With an emerging digital economy, IT has the opportunity to provide a secure platform on which both it and other units of the business can innovate, perform analytics and deliver digital services in an accelerated fashion. But that's a different role than the one IT is currently used to.
"IT must move beyond its traditional service provider role and become a driver of new digital capabilities that are critical to the business’s future," concludes a new report.
That's the main thrust of The Hackett Group's latest executive insight report, Beyond World-Class Service: IT's Digital Capability Imperative by Richard Pastore, Scott Holland and Allan Frank. A version of the report is available via registration here.
Most enterprises are in the early stage of becoming a digital enterprise and still have much to do before they have thoroughly changed the way they deliver business services and interact with customers. Although many parts of the business sense the need for this transformation, "IT organizations are in a unique time and place to not just support but accelerate their companies' transformation," the authors said.
Want to learn about another sign of the digital transformation? See Globally, Chief Digital Officers Start to Take Hold.
To become a driver of new digital capabilities, IT must undergo its own transformation, becoming more "responsive, customer-centric and innovative" as a business partner. That's easy enough for the authors to say, but how to do it and keep all systems running while entering the brave, new digital world remains an illusory goal for many IT organizations. The Hackett Group analysts tried to put some meat on the descriptive bones of "digital transformation."
Instead of seeking to perpetually automate more existing business services, the IT organization must:
1) "Develop processes to manage the conversion of innovative technology" so that it can be used to repeatedly improve engagement with customers and delivery of business services. An example might be the application of analytics to every interaction the company has with a customer so that a more complete picture of the customer emerges for use in the next interaction.
2) Develop a modern digital architecture. That would include automated data collection services, readily available analytics and artificial intelligence services and "customer engagement platforms that enhance agility and the customer experience." All are designed for ongoing and iterative use as one advance leads to the next.
3) Establish cybersecurity as a strategic aspect of all digital business operations and manage the risks associated with them.
4) Adopt service development and delivery models "that ensure the business operates in an agile and responsive manner appropriate to a digital business." Examples might include agile software development, frequent updates of existing services and continuous integration of code for new services, as well as the automated collection of data critical to the future of the company for ongoing analysis.
5) It's not enough to have a digital service platform or applications that use analytics. The infrastructure and management processes must be in place to support them and "derive insight from data and information."
It's this last requirement for digital transformation that is the first stumbling block at many companies, according to the report. For example, the top tier of IT organizations, the ones that Hackett dubs "world class," have fewer business applications that they need to maintain than other members of their peer group.
The Hackett Group is hired by firms to come in and benchmark their operations and tell them how they compare to competitors in the same industry. The Hackett Group reports are based on statistics derived from the anonymized results of those benchmarks. According to information on its web site, the group has conducted 13,000 such benchmark studies since it was founded in 1991. The current report is a summary of benchmarks over the last 2-3 years, said Pastore, world research director, in an interview.
Those benchmarks show that a peer group of average or even above average IT practitioners will have 2.5 times as many applications running as a so-called "world class" IT organization. They will have 4X as many workflow engines, 3X as many development platforms and 3.5X as many software suppliers.
The reason, explained Mark Peacock, the group's IT transformation practice leader, is because the top organizations "drive a lot of standardization and standardized processes. It takes a lot of work to do that."
With standardization, there's less complexity and dissimilar systems to try to cope with. World-class organizations manage more end users and get more compute work done at lower cost and with fewer people, the benchmarks show.
Complexity, on the other hand, "is the arch-nemesis of transformation. A digital operating model requires agility, speed and adaptability. Complex technology infrastructure, data architecture, software and hardware platforms, and supplier proliferation are drags on business efforts to innovate and accelerate," the report said in a key passage.
In some cases, the difference between top-tier IT organizations and average ones in the peer group are dramatic. The report said peer group members operated five times as many product databases, seven times as many portals and eight times as many data centers. The latter statistic sounded high, even to Pastore, during the interview. But with a moment's reflection, he said it included mirroring sites and co-location sites that counted as a data center to the client.
"There's a complexity gap between the top performers and the peer group," he emphasized.
Complexity in the data environment was more worrisome than using extra programming languages or development tools, he continued. Use of data is one of the key tools of digital transformation, and dissimilar database systems or confused data types make it harder to apply the analytics and automated services needed to get to next-level customer services.
"There's a complexity tax that's draining money away from being able to deliver new business capability," said Peacock.
The complexity tax shows up in statistics such as: top-ranked IT organizations spend 21% less than other members of their peer group to serve a similar number of end users or complete the same number of units of work. They operate with 16% less staff for each $1 billion in revenue.
Reducing complexity and accomplishing more work at less cost is a step in the right direction but is no longer enough. The goal is no longer to further automate existing business processes as it is to "enable new business capabilities that position companies to compete in the digital business era."
The group will further examine how to do that via its previously mentioned five points of digital transformation. It will do so in a future report due out in August, Pastore said.
Although the group's clients are frequently large companies, being effective in digital transformation has little to do with the size of the company or amount of revenues, Pastore said. Many large companies got that way through the use of their legacy systems, and now all of those systems are one of the barriers to where they want to go. Smaller companies that are quick to adapt have less of a legacy burden and perhaps have already built in some of the operating principles that are a precursor to transformation, he said.