Your IT Organizational Structure: Should You Centralize or Decentralize?

By: on January 20, 2016

The question of whether you should centralize or decentralize your IT structure is a bit misleading: It suggests that firms commit completely to one model or the other. In practice, that’s rarely the case.

“Centralized” and “decentralized” are two ends of a spectrum, and most organizations are somewhere in the middle.

By understanding the benefits of both centralization and decentralization, you can determine the degree to which your company should centralize its organizational structure. In the process, you should be planning for future growth and making sure the software you choose supports your goals.

In this article, we outline the common benefits of a centralized and decentralized structure, and look at how you can determine the best structure for your organization.

Centralized vs. Decentralized IT Organizational Structures

Originally, all communications networks were centralized. The concept of a decentralized network was first introduced by researcher Paul Baran in 1964, regarding how telephone communications could be improved.

Centralized vs. Decentralized IT Organizational Structures
Baran shows how networks can be organized into two different structures
In Baran’s time—one of the tensest periods of the Cold War—researchers were looking for an alternative to the traditional, centralized network structure. The fear was that a single attack on the center of one of these networks would render the entire system useless, even if most of the network’s 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 working properly. This organizational redundancy is, today, a primary reason why companies choose to decentralize IT.

Benefits of Decentralized IT Structures

Redundancy is just one of many reasons to adopt a less centralized IT structure. Decentralization is a practical approach when different departments in a company have different IT needs and strategies.

It allows each business unit to choose hardware and software based on its particular needs.

Example: Decentralized IT Organizational Structure
Decentralized IT Organizational Structure

Decentralized IT structure with three different servers in three different locations
In the example above, the sales unit maintains its own server, running a specialized sales automation product on it. The customer service unit is running a specialized customer service platform on its local network, which has been optimized to handle the (VoIP) phone traffic of its agents.

The service department’s server is also connected directly to the R&D department’s system, so R&D managers can monitor technical problems reported by customers.

Decentralized IT organizational structures, such as the one in this example, 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 based on their own specific needs.

In the example above, each department has its own server optimized to run its own software platforms. If these departments shared a centralized IT structure, they’d likely need to make some compromises.

2. More fail-safes and organizational redundancy. Decentralizing makes telephone networks more resilient—and it can do the same for IT networks, too. Following our example, if each department maintains its own server, one can function as the backup server in case another server fails. (Of course, this type of redundancy would need to be properly configured in advance.)

3. Respond faster to new IT trends. Since departments in decentralized organizations can make independent decisions, it’s easier for them to take advantage of new technology.

For example, say your customer service department wants to improve service with online live chat. In a decentralized model, it can do so independently. In a centralized model, there’d be many more barriers to purchase, beginning with getting buy-in from the IT department. A slow response to emerging technology trends can be a competitive disadvantage.

Benefits of Centralized IT Structures

Now let’s look at a fully centralized IT organizational structure. This is an alternative way of structuring the same departments shown above:

Example: Centralized IT Organizational Structure

This centralized IT structure has all its servers in a single location
There are many benefits of adopting this type of structure. A centralized IT organization can:

1. Lower hardware expenses. Most companies can reduce hardware costs when their servers and other networking equipment are in one location. When distributed across several locations, extra or duplicate equipment is often needed. In other words: Increasing redundancy also increases costs.

2. Improve productivity for IT staff. A centralized structure gives IT staff better oversight and can make routine tasks easier. For example, new software installations, updates and security patches can all be addressed from one location. In companies with decentralized IT structures, completing these types of tasks may require staff to manage each separate location, which can drive up costs and decrease productivity.

3. Increase purchasing power. Negotiating software licenses and support contracts for an entire company gives the purchaser more power than buying for each department individually. This can lead to better contract terms and can offer additional integrations 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 credit card information also tend to find it easier to meet legal requirements for data security with centralized IT systems.

5. Improve the flow of information. Decentralized IT structures often lead to information silos: collections of data and information that cannot be easily shared across departments. Centralized IT structures help prevent these silos, leading to better knowledge-sharing and cooperation between departments. For example, using one central, cloud-based CRM system makes it possible for any employee in a company to access customer information from anywhere.

How to Determine the Best Degree of Centralization for Your Company

As we see above, there are many reasons an organization might be tempted to move toward or away from a centralized IT organizational structure. Of course, many factors may influence any particular organization’s decision. But there are some general considerations that can help you choose what’s best for your business:

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

These include 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 developers).

Decentralized IT organizational structures can be difficult to effectively scale. Organizations that organically develop decentralized IT structures as a result of having no oversight in place might have difficulty scaling. It can be hard or impossible to bring disparate systems together without proper planning. If you expect company growth, you may want to consider a centralized IT structure.

Centralized IT structures typically offer larger cost-savings—especially for larger organizations. Centralization makes it possible for entire organizations to act in unison. All departments can migrate to new and cheaper technologies, and can negotiate contracts with more leverage. One good example of this benefit in action: federal agencies have saved $52.5 million federal agencies to date by centralizing IT with cloud services.

Centralized IT organizational structures offer better IT and data security. Such structures allow users to maintain better control and oversight over the data on the organization’s servers, computers and networks. Organizations and agencies in the healthcare and financial services sectors commonly use centralized IT for these reasons.

No matter which direction your department, agency or corporation is headed, our team of Software Advisors can help you choose the best IT support software to get there. Call (855) 998-8505 today for a free phone consultation, which includes pricing information and a no-obligation short list of solutions to meet your needs.

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