18 May 2009 • 5:11 pm

A Brief Early History of the IT Organization

(note: This is the first in a series of posts on the topic of the Strategy-Focused IT Organization)

Many date the modern use of information technology to the introduction of the general-purpose IBM 360 computer in 1964. Organizations quickly realized that computer technology was a path to direct money savings, with the ability to quickly automate routine and time-consuming tasks such as accounting and payroll and inventory control.

As the large corporations that could afford mainframe computers began to embrace and employ the technology, a curious thing happened. The technology didn’t manage itself. Suddenly there were decisions to be made that required expertise and technology beyond simply operating the machines. A new profession, EDP (alternately, MIS, information systems, information technology, and finally, IT) arose during the 60s and 70s. When I first started working with computers in 1978, whole information technology departments with management and staff organized according to job function and technology discipline had arisen inside corporations.

Early decisions about employing computer technology were very different than today. These decisions generally had to do with making the a choice whether to take an existing manual process, and use the computer to automate it. These simple cost-benefit decisions could be made on the basis of the large upfront investment amortized over the expected savings on an ongoing basis to reduce labor. More sophisticated organizations recognized that the labor charges was not a direct reduction because at the same time they were replacing legions of relatively low point low-paid clerical employees, they were hiring technology professionals with scarce skills who commanded higher salaries to match.

As the use of technology grew, so did the profession of technology management and the corresponding information technology organization inside the enterprise. There was little guidance about how to manage the technology beyond that offered cheerfully by the hardware and software vendors, who had a clear vested interest in influencing the way companies organized and managed their use of technology. With vast sums being spent on the technology, the technology vendors increased their efforts to have an influence on the design of the IT organization. At the core of the information technology organization was computer operations; running the expensive equipment on a day-to-day basis (which often required considerable skill), as well as maintaining and installing equipment; in short “keeping the lights on”.

Although computer hardware vendors, like IBM and Digital Equipment Corporation, provided operating systems, rudimentary systems management utilities, and even applications, the norm during the 1970s and 80s was for companies to substantially write their own computer applications with in-house computer programming staff. The emergence of the role of computer programmer as a sought-after desirable professional took place during the 1970s. Methodologies for developing computer applications arose, while the cost of doing so escalated with ever more comprehensive complex applications that were highly specialized to unique businesses.

During this period the use of technology evolved from being simple replacement for labor to being the essential driver of business processes. The insurance company that I joined in 1978 depended on its computer systems on a day to day basis to process premiums, issue new policies, process claims, and account for the financial condition of the firm. Naturally these functions were seen as operational in nature, as opposed to being strategic. Technology certainly wasn’t looked upon to drive decisions about what the business itself would do next.

Things are very different today. Information technology is so intimately woven into the very fabric of value creation in every enterprise. To change the way the firm creates value requires change in the technology itself. The value proposition of the firm often directly depends upon, and would not otherwise be possible without, the information technology.

(read the next article in the SFITO series)

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