This presentation was shown at IDC Nordics Direction 2015 and answers the two main questions: What is the business implications for solution and service providers in the Nordics with the digital transformation? What is the business priorities for 2015 and why?
To highlight how digital transformation is reshaping the role of IT, let us start with the story of a leading Spanish bank. It has put in place a new business unit about 6 months ago that is focused on digital banking.
It was headed by a business leader with very little IT background. The digital bank has a new "special IT" structure set up within this group – it focused on two key areas:
1. Multichannel — the bank including the following:
ATM and branches
Internet
Mobile
Contact centers
Accessing APIs — the future focus is to provide APIs so that application functionality can be shared with other companies (e.g., insurance mobile app if required).
They are still testing the social channel; they realized that it is a very big challenge to get right, with huge implications if it goes wrong.
2. Innovation — the 3-5 year plan:
The focus is to think about setting up a completely new digital process, not just about converting analog processes to digital.
So if you were to think about processes such as:
Opening an account
Loan origination
Transfers
In a completely digital way, what would they look like?
Note that there is still a traditional IT structure in place — led by a CIO who is a peer to the head of digital banking.
Key Takeaways:
The growing number of digital business units of your clients are in spending mode — budget is not IT or the business; it is a combination of the two.
For clients, the digital issue is much bigger than the underlying technologies (cloud, mobile, etc.). These technologies will be key enablers.
Your clients are looking for vendors that are willing to "co-innovate" with them, and it is a new playing field. Vendors that have a strong footprint of 2nd Platform technologies will not necessarily translate that into the digital business units.
As a result of these type of examples, the traditional IT department is doing a something of a self-examination. And frequently going through some serious restructuring.
IDC has assessed how IT structures have evolved over time. A few short years ago (2006), about 75% of IT organizations characterized themselves as being highly centralized. By 2013, this percentage has declined by 10 points to 65%. IDC believes the rate of change (IT organizational design) is accelerating, and in three to five years, less than 50% will be centralized. For IT executives, planners, and strategists residing in centralized IT organizations, change is imminent. The expectation is the IT organization will not necessarily be decentralized (i.e. smaller IT groups sitting autonomously in the various business units), but move more towards a hybrid (or federated) model, whereby a certain amount of the power (and resources) is shifted to the business units, but the central IT function maintains under the control of the CIO. The successful transition from a centralized to a federated/hybrid IT organizational structure relies upon the evolution of the IT governance framework — the key elements of which address enterprise architecture, data privacy and management, vendor and sourcing management, security, service management, and IT strategy. But ultimately, what the IT department should look like in the future to deliver so-called 'proven business value' to the broader organization will largely depend on how the digital transformation trend plays out. Because this is a fast changing space.
So when the CEO of Barclays Bank says that banking is going through the biggest transformation of the century, that transformation is based on technology. The technologies he is referring to are based on the 3rd Platform, and they critical to driving an omni-channel experience across web, mobile, social, mail, as well as traditional physical channels to engage a variety of stakeholders with an ever-growing number of devices (including wearables). These technologies are also enabling the "race to digitize."
And this is not happening to only a few industries. All business executives are seeing the impact of digital disruptors such as Uber, Amazon, and Netflix on the travel, retail, and entertainment industries — realizing that it could well happen to their own.
Essentially, the business is leading the race to digitize because they see it as a way of driving completely new revenue streams, and in some ways, ensuring the company's long-term survival.
And while the business is putting enormous "time to market" pressure on the IT department, IT is really struggling to catch up.
The main reason for this is the fact that they are constrained by legacy (in terms of the previous investments in 1st and 2nd Platform technologies), which they are still being forced to operate and support. This means most IT departments are not in a position to react to these demands quick enough.
We see three key legacy areas that need to be sorted out to free up IT's time and for it be somewhat more responsive:
1. A rethinking of the application landscape. This is where cloud comes into the equation. As organizations go through the retire-replatform-optimize-or-develop decision process, there is a workload assessment that needs to be done by the delivery model, looking at the mission and regulations critically.
2. A number of outsourcing contracts put in place pre-3rd Platform. They tend to focus on cost, risk, and service-level agreements (SLAs) rather than business outcomes. So if you need to introduce a new, iterative approach to developing front-office-facing applications using a DevOps approach to application development, it is quite difficult to renegotiate the contracts accordingly.
3. On the infrastructure front, we are seeing a broad-based push toward private cloud to deliver new capabilities in a quicker and more secure fashion. This inevitably requires some form of platform migration off legacy environments, which can take some time. For organizations that made this shift, we increasingly see the underlying infrastructure driving application design (as opposed to the other way around, when the applications team ruled the broader approach). In addition, there is a clearer understanding that security requirements need to be baked in upfront in terms of new capabilities being rolled out. However, this can also significantly slow down the whole process.
When the business do not get what it wants when it wants it, the result is Shadow IT.
IDC recently conducted a Shadow IT study. We asked CIOs the percentage of all enterprise technology spending they think is shadow.
The study showed CIOs estimated it to be 6% on average.
We did the same study with line-of-business (LOB) executives involved in technology decisions. They tell us it is 16%.
