The past two years have brought unprecedented instability. Yet, when we conducted our latest annual Key Issues Study – during the fourth quarter of 2021 – some executives were already seeing and expecting smoother sailing. About one-third of companies reported stabilized business conditions. Over one-half predicted stabilization in 2022, and only 11% expected instability to continue into 2023 or beyond. That was before news of the COVID-19 Omicron variant, before the reality of emerging inflation and talent risks set in, and before the conflict in Ukraine.
In this article, we highlight results from the 2022 Key Issues Study and implications for technology function leaders in planning through uncertainty – during 2022 and beyond.
Understanding the enterprise priorities
Technology executives must first consider enterprise priorities so that they can align their strategies accordingly.
Our study found that the shift in enterprise priorities that began in 2021 will continue into 2022. Enterprise digital transformation remains the No. 1 priority, with 61% of companies having a major initiative on the 2022 agenda – up from 53% the previous year. In the face of talent challenges, companies have also stepped up their focus on diversity and inclusion initiatives. More than one-half – 58% – now have such initiatives, compared to just 35% two years ago. On the other hand, sales, general, and administrative (SG&A) cost optimization dropped further down the ranking – from third place in 2021 to fifth place in 2022. This is consistent with an observed shift in focus from margin preservation to growth.
The backdrop of disruption and rapidly evolving business conditions clearly influenced technology executives’ top priorities – illustrated in the image below – as they looked ahead to 2022. Notably, executives expressed low confidence in their ability to meet business expectations for several of these, including maximizing value from data and facilitating a mature enterprise analytics capability. That’s bad news for decision-makers impatient for faster data access and sharper insights.
Collectively, these 10 top priorities reflect four key themes.
- Industrialize data and analytics capability.
As advanced analytics technologies mature and artificial intelligence (AI) tools become embedded in an increasing number of core application suites, progressive companies are rebooting their data and analytics efforts as an industrialized data and analytics capability that is end to end, repeatable, scalable, and integral to core business operations. Typically, their first step is consolidating pockets of expertise into a center of excellence. Some have even spun off data and analytics as a business services function headed by a chief data officer. These new leaders – who are also data experts – are liberating information from corporate fiefdoms, addressing governance challenges, and blending disparate sets of data enriched with external data into a virtual horizontal layer accessible by the whole enterprise. And they are making major investments in developing and hiring staff with data science and analytics skills to extract the potential value.
Companies have been investing in advanced analytics tools at a decent pace, which has picked up for 2022. But technology needs to be used effectively to move the needle. Data and analytics must be viewed first as an enterprise capability that changes the entire business, transforming core business processes through improved accuracy, efficiency, speed, elimination of manual work and better-informed decision-making. Companies that fail to fully develop the capability risk missed business opportunities, delayed reaction to change in consumer or customer expectations, and increasingly frequent and debilitating security breaches.
- Accelerate and streamline the operating model.
More and more companies understand and embrace the notion that their future competitiveness depends on time-to-value for new products and services. The technology function has a prime influence on the speedometer, which is why chief information officers (CIOs) worked hard for the past decade to streamline project governance and introduce rapid development. Our study shows that for the first time, rapid development and DevOps are the primary approaches for the majority of new development.
Another milestone confirmed by the study is the preeminence of cloud hosting and SaaS as the dominant infrastructure model for core applications. For the second year in a row, the large-scale adoption level of core application suites in the cloud exceeded that of on-premises legacy systems. The era of in-house ownership of computing assets is over, along with the maintenance and security burdens that come with it.
The new paradigm is “everything as a service.” Sixty-two percent of technology functions have as-a-service initiatives planned or continuing in 2022. For many, this shift is playing out by replacing the “plan-build-run-manage” operating model with the “broker-orchestrate-integrate” model. Of the 88% of respondents planning an operating model change in 2022, the largest number (50%) will shift to brokering and orchestrating solutions from third-party providers and partners. The full impact this will have on time-to-value can be inferred from the improvements in agility seen after migrating applications to the cloud.
Even as these milestones are reached, the most progressive companies are pushing to apply continuous operational automation of every major process – the so-called XOps approach. This includes DataOps to automate all stages of the data life cycle and AIOps for the continuous application of advanced analytics, machine learning, and other AI to automate the identification and resolution of common technology function issues. These continuous operations’ strategies may bring the same speed-to-benefit results that development achieved from DevOps.
- Realize the distributed enterprise hallmark of “engage from anywhere” for employees and customers.
The pandemic force-marched laggards and accelerated progressive companies to these goals. In 2022, companies will normalize and begin optimizing these models. Both are judged to be the most likely disruptive scenarios to play out in the next several years, and they are also the scenarios for which the technology organization is most prepared.
Again, a cloud-based infrastructure is a chief enabler of these strategies and one of the reasons we see a 30% growth in deployment to the cloud predicted for 2022 – 5% higher than the growth predicted last year. But it will take more than technology platforms to optimize these models. It will require a change in how people lead their teams, how they instill and maintain culture, and how they incent and reward collaboration and innovation. Since the technology organization has, in many companies, been the most historically liberal with a work-from-home arrangement and will continue to promote its own heavily hybrid model, CIOs have an opportunity to demonstrate best practices for connecting and leading teams in this normalized model.
Self-service automation is the theme that is common to both the hybrid workforce and the engage-from-anywhere customer model. By minimizing the need for manual intervention by technology function or customer service staff, constituents will have a self-directed and self-paced engagement experience. For the third year in a row, self-service automation is the most common shift in technology function workload in the coming year.
The trick is to ensure that self-service is designed and automated to be as user-efficient and friendly as possible. Companies need to cultivate design thinking and other customer-centric skills among in-house developers, and seek them in third-party providers. A common thread among The Hackett Group’s recent digital transformation award winners has been the deployment of extremely effective digital assistants and chatbots to interact with employees and external customers. The Key Issues Study reflects a growing effectiveness as well – 67% of virtual assistants and chatbot deployments have met expectations in the past year, which is a major improvement over 48% in 2020.
Disruption will continue – but technology function leaders are preparing
Our research looked at the various types of disruption that technology organizations face and how they are preparing. Executives cited the transition to virtual working, the as-a-service deployment model, and persistent skill shortages as the most likely disruptors to their operations in the next three to five years. Most are actively executing on plans to deal with the first two, which are manifestations of the so-called distributed enterprise. These disruptors did not catch many technology executives off guard. Updating technology’s talent profile and closing the skill gaps are another story. Only 20% are acting now to resolve this long-festering problem. Disruption from AI is not deemed particularly likely by technology leaders who are used to seeing slow penetration of AI into the workstream. But that is changing fast as AI features are increasingly bundled into core applications or available as add-on solutions. CIOs risk being caught flat-footed if they don’t recognize the transformational opportunity that AI poses for how decisions are made and how work is executed.
Sharpen your focus
It’s clear the turmoil of the past two years is not coming to an end – at least yet. The research findings above represent a very broad and ambitious agenda. Technology function leaders will need to be laser-focused – making sure they are investing their time and resources in the areas most critical for elevating their value to the enterprise.
So, where should you focus? That, of course, will depend on your specific needs and operations, but based on our work in the market, we believe the following five areas apply broadly to most technology organizations:
- Spend strategically
- Anticipate and mitigate the impact of structural talent shortages
- Industrialize data and analytics capabilities
- Put the customer at the center of service design
- Virtualize technology function operations
Collectively, action in these areas creates agile organizations that can weather continuing change.