The Reasoning for a Center of Excellence (CoE)

September 5, 2017 Tim Reimer 0 Comments

testThe adoption and implementation of the concept of a center of excellence (CoE) has become very popular in recent years within IT organizations. The push comes most often from software vendors who provide a large suite of applications such as ERP systems [1]. The purpose is to establish an organizational unit of experts within IT that is able to provide in greater depth cross-functional support of such applications to the business. The advantage of this approach is that the pooled resources of functional and technical experts are able to develop and solve business and technical problems faster, quickly adjust to changing business requirements, and provide the corporation with a new agility to manage their application landscape according to changing market demands.

As the term indicates, CoEs contain an amalgamation of expert resources that can provide leadership, develop unique solutions, solve significant business or technical problems, and conduct research on special related matters. The concept is not unique to IT but was first adopted in the medical community to provide expert centers for oncology, infectious diseases, heart and stroke, and brain injuries, just to name a few. These medical CoEs pool highly skilled and experienced personnel to provide and research state-of-the-art medical procedures to advance the overall success and healing ratio of patients.

Using the described medical scenario as a backdrop, the question should be raised whether the implementation and creation of a CoE within IT to support a suite of application softwares is not too limited, and whether there is a more meaningful and useful approach that should be considered that goes beyond third-level support for an application software. This requires that the purpose and objective for a CoE be approached from a vendor-agnostic perspective and that it become part of the overall IT strategy.

In addition, business-driven IT management (BDIM) is focused on measuring and analyzing IT’s contribution of value generation by the business. If an organization is to embrace BDIM concepts and explore its merits, it will require such activities to have a home within the overall IT organization. Therefore, the objective of this paper is to provide a conceptual view of a CoE within an IT organization and to examine its objectives and its potential organizational structures. In addition, it will examine the governance and effectiveness of such centers.

CoE Background

In reviewing related literature, it becomes obvious that the term CoE takes on various interpretations and forms and does not only encompass an IT-specific formation. A good starting position is the paper by Frost, Birkinshaw, and Ensign [2]. Their research focuses on the development of CoEs in multinationals and their characteristics. They define a CoE as an organizational unit that embodies a set of capabilities that has been explicitly recognized by the firm as an important source of value creation, with the intention that these capabilities be leveraged by and/or disseminated to other parts of the firm.

Their research identifies two distinct forms of a CoE. First is the value-added subsidiary that evolves into a strategic role for the multinational corporations (MNC) by acquiring or demonstrating special knowledge in providing either a unique product offering or unique services that add value to the entire organization. A second form is where a group of domain experts develop unique best practices that assist in streamlining various processes. The unique techniques for process improvement and implementation of best practices are the competency that a CoE has either acquired or is developing. This expertise provides the value contribution to all business units.

Frost et al. [2] discuss four unique characteristics by which a CoE should be identified. These characteristics have been observed with CoEs of MNCs. Firstly, a CoE should have a physical presence. Physical in this context does not necessarily mean a geographic location but refers to an organizational unit that has a structure. Secondly, a CoE should provide and maintain a superior set of capabilities that are unique to the organization. Thirdly, the organization should be able to derive value from this know-how to better deliver products and solutions to the customer.

Reger and Zafrane-Bravo [3] discuss the unique managerial aspects of a CoE. The overall challenge for a CoE manager is to keep the CoE relevant to the organization. This requires a clear understanding of the differentiating factors a CoE offers to the organization. Any offering of competency by the CoE is subject to its relevance life cycle of establishment, development, maintenance, and retirement. The challenge is to realize where the CoE is positioned within this cycle and to be able to take corrective actions. On an individual level, CoE management needs to address the unique aspects of managing highly qualified resources. This includes the capability of consistently providing new challenges in solving business problems for the organization. In addition, members of a CoE need to maintain their high level of competency through adequate training and education.

Adenfelt and Lagerström [4] argue that the effectiveness of COEs is driven by the degree of how knowledge is shared among subsidiaries in an MNC. The knowledge is developed locally, and with the help of the corporate office this knowledge is then transferred out into the organization. This knowledge distribution is a fundamental ingredient without which the CoE will not be effective. A CoE, therefore, is not a cocoon that retains its high level of expertise among its members; rather, it is eager to share its expertise with the rest of the organization so that value generation can consistently be improved.

Tadwalkars [6] provides a comprehensive discussion of all aspects of forming a CoE. His main message is that the CoE needs to be customer-focused and generate business benefits. Such benefits can be in reduced cycle times for new product offerings, lower TCO (total cost of ownership), optimization and streamlining of processes, and a better integration between business and IT. However, all this is only possible if corporate management demonstrates that a CoE initiative is critical to the competitive advantage of the organization.

CoE Organizational Structure

Based on the literature review, there is no formal recommendation for the structure of a CoE. What makes an organizational unit unique as a CoE is the fact that this group of people is recognized by the business units of the organization for their domain expertise and the value they contribute to the overall corporation. This value contribution can occur through the sharing of knowledge of the different domains, through the implementation and development of new processes and products, and through the development of new best practices, which contributes to higher levels of efficiency.

The establishment of a CoE for IT-specific purposes should follow the same principles as described for CoEs in MNCs. Its primary objective should be to generate value for individual business processes, software applications, and hardware infrastructure by utilizing its knowledge base of people, processes, and other resources. The misconception may arise that a daily operational support group for hardware and software should be considered a CoE. Even though CoEs should provide level 3 and 4 type support to the business and to other IT units, this group should not be called upon to solve general support and enhancements issues. Since the members of the CoE are an amalgamation of various functional domain experts, they have been brought together to solve specific business problems.

Another discussion topic is the scope of the CoE. How diversified should a CoE be, and what expertise should be part of such a group? There definitely needs to be a sufficient level of domain diversification in order to be able to solve a variety of business problems. However, too large of a group will impact the agility of the CoE and start to hinder their effectiveness. On the flip side, a corporation could institute multiple different CoEs for various domain areas, geographic regions, or subject matters. However, this constellation could trigger turf wars and expertise overlap, which would be detrimental to the development and research of business solutions for complex business problems.

When forming a CoE structure for IT, management needs to clearly define the objectives and provide general guidance, principles, and necessary governance so that the mandate and mission of a CoE is understood not only by its members but by all business units. It is critical that the activities of each CoE member be aligned with the overall IT strategy, which should support the corporate strategy.


[1] Doane, M. (2012). The SAP ®green book: A business guide for effectively managing the SAP® lifecycle., pp.69. Boston: Galileo Press.

[2] Frost, T. S., Birkinshaw, J. M., & Ensign, P. C. (2002). Centers of excellence in multinational corporations. Strategic Management Journal, 23(11), pp.997–1018. doi: 10.1002/smj.273

[3] Reger, G., & Zafrane-Bravo, C.E. (2002). Managerial implications of the research on centers of excellence: A conceptual view, at The International Engineering Management Conference (vol. 1, pp.178–183).

[4] Adenfelt, M., & Lagerström, K. (2006). Knowledge development and sharing in multinational corporations: The case of a centre of excellence and a transnational team. International Business Review, 15(4), pp.381–400.

[5] Sauvé, J., Moura, A., Sampaio, M., Jornada, J., & Radziuk, E. (2006, April). An introductory overview and survey of business-driven IT management, at The 1st IEEE/IFIP International Workshop on Business-Driven IT Management (vol. 1, pp.1–10). Vancouver: IEEE Communications Society

[6] Sunil V. Tadwalkar. 2008. Create centre of excellence (CoE) for better business. Ubiquity 2008, March, Article 9 (March 2008), 9 pages. DOI=10.1145/1366313.1361366