The impact of the demand for integration in the large multi-business unit firm on the IT organization structure

Abstract

Large, multi-business unit firms are decentralizing their overall corporate structures. At the same time, the structures of their IT organizations are becoming more centralized. This is contrary to current wisdom that the IT organization structure will mimic the structure of the corporation, all else being equal. Because the general business environment is increasingly uncertain, the trend in decision rights for the corporation has favored decentralization, yet the IT organization has not followed. Empirical work in the domain of IT organization structure has focused narrowly on the locus of decision rights (centralization/decentralization). This paper extends the existing literature by taking a broader approach to conceptualizing IT organization structure to include the dimensions of standardization, formalization, centralization and configuration. We provide evidence of a dramatic change in the IT organization structure toward more standardization, more formalization, more centralization, a configuration emphasizing headquarters IT and higher CIO Rank. We also provide an explanation for this unexpected trend by empirically testing the impact of the demand for integration on IT organization structure using data representing 186 Fortune 1000 firms over the period 1993-2009. We further provide evidence that suggests that the structure of the IT organization moderates the generally harmful influence that the demand for integration has on the performance of the firm. Understanding this phenomenon is critical to managing the IT organization in the most cost-effective manner. Since IT expenditure is a significant portion of overall capital investment for most firms, improving the efficiency of the IT operation significantly impacts the bottom line. Better understanding of the contextual factors that impact the organization of the IT function allows IT managers to modify the organization structure in meaningful ways and to anticipate and manage expectations regarding how the context impacts the role that IT plays in the larger firm. Additionally, the results of this study are notable for the top management team of large multi-business unit firms. The fact that information pervades the modern firm means that the appropriate design of the IT organization deeply impacts both the top-line revenue growth and the cost-efficiency of the businesses of the firm.