IT Operating Model

Definition of IT Operating Model

An Information Technology (IT) Operating Model (IT Operating Model) is the unique configuration of people, processes, and infrastructure used to conduct the day-to-day operations of an organization.

In effect, an IT Operating Model implements an IT Strategy. It translates strategic intent into operational capabilities. It serves as the foundation for execution and provides a clear guide for the enterprise leadership team, line managers, and operational teams. A well-defined and articulated operating model is the bridge between strategy and day-to-day operations that guides the team, provides the context, and enables behaviors that will realize the strategy and vision. IT Operating models aren’t just reserved for large companies – regardless of size, all companies should have an operating model of some kind. In some cases, it might be brief or not very prescriptive, but should still exist and be maintained to help bridge the gap between the why and how. IT organizations without an operating model of any shape at all run the risk that strategy won’t be realized, processes will not be optimized, and IT staff won’t be aligned to a common view of how the IT organization should work to deliver business value.^[1]

The CIO and the IT organization establish the appropriate IT operating model after strategic planning is complete. The IT operating model seeks to answer the “how” to the IT strategy’s “what.”

source: Infotech

The operating model, in its simplest form, dictates where and how critical work gets done across a company. It serves as a vital link between a company’s strategy and the detailed organizational design that it puts in place to deliver on the strategy. - Bain & Company

An IT operating model combines organizational structure and processes that comprehensively covers the IT department. It spans the whole IT lifecycle from IT strategy, architecture, demand and supply management, project management, and infrastructure to support services such as accounting and HR. Essentially, it is how the IT organization is set up to serve its users, the business. Chief Information Officers (CIOs) and IT executives are facing constant pressure to optimize their IT operating model to fit the ever-changing business models of their users. The guidance information systems (IS) research provides on this issue is scarce. The IS literature contains little specific advice on how organizations should develop and adapt IT operating models. While the literature has extensive studies on components of IT operating models, such as enterprise architecture, research on IT operating models as a whole is surprisingly sparse.^[2]

Elements of an IT Operating Model

An IT Operating Model defines how IT functions will deliver value to the broader organization and how they will operate on a day-to-day basis. It encompasses the structures, culture, policies, and processes that enable the delivery of technology services. The key components of an IT Operating Model include:

Governance:
- Defines how decisions are made, responsibilities are assigned, and how performance is monitored and evaluated.
- Includes frameworks for prioritizing IT projects, allocating resources, and managing risks.

Service Delivery and Processes:
- Describes the standardized methods and processes IT will employ to deliver services and projects.
- May encompass methodologies like ITIL for service management or Agile for software development.

Organizational Structure:
- Illustrates the design of the IT department, including roles, responsibilities, and reporting hierarchies.
- Indicates centers of excellence, cross-functional teams, and other structural elements.

People and Culture:
- Highlights the skills, competencies, and training required within the IT function.
- Outlines the cultural values and behaviors expected, such as collaboration, innovation, or customer-centricity.

Technology and Architecture:
- Specifies the foundational technology, platforms, and tools that IT will use.
- Includes the architectural principles that guide technology decisions, ensuring alignment with business goals and flexibility for future needs.

Performance Metrics and KPIs:
- Defines the measures by which IT performance is evaluated.
- Helps to assess efficiency, effectiveness, and alignment with business objectives.

Vendor and Partner Management:
- Outlines how IT interacts with external vendors, partners, and service providers.
- Includes contract management, vendor selection criteria, and partnership models.

Budgeting and Financial Management:
- Details how IT budgets are allocated, monitored, and managed.
- Provides clarity on cost controls, ROI calculations, and investment priorities.

Risk Management:
- Defines the strategies and processes for identifying, assessing, and mitigating IT risks, from cybersecurity threats to project failures.

Innovation and Continuous Improvement:
- Describes the mechanisms for fostering innovation within IT and how new technologies or methodologies are evaluated and integrated.
- Ensures the IT function remains adaptive and forward-looking.

Communication and Collaboration:
- Outlines how IT will engage with other business units, ensuring transparency, alignment, and effective collaboration.
- Might include tools, forums, or processes to facilitate communication.

Change Management:
- Defines how IT will manage and communicate changes, ensuring minimal disruption and maximizing user adoption.

The IT Operating Model is an essential framework for IT leaders to ensure that IT operations are consistent, efficient, and aligned with business goals. It provides clarity and direction to the IT team, ensuring everyone knows their roles, responsibilities, and how they contribute to the broader organizational objectives.

source: Infotech

Importance of an IT Operating Model

An IT Operating Model is crucial for organizations in today's complex and rapidly evolving digital environment. Here are the key reasons for its importance:

