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March 08, 2021

When IT is Your Weakest Link

By Rick Pastore  – Senior Director, IT Research Advisor

I start to laugh but end up shaking my head when I read the many case histories of digital transformation success circulated by trade media, technology vendors and even my peers at The Hackett Group. These profiles enumerate the goals, strategy, technologies, vendors, obstacles, critical success factors, outcomes and key players – but never once mention the company’s technology organization/IT function. It’s not hard to assume that none exists.

Yeah, right.

More likely, there were IT teams in these companies, but the initiative sidelined and bypassed them. They probably learned about it after the fact, too late to offer guidance. Now, the business has another desert island system — isolated automation that will be obsoleted in less than two years, forcing the business to start all over again.

Why does this keep happening? There is a thing called enterprise architecture, which technology leaders can’t effectively explain, and business stakeholders don’t want to hear about. It guides the effective and efficient implementation of technology to best achieve business goals. It defines how technologies and systems will: interact with each other; generate, store and analyze data; and maintain security, among other things. It ensures that standalone, incompatible tools are kept to a minimum.

In world-class companies, the technology organization and business stakeholders share ownership and accountability for various aspects of enterprise technology architecture. Tools that touch end customers and employee and customer databases, for example, are presided over by business function leaders and process owners. Those who choose to ignore or sideline the technology function are effectively ignoring this architecture, building orphan systems that most likely won’t fit with its norms and needs and will ultimately starve in isolation.

These one-off systems also add to the complexity of technology infrastructure– another thing that business stakeholders don’t want to hear about. And with good reason: Business functions with high technology complexity (a larger than average number of applications platforms per end user, for example) pay an average 60% more in operating costs compared to companies that have reigned in complexity, according to The Hackett Group’s benchmark study. That’s a significant penalty. To assess your own complexity improvement opportunities, try our free tool here https://lnkd.in/e7eMrf8

 

Technology should be a force multiplier

Let’s face it, the reason business leaders bypass the technology function and omit them from their success stories is because they’ve written IT off as hopelessly ineffective. This surrender is a mistake. The performance of business functions – G&A teams such as finance, HR and procurement – are tightly coupled with the performance of the technology organization. What I’m saying is, if IT stinks, your business function is most likely going to suffer lower performance too.

Our research shows that companies are more than twice as likely to achieve world-class performance when their technology organization is an effective strategic partner in enabling technology-based transformation. Technology is in fact a force multiplier for G&A transformation success. The reverse is also true: Without investment in technology capability maturity and modernization, efforts to transform or improve the performance of finance, HR, procurement or global business services performance will most often fail. This argues for an investment in improving IT, rather than perpetually sidelining the function.

It’s a visually powerful connection. On the chart below, each dot is a company that we benchmarked in technology and at least one other G&A function. Technology performance advances left to right on the x-axis, and G&A performance advances bottom to top on the y-axis. What the cluster along the diagonal line shows is that, for most companies we benchmarked, IT and G&A performance gains or declines in synch – performance between the functions is tightly correlated. The orange dots are companies with world class-level efficiency and effectiveness in at least one G&A function other than technology. Their distribution shows that there is little chance to achieve world class if technology’s performance is below the median, and there’s zero chance when IT is stuck in the bottom quartile.

That this correlation is an eye-opener to many business leaders makes me shake my head again. How could anyone think that the capability of their technology organization does not have a direct and substantial impact on their performance in today’s digital operating environment? Let’s be specific: Below are the key G&A performance areas we found to have the greatest correlation with technology’s performance.

 

You need a digital partner

In the wake of 2020’s pandemic disruption, many companies are trying to accelerate their transformation to digital operations, eliminating risky dependencies on manual steps in their processes, moving systems off-premise to cloud-hosted platforms, and increasing real-time visibility of vital business data. They are also trying to figure out how to do business as usual when an average of 58% of workers will be permanently remote or hybrid home-office based.

Here again, it is inconceivable to me that any C-suite leader believes they can make these profound changes without a technology strategic partner showing the way that is both fast and safe. Again, our research shows that digital transformation falters when IT is weak or not a key part of the picture. For example, finance transformation top performers report a positive impact from the technology function at a rate that is three times higher than more typical finance organizations report (see below).

Since the perception of IT capability is very subjective, we also asked function leaders about the actual impact of IT on their transformation initiatives. Once again there is a correlation between G&A functions’ transformation success and IT effectiveness. Finance transformation top performers cite a positive impact from the technology function at a rate that is three times higher than the finance peer group (50% compared to 17%, below). Indeed, most of the peer group believe the technology organization has provided no help, or even had a negative impact.

 

Much needed investment

CIOs of underperforming IT teams get it — they know they aren’t meeting expectations. But they haven’t given up. They are trying to build better relationships, hire talent with strategic sensibilities, and rise to the role of strategic partner. Being an effective partner is their No. 2 priority for the year, second only to securing data and systems. They are also taking the steps necessary to make the technology organization a performance force multiplier. The evidence is seen in the major 2021 initiatives on the agendas of more than half of all IT functions (below).

Our advice for companies that want to accelerate their transformation and improve their digital performance across board is to invest in technology’s capability and start consistently engaging them as a partner in business strategy and digital initiatives. If you don’t, then you get the technology organization you deserve. Our advice for the technology function trying to rise to the opportunity is to take actions to achieve as quickly as possible the following states or status:

  1. A customer-focused innovation culture: Hierarchical, siloed focus on stability and risk reduction is replaced by a bold, entrepreneurial, customer-centric orientation that emphasizes responsiveness and adaptability.
  2. A modernized organization structure and operating model: The technology team is embedded in customer/product-centric groups for responsiveness and speed; scarce new forms of technology expertise are concentrated in enterprise COEs for maximum leverage; and commodity IT services are provided or brokered by a GBS/shared services center for maximum cost-effectiveness.
  3. Digital platforms: Cloud-based software and platforms, blended data (lakes or fabrics), predictive analytics, AI-based automation and customer self-service tools enable operating agility and digital scalability.
  4. A simplified infrastructure: Unnecessary complexity is reduced by retiring old systems as new technologies are introduced which adhere to standards where practical.
  5. Portfolio discipline: Project requests are strictly vetted for business value and alignment with goals and strategies; project viability is continually reviewed.
  6. A modern skill profile: Technology staff skills shift from predominantly transaction-oriented to more experience and relationship-oriented. Skill gaps that are most urgent are closed – change leadership, strategic thinking and analysis, and customer-centric design.