In the digital age, technology role in business transformation is becoming more and more significant. Many transformation initiatives are heavily dependent on technology enablement. In order to support the business transformation agenda, IT leaders have two challenges; readying the operations and developing the needed IT capability.
Firstly, they must get the technology platforms and operations ready to support the business transformation. This often includes standardising infrastructure, cloud adoption and digitizing operations. IT leaders must develop the plans and strategies and roadmaps for delivery.
The second, often-overlooked strategy, is to ensure that IT Organisation itself has the right capability to drive and sustain the transformation. Without the right capabilities in place – team/talent, organizational structure and processes, tools and culture – organisations would fail to receive the benefits of the transformation.
It is a mistake to treat this as a “business as usual” activity. IT Leaders need to develop explicit strategy and plans to assess and then develop the capability they need to meet the demands of the transformation. They must assess how well the management and delivery disciplines are embedded in IT functions such as planning, budgeting, delivery, sourcing and benefits realisation.
High cost of failure
Cost of failure of technology-enabled transformations is high. As shown in the exhibit 1 below, failures arise not from lack of intent, but from lack of IT capability or when IT is not fit enough to support the demands of the transformation.
Common weaknesses include inadequate project and portfolio management, governance shortfalls, poor capability in managing vendors and contracts that can allow costs to spiral out of control.
Fit organisations often deliver the transformation programs in a more consistent and predictable manner. They are able to make better trade-offs and resource allocation decisions and work more effectively with vendors and partners.
Getting fit for transformation
The nature of the transformation challenge would determine the specific capabilities needed in IT. For example Core systems transformation would need different capabilities than say migration to Cloud-based infrastructure.
There are three questions that need to be considered.
- What specific capabilities are needed to support the transformation?
- How good are the current IT capabilities and how good do they need to be?
- What is the right way to improve these capabilities?
The IT capability maturity framework (IT-CMF) developed by the Innovation Value Institute would be of help here. IT-CMF has been designed to explicitly align IT with business value. The framework divide 32 IT capabilities in 9 groups, that address the different ways in which IT contributes to business value. Each capability is supported by objective criteria to assess and demonstrate maturity. There are metrics for contribution to business value.
- IT-Enabled Business Innovation: Value through executing product, service, process, and IT innovations
- Agile IT Architecture: Value through achieving system flexibility and integration capability to enable efficient business change
- Business and IT Operational Integration: Value through strong business and IT collaboration
- Business and IT Strategic Alignment: Value through an integrated business and IT strategy and roadmap
- High-Performance Organization: Value through an effective and efficient organization to deliver IT services
- Portfolio, Program, and Project Delivery: Value through well-governed portfolio- prioritization and program-delivery processes
- Service Delivery: Value through standard, simple services with cost and quality differentiated on the basis of business needs
- Sourcing Management: Value through a strategic sourcing capability that enables access to scale, efficiency, and market innovation
- Cost Management: Value through trans- parent, relevant, and business-oriented forecasting and allocation
Which capabilities are needed?
Required capabilities depend on the type of transformation. First, IT needs to have a clear view about its current capabilities. The next step is to identify key capabilities required to support the transformation.
Core systems modernisation would require capabilities associated with large program management. A global sourcing program would require capabilities associated with sourcing management, contract management and cost management. The following exhibit 2 shows how different transformations need different capabilities to be improved.The relevance of various capabilities can change over time. Some capabilities may be needed earlier in the transformation than others.
IT-CMF can also be useful in determining what capabilities an organisation will need in the future and how they differ from what capabilities exist today.
How to improve the capabilities?
The IT-CMF promises to provide a comprehensive broad assessment that allows the organisations to benchmark their IT function against peers in similar industries. The capability gaps are clearly linked to required business outcomes.
Business and IT leaders can jointly apply the framework and then work through priority capabilities in the order of their relative importance and then determine the target level of maturity. This would give senior leaders an insight into the high level capabilities and build a stronger buy-in.
IT-CMF defines the set of activities an organisation must undertake to reach the next level of maturity. A lift from level 2 to 3 in in Program management where IT directly contributes to business value than be a service provider typically takes 18 to 24 months of focussed effort. The required steps are:
- Move from basic and inconsistent project management disciplines to well-defined and consistently applied project management applied organisation-wide.
- Move from project specific benefits assessment applied selectively or inconsistently to enterprise-wide discipline for defining IT and business benefits.
- Move to consistent project budgeting and monitoring that enables regular comparison of project budgets across the entire IT project portfolio.
Improving the capabilities is not an ad hoc or routine business activity. It would take sustained and focussed effort over a year or two with milestones along the way. But the rewards would be substantial in improving the timeliness and the cost of the transformation projects.
Organisations that systematically improve their most critical capabilities early in a transformation, are consistently better at delivering value. Indeed, an explicit and early focus on the most critical capabilities and the right investments in resources, effort, and management attention are what separates success from failure.
Based on BCG Perspective – Getting Fit for Transformation July 2015