This truly is a case in which what your clients do not know will hurt them.
Europe = 49%
2 speed IT
And in some cases – to deal with this issue, new innovation groups are being set up – primarily around digital.
So it has become more formalized - its not in the SHADOWS – its being pushed by the MD or the CEO
And in some cases – to deal with this issue, new innovation groups are being set up as we can see in 1 of 2 organizations in Europe – and these are primarily around digital innovation.
As such, new 'digital business units' are being put in place to drive the 'digital transformation' of these organizations. The leaders of these business units do not necessarily come from the IT department – they are business people
So it has become more formalized - its not Shadow IT in that in the traditional sense – its being pushed by the MD or the CEO.
This is part of what we are referring to as ‘2 Speed IT’. One core IT group that operates at a slower pace (mainly trying to manage and migrate legacy environments) working behind a much faster paced IT organization that is there to help the business as it drives its own change.
And in some cases – to deal with this issue, new innovation groups are being set up as we can see in 1 of 2 organizations in Europe – and these are primarily around digital innovation.
As such, new 'digital business units' are being put in place to drive the 'digital transformation' of these organizations. The leaders of these business units do not necessarily come from the IT department – they are business people
So it has become more formalized - its not Shadow IT in that in the traditional sense – its being pushed by the MD or the CEO.
This is part of what we are referring to as ‘2 Speed IT’. One core IT group that operates at a slower pace (mainly trying to manage and migrate legacy environments) working behind a much faster paced IT organization that is there to help the business as it drives its own change.
And we have come up with six areas or attributes that partners need to transform to remain relevant in the 3rd Platform era
Based on that, we have created a ’Partner Playbook’ for Europe that we think vendors should use to help fuel that transformation
In the 3rd Platform, the technology architecture supports business decisions, whereas in the 2nd platform, the technology architecture drove the business process.
Hence, the way you, as solution providers, engage with clients needs to move toward a relationship model with IT, the digital units, and the business units. This requires a long-term outlook, where the underlying contract is driven by business outcomes (and therefore more trust) as opposed to risk.
Top 10 Hard-to-Fill Roles:
One of the most important challenges your clients will face in terms of talent management is the skills gap.
The 3rd Platform is creating new roles that live between business and technology — a combination that makes these roles highly desirable and in short supply.
According to an IDC talent management study, the roles you will be competing the hardest for are in enterprise architecture, business analytics, IT management, security, and mobile.
You can certainly play a role in terms of augmenting your clients’ capabilities with your own skills in each of these categories.
And we have come up with six areas or attributes that partners need to transform to remain relevant in the 3rd Platform era
Based on that, we have created a ’Partner Playbook’ for Europe that we think vendors should use to help fuel that transformation
Transforming to a Business Innovation IT Org (IDC EIT MM)
At IDC we have developed what we call and Enterprise IT Transformation Maturity Mode to help IT organizations understand where they are on their journey and what elements they need to focus on in their transformation.
2nd Platform and 3rd platform IT
Most IT organizations are evolving from being 2nd platform IT organizations that provides cost-effective, secure, reliable operations to run the business….
..to 3rd platform IT organizations that have coordinated efforts between business and IT around 3rd platform implementations .
Business Innovation IT
Where most organizations want to move to is what we at IDC call “business innovation IT organization” that enables business to innovate and achieve market leadership through the effective delivery of technology to the business.
The other two stages at either end of the maturity model are for the most part outliers at either end. The typical IT organization is neither that much of a laggard or that much of an industry leader.
Walking up the Staircase
Now transforming your IT organization from a 2nd or 3rd platform IT org is a lot easier said than done. This is not as simple as walking up two stairs to reach the Business Innovation stage as the graphic may depict.
Are You Transforming Your IT Org Fast Enough?
There is no doubt this transformation is happening in enterprises all around the world
The question is at what rate? And how does that compare to where your organization is in this transformation?
Our research shows 67% of Organizations are Operating at a 2nd Platform IT or 3rd Platform IT Transformational Stage, which may on the surface appear to be fine. But the challenge is that each year this scale rolls forward. What we define as 3rd platform IT in 2014 will be replaced by what we define as business innovation by 2015.
If you are one of the 15% that are ahead of the curve at the business innovation stage, you must continue to transform in order to stay ahead of the pack.
If you are in the 3rd platform stage, you are at average and need to keep at it just to stay in place
If you are 2nd platform IT, you need to put yourself on an accelerated plan or risk falling far behind
Therefore, the question before all of us is:
“How do we accelerate the transformation inside your clients IT organization?”
What can we learn from those in the 15% who are already at the business innovation stage all your clients are all striving for?
These are the type of questions your business development and account engagement resources need to be asking as it relates to driving digital transformation with clients.
Ask participants to raise hand on where they think their company need to be:
Write the 2nd row of results on the board
And we have come up with six areas or attributes that partners need to transform to remain relevant in the 3rd Platform era
Based on that, we have created a ’Partner Playbook’ for Europe that we think vendors should use to help fuel that transformation
They are in a spending mode – budget is not IT or the business – its combined
The digital issue is much bigger than cloud
Looking for vendors that are willing to ‘co-innovate’ with them – new playing field.