Five years ago, “shadow IT” efforts were the dirty little secret of organizations. An impatient marketing or finance manager would, on the sly, secure some extra budget money and hire a contractor to build a little database that tracked mailing addresses or top-line financials. Slowly but surely, as the little database grew bigger and bigger, the manager would wedge the cost into her operating budget. Other managers might take notice and started building their own databases. Then came the cloud, which only heightened frustration with IT’s lack of velocity in delivery, and managers flocked to outside vendors to automate various business processes, from customer relationship management to supply chain reporting to social media analytics.

Now Shadow IT has burst out of the closet and is waltzing around the corporation, leaving IT departments rushing to do damage control. Lines of business are now getting their own official technology budgets for non-standard software products. Departments can automate a business process in the time it would take to enter IT’s development pipeline. Shadow IT has been freshly-labeled “departmental IT.”

It’s not as if IT departments aren’t busy. It’s just that they’re often busy doing what they’ve always done, maintaining operational systems while reacting to the demands of an increasingly tech-savvy user community. Cumbersome legacy system maintenance, hardware and software upgrades, and tire-kicking in the name of research take up far too much of IT’s time–time that could be spent building valuable business applications. Show me an IT department at a 30 year-old Fortune 500 company and I’ll show you a large group that is supporting increasingly costly, outdated, and unwieldy infrastructures with no time to focus on driving revenues and enhancing the company’s brand.

How do we change this? Should it even be changed? Have business units earned the right to assume traditional IT work? These questions will confront executives within and outside IT for the remainder of the decade as corporate governance extends to IT expenditures.



Understanding the Skepticism

To understand how the IT department has lost its way, it’s important to understand how the reset of the organization views its activities. The chart below characterizes four types of IT efforts.

The bottom left quadrant connotes building and maintenance work required for large systems from proprietary billing systems to legacy mainframe applications. Business people view these initiatives skeptically, considering them “black holes” where money goes in, and nothing comes out. In the upper left quadrant are the multi-year rollouts, like large Enterprise Resource Planning or supply chain modernization endeavors. While these can streamline business processes, they often become bloated, delivered late and over-budget–reinforcing the organization’s negative view of the IT department.

Conversely in the lower right corner, a range of smaller yet well-bounded work efforts usually fall under the rubric of departmental solutions, and can be delivered quickly. They’re simpler to implement than their enterprise-wide counterparts and business people see them as worthwhile and cost-effective. A large insurance client of mine recently added a new data visualization tool to its business intelligence toolbox. The displays are so fresh and intuitive that even business users wed to their spreadsheets have been requesting the tool.

Finally, even large projects can be broken up into what a banking client of mine calls “human bites.” Such projects may ultimately be significant in scale, but have been scoped into discrete units of delivery. Done right, these have the power to win over skeptics, but all too often they lose momentum or offer additional lightweight technical functionality that is meaningless to business people

Of course there’s another side to this story. IT departments are constrained by budget cuts and hamstrung by often-outdated paradigms of executives who care more about keeping the lights on than automating new processes or adopting friendlier user tools. CEOs remain reluctant to invite CIOs to the executive table, insisting that IT is a cost center, not the innovation incubator it could be. Case studies on companies that have failed to invest in IT innovations, and the resulting business impacts–usually disastrous–abound.

As CIOs pitch new IT projects and their teams undertake delivery, cost and effort estimates can vary wildly. The risk of over-investment, miscalculated scopes, or inflated costs is proportional to an initiative’s projected value.

IT as Process Creator

One solution is to begin applying a structured taxonomy to proposed IT initiatives based quantifiable metrics like complexity, breadth of need, and return on investment. Categorizing projects in a sustained and structured way can inform development processes, resource decisions, new vendor conversations, and hiring strategies.

The COO of a specialty retailer recently led his IT and operations teams in a series of facilitated workshops to determine success measures for 47 proposed initiatives. Out came a scoring process the teams could use to prioritize and budget new projects. The result? Executives no longer needed to probe about why certain projects were approved while others were mothballed — the choices were based on weighted measurements.

Another answer is to extract money — say, 10 percent — from existing infrastructure budgets and apply it to new technologies and focused innovation. This approach unleashes investments around non-standard toolsets that could be rapidly deployed, gradually fostering a culture of innovation.

Finally, changing central IT’s role can generate widespread support. IT can transform itself from “we build everything” to “here’s how to build it,” and thus be viewed as a competency center focused not on technology, but on process creation and refinement. IT delivering straightforward development methodologies to business departments, coaching them on how to build their own systems, streamlines deployment, ensures domain expertise, eases organizational tensions, and drives economies of scale.

Such changes aren’t easy. But amidst continued funding battles and organizational alignment struggles, they might make things easier than they are today.