Considering all the recent hype around digital transformation, you would think that IT departments are well-positioned to support the needs of the digital business. Think again! By and large, IT shops are failing their digital business initiatives, and this is evidenced by the continuing trend of outsourcing significant IT functions. In this article, we explore some of the reasons why IT is not prepared and what skills IT needs to support a digital evolution. Learn how IT can identify a “zone of confluence” of core capabilities and develop practices needed by the digital business. As a bonus, download our IT Digital Readiness Assessment Toolkit at the bottom of the page.
Will My IT Department Be Outsourced?
A recent article, aptly entitled, “Is Outsourcing the Secret to Digital Transformation Success?,” makes a thought-provoking assertion:
IT outsourcing is a proven success strategy for achieving superior business outcomes and the fastest time to market from digital transformation initiatives.
While this claim requires significant qualification, it is worth noting that, according to CFO.com, IT outsourcing has reached a five-year high. This fact has a lot of CIOs shaking in their boots and wondering, “Will my IT department be outsourced?”
Why do businesses consider outsourcing at least parts of IT? It normally comes down to two primary drivers:
- Reducing Operational Costs
- Gaining capabilities that internal IT does not have–and that are needed by the digital business
These two drivers are directly related. When the business says, “We’re paying too much for IT,” the unspoken part of that statement is “We’re paying too much for IT for what we get from it.” An IT department that is reactive or slow in terms of supporting the basics – responding to incidents, provisioning computers and software, managing the infrastructure in a way to minimize business disruption – is seen by the business as little more than a money pit. Worse still is when IT is ill-equipped to support new business initiatives, which leads us to #2.
Digital businesses require capabilities – both with new technologies and ways of working – that traditional IT departments tend to lack. From the business’ perspective, it is quicker and possibly less expensive to acquire these capabilities from third parties than to invest in developing internal IT.
Digital Business Has Different Needs: When Marketing Is Running the Show
What makes a digital business and its requirements from IT so different? For starters, an unexpected department within the business may be running the digital transformation initiative. For example, the digital transformation initiatives of several of our clients are run by the Marketing department. In these cases, Marketing is not only in charge of the business aspects of the initiative, they are also spearheading product development, which includes managing third-party software development of the customer-facing digital product and contractor stand-up of a cloud-based data analytics platform.
Why Marketing? Because fundamentally digital business is about more than just using the latest technologies . . . it’s about leveraging digital technologies in a way that fundamentally changes the way the business operates, the way it interacts with and learns from its customers, and the way it maneuvers competitors into undesirable positions of playing catch-up. Accomplishing any of these is dependent upon a speed of execution not commonly found in IT. Indeed, a common business accusation is that “IT Is Too Slow.” By the time many IT departments configure a system, code new software, or build a website, the original need for the software or system has changed. Customers are fickle, and in the digital era incrementally rolling out small functionality improvements and “good enough” features trumps completeness and long-term product roadmaps. The cousin of speed is flexibility, and this is also a pre-requisite for a digital business to be successful. What is popular with customers this quarter may be largely forgotten in six months, so excessive effort creating something new or undue attachment to what worked in the past often gets in the way of profitable innovation.
What is XO Data?
X-Data refers to customer experience (CX) data. O-Data refers to operational performance data. Trying to understand customer experience without understanding its impact on operational performance only tells half the story. Likewise, operational performance of a system often impacts customer experience. XO data attempts to bridge the understanding of how these two data sets relate.
Considering that most digital businesses value customer centricity as priority #1, there is a need to seamlessly gather and analyze not only internal operational data but also externally-focused customer data. Ideally, these are gathered and housed in the same system and can be related to each other using proximate cause-effect relationships. For example, when a change is made to a customer-facing website or product platform, how did the change affect sales, abandoned shopping carts, nonprofit donations to a campaign, repeat customers, and so forth? Additionally, approximately how much did it cost in terms of money or effort expended to make the change? Admittedly, “single pane of glass” systems that bridge customer and operational data are something of a technological “unicorn.” Even so, many IT departments struggle to perform basic operational data capture and reporting let alone XO data analysis.
Digitally Empowered IT – A New Mindset
If the way IT has been done in the past is no longer sufficient, then what does it take to transform into digitally-empowered IT? The short answer is that it takes a new mindset along with the skills and practices to support it.
In a previous generation, the hallmark of legacy IT was “alignment” with the business. In other words, IT understood what was on the horizon for the organization and did their best to support the business, albeit in a reactive way. IT’s concern was squarely on internal business customers and keeping back-end systems up and running.
