The 7 Business Benefits of Digital Transformation
Business Benefit #6 of 7 – IT Modernization.
Welcome back to our blog series on The 7 Business Benefits of Digital Transformation. We have covered a variety of digital strategies in both the front office and back office operations, resulting in amazing improvements in revenue growth, cost savings and business agility.
Digital technologies are impacting every facet of business in fundamental ways, and the IT organization is no exception. In fact, IT Modernization is central to the digital discussion.
IT’s historical role was to build new technological capabilities defined by “the business” at the behest of leadership. Most business executives did not understand the complexities of IT, and CEOs were more than happy to defer decisions around technology to the Chief Information Officer. Give the CIO a budget and then task IT to make the most of it. The IT department would then work with the business on a defined list of priorities, produce detailed requirements and subsequently embark on a complex process of development, acquisition and assembly to create a workable stack of technology.
IT budgets are increasingly being used to maintain existing systems – “keeping the lights on”– and new innovations stagnate as a result.
Over time, however, this approach has become unsustainable. Managing the complex morass of disparate software and hardware technologies along with the custom code written to interconnect them is increasingly difficult. IT budgets are bloated with costly internal resources, external consultants and software and hardware maintenance fees. Delivery timelines are extending. And by the time many IT solutions make it to market, after years in development, the needs of the business have often changed, rendering them obsolete on arrival or in need of even more development. IT budgets are increasingly being used to maintain existing systems – “keeping the lights on”– and new innovations stagnate as a result. Let’s not forget that the digital revolution is already upon us, disruption is evident in every industry and new innovations are emerging at an accelerating pace.
Clearly, enterprises need to rethink the role of IT and expand its influence and impact if they want to lead a successful digital transformation effort. Investing in digital as a competitive advantage is a key tenet of digital success. Amazon, for example, spends five times more on IT as a percent of revenue than its retail competitors. In addition, digital native companies like Amazon don’t have to worry nearly as much about the suffocating weight of ongoing legacy systems maintenance (technology debt), which takes vast resources away from transformation initiatives.
Securing greater IT budgets to accelerate digital transformation starts by making greater use of the IT budget today and demonstrating greater strategic business value to the enterprise. Today I would like to focus on three facets of IT Modernization needed to achieve digital success:
- Technology Rationalization
- Process Optimization
- New Roles and Skill Sets
According to a study by Capgemini, 48 percent of companies have more applications than they need. As a result, CIOs are faced with the daunting task of determining how to rationalize these systems, particularly the massive, costly, overly customized legacy systems supporting CRM, billing, provisioning and ongoing operations.
Systems rationalization starts with cataloging the applications portfolio and establishing a pragmatic approach to eliminate outdated and redundant systems based on their business value and their overall cost to maintain. Business value should be assessed in alignment with key business stakeholders, and cost analysis should be as holistic as possible, including not only the IT costs associated with maintaining a system but also the organizational costs that a system might create, such as rekeying and data entry errors.
An important goal of technology rationalization is to eliminate redundant and non-value-adding applications, freeing up future budgets for new business-critical work.
Cloud technology has been the primary driver of IT modernization over the last fifteen years. Many of the challenges that organizations face with legacy systems (high maintenance costs, complexity and lack of business agility) improve dramatically with increased cloud adoption. Sky Italia, for example, deployed Vlocity to 8,000 employees, and is transforming its sales, customer care and field service functions. Along the way, Sky has significantly reduced its IT costs by progressively migrating off its current legacy CRM system, resulting in 20 percent lower development costs, eliminating on-premise infrastructure and avoiding millions of dollars in costly software upgrades.
Reducing custom code during development and ongoing maintenance can have a dramatic impact on lowering IT costs.
Next-generation cloud technologies like Vlocity help reduce IT costs even beyond traditional cloud advantages. With pre-built, industry data models, process libraries, guided transaction flows and industry-tuned transaction engines, Vlocity applications can be deployed and maintained rapidly with limited customization required. A recent study shared by one of our customers relating to their legacy promotions system found that 87 percent of it was customized to support their requirements compared to 7 percent customization needed with Vlocity. Reducing custom code during development and ongoing maintenance can have a dramatic impact on lowering IT costs.
One strategy we see regularly is establishing a single cloud-based interaction layer for customers and employees that is integrated with legacy systems. The company receives immediate business value by providing employees and customers modern tools. Then, over time, companies can systematically decommission applications – in whole or in part – as cloud capabilities grow.
Beyond rationalizing existing systems and embracing new tools to accelerate systems development and maintenance, IT organizations must also adopt new processes to improve overall effectiveness and efficiency.
