Your IT Organizational Structure: Should You Centralize or Decentralize?

By: on May 20, 2020

There isn’t one answer to the question whether your organization’s IT structure should be centralized or decentralized. That’s because businesses rarely commit to one of these models. In reality, centralized and decentralized IT structures are two ends of a spectrum, and most organizations, including yours, are somewhere in the middle.

Understanding the benefits of both models will help determine the degree to which your organization should centralize or decentralize its IT structure. During the process, you should be planning for future growth and choosing software solutions that support your goals.

In this article, we’ll help you understand the benefits of centralized and decentralized IT structures and determine the best structure for your organization.

Centralized vs. decentralized IT organizational structures

In a centralized network, all users are connected to a central server that stores complete network data and user information. On the contrary, a decentralized network has several peer-to-peer user groups wherein each group has its separate server that stores data and information relevant to only that particular group.

Originally, all communications networks were centralized. The concept of a decentralized network was introduced by researcher Paul Baran in 1964 to help improve telecommunications infrastructure.

Centralized and decentralized network structures

Centralized and decentralized network structures (Source)

During the Cold War, researchers were looking for an alternative to the traditional, centralized network structure. They feared that a single attack on the central server would render the entire system useless, even if most network lines and stations were undamaged.

Baran proposed “distributing” the critical switching and control equipment around the network. This way, if one part of the network was damaged, the undamaged sections would continue functioning. He suggested having a decentralized system by increasing network redundancy, i.e., adding additional devices, equipment, and communication mediums to ensure higher infrastructure availability during network failures.

Benefits of centralized IT structures

A centralized server monitoring the complete flow of network data works best for companies that need greater network control and visibility.

Centralized IT structure

Centralized IT structure (Source)

There are many benefits of adopting this type of structure. A centralized IT network can:

1. Lower your hardware expenses. You can reduce hardware costs by keeping all servers and networking equipment in one place. When distributed across locations, extra or duplicate equipment is needed. In a nutshell, increasing redundancy increases costs.

2. Improve productivity for IT staff. A centralized structure gives your IT staff better oversight and makes routine tasks easier. For example, software installations, updates, and security patches can all be performed from one location. In decentralized IT setups, completing these tasks would require staff to manage each location separately, which can drive up costs and decrease productivity.

3. Increase your purchasing power. It’s easier to negotiate pricing of software licenses and support contracts for an entire company rather than for individual departments. This can result in better contract terms and even complimentary integration or support services.

4. Help meet industry regulations. Industry-specific regulations, such as HIPAA for healthcare providers and the Sarbanes-Oxley Act for financial services, require varying degrees of IT and database centralization, usually for data security reasons. Companies that store and process user information, such as credit card companies, tend to find it easier to meet legal data security requirements with centralized IT systems.

5. Improve the flow of information. Centralized IT structures help prevent data silos. Data and information can be easily shared across departments, leading to better knowledge sharing and collaboration. For example, using a centralized cloud-based CRM system will allow all employees to access customer information from anywhere.

Benefits of decentralized IT structures

Decentralization is a practical approach when different departments in a company have different IT needs and strategies. It allows each business unit to maintain a separate server and choose hardware and applications based on individual needs.

Decentralized IT structure

Decentralized IT structure (Source)

Decentralized IT structures provide several benefits, including:

1. The ability to tailor IT selection and configuration. When individual departments have IT decision-making power, they can choose and configure IT resources as per their specific needs. The decision-making process is quick and doesn’t require a chain of approvals.

2. More fail-safes and organizational redundancy. Decentralization makes IT networks more resilient. As all departments maintain individual servers, one department’s server can function as a backup server for another department during network failure.

3. Faster response to new IT trends. As departments in decentralized organizations can make independent decisions, it’s easier for them to leverage new technology. Let’s say your customer service department wants to improve services using online live chat. In a decentralized model, it can do so independently. In a centralized model, there’d be many barriers to the purchase, beginning with getting buy-in from the IT department. Slow response to emerging technology trends can be a competitive disadvantage.

How to determine the right degree of centralization or decentralization for your company?

As discussed above, there are several reasons for moving toward or away from a centralized or decentralized IT structure. Of course, many factors will influence your decision, but there are also some general considerations that can help choose what’s best for your business.

Decentralized IT structures are typically best for companies that rely on technical agility to remain competitive.

Newer, smaller companies (e.g., startups) and organizations that need to respond quickly to new IT developments (e.g., software and hardware companies or app development firms) are most likely to benefit from decentralized IT networks.

Decentralized IT structures can be difficult to scale.

Organizations that organically develop decentralized IT structures—as a result of having no oversight in place—might have difficulty scaling. It’s hard and sometimes even impossible to bring disparate systems together without proper planning.

Centralized IT structures tend to offer more cost savings, especially for large organizations.

Centralization makes it possible for entire organizations to act in unison. All departments can migrate to new and cheaper technologies and negotiate contracts with more leverage.

Centralized network structures are highly dependent on network connectivity.

If the central server goes down, the entire network loses connectivity. And since there are no backup servers, chances are high that users will lose their data.

No matter which direction your department, agency, or corporation is headed, our team of software advisors can help you choose the right help desk and IT asset management software solutions to get there. Schedule an appointment to receive personalized recommendations from our advisors.

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