Operational Efficiency: An IT Operating Model streamlines daily operations, ensuring tasks are executed consistently, and best practices are adhered to. This leads to quicker resolution times, reduced errors, and better overall productivity.
Clear Roles and Responsibilities: The model defines who does what within the IT department. This clarity minimizes overlaps and gaps in responsibilities, ensuring smoother collaboration and fewer misunderstandings.
Predictable Service Delivery: With standardized processes and workflows in place, IT can offer predictable and reliable services to the rest of the organization, establishing itself as a trusted partner.
Scalability: As the organization grows, the IT needs will evolve. An IT Operating Model provides a foundation that can be scaled and adjusted to cater to increasing demands and complexities.
Cost Efficiency: By standardizing operations and optimizing resource allocation, an IT Operating Model can lead to cost savings, as there's less wastage and more effective use of resources.
Faster Decision-Making: When roles, governance structures, and processes are clearly defined, decisions can be made faster, without ambiguity regarding authority or procedure.
Better Vendor Management: A clear operating model will include processes for interacting with vendors and third parties, ensuring consistent and effective management of these external relationships.
Enhanced Risk Management: By standardizing processes and having clear governance in place, the organization can better anticipate and mitigate operational risks, from technical failures to cybersecurity threats.
Cultural Cohesiveness: A defined operating model can foster a shared culture and understanding within the IT team, promoting a unified approach to achieving goals.
Feedback and Improvement: Operating models often come with mechanisms for feedback and continuous improvement, ensuring the IT department remains adaptable and strives for excellence.
Alignment with IT Strategy: While the strategic plan sets the direction, the operating model ensures that the day-to-day operations of the IT department are in sync with that direction. It’s the “how” to the strategy’s “what.”

In essence, while an IT Strategic Plan provides the broader vision and direction for IT in an organization, the IT Operating Model offers the structure and processes needed for the daily execution of that strategy. It ensures that the everyday activities of the IT department are optimized, efficient, and in alignment with the department's and organization's goals.

Designing an IT Operating Model

An IT Operating Model is designed by conducting detailed interviews and meetings with key stakeholders, from business and IT, to understand:

Key roles
Key functions
Information exchanged between functions
Process definitions
Detailed procedures
Governance model
Roles and Responsibilities

Creating an IT Operating Model is a structured process that involves aligning the IT function's daily operations with the organization's broader objectives. Here are the key steps in creating an IT Operating Model:

Assess the Current State:
- Understand the existing IT landscape, capabilities, and processes.
- Identify strengths, weaknesses, opportunities, and threats within the current IT setup.

Define the Vision and Goals:
- Align with business strategy to understand the desired state of IT in supporting organizational goals.
- Clearly outline what the IT Operating Model aims to achieve in terms of efficiency, service delivery, agility, and other objectives.

Identify Key Services and Capabilities:
- List out the core services that IT provides or will need to provide.
- Identify the capabilities required to deliver these services efficiently and effectively.

Design the Organizational Structure:
- Define roles and responsibilities for various IT functions.
- Determine the reporting hierarchy and team structures (e.g., centralized vs. decentralized teams, Centers of Excellence).

Standardize Processes and Workflows:
- Map out standardized processes for common IT tasks, such as incident management, change management, and project delivery.
- Consider adopting best-practice frameworks like ITIL or Agile, where appropriate.

Define Governance and Decision-Making Frameworks:
- Establish clear governance structures that define how decisions are made within IT.
- Outline the forums or committees responsible for strategy, risk management, architecture, investment decisions, and other key areas.

Establish Performance Metrics and KPIs:
- Define clear, measurable metrics that can track the efficiency, effectiveness, and value delivery of IT operations.
- Ensure regular reviews to assess performance and make necessary adjustments.

Develop Technology and Architecture Standards:
- Outline the technological standards, platforms, and tools that will be used.
- Define the architectural principles guiding technology decisions and investments.

Plan for Talent Management:
- Assess the skills and competencies required to support the operating model.
- Plan for recruitment, training, and development initiatives to bridge any skill gaps.

Implement Vendor and Partner Management Frameworks:
- Establish processes for selecting, managing, and evaluating external vendors and partners.
- Define criteria for engagement, contract terms, and performance reviews.

Outline Risk Management Procedures:
- Identify potential risks associated with IT operations.
- Establish processes for risk assessment, mitigation strategies, and regular reviews.

Develop a Communication and Collaboration Framework:
- Determine how IT will communicate with other departments, stakeholders, and within its teams.
- Establish collaboration tools, regular update forums, and feedback mechanisms.

Plan for Continuous Improvement:
- Institute regular reviews of the IT Operating Model to ensure its continued relevance.
- Set up mechanisms to incorporate feedback, technological advancements, and changing business needs.

Rollout and Change Management:
- Develop a phased plan for implementing the new operating model.
- Ensure robust change management practices to guide the organization through the transition, ensuring stakeholder buy-in and minimizing disruption.

Review and Refine:
- After the rollout, continuously monitor the effectiveness of the operating model.
- Make iterative improvements based on feedback, performance data, and evolving organizational needs.

Remember, an IT Operating Model is not a static document or framework. It should evolve as the organization changes, technology advances, and business requirements shift. Regular reviews and refinements ensure that the model remains relevant and effective in delivering value to the organization.

Dimensions of an IT Operating Model

The Operating Model for IT must incorporate many dimensions in harmony as a “system” if IT is to deliver optimal value from the IT portfolio.

source: ServiceNow

The IT operating model is not a static entity, and it should evolve according to changing business needs. However, business needs are very diverse, and groups consume technology differently. The IT operating model must support and enable multiple groups of technology service consumers while continuously adapting to changing business conditions and needs". - Gopi Bheemavarapu, Senior Manager, CIO Advisory Info-Tech Research Group

References

[1] What is an IT Operating Model?

[2] Explaining IT Operating Model

[1]

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