The original Shadow IT
The original Shadow IT

Shadow IT is Digital Business Trying to Break Free

Summary: Over the years, the slow growth of Shadow IT has really been the canary in the coal mine, the formative stages of an organization's Digital Strategy - people using Information and Technology to automate internal processes, get closer to the customer, and transform products and services.

Decentralized IT is a growing trend – pushing decision making and investments closer to the customer. This can be a powerful change when done well, as different areas of the business bring innovative, high-value products and services to market. The counter, however, is that this leads to duplication and fragmentation for little benefit; IT is simply a cost of doing business, typically not a differentiator – and therefore something that can and should be centralized.

The really interesting conversation, however, comes when we change our words a bit – from IT (as in “the IT Department”) to “Information and Technology” (the application of these two concepts to move the business forward); where are those investments happening?

When you take a step back, it’s clear that Information and Technology permeate the business – they are everywhere! Often referred to as “Shadow IT”, this rambling inventory of unsustainable tech assets can be a frustration for IT managers. But these aren’t frivolous or “fun” systems – the range (and inherent importance) of investment and functionality is broad and fascinating …

  • Finance – These folks are heavy users of consolidation and reporting tools like Hyperion, Cognos, BusinessObjects, Power BI, etc. – and have their own collection of super users, data analysts, & information designers. Still, we know much of Corporate America runs on Excel – and some of these spreadsheets are amazing in their sophistication and complexity. These are truly custom software developments – complex systems in their own right – and completely owned by the Finance team.
  • Sales and Marketing – This is typically where ownership of CRM systems is held – after all, these folks are the primary owners of customer and channel relationships. But this is also (typically) where web sites and eCommerce systems are proposed, funded, built, and managed.
  • Operations – Big users of the ERP systems when it comes to planning, purchasing, manufacturing, and transportation – but here you will also find savvy technologists that are looking at material handling systems, sensors for operational efficiencies, and highly automated manufacturing machines (that themselves need to connect via the Internet to their OEM masters)
  • Product Development – Ah, the Engineering team – long time users of the most complex and expensive workstations (to drive some really fascinating and sophisticated Design & Build software). A demanding group of end users already – and as sensors, firmware, and data become part of your business’ products & services, we are seeing software developers (firmware, web apps, analytics, data science) making their way into this group.
  • Human Resources – Another important set of technology users – from the mundane (but oh so important) Payroll system, to the highly strategic Performance and Talent Management systems that ensure the future of the organization.
  • IT – Of course, there’s the IT team – responsible for “keeping the trains running” (phones, desktops, internal networks,), this is typically where the ERP specialists sit.

Have you ever been asked what the company spends on IT – the classic “IT as a % of revenue” metric? Typically, folks will report their spend in the IT Department – specifically, the costs that run through that particular cost center. The Industrial Manufacturing sector has a traditional metric for IT budgets where “good” looks like ~2% of revenue – interesting, simple to remember – but we should be asking how much the company spends on Information and Technology in total, regardless of whose cost center it sits in (corporate code for “who controls the spend”). A more informative metric would be Digital Business spend, across all of these functional areas; I strongly doubt that the traditional sources include those dollars in the “magic” 2% figure, but if I want to understand the real impact of Information and Technology on my business, shouldn’t I look at everything?

Why Do You Ask?

This is not meant to be a rant against Shadow IT – quite the contrary. Over the years, the slow growth of Shadow IT has really been the canary in the coal mine, the formative stages of an organization’s Digital Strategy – people using Information and Technology to automate internal processes, get closer to the customer, and transform products and services. But the difficulties with this approach are a common source of frustration – islands of automation, too many versions of the truth, a lack of integration.

If you have a truly Digital Business mindset, the answers to these challenges should not be simply an exercise in budget control. A better approach would be to understand how these two important business enablers and value creators (Information and Technology) are invested in to help drive the business forward.

It’s not about gathering control of these resources under a single department, focused on leveraging spend across the company to minimize costs.

Better to focus on the real question – how does Information and Technology drive the strategic objectives of the company? And – are we sharing the information and leveraging the investment across the various functional areas to maximize ROI?

# 26 November, 2017

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James MacLennan

... is the Managing Partner at Maker Turtle LLC, a digital consultancy focused on creating value in ways that align with your strategy and drive engagement with employees, customers, and stakeholders. He is an active creator, providing thought leadership through on-line & print publications, and public speaking / keynotes.