How Your Company’s IT Group Must Change To Support Digital Transformation
For the last five years, companies experimented with digital transformation. They are now convinced that the benefits are there and convinced that if they don’t take them, their competitors will. As digital technologies become more deeply embedded in the fabric of how companies compete, it forces IT departments to shift their role to become partners aligned with the business needs and digital transformation.
Changing IT is a fundamental realignment of how IT is organized, how it conceives itself and its role in the organization. This effort is not brand new, and this change in the role of IT has been evolving for a couple of years. Companies previously looked to IT for high-quality, low risk and low unit costs; now they want a transformation partner. It’s a fundamentally different role, and it requires an enormous change in IT groups.
At Everest Group, we talk about this new IT role in the context of “digital readiness,” and we’ve been investigating what it involves and the benefits it yields. At this point, we’re able to measure the difference between companies that are mature in IT’s preparedness to partner with the business and drive digital transformation compared to the companies that have not yet undertaken digital readiness efforts or those that are early on in this effort.
In our recent study of over 200 companies on their digital readiness, we found a big difference in the ability of IT organizations to support digital transformation. Consider these findings from the study:
- In companies that made the investment to restructure IT for digital transformation capabilities, the IT organization is an effective partner in digital transformation 86% of the time.
- In companies that are still immature in the IT restructure effort, the IT organization is an effective digital transformation partner with the business only 43% of the time.
Often, companies that haven’t yet restructured their IT organization tend to fail in digital transformation initiatives. That’s because the existing, traditional structure of most enterprise IT organizations is not designed for a digital environment and therefore cannot support it.
What Changes Are Necessary In The IT Restructure?
What must IT groups do to change their structure so that they can effectively partner with the business to support and drive digital transformation? Our study reveals the actions the effective, digital-ready companies did.
- They centralized IT. Interestingly, the debate over the last few years was whether centralizing the IT department was necessary in digital transformations. The answer is yes; enterprise IT absolutely needs to be centralized to partner with the business on digital transformation. IT’s role in digital pilots was not as centralized. Companies can experiment with technologies without the full resources of the organization, but they can’t transform the business and go down a meaningful transformation journey without the close participation and alignment of IT. For this to happen, IT must change and centralize.
- They committed to using the cloud and other digital technologies extensively. The IT organization must commit to a cloud-first world. It must also commit to an Artificial Intelligence (AI)-ready environment, an automation-first mindset and a software-defined orientation. It must not only use these new technologies but also be a master of these technologies.
- They committed to speed in operations. Just committing to use digital technologies is not enough. The IT organization also must commit to being agile and moving faster, recognizing that the old functionally driven techniques must change. They must change from a waterfall-driven and event-focused set of philosophies and methodologies to agile IT, transforming event-focused IT to a journey-focused IT. Moving into an agile construct challenges the company’s existing philosophies and policies.
- They changed their talent model. For digital readiness, IT groups must change their talent model – both the type of talent and where the talent is located. Under the traditional shared services concept, IT focused on decomposing activities into standard operating procedures (SOPs), thereby giving companies the freedom to use low-cost talent in remote locations. But in a digital world, the type of talent and location change. Digital-ready companies focus much more on cross-functional talent and having talent collocated together as well as positioned with the business the teams are helping to transform. This fundamentally challenges old assumptions and sourcing structures, which focused on consistent, low-cost IT.
- They committed to innovation. Although traditional IT gives great lip service to innovation, the traditional IT structure is the enemy of innovation because they enforce existing standards and create barriers in the name of creating consistency and lowering IT risk. To become digital-ready, IT organizations must fundamentally change their approach to innovation.
Change Is Difficult
I’ve often blogged about the challenge of changing at the scale necessary for digital transformation. It’s always difficult, and it’s never instantaneous. But it’s worth it.
Need more proof of the difference a digital-ready IT organization makes? Our study reveals that 95% of the companies that invested in restructuring the IT group increased employee productivity. Only 54% of the companies less mature in digital readiness achieved this outcome.
Moreover, the shift from IT’s focus on low cost and low risk to driving digital transformation, yields profound results. Fifty percent of the companies in our study that invested in readiness to support a digital world achieved at least a 30% cost savings. Somewhat paradoxically, as companies shift their focus from unit cost reduction to driving digital transformation, using the new and often expensive technologies and capabilities causes their total cost to drop.
Given this overwhelming data, I feel all organizations inevitably must make the shift to restructure their IT organization for digital readiness to support the insatiable requirements for the business to fundamentally change how it operates as well as the dramatic improvement in speed and lower total cost when they make these changes.
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