As companies navigate the impact of both inflation and slowing growth, sales, general and administrative (SG&A) expenses are under particularly intense scrutiny. Today’s top-performing technology organizations have a more effective IT strategy and help their enterprises respond to this environment – in part by running and managing technology at a 20% lower IT costs than peers. But according to The Hackett Group’s most recent benchmarking analysis, their contribution goes well beyond that.
Let’s take a closer look at the IT costs and other advantages of technology organizations that perform in the top quartile of both business value and operational excellence – what we call Digital World Class.
Digital World Class technology organizations deliver greater business value
- They have a higher degree of digital business enablement.
The fundamental key to digital enablement is intelligent process automation. Digital World Class organizations automate 62% more core SG&A business processes than peers – indeed, they’re at nearly 100% automation for these transactions. They are also deploying more emerging and innovative technologies as part of the effort – they allocate three times more spend to emerging technologies than peers.
Data and analytics are the seeds of digital business enablement. Progressive technology organizations recognize this and have sharpened their enterprise data stewardship capabilities and discipline. While all technology organizations in our benchmark group have elevated data management over the past several years, those that are Digital World Class still outpace peers in data architecture mapping (17% advantage), standards definition (11% advantage) and compliance (14% advantage).
Another key aspect of digital business enablement is the use of cloud services. Here again, Digital World Class technology organizations lead, with 40% more technology spend allocated to cloud-hosted systems.
- This makes them more effective.
By automating more transactional tasks and allocating more spend to cloud services, Digital World Class technology functions are able to redirect more of their team’s focus toward proactive innovation and promotion of emerging technology. For example, they regularly share twice as much knowledge and research about emerging technologies with the enterprise as do peers.
- As a result, they provide a better experience for stakeholders.
As evidence of their superior effectiveness, they register a 60% advantage in stakeholders’ perception of the function as a valued business partner. They also earn a 48% higher Net Promoter® Score from their stakeholders.
Digital World Class technology organizations are operationally excellent
- They are significantly more productive.
Because they have optimized and automated far more business processes across the enterprise, Digital World Class technology organizations have been able to reduce full-time equivalents (FTEs) to a greater degree than the peer group. These organizations run with 26% fewer FTEs than peers.
- Their superior efficiency lowers operational costs.
Because of their superior efficiency and productivity, their cost of running and managing technology infrastructure is 20% less than that of peers. Their efficiency helps offset the higher level of investment in the digital tools and technologies behind the automation, enabling an overall efficiency advantage of 19%. For a company with $10 billion in annual revenue, this represents a $37 million operational cost advantage – enabling them to continue investing in the capabilities they need to maintain their advantage.
Business value leaders, operational excellence leaders and Digital World Class technology organizations all deliver real impact
Any location on the yellow “arch” of the Hackett Value Grid™ may be an appropriate information technology (IT) strategy and transformation goal, depending on your industry and business strategy.
Business value leaders: Companies in fast-changing, growth-oriented industries, such as software and technology, are primarily focused on driving value through innovation and customer-centricity. Once they have achieved business value leadership, focus can shift toward improving efficiency and propelling the organization into the Digital World Class quadrant.
Operational excellence leaders: These organizations have made continuous improvement opportunities their primary focus to drive operational cost-efficiency.
In some industries, there may be more variance. For example, a large life sciences company that has less new product development in its pipeline and is maximizing value of the current portfolio may focus on elevating operational excellence, while a smaller, innovation-led life sciences company may opt for a business value leadership strategy.
Our analysis found that, in some cases, technology business value and operational excellence leaders have significant performance advantages even compared to Digital World Class.
Orchestrating your own Digital World Class functional and digital transformation
Most technology organizations still have a lot of work to do to move toward performance leadership. Rather than continuing to make incremental performance improvements, you will need to accelerate digital transformation and build a next-generation operating model designed specifically to perform at a top-quartile level. This requires focus in six key areas:
- Technology enablement
Technology enablement is at the heart of the Digital World Class performance advantage. Technology function process automation initiatives have traditionally focused on transactional activities. But upping the automation quotient can reduce or even eliminate manual intervention, thus significantly lowering operational cost. Digital World class organizations have a clear lead in transactional process automation over peers and in some cases have reached maximum levels.
These organizations have also made substantial inroads in automating knowledge processes, freeing up staff capacity to perform value-adding work, and building strong capabilities for insight generation and self-service reporting and analysis.
- Modern digital architecture (powered by cloud services)
Digital World Class transformation involves integrating or retiring legacy systems, adopting emerging technologies, migrating applications into the cloud and integrating data from disparate sources. Probably the most impactful aspect of this is the transition to the cloud. Our recent Cloud Services Study indicates that 70% of technology infrastructures will be cloud-based within two to three years.
Digital World Class technology organizations are at the forefront of guiding enterprise migration to cloud services. They understand how to develop clear capability ownership models via process ownership roles and forge effective business partnering relationships with external providers, leveraging the deep technical skills required.
- Customer-centric service design
Progressive companies have accelerated their move toward “engage from anywhere” models for employees and customers. Customer-centricity is critical when designing these models. The trick is to ensure that self-service process automation and other capabilities are as user-efficient and user-friendly as possible. Leading technology organizations cultivate design thinking and other customer-centric skills among in-house developers, and seek them in third-party providers.
- Data and analytics centricity
The coronavirus outbreak and its business and economic repercussions lent new urgency to improving forecasting and analysis. In our 2022 Key Issues Study, maximizing value from data was the No. 3 item on the chief information officer agenda – behind only securing data and systems and strategic business partnering. The heightened demand for faster and more accurate forecasts is forcing organizations to rethink their existing data and analytics approach and required tools. Sophisticated technology teams are creating an end-to-end view of the data and analytics process, automating data collection and embracing new advanced analytics techniques such as predictive modeling.
- Technology operating model evolution
Digital World Class organizations are evolving their operating model from primarily labor-centric to technology-centric. For technology organizations, 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 enterprise structure, as well as the culture and control of funding.
- Talent management
As processes become more technology-enabled or migrate to digital operations centers, leading technology organizations are rebalancing their workforce with more customer-facing, change-oriented talent skilled at business partnering. Besides staff who can lead and sustain change, success will also depend on having more IT managers who can think strategically and design customer-centric solutions.
Digital transformation matters more than ever
Ongoing geopolitical risks, talent challenges and high inflation threaten the return to stability, growth, and predictable performance. In a recent analysis, The Hackett Group found that companies with a well-coordinated response have a significant pretax margin improvement opportunity – but capitalizing on that requires digital transformation to be a critical part of the response. Without it, margin opportunity dropped nearly in half.
This is why it is so important to accelerate the journey toward Digital World Class now.