Optimize Your Application Organizational Structure

February 26, 2019

Contributor: Katie Costello

Evaluate all the options for the best application setup for your organization.

In the application industry, one of the most common questions for leaders is how to choose the “right” structure to achieve optimal business results and delivery for their organizations. The advent of digital business has huge ramifications on the future of the application organization. New models of business engagement, different skills, and the increased number of an organization’s applications that directly touch the customer are requiring a different design of the application organization.

“ A large number of organizational redesigns are unnecessary — and often harmful”

Matthew Hotle, Distinguished Vice President Analyst, Gartner, says there is no “right” way to do it. “Add in size, agile, platforms, products, bimodal, pace layers and cloud, and organizational design becomes even more challenging. It is now almost a given that any organization will have to live with a hybrid structure.” A large number of organizational redesigns are unnecessary — and often harmful. This is because they address the structure, but not the operating model itself. Hotle says this is why application leaders must have forethought and planning. It starts with analyzing the information and technology (I&T) operating model.

Application organizations are not stand-alone entities

The I&T operating model of any organization describes “how things get done.” Because the organizational structure component is only one part of an operating model, it is imperative that the structure relates to other components, such as an organization’s tools, performance, financials and talent. A change in the organizational structure might result in an unintended change to a different component. “Any change to an organizational design causes disruptions in delivery for a period of time, typically 6 to 12 months,” says Hotle. “The moral of the story is that the organizational design matters within the context of the operating model, not separately.”

Two basic models for organizing application teams

There are two basic models for organizing an application team: the silo and the system integrator. In the silo model, a senior application manager is responsible for a group of work based on various areas — geography, business function or process, technology stack or product.

“ It is important for application leaders to realize that there is no one-size-fits-all solution for designing their application organizations”

The system integrator model, also referred to as a pooled style, groups similarly skilled individuals together into resource pools or centers of excellence. These pools are based on roles and become the primary mechanism for assigning work. “Deciding which model works more effectively in your organization requires a fundamental understanding of how IT is perceived in your organization,” Hotle says. “Organizations where IT is a cost center typically choose a silo model. Organizations where the distribution of the IT budget may shift often choose a system integration construct due to its flexibility.”

Read more: 5 Year Vision for Application Leaders

Hybrid organizational structures are the norm

“As organizations move toward the cloud and digital delivery, it’s nearly impossible for an organization to use only one of the constructs successfully,” Hotle says. Given the dynamism of new products, applications, tools and platforms, a hybrid structure is an appropriate approach for application leaders to move toward.

A cloud hybrid, for instance, is a popular structure used to move a portion of an organization’s application portfolio to the cloud while keeping the remaining portion on-premises or elsewhere. It is important for application leaders to realize that there is no one-size-fits-all solution for designing their application organizations, but rather a set of trade-offs and choices that must be evaluated before charging forward.

Product-centric delivery organization structure is emerging

The number of organizations using a product-centric approach for a significant amount of their software delivery has doubled in the past two years, and is expected to double again over the next four. This increase is driven mainly by two factors: an attempt to reduce cost by using a product construct to rationalize, and the need to adopt agile methods to improve business agility.

This shift also impacts a critical role within the organization: the role of the digital product manager. As of 2018, the majority of digital product managers were located in the technology organization. Gartner expects that, in the longer run, since product management is or will be closely linked to achieving a set of business results, the function will migrate from the technology organization into business teams.

Gartner predicts that by 2023, 65% of organizations that moved to a product-centric delivery model will have embedded their digital product managers in a business area.

This article has been updated from the original, published on July 2, 2018, to reflect new events, conditions or research.

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