Digital World Class® Technology: Bridging the Performance Gap With Gen AI – Transcript

Kyle McNabb:                   

Digital World Class^® technology organizations are twice as likely to have automated IT internal processes than their peers. And so they’re putting Gen AI and AI and workflow, etc., to work.

Announcer:                       

Welcome to The Hackett Group’s Business Excelleration Podcast. Week after week, you’ll hear from top experts on how to achieve Digital World Class^® performance.

Kyle McNabb:                   

Hi everyone. I’m Kyle McNabb, vice president of Research and leader of Technology Advisory at The Hackett Group. Joining me today is Michael Fuller, Technology Transformation lead at The Hackett Group. And we’re here today to discuss what we see separating Digital World Class^® technology organizations from their peers. Michael, why don’t we start with the first question here. What is the Digital World Class^® technology organization advantage?

Michael Fuller:                

Thanks, Kyle. Glad to be here. And so it’s really three things. And so those three things are broken out into delivering superior business value. And we can dive into a little bit more about what value means because it’s not just dollars and cents. But there’s customer experience – there’s cost advantage as well – which is the second major item. Which when we think about lower costs, and we look at it from a per end-user basis, Digital World Class^® companies are delivering their services, which again, have higher value, at an 18% lower cost. And the third thing is when you think about the metrics I just mentioned, it’s how they’re delivering those services. It’s how they are aligned with the business, and it’s how their ways of working are different from the peers.

Kyle McNabb:                   

Well, let’s talk a little bit more about the how. What do you see that really separates these world-class performers from their peers?

Michael Fuller:                

When we talk about the how – and how they’ve separated themselves – it goes back to the ways of working, and that is really the operating model. And one of the things that when we talk about operating model with a lot of our clients and other companies, operating model does not equate to org structure. And so when companies are changing their technology operating models, it’s really focused on being enabler for the business. The second thing is embracing new revolutionary technology. Gen AI is just one of those things. But IT shops have been using AI for a very long time, but it’s how they’re using AI that is how Digital World Class^® companies are separating themselves. And then it comes back to the topic that has been probably not No. 1, but probably No. 2 or No. 3 for most technology leaders for the past 15 to 20 years, and that’s application rationalization.

A lot of companies kind of shy away from application rationalization as a phrase just because it’s been around so long. But it is what it is, right? It’s how do you optimize your portfolio so you’re delivering the right technology capabilities and services in the most efficient way. And again, the way to do that is by focusing on how do you deliver business value? And if you’re trying to deliver business value with technology that’s been around for 20 years, you might not be able to achieve the value that you’re trying to.

Kyle McNabb:                   

Well, I’m really curious about what we’re seeing in how these organizations are defining their target operating models. So maybe take a few minutes and just describe a bit of what are we seeing today in the type of operating models that world-class organizations are embracing?

Michael Fuller:                

There is one answer, well, except for if I say the word hybrid. They’re embracing hybrid operating models that are fit for purpose based upon their corporate structure and based on how their businesses are aligned and organized. But if I kind of distill that to what those hybrids are looking like, there’s really two major hybrid models that are out there. One is being product-centric. And so the things that would be traditional shared services and wouldn’t change based on the type of product that is being delivered to the business or to the customers like infrastructure, like architecture or vendor management or overall strategy. Those are things that would continue to be shared and centralized and provided to all business units or products. So when we think about products, again, the product manifesto has been around for quite some time, but it really is a business. It is providing specific products, and it’s organized around those products.

Then IT organizations are then aligning themselves on the application side – on the services side with those products. The other major hybrid model is integrated business services where again we still have the shared services around infrastructure, vendor management, overall strategy, portfolio management, etc. But instead of being product aligned, it’s really having alignment with each of those business units or the business services. Now within whether you’re product-focused or you’re more integrated with the business, it doesn’t necessarily mean that you’re going to continue to operate in a different way within each of those verticals. You’re still going to be using some form of agile methodology to speed throughput and to provide value. It just means that the way that you’re operating is more focused on businesses versus products.

Now, you’re still going to have applications or services that are transversal. I think of ERP applications that yes, companies could have multiple ERPs, but going back to the portfolio or application rationalization comment, the goal is to have a minimum number up there, but you’re still going to have transversal applications that run across. And so, again, then there’s the cloud and your managed services providers that come into account. The magic is really around defining how you operate based upon your structure. And that is aligned with one of those two approaches.

Kyle McNabb:                   

I think you’ve highlighted there the magic seems to be coming from how organizations are either decentralizing or better integrating how priorities and decisions get made with the business or with the functional teams, or seems to be much more of a decentralized or embedding of talent from the technology organization – either with the business or really, really closely tied to the business – to make sure that they’re delivering value on a regular basis. That seemed to be a key characteristic, but it seems beyond that. You mentioned earlier that these organizations are embracing or are more apt to embrace and leverage emerging technologies like Gen AI and other things. What do you see these organizations doing differently than their peers?