Digital transformation requires new methods to deploy software. Agile development processes represent a stark contrast from traditional “waterfall” methods. Agile development involves the use of dedicated, multidisciplinary teams who work closely on an end product in rapid, iterative development cycles. Traditional development methodologies, on the other hand, employ a more sequential process where bifurcated teams rigorously document and deliver distinct outputs at each stage, from conceptual design to requirements definition to code development and testing. One of the challenges of traditional methods is that user acceptance testing only comes at the end of the process, oftentimes resulting in poorly conceived or changing expectations that require significant rework, leading to costly delays and missed market opportunities. Agile, on the other hand, with its emphasis on an organic, holistic partnership of ideas between developer and end-user, involves continuous feedback and adjustments to create the “final” product—which itself will be further optimized via later releases.
Of course, let’s not forget that being digital is all about automating previously manual processes for the purposes of cost savings, risk reduction, optimal employee realignment and greater operational efficiency—and these same imperatives and benefits of automation apply equally to the IT function. Today, there are several areas where automation is being applied to IT, and delivering significant benefits in terms of staff productivity and agility:
- Automated system monitoring, issue detection and resolution
- Automated fulfillment of IT services (new end-user software/devices, service activation, passwords)
- Automated building, testing and deployment tools
New Roles and Skill Sets
The rapid pace of digital innovation represents new challenges and new opportunities for the IT organization. At its core, leading a digital transformation effort requires a clear understanding of existing systems, new technologies and the strategic business value of both. It requires a major shift in the collective IT mindset – from responding to requirements from the business to leading the charge on the company’s digital priorities and overall transformation agenda.
The CIO must also hone different skills, emphasizing greater collaboration along with the communication skills to inspire board rooms and employees at all levels. Perhaps the most important skill is increased focus and understanding of business value and alignment with the business. According to McKinsey & Company, when CIOs play an active role in defining the business strategy, IT performance on a variety of dimensions improves. The same study suggests, however, that most executives do not consider the CIO as closely involved in shaping the strategic agenda.
Attracting and retaining the right IT skills for digital transformation is also critical. According to a 2016 report from The Economist, 34 percent of companies find it difficult to develop the right kind of talent to pursue digital transformation. And Indeed.com surveyed over 1,000 tech hiring managers and recruiters and found that 83 percent said the tech talent shortage had hurt business through either lost revenue or slower product development and market expansion. It is easy for a high-profile digital native company like Google or Amazon to attract the right IT talent, but far more challenging for traditional businesses looking to become digital disruptors.
It is easy for a high-profile digital native company like Google or Amazon to attract the right IT talent, but far more challenging for traditional businesses looking to become digital disruptors.
One way to attract and retain the right IT talent is to embrace modern technologies (Cloud) and methods (Agile) to ensure professionals learn the latest skills to help them succeed. Companies must also pursue a range of new tactics to identify digital talent. Deloitte has pointed out the need for organizations to employ new screening methods such as social network profiling, video games and psychometric testing to further establish the credentials and experience of candidates aligned with digital priorities.
Entirely new IT skills are also needed to support a digital transformation effort. For example, many IT organizations don’t have any user experience experts, but this expertise is vital for success in the digital age. In addition, data science is emerging as a vital field for digital success. According to a recent Gartner survey, nearly 8 in 10 people believe that the skills and knowledge their organizations have in 10 years will bear little resemblance to the skills and knowledge they have today. It is important to stay abreast of skill requirement and have a plan and incentives in place to secure the necessary talent. To address this challenge, companies are investing more in academies – either in-house or in partnership with universities – to ensure essential new skills are being learned and applied by the current workforce and to develop a talent pipeline. Talent is also becoming an increasingly important factor in company acquisition decisions. Let’s face it – talent wins.
IT – once purely the province of tech-based knowledge and internal systems provisioning – has been catapulted to the center of the digital transformation imperative. CIOs have been elevated in this new hierarchy, partnering with executive teams to design, incubate and deliver on a wide range of initiatives to guarantee digital success. Besides assembling the necessary digital tools and activating the protean strategies of IT Modernization, CIOs and their teams will need to adapt to an ever shifting and constantly accelerating business environment. Collaboration will be key. This includes frequent communication with the end-user, who will usually be several steps ahead of the organization in embracing disruptive digital technologies and formats. Savvy CIOs will learn how to thrive in this environment: building multidisciplinary teams with diverse skill sets, quickly testing and iterating new products and services, and leading an organization that is relevant, agile, innovative—and hungry for the kind of transformation that yields results.
I hope you enjoyed this discussion. Please join me for the final installment of The 7 Business Benefits of Digital Transformation: Business Benefit #7 – Employee Enrichment.