Business leaders have been counting on technology and digital transformation to accelerate performance improvement. But how high can you reasonably expect the bar to go? Now, we have a clearer idea.
In 2021, we incorporated the structural changes associated with technology innovation and digital transformation into our annual benchmarking methodology, creating a new target that we call Digital World Class. Here’s what we found:
At the same time they are enabling enterprise transformation, 2021 Digital World Class technology organizations operate at 19% lower cost per end user than peers. This is remarkable because the Digital World Class organization spends an average of 3% more on technology than peers.
But their advantage is not just about cost. They also deliver higher-quality services and experiences. They are more agile, in part, because they have a lighter complexity burden. And business stakeholders view them as more accessible to the business and more proactive in business initiatives such as new product development and process improvement.
The bar will continue to go up from here. In this article, we highlight the performance characteristics of Digital World Class technology organizations and the six key levers that they pull to get there.
Digital World Class™ technology organizations deliver superior performance on three dimensions
Understanding the sources of Digital World Class™ performance
Rationalizing the legacy technology environment has traditionally enabled top-performing technology organizations to operate with a lower technology cost than peers. Digital World Class technology organizations continue to retire legacy systems and reduce (or avoid an increase in) complexity. For example, they operate with 54% fewer applications per 1,000 end users than peers.
They have one-third more of their applications hosted in the cloud, compared to peers. They also invest 36% more on software-as-a-service – a significant shift that improves the function’s agility and responsiveness, and enhances business resiliency in the event of another pandemic-type disruption.
Their executive teams understand that emerging technologies are a path to innovation. They invest 63% more than peers in emerging technologies, including machine learning, natural language processing, contextual data fabrics, virtual collaboration and blockchain. Just as telling, peers invest $34 out of every $100 in technology spend on mature or declining technologies; among Digital World Class organizations, that number is $21.
Furthermore, they employ 26% fewer full-time equivalents (FTEs) in the function than peers. The gap is even greater for “run” activities, which are increasingly automated in a digital operating model. This allows chief information officers (CIOs) to allocate more team members to roles that create new value. For example, Digital World Class technology organizations have 21% more manpower than peers in development roles.
Digital World Class™ cost advantage and resource allocation shift
Digital World Class™ technology organizations excel in six areas
Technology enablement is at the heart of the Digital World Class performance advantage. However, to fully unlock the potential of technology, your organization must also transform in five other key areas. Here’s a look at how Digital World Class technology organizations do it.
- Technology enablement
Automation efforts have traditionally focused on transactional processes such as accounts payable and accounting. By upping the automation quotient, technology organizations have been able to reduce or even eliminate manual intervention, thus significantly lowering process cost. Digital World Class groups have a clear lead in transaction automation over peers and in some cases have reached maximum levels. For example, they have automated 100% of expense reports and 94% of purchase orders, compared to peers’ 70% and 56%, respectively.
These organizations have also made substantial inroads in automating knowledge processes, freeing up staff capacity to perform value-adding work and building a strong data architecture to enable insight generation and self-service reporting and analysis. For example, 77% of Digital World Class technology organizations provide automatic generation and distribution of sales reports and the ability to run ad hoc reporting and analysis, compared to just 50% of peers. They also have a more robust data foundation as part of their modernized digital architecture: 78% of Digital World Class functions have a central data repository to generate business performance reports, versus only one-half of peers.
- Data and analytics
The coronavirus outbreak and its business and economic repercussions lent new urgency to improving forecasting and analysis. In our 2021 Key Issues Study, improving the ability of data to enable business value was the second-most common initiative planned for this year, behind workflow automation. The heightened demand for faster and more accurate forecasts is forcing organizations to rethink their existing data analytics approach and required tools. Sophisticated technology teams are beginning to create an end-to-end view of the data analytics process, automating data collection and embracing advanced analytics techniques such as predictive modeling. Digital World Class organizations have a significant head start.
- Cloud-based modern architecture
For the Digital World Class, transformation involves integrating or retiring legacy systems, adopting emerging technologies, migrating applications into the cloud and integrating data from disparate sources. Modernizing architecture design and managing it effectively are absolutely critical to becoming an agile, responsive technology partner. Probably the most impactful aspect of technology architecture modernization is the transition to the cloud. Our 2021 Key Issues Study projects 25% year-on-year growth in adoption of cloud-based core application suites, with 49% of all applications hosted in the cloud by year’s end. Digital World Class organizations are at the forefront of architecture modernization and cloud migration. They have developed clear capability ownership models via process ownership roles and forged effective partnerships with their external providers, leveraging the deep technical skills required. Technology organizations with large-scale cloud deployments are 32% more likely than peers to meet enterprise business objectives
- Operating model evolution
Digital World Class organizations are evolving their operating models from primarily labor-centric to technology-centric. This transition has far-reaching implications for the technology function’s operating model. More than one-half of technology leaders planned a major operating model change for 2021. We see two hybrid models becoming dominant, combining shared services, brokered and orchestrated solutions, and end-to-end technology services alignment with business products/portfolios or with business units. The choice depends on the enterprise structure, as well as the culture and control of funding.
Recognizing that sustained innovation must enable more than one-off projects or isolated pockets of initiatives, technology leaders are striving to cultivate an innovation culture. Among the most effective means are periodic exposure to new thinking and ideas (off-site events, guest speakers, etc.), and lessons-learned retrospectives on completed initiatives. Not surprisingly, top-performing technology organizations adopt these and other practices to a greater degree than the peer group.
With many processes becoming more technology-enabled or migrating to digital operations centers, leading technology organizations are rebalancing their workforce with more customer-facing, partner-ready, change-oriented talent. It comes as no surprise that the largest skill gaps (i.e., the difference between demand and supply) are associated with emerging technologies such as artificial intelligence. However, the skill CIOs say they need most among staff is change leadership – the third widest of all the skill gaps predicted for 2021. Besides staff who can lead and sustain change, success going forward will also depend on having more information technology (IT) managers who can think strategically and design customer-centric solutions. Organizations that have successfully closed or shrunk gaps in these skills demonstrate an average of a 35% higher success rate in achieving goals, including enterprise digital transformation and enabling customer-facing strategies and initiatives.
Mobilizing your journey to Digital World Class™
The key to moving forward is to start by understanding where you can unlock new value:
- Create a baseline of key performance indicators for your current levels of efficiency, effectiveness and experience.
- Assess the capabilities and maturity of your current technology operating model, resource allocation, and technology effectiveness based on leading and emerging best practices.
- Identify and prioritize performance gaps that outline critical focus areas for accelerating digital progress and future business needs.
From there, you can begin to design future capabilities to advance your digital agenda and chart the road map for achieving your Digital World Class aspirations.