With a tsunami of new digital technologies all converging simultaneously — social, mobile, cloud, analytics and embedded devices — there has been, once again, a cry for corporate IT to radically change to enable the digital transformation of businesses. But here is the daunting and exciting thing: we're only at the very beginning of the next digital wave.
Technology innovation is not slowing down or leveling off, but ramping up — and businesses will soon face a barrage of new digital possibilities. There is no time for complacency. Kim Stevenson, Intel's CIO, summarizes the challenge well: "[IT functions have] gone through ERP, they've gone through BYO and they've gone through cloud, and they think they've done it all. But the reality is, we're only at the very, very beginning of this next generation of computing, and I think that...industry leaders will be the ones that transform first. I don't care what industry you're talking about."
IT is already being asked both to industrialize traditional infrastructures and systems fast to save costs, and to innovate customer experiences and operations with new digital technologies. Cloud-based services are also now being bought directly by functions like HR and marketing, resulting in IT losing its control over technology purchase within the organization. Are all these changes just part of the natural evolution of the IT function? Or, in preparation for the coming wave, is a more fundamental re-invention needed? Research points to the latter.
Digital leaders, those companies that have managed their digital transformations successfully, all show common characteristics in the way they have shaped their IT to work differently with the business. They have changed their IT functions utilizing three related management interventions which, taken together, represent a fundamental re-invention of IT.
IT must play a central role in your digital transformation. It is no longer sufficient for IT just to be 'aligned' with your business objectives; a fusion is needed. As Angela Ahrendts, Burberry's CEO puts it: "I need [IT] to move from the back of the bus, where it traditionally sits, to the front of the bus...and it's traveling fast." It requires strong leadership from all senior IT executives, as well as new business acumen. Despite all the talk of 'shadow IT', digital transformations that happen without, or despite, IT are a myth. Company and unit leaders need to ensure that IT is in a leading position on all key digital projects. Also, it must become a key management responsibility to continually scan the technology landscape for fresh perspectives on how new digital technologies can improve business performance. In other words, IT must become a business-driven, front-office function.
Ramp up distinctive digital capabilities quickly. Digital capabilities are about methods, processes and people — and a truly digital IT organization is different from traditional IT. It requires new modes of operation. Requirements and specifications are more flexible and developed within cross functional teams with constantly evolving business needs. Service delivery is marked by a 'good enough' approach to error tolerance, relying more on rapid iterations and short cycle times. New, more agile, software development tools and testing methods are utilized. Different standards of project and portfolio management are also required with more flexibility in demand management and budgeting methods. And, there is a need to leverage partners within the group's ecosystem to ensure best practice re-use. How close or far does this sound from your own ways of working?
People are the key, obviously. The new, ideal IT person — a kind of "Homo Digitus" — needs to combine excellent digital specialist skills with deep functional business knowledge. He/she is used to short delivery cycles and feels at ease operating across silos and working within cross-functional teams. Homo Digitus is also output-minded and helps the business visualize solutions through rapid prototyping and experimentation.
How do you build these capabilities? In my experience, what works is adopting a three-pronged strategy of hiring new talent, re-skilling existing employees and filling skills gaps (such as a need for data scientists) by looking to trusted ecosystem partners. And crucially, with digital IT in a more central role that is more integrated with the business, a new breed of leaders is also required. As Markus Nordlin, CIO of global insurer Zurich, explains: "I believe that the successful leaders of tomorrow, in any business or industry, are going to be true hybrid professionals who have spent some time in IT but have shifted to operations and vice-versa."
Adapt your governance model according to your digital maturity. Choose the governance model that fits your organization best. If you are just starting your digital journey, a standalone digital unit within your IT organization might be appropriate. 51% of organizations that are 'digital beginners' have such digital IT units as the primary driver of their digital governance. These units can host your specific digital initiatives, start developing a catalog of digital services and nurture and grow new digital skills. They can also unify technology initiatives and start to foster global collaboration. But with this essentially IT-centric model, dynamic connections with global business units, marketing, brands and external partners remain difficult to develop .
If you are already well into your digital transformation and want to accelerate and harmonize your efforts, then an integrated digital service unit might be the answer. 57% of digital leaders use both marketing and IT as primary drivers of digital governance. In this model, the unit becomes the central point for all your corporation's digital initiatives and services. Both digital marketing and IT staff work together with common budgets and objectives. Nestlé, the global food giant, has implemented such a digital service unit, with a view to accelerate the deployment of digital services, harmonize digital technology platforms and scale local innovation. Such units present strong advantages. They reduce duplication of efforts and skills, thus reducing operational costs. They drive innovation and speed up time to market. And, they align the KPIs of each function to common goals. But, they can also represent a significant cultural challenge to implement and require strong leadership and cooperation from your organization.
Companies that are successfully leading digital transformation, and preparing for the coming digital wave (and it is coming) use these three levers to re-invent their IT. Organizations in every industry need to follow their example.
An HBR Insight Center