Advantages and Disadvantages of Decentralized

Advantages and Disadvantages of Decentralized IT Systems Executive Summary The widespread adoption of Service-Oriented Architectures (SOA) are significantly transforming the decisions companies make whether to centralize or decentralize critical parts of their IT infrastructure. The fact that nearly every CIO is now expected top make all information assets, systems, databases, and processes align with line-of-business objectives is further exacerbating the decentralization of IT. Despite these market dynamics however, there are still many organizations who resist the tendency to decentralize any IT resource that remotely has a bearing on the company's ability to be demand-driven and embrace time-to- market strategies. In the interest of being demand driven, manufacturers are increasingly looking at IT infrastructures that give them greater agility and responsiveness to market conditions than any other. This is in conflict with the centralization of resources driven by cost reduction strategies within many organizations. In this dichotomy and conflict is the basis of this analysis between centralization and decentralization of IT resources.

Advantages of Decentralized Management Information Systems (MIS)

The most common reason companies decentralize their MIS and IT systems is to make them for agile and capable of responding to market dynamics, including the ability to deliver faster time-to-market for new product and service introductions. Additional advantages of a decentralized MIS architecture in an organization include the following: . Non-shared databases, information, content management systems, and pricing databases all need to be decentralized especially when they have been purpose-built for a given geography, market, or regionalized strategy. When data is only pertinent to a given strategy in a given location, decentralization is the best possible strategy. . Strategic use of resources including product-specific features and content, pricing, services, sales and fulfillment including supply chain visibility can be accessible from decentralized locations yet administered and managed centrally. This is the propagation of content and information to local levels where it can be used to accomplish business goals and objectives. The propagation and replication of data to local levels through the use of XML is making hosting and the Software- as-a-Service model viable for making organizations more adept at respo0nding quickly to local market opportunities without being constrained with heavy centralized content. Software-as-a-Service is revolutionizing the use of centralized content, pricing and data in a decentralized business strategy and IT architecture. . Decentralization of data and the processes employed to create, maintain, and grow data repositories more accurately reflect the market conditions and dynamics of the specific regional market than centralized data does. . For those companies that have a strong indirect and direct channel distribution strategy in place, decentralized systems provide for greater ability to assign Profit & Loss (P&L) levels of performance throughout an entire series of channels that would otherwise be the case. This decentralization of selling expense and profit data makes it possible to quickly see which direct and indirect channel strategies are working and why - this is invaluable insight when a channel and distribution managers need to get to their goals in terms of sales and profits per customer and partner. . Customer Relationship Management (CRM) systems including Sales Force Automation at a regional level, when integration to marketing strategies, has a more defined and precise measure of performance than if it had been centralized. Often CRM and SFA strategies that are decentralized, either within a region or division are more used than centralized counterparts because the local sales reps and sales managers have tailored the systems to their specific needs.

Disadvantages of Decentralized Management Information Systems (MIS) In many cases the disadvantages of decentralized MIS and IT systems are the advantages of a centralized system strategy. For purposes of this analysis, the latter point is considered the main focus on what in actuality are the advantages of centralization. These include the following factors: . Those resources, processes and functions that require consistency, durability, economies of scale and optimized operating costs (Hess, 1996) are best centralized as collectively an experience effect, much like a learning effect associated with economies of scale, begins to influence costing, timing, and overall efficiencies of completing these core process tasks. . Highly shared content in many forms including contracts, product content, material planning, supply chain, logistics, sales and service information needs to be centralized as many processes and tasks make use of this information to complete their tasks. Likewise, key performance indicators and metrics of performance that apply to processes that in effect touch every major functional area of the company also need to specifically be included in a centralized repository. . Ability to create a single and cohesive Service-Oriented Architecture (SOA) that specifically is structured to create greater efficiencies in core business processes and have a single version of the truth to work from, many organizations are moving back to a centralized architecture specifically for this reason. Ironically many claim that SOA architectures make them more responsive and market-driven, yet in initial phases the SOA architectures are centralizing core functions and selectively publishing through XML specific data sets and applications out to distributed locations. . When organizations have organized teams into specific functional areas, for example logistics, supply chain planning and execution, marketing or engineering, a centralized IT structure is typically the best possible IT infrastructure to support the specific business strategies of these functional groups. CIOs who have specifically used this approach report clearer job descriptions and higher levels of morale, as employees are clear with regard to what is expected of them, according to CIO Magazine (2001). US Space Alliance's CIO Kathy Tamer reports that the centralization of strategic planning and integration, platform engineering and operations, application engineering services, data and documentation management, IT security, and user support services have made it possible to trim 17% of total staff levels through job re- assignment and attrition. The US Space Alliance anticipates savings of $300,000 per year due to centralization of these vital functions. What is impressive about this centralization strategy on the part of US Space Alliance is that there has been no need to relocate any member of the core centralized teams. . Another advantage of centralized IT structures is the ability to create Centers of Excellence, which are really teams of senior functional department leaders that create working teams to address complex and strategically important issues that the company has to contend with. This is often referred to as best practice teams whose job it is includes looking at the time taken to complete tasks manually and then selectively automate them through business process reengineering for higher levels of performance.