The IT group's dual roles—delivering essential IT to run transactions and differentiated IT to enable evolving business models—has created competing priorities.
By Jean Holley and Suketu Gandhi
The role of technology is changing again. Over the past 25 years, technology has evolved from just keeping track of accounting, to handling transactions, to being primarily a mechanism for transactions and controls, as well as a function that allows companies to run their business efficiently.
Yet these roles—each more important than its predecessor—are small compared to the significant role technology is now taking on. With the force of today’s digital technology behind it, not only does IT have to run all these transactions efficiently, but it now must also serve as a key component for enabling the company’s evolving business model.
This dual role of technology—on the one hand, delivering the essential IT needed to run the business efficiently and, on the other, delivering the differentiated IT that enables the evolving business model—has forced two competing and completely different priorities for the IT function.
Focusing on delivering essential IT requires technology that's tailored toward cost-efficiency. Focusing on delivering differentiated IT requires technology that's directed at delivering the company’s new capabilities and customer experiences. Doing both at the same time is difficult.
Driven by the need to deliver both essential IT and differentiated IT, the information technology organization in many companies is struggling. For the most part, it does not know how to manage this major change in technology’s role. But it must learn quickly.
If IT is to continue to be relevant and hold C-level attention, it must fundamentally reframe how it thinks about what it does, and it must become flexible and agile in delivering products and services. It can start by addressing these four key IT challenges that, if not managed well, will undermine its future success: allocating capital, ensuring the right skills, delivering new capabilities and building the IT-business engagement model.
Four IT Challenges
These four challenges are underlined by a core issue that directly affects how IT approaches its work. With an essential IT project, the IT function works with a known-known problem: The company defines the problem, and IT designs and implements the solution to achieve the desired end-state.
With differentiated IT projects, IT does not know the end-state upfront because the user has defined the problem, which for IT is either a known-unknown or an unknown-unknown problem. Hence, IT has a limited ability to put a box around it and resolve it with a traditional approach.
Allocating IT capital: To better manage the allocation of its capital, the IT function needs to work with corporate leadership to create a new business model that specifies the percentage of IT dollars assigned to each part of the company’s needs: essential IT projects or differentiated IT projects.
Right now, most models are biased toward running the business—with about 90 percent of IT funds used for essential projects, and only 10 percent used for evolving business needs, such as developing new capabilities. But most companies need a different business model. Ideally, IT would spend about 30 percent of its funding on essential IT and 70 percent on differentiated IT.
To start building this business model, IT needs to take two steps: First, develop a clear understanding of where the company’s revenue comes from today and where it will come from in the future. Second, IT must learn how the company will operate differently in its evolving model.
Ensuring the right IT skills: Most IT functions today hire specialists—people who can optimize existing processes. But the workforce IT needs is dramatically different: It needs to hire people who offer more than an understanding of the business and an ability to solve known-known problems. They need renaissance people who are comfortable working backward from the users’ perspective to design products and services that give users the experiences they desire, rather than the experiences the company wants to force on them.
Basically, companies need employees who have an anthropologist’s understanding of how people live and work, combined with the skills of technologists who are deeply into social media, the cloud, analytics and other new technologies. This skill set will enable IT to solve the problems users face—even though, for the company, these may be known-unknown or unknown-unknown problems.
Companies should also hire IT people with cross-industry skills, which are proving to be much more valuable today than in the past when companies hired primarily within their own industry. And they might want to hire IT people with the ability to fill roles outside of IT in other functions. This reverse-flow-of-talent trend is opening new career paths for IT leaders, while enabling companies to attain significantly more value than the traditional flow into IT of people without technology experience.
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