The age of globalization and digitalization is here. Is it running like a tsunami across the globe changing the foundation of business and society. Is it possible to stop the tsunami? How to respond to the age of globalization and digitalization? It is all about “value creation” and how companies and organizations are organized and governed to meet the expectations of the end-customer. In the end, an employee, manager or company that does not create value to its customers have no justified existence on the global and digital arena.
It is the age of globalization and digitalization. An era where capital, services and production means flows across national borders with ease. All transfers are enabled by digitalization – where processes, information and IT are not contained to a region or country. It does not matter if a product or service is produced in Mumbai, Beijing or Stockholm – they all compete on the same market. It is an era where products and services are produced and managed where it is most cost beneficial and value creating. If the total value of service is higher being produced in Mumbai – then that sets the standard for that service. Location is not the key determinate in that value equation. What is important is that I can consume the service or product when, where and how I see best fit. How the service or product support my life style and personal branding. For example, do I really want to post on social media that I am a customer of a certain bank? The down side to the age of globalization and digitalization (often called “new normal”) is that societies and companies compete on an international scale with high unpredictability, and where work is moved around in a quite chaotic way. This is the reality of “new normal”. No one is protected in the unpredictable digital landscape. An article in Dagens Nyheter (a couple of months ago) concluded that up to 40% of the work force will be affected by digitalization and globalization – when routine work is being automated with smart robots or digital solution. This scenario is having/going to have huge influence on societies, governance, and solidarity. It is with great anxiety that I follow how nationalistic movement is USA, Europe, and other parts of the world is trying to stop globalization and digitalization – with tighter immigration laws, trade tariffs, walls and old nationalistic rhetoric. One can see the similarities to the 1930’s. The age of globalization and digitalization is here. My question is where the tsunami of globalization and digitalization can be stopped? Probably not. What does this mean for companies, organizations and IT?
The key effect of globalization and digitalization is revolving around the concept of “Value creation” – how well we create value and experience for the end-customer. The fact is that globalization and digitalization will enable a movement (or change) in the business environment to ensure that value is optimized to the end customer. New player will succeed if they can create more value than traditional players. Companies will move production or service to where more value is created. Companies will keep those employees that contribute to the experience of the end-customer – the rest will not be used (phased out). This is harsh reality but is the way that corporations and organization are developing today. Value creation must directly or indirectly be linked to experience of the customer. Doing administrative service might not be direct value-creation but if the work free up time for management (to boost value creation) then that has a natural part of the company. But how do we define value creation? Here are my thoughts:
Value: all activities or investments that contributes to fulfilling or exceeding end-customer expectations – and hence building the corporate or organizational brand.
The definition implies that companies that do not create value for their customers (in one way or the other) has no place in the market. The customer will go to the company that optimizes the value creation for them. Others will be faced out. The challenges in bank and finance sector today can be very must linked to this definition. How does a bank meet the expectations of a customer? What are the expectations of a customer – and how does it change over time? Why are FinTech companies so successful in conquering the bank/finance industry? The thing is that customers and customer expectations is the starting point for designing/running the bank, not the other way around. How many Business Controllers (measuring cost – creating value of customer?) are in the organization – and how many Performance Managers (measuring value creation) are there? All employees, leaders, functions, organizations must understand their value contribution/proposition and linkage to the end customer. When looking at the IT organization of these organizations (also in general), my view is that these are very much separated from the customer interface but rather work in the back-ground with focus on operations. When studying the new digital start-ups, they have a different approach – total focus on the customer journey, experience and value creation. How to compete with that?
So, what does this mean for the IT organization? Well, IT plays a pivotal role in the globalization and digitalization era as more and more companies are becoming digital (IT intensive) to gain (or keep up with) competitive strength – following customer needs. Today, all business models rely on smart use of IT in some way (stated in research by CSC). But also, IT is undergoing a revolution in terms of management and structure. During the last 10 years, SCRUM (agile development) has revolutionized IT development boosting value creation, business interaction and time to market. It is a grass-root movement that has completely changed the way IT organizations operate. But an overwhelming majority of IT organization try to contain agile development by strengthen tradition governance – with total miss-alignment thus. Is that possible? There is a glass ceiling above agile development and portfolio management not aligned with governance, strategy and general IT management. Either IT organization has to go agile all the way (to support globalization and digitalization) or close down all agile movements dragging IT back to the 1980’s (traditional and silos – not recommendable). Unfortunately, I see many IT organization taking the second option.
I think the fair question to ask is how an IT organization creates value. How does employees, managers, functions, tools/processes, competence and ecosystems create value? First, value takes an external perspective – meaning that value is created by the receiver of services or products. In other words, it is business or the end-customer that defines how IT delivers value – not the IT department itself. The other components (employees, managers, organization, tools/processes), etc. are only enabling value creation. These are assets of the IT organization all supporting the vision and mission of IT. If an asset does not support the vision and mission (creating value) – then it has not place these and need to be faced out. This also means that development methodology and governance model also are assets to support the vision and mission of IT (creating value). These needs to be aligned to the business and customer requirements – not the other way around. Unfortunately, many IT organization tend to see governance and organizational functions separated from the customer value perspective. Good luck with that!
- Link all elements/assets of IT to the customer value perspective. How does for example help-desk, contract management, incident management, and other functions relate to customer value. How can value creation be boosted? My test is to think – does the end customer want to pay extra for the IT organization running a function this way? If not, then there must be another way!
- Dare to challenge the traditional and learn how to survive in the new normal. Whatever you know today will rapidly change and not be true tomorrow. The greatest asset of a leader today is to enable continuous and agile change. Dare to listen to the agile team! Learn and implement agile methods for your management team.
- See through the fog. There are endless consultancy firms that have “seen the light” and offer quick (technical) fixes to IT organizations. There are no quick fixes – it is a difficult journey focusing on people and management! Ask someone who understand the core complexity of globalization and digitalization. What does this mean for you?
- Contact Hans Gillior – your partner on the digital transformation journey.
We have during the last 6-9 months seen country after country react to the increasing globalization and digitalization by electing leaders and decisions with a strong nationalistic touch. But what we need to understand is that globalization and digitalization cannot be contained – in the same way that nationalism could not be contained in the 19th century. Any attempt to contain a global force of this magnitude will make the change even harder. There are many historical examples of this change – with devastating results. Our role is to make this swift as smooth as possible understanding how companies, employees and structure creates value. A company that does not create value for its customer with soon be passed by a new (digital) competitor. That is the true reality of globalization and digitalization. Either we accept it or we will be faced out. The choice is ours.
Hans Gillior – Senior Advisor/Digitalization Guru