Companies know that centralized IT infrastructures—the hardware, operating systems, networks, and services that support IT systems—can cut their costs.1 What is more, centralized infrastructures are more reliable.2 Yet many business managers have resisted efforts to tighten up this crucial aspect of their operations, preferring a model that steers away from the highly centralized IT departments of earlier years and toward a more decentralized, customized approach, which increases not only flexibility but also inefficiency and conflict.
A number of large banks, telcos, and consumer goods manufacturers may have found the answer to that problem: a middle way that creates new financial and governance structures for IT organizations and the business units they serve. In the old versions of centralization, IT infrastructure costs were simply allocated among business units, which had little control over the system and few incentives to manage its usage effectively. The new model strikes a balance between the simplicity of central control and the transparency and accountability of local control (Exhibit 1).
At the center of this new arrangement are service managers, who usually have technical backgrounds but later graduated to management. Service managers work for IT organizations and support specific technologies, such as servers...