Michael Fuller:                

One of the metrics that’s been around for quite some time is how much time do you spend on run or operate, or dollars to even to make it simpler compared to even how much time or dollars that you are spending on developing and delivering new capabilities. And so the shift from companies that are spending 65%, 70% plus on that run and operate side to closer to 40% has enabled them to explore newer technologies that provide faster time to value and are more client-centric. So, again, Gen AI is obviously, it’s been around now for a year and a half plus and has been at the top of or near the top of everyone’s list in terms of capabilities they’re exploring. But there are other technologies that are out there that have been around for quite some time where companies aren’t necessarily taking advantage of them. And Digital World Class^® companies are.

Things as simple as workflow automation that allow both internal to technology organizations as well as with business partners to have seven people manipulating a spreadsheet – to have the workflow or some type of intelligent automation take care of that for them. So the capabilities are out there, and it’s not necessarily just it’s the brand new the Digital World Class^® companies are taking advantage of, but it’s also capabilities that have been around but just haven’t been taken care of because all the firefighting that is happening in non- Digital World Class^® companies.

Kyle McNabb:                   

Well, I think to your point, it’s also about they’re putting it to work and into use inside the organization. I’ve seen our metrics that highlight that Digital World Class^® technology organizations are twice as likely to have automated IT internal processes than their peers. So they’re putting Gen AI and AI and workflow, etc., to work. And what we’ve also seen as well is they’re probably in most cases automating 40% to 50% more business transactions – their relationship with their business peers. So, to your point, it isn’t just about are they looking at it, but they’re actually, they’re pushing and putting it to use and to work so that the organization can get benefit from it. But… Go ahead. Yeah.

Michael Fuller:                

And I was going to say, and they have time to do it because they’re not spending all this time firefighting legacy applications because these are world-class companies that have rationalized those out, right? Again, application rationalization has been around for a long time, but it’s hard to do. But the companies that have a focus concerted effort on doing that are able to enable capabilities and look at new capabilities and deliver those services to their business partners.

Kyle McNabb:                   

Well, talk a little bit more about how these organizations are approaching something that, to your point, has been discussed for a long time. I mean, I’ve been in the industry for 30 years and we’ve been talking about rationalizing legacy out of organizations forever, but you still see organizations with legacy COBOL, legacy power applications, legacy infrastructure as well. What do these organizations do differently to get rid of that technical debt – to get rid of that bloat and free up capacity?

Michael Fuller:                

I think there’s a number of things, but I’m going to focus on one, and it’s cost transparency. And it is cost transparency that is aligned to business capabilities. And it’s when companies are able to basically distill the entire IT or technology budget into applications, and then looking at what those capabilities – those applications – are performing, that technology organizations – Digital World Class companies – are able to say, “Why do I have seven things that have 80% overlap?” And then show the case for either rationalizing into existing platforms or looking at net new that the case becomes extremely strong because the complexity tax associated with that complex application portfolio go to a CFO, go to a COO, go to CEO and say, “We’ve got to do this,” right? And then show the downstream impact of that. It becomes a priority because otherwise too many organizations – I don’t want to say pay lip service to application rationalization, but it’s one of those things that, yes, it’s something that we do, but we got all these other things to do, and I’ll get to it eventually because it’s hard.

Kyle McNabb:                   

It is hard, but I’ve heard from – I’ll give an example – from one North American manufacturer IT leader that I spoke with that transparency allowed them to frankly bring not just finance, but other parts of the business along with them on this rationalization journey. Being able to show to them, “Look at how much it’s costing.” And then coupled with that, be able to also say, “Because we continue to maintain this, we’re introducing more risk to potentially disrupting the business. There could be a failure from this legacy portfolio that we’ve got. There could be additional issues that might disrupt things.” And so you couple that with the cost transparency, and I think it does help organizations – technology organizations, in particular – bring their peers along and help make it a priority to which, to your point, sometimes it gets deprioritized when it should be front and center for most organizations if they are looking to in fact free up capacity to go do more.

Michael Fuller:                

That’s right. That’s right. And that’s the key because every technology organization has a hundred more things to do than it has the capacity to do. And if your resources are spending 70% of their time on just the day-to-day operations, then guess what that organization then has the capacity to do?

Now, the one thing is I don’t want to discount operations. I mean, if IT isn’t delivering the mail in terms of availability or performance and reliability of systems, it doesn’t matter what new capabilities it can deliver, right? Because if someone is calling the CIO saying, “My videoconferencing system isn’t working,” or “I’m in the boardroom and the videoconferencing system isn’t working there” – whether again, whether remote or on-site – no one cares that you added these cool new features to your website, right? Because those are table stakes. And so that operational excellence or the brilliant basics – super important. It’s

just you’ve got to do it. But if you can do it with significantly less resources because you’re in a stable environment and you’ve rationalized that portfolio, then you’re able to provide that additional business value.

Kyle McNabb:                   

And I think it helps these organizations embrace that “Yes, and” model that, yes, they have to be great at that operational excellence, but by embracing what I would say more that relentless rationalization and focus on cost, they can do the and. They can and shift the operating model and embrace emerging technologies to help them better innovate and differentiate. Well, everyone, thank you for taking the time with us today, and if you’re interested in learning more about our approach to technology transformation, feel free to reach out to us at thehackettgroup.com.

Announcer:                       

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