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“It is important to understand that the battle of the future market shares will not be based on stability or cost efficiency but rather on the company’s (primarily the IT organization’s) ability to adapt to the new digital landscape.”

I see the problem. When discussing performance management and digitalization with IT organizations, I receive the same feedback.

“What you are saying is correct and right but you must understand that our basic infrastructure and operations are not good enough to facilitate that discussion with business. We must earn our trust and mandate to innovate”.

IT organizations are haunted by application and infrastructure failure, and cost pressure that has enormous effects on company brand and ability to compete. It is difficult to be a winner in the market when media headlines that your IT services cannot be trusted. How to make CEO/CFO happy when 15% of your business is disappearing annually due to digitalization – more cost reductions (2-3% of cost levels – when will it stop)? And obviously IT plays a pivotal role in this scenario. CEO states that development in IT and technology is the biggest threat to current business models (Gartner 2012). But IT is forced to focus on Operational Stability and Operational Excellence to enable stability and cost reduction (short-term shareholder value) but not invited to discuss agility and innovation (long-term survival). The question is how to get out of this vicious circle and change the mindset and dialogue. It is getting urgent as digitalization is currently changing the business climate and IT needs a different role. How to prove that IT is a valuable partner in the value chain?

The problem can be seen from a maturity perspective inspired by Maslow’s hierarchy of needs. The fact is that there are different levels of maturity (not in CMMI sense) defined by IT capabilities to deliver value.

IT Maturity Levels:

Level 1: Operational Stability: Building trust in business critical applications (Physical needs)

Level 2: Operational Excellence: Ensuring efficiency of internal IT processes (Safety needs)

Level 3: Business IT Steering:  Building business satisfaction by effective collaboration and common governance. (Love/Belonging)

Level 4: Business IT Agility: Ensuring business success by managing unpredictability with faster governance cycles. (Esteem)

Level 5: Digital Innovation: Driving the agenda in industry by though leadership and innovative business models (Self-actualization)

(Source: The Goodwind Company 2014)

Many companies state that they have to earn credibility on one level in order to proceed to the next. With a new stability failure – they are then back at bottom and need to start the climb again. To suddenly demand Digital Innovation (Level 5) from an IT or business organization focusing on Operational Stability (Level 1) is not working. The credibility must be build up over long-time.

Looking at the five levels of IT maturity, we see a direct linkage to the Value Disciplines. The lower levels (1-2) are obviously linked to Operational Excellence. The middle levels (3-4) are linked to Customer Intimacy and the final level linked to Product Leadership. Our behavior and values in the IT organization is also linked to these value disciplines. For example, when positioned in Operational Excellence, we believe that further structure and processes (outsourcing) is the key to achieve cost reduction. However, in Customer Intimacy, we believe that cost reduction can be achieved by business IT collaboration and doing the right prioritizations. Therefore, we see IT organization that are forced into one level and behavior – and feel quite comfortable with that role. Employees and leaders are recruited to support that focus. Governance and level of control is set up to support that role of IT. In many cases, we are stuck in Operational Excellence hell and are unable to climb the maturity ladder.

What we can see from research (for example: Beyond Budgeting) is that the current governance models are designed to support organizations with Operational Excellence (level 2) maturity. There are high level of “command and control” and long-term performance contracts. The governance models do not support unpredictability, value creation and the needed strategic directions that are needed for other maturity levels (3-5). The paradox is that companies in higher maturity levels (3-5) are often more cost efficient than those in lower levels (1-2). Something to think about!

What we know for a fact is that digitalization and unpredictability is increasing in magnitude. More and more industries are challenged and thrown into a market revolution where the laws of competition and customers are changed forever. To survive in this environment, companies (and especially IT organization) need to focus on innovation and agile performance management methods. Survival of the fittest! Companies (and IT organizations) that are unable to compete will be automatically be marginalized and phased out. This is happening today!

“It is in the IT departments where the company’s future will be determined. The whole business climate is changing – and it is happening now!” Gartner 2013

This means that only companies with an IT maturity of Business IT Agility (level 4) and Digital Innovation (level 5) will survive in digital tsunami. Only they are fast enough to adapt to the new digital environment and level of unpredictability. Others stuck in Operational Stability and Operational Excellence (level 1 or 2) will not have a chance – especially in digital markets. That is the sad truth!

I understand your point? I am stuck in Operational Excellence and what to change. What do I do? How to transform an IT organization stuck in Operational Excellence (level 2) to Business IT Agility (level 4) to ensure the future of the company? There is not one answer to this question.

My view is that it is about waking up to reality.

 The burning platform is already there and it is mainly about creating a strong vision/mission/strategy that is aligned to business challenges in true collaboration (remove business IT silos). But it is also about monitoring business value and not IT value to re-brand the IT organization. Focus on leadership, competence, people management, agile performance management and a way to measure value of IT. It is necessary to dare to take a step into unknown terrain to make the business successful in the long-run. If you are in the Operational Excellence hole – stop digging! If your managers say it cannot be done – remove them because this is a matter of business survival.

Recommendations:

  • Wake up and face reality! How is your IT organization addressing the market changes driven by digitalization? More structure or more agility? Build burning platform for change! Build trust!
  • What maturity level do you have – and what is needed for survival in the digital and unpredictable world? When is one maturity level achieved?
  • Identify drivers that can change your maturity in the next year (12 months). Drivers such as leadership, competence, information/communication, collaboration, performance management, strategy etc. These need to change!
  • Develop a strong vision, mission and strategy what supports the transition and new environment. Simplify and focus!
  • Re-brand the IT organization to change its reputation. Measure the value of IT and communicate it!
  • Contact experts to help you with this journey! Give me a call to start the discussion.

Yes, I still see the problem. Many companies are dependent on a stable or efficient IT organization to build brand allowing them to compete. But it is important to understand that the battle of the market will not be based on stability or cost efficiency but rather on the company’s (and IT organization) ability to adapt to the new digital circumstances. It is time to wake up and accept reality! What can you do today to re-brand the IT organization and take a step up the maturity ladder? If you do not know – change job!

Hans Legend 1