In the 19th century, the development of electricity and power distribution revolutionized many businesses by the electrification of households, industry and communication. Old companies, without the ability to adjust to the new technology, were phased out while new companies leveraging the new innovation grow up. The work of pioneers such as Thomas Edison, Nikola Tesla, and Michael Faraday contributed to early development commercial electricity that would result in of radio technology, power distribution, cathode ray tube (basis for television), transistors, home appliances and computers. At that time, the right use of electricity was a competitive advantage to businesses and many organizations has a Chief Electricity Officer to manage the new opportunities and threat from the new innovation.
Interesting is to notice that electricity at that time was not standardized. Small local power suppliers distributed their own version of electricity in terms of current style (AC or DC), voltage, and current levels. A “Current war” started between Edison and Tesla to agree on the current standards – alternating current or direct current. Alternating current (promoted by Nikola Tesla) won the “war” and became the world standard. Over the years, electricity became more and more standardized and lost its role as business differentiator. Electricity, that once revolutionized a whole world, had now become a standardized commodity.
The wave of Commodization of IT through implementation of ITIL, COBIT, TOGAF and other world known frameworks raises the question of the future of IT. Will IT become a “standardized commodity” in the same was that electricity did? And how does the disruptive trends of digitalization support the journey of IT?
It is clear that the future IT landscape is driven by a wave of digitalization that re-defines the business environment for many industries. By leveraging trends such as social media, mobility, cloud services and information, businesses are facing reduced barriers of entry, definition of customer value and new competition – with serious effects on their competitive advantage and revenues. In fact, in a recent CEO study (Gartner 2012), the top threat to future business models and competitive advantage come from advances in IT and technology. It is fair to say that the trends we have recently referred to an IT trends are in fact business trends. The CEO study also reveled that almost 50% of all IT organization does not contribute to business competitive advantage as they lack understand of the business challenges and increased competition.
“In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.” – Charles Darwin
The new IT landscape, with serious business effects, demand a new approach to IT. The purpose of IT is no longer to “keep the lights on to minimal cost and risk” but actually to optimize business value. This paradigm shift of IT management will only be achieved by a total integration between IT and business where IT is completely aligned to business strategy and governance. This approach has previously been considered “ambitious” and something for high performing CIOs but now is a necessity for all CIOs as a hygiene factor. It is getting more and more evident that business is demanding creation of business value from IT, or else, someone who can handle that task will soon replace the CIO.
Business value is created based on “how to use” IT in an optimal way – in complete collaboration between IT and business.
The trend in IT is moving in another way towards commoditization – meaning the standardization of IT services based on frameworks such as ITIL, COBIT and TOGAF. The movement toward standardization was been to reduce cost, risk and quality of deliveries. Many IT organizations are today forced up the CMMI maturity latter in an attempt to become Operational Excellent. However, does this strategy actually contribute to business value?
To answer the question, we need to probe into the actually changes in the IT landscape. The digitalization trend is causing a higher degree of unpredictability in the business landscape. In fact, a study (Gartner 2012) showed that the most common word in CEO reporting and presentation was “predictability” due to unsure economical, political and especially social and technology development. When asking a Head Strategist at a large financial institution, it was clear that the level of predictability in their case was limited to 9 months. After that, it was not worth doing any prediction.
Operational Excellence has been the main strategy of many IT organizations but is based on the principle of predictability. The strategy, which is process and system driven, suggests optimizing IT management processes and systems, through various frameworks, to reduce cost and risk. However, the paradigm shift in the business and IT landscape is suggesting an unpredictable environment – meaning that the Operational Excellence strategy has to be revised.
Commoditization of IT services has many benefits and need to continue, but the main focus cannot be Operational Excellence but rather Customer Intimacy (based on knowledge) – defining “how IT is used”. One needs to understand that it is not the services themselves that create value, but rather how they are organized and used. With a higher degree of unpredictability, the chances are that the services in demand with alternative over time. How to achieve that?
The answer to the question is Agile IT Performance Management with a purpose of continuously aligning the IT governance (and service demand) in a business value optimum way in an unpredictable environment. It is about leveraging on three IT strategic pillars to the full extent and hence achieve a Customer Intimacy strategy.
• Environmental scanning: with a purpose of mapping, analyzing and prioritizing trends (internal/external) that has an IT effect on the business landscape. Key is to determine the “rate of change” in the industry to understand the needed level of agility in the Performance Management cycle.
• Performance Management: with a purpose of continuously aligning the IT strategic pyramid (vision, strategy, themes, guiding principles and KPI) with the change forces affecting the company. A complete alignment will maximize the business value. Performance Management is made up of four activities – Plan/Do/Check/Act.
• Change Capacity: with a purpose of enabling continuously transforming organization through agile leadership, suitable incitements/rewards, communication and approach. This pillar is key to achieving Agile Performance Management.
Studies show that corporate profitability and growth depends, to large extent, on how well the level of agility in IT Performance Management is aligned to “the rate of change” in the industry. Companies with high level of agility, competing in an industry with high “rate of change” is often very profitable and shows high business growth. Companies, competing in the same market, with low level of agility will often experience market failure. Today we see around 50% of business with low agility in Performance Management jeopardizing their market position.
It is also recommended that IT organization start to measure the Value of their IT services. This has been a dilemma for many IT organizations but there are now methods of doing this. Value of IT is defined as IT’s ability to exceed the expectations of business in the business IT value chain. Therefore, it is necessary to start to define the role of IT in the value chain, what expectations there are, and monitor how well these expectations have been met.
1. As an IT manager, put extra efforts into understanding the business challenges and its consequences due to the digitalization revolution and how you can help.
2. Define, with business, how IT can contribute with business value. What is the role of IT and what are the business expectations?
3. Build an agile performance management framework where the IT strategy and governance principles are continuously updated – in reference to the “rate of change” in the industry.
4. Continue with the standardization of IT services and process according to best practice frameworks. But understand that the standardization does not bring value – but rather that it is the consumer of the services that will determine its value.
Communication and telephony was one of the main results of the electricity revolution in the 19th century. Today we use smart phones with different app that we download from cloud services. Business see IT organizations like a smart phone – with a number of applications that are available for them to use. They don’t care about what is inside the phone but rather how they can be as successful with app support as possible.
Think about how you use the smart phone. How does the smart phone contribute with value to your life? What is important for you? What is your feeling when it does work? How can you get more out of your phone? How has the introduction of smart phone changed your behavior?