, understand the business and deliver solutions to the business. The next layer down in the pyramid is the group that liaisons between the business facing IT and the most specific shared services. In our example, this may be the group that specializes in business processes and architecture for manufacturing and supply chain. The next layer down will be the group that liaisons between them and groups like DBAs and Network engineers. So, overall, the pyramid is narrowest where the IT has direct interaction and impact on the business and is broadest where that shared service group is used by all divisions in the organization.

Desired Outcome in Pyramid form: The desired outcome is that the pyramid be narrow point up. The higher levels (towards the tip) have increasing ability to make judgement calls and decisions based on business need. All of the layers support and deliver through the Business Facing IT. The shared service groups exist to support the project teams that are delivering direct business value. The work comes out of the "top" of the pyramid - in this case, the business facing teams, who ensure that the value / dollar is maximized for their clients.

Typical Outcome in Pyramid form: The usual outcome is an inverted pyramid with the narrow point down. The actual behavior seems to turn to protecting and limiting asset use. In this case, the higher levels (at the thickest end) have the remit to make all of the decisions and thus the shared services are in a position to say "no" and "you have to prove to me you need this". Instead of supporting the business facing IT, this common form of shared service, becomes a bottle neck and a roadblock to real business impact. The work comes out of the "top" of the pyramid - in this case, the shared service teams, who ensure that their assets are protected, their Q.A. is satisfied and their financials are in order. This is usually a very expensive proposition and tends to rarely deliver real business value.

Example: A colleague of mine went to a seminar. His leadership team asked the organization what was the one thing they could do to help them all be more successful. My friend stood and asked for a very short, no nonsense objective for IT like, "We help make our scientists smarter." Bold, yes, but that was the point he said. One of the senior management said that they already have a few of those objectives. He said "they are 'Build repeatable solutions' and 'Use shared services'". My friend sat down and was not surprised, but was disappointed. He said he knew then, that with an upside-down pyramid as heavy as theirs, that many important business facing initiatives and high value projects would be crushed by the weight of the generic, one size fits all shared service.

Moral: If you want to know what kind of IT organization you work in, ask your senior most IT management what the objectives of the IT organization are. If these objectives are simple and short and detail specific business value then congratulations. If the IT objectives are generic and could apply to IT organizations in NASA, just as easily as they could apply to Amazon or Gartner, then your pyramid is upside down.


John Duncan said...

Very nice. Good read first thing on a Sunday morning. Makes me wish it was Monday and I was heading in to work :)

jeff said...

I like your pyramid but find the conclusion perplexing. It would seem to me that 'shared service centers' would focus on delivering excellence around a shared capability - while, those who use the center would focus on the specific business value propositions. What am I missing?

Dan Ackerson said...

I'm currently in the middle of reorganizing such a company and wholeheartedly agree with your conclusions. Service oriented organizations seem to care more about making their own department indispensable rather than delivering customer value.

I've written a few articles on the dangers of this but probably the closest on-topic one is focusing on creating small teams comprised of individuals out these "old school" departments.

After a month or two of really getting things done, the team members themselves become disenfranchised with their departments and begin pulling together to change the company from the bottom up. Fascinating stuff!