The bar has been raised. In the truly digitalized organization, there is no difference between the business and IT. In fact, in many cases, IT leaders are driving innovation by using technology to do business in new ways.
For example, a managed service provider uses an online service portal to allow customers to add features and make changes to contracted services. The managed service provider uses the same system to monitor traffic to the customer’s website and generates real-time dashboards and reports to the customer to help understand consumer demand and patterns of business activity. Using AIOps tools, the managed service provider is able to add or remove resources when required (without the need to disturb the customer). What’s more, the same AIOps tools provide predictive analytics that the managed service provider uses to inform relationship meetings with the customer.
Digital IT organizations are concerned with managing back-office systems, but they concentrate more on external customers and ensuring that external-facing systems (e.g., websites, portals, platforms, ordering systems) are meeting customer needs. The focus on the end-customer introduces a certain volatility since customer preferences tend to change rapidly, and digital IT departments become accustomed to and even comfortable with ambiguity and unpredictability.
In reality, many IT Departments are somewhere in between traditional IT and the truly digital organization and are struggling to make the transition. In the next section, we discuss the skills that can help bridge the gap and how to build practices around them.
Skills Needed by Digital IT
To be sure, the skills needed by digital IT vary significantly depending on the industry and specific organization. For example, a nonprofit radio station that is heavily reliant on donations and advocacy may focus more on building data analytics skills to deepen the relationship with its members whereas a consumer products organization may be more concerned with design thinking to understand how customers use their products. Given the evolving nature of the digital ecosystem, it behooves IT to encourage a continuous learning approach. This encourages the department as a whole as well as individual team members to remain current on business and IT skills and emerging technologies.
The following five skills are by no means meant to be a comprehensive list. Instead, they serve as a good starting point:
- Active Listening and Communications – Often downplayed as a so-called “soft skill,” active listening may be the most important skill of all and one which many IT departments sorely need. Active listening goes beyond hearing what somebody says. It is about understanding what they mean even when intentions and requirements are not explicitly stated or spoken. This requires paying attention to body language and tone. It means intuiting the thoughts in between spoken words. Active Listening and the ability to clearly communicate ideas and plans are critical to performing any aspects of internal or external relationship management, developing products and services, and managing project teams.
- Emotional Intelligence and Empathy – Often paired with Active Listening, Emotional Intelligence relates to understanding how a person feels about something and not just how they logically think about it. Often, a customer’s or internal stakeholder’s “gut” reaction is even more important than their intellectual thoughts about it. Well-practiced emotional intelligence helps develop empathy, an essential ingredient in team development, stakeholder management, and product design.
- Strategic and Systems Thinking – Strategic IT thinkers see the “big picture” of where the organization needs to go and how IT is essential to accomplishing organizational goals. To dispel any confusion, strategic thinkers are not the “big idea” people who concoct grandiose but often unrealistic ideas that have little to do with organizational goals. Instead, they understand direction in terms of realistic possibilities that help the organization achieve sustainable results. Likewise, systems thinking is about understanding the organization as a whole. It is rarely the case that success hinges on just one part of the organization or a singular technology. Systems thinkers see how different parts of the organization contribute to larger value streams. Both strategic and systems thinking contribute to a number of other practices including Portfolio Management, Financial Management, Risk Management, and Data Analytics.
- Design Thinking – As previously mentioned, design thinking helps designers learn how customers actually use products and services, which is often different than how engineers and developers conceive of them. To be effective, it requires a healthy dose of humility from subject matter experts (the customer knows better) and a flexible mindset (it is natural for customers to change their minds and for products and services to evolve). Design thinking contributes to the transition from traditional “waterfall” project management to agile approaches and DevOps.
- Technology Integration – In some respects the ability to rapidly integrate multiple technologies is as important as new technology adoption. Digital IT often finds itself developing APIs, integrating new applications and features with customer-facing platforms, and integrating customer systems of engagement with back-office systems of record. The trick here is to balance achieving high velocity development with the need to maintain appropriate security.
Notice that, for the most part, the major skills required by digital IT are not technical in nature. That is not to say that “hard” technical skills can be ignored in favor of “soft” skills. Rather, it suggests that digital IT needs both, and that the latter is often neglected. When it comes to “soft” skills, some people believe that a person “either has them or they don’t” and that these skills cannot be developed in any appreciable way. This could not be further from the truth, and developing practices helps to nurture these in both individuals and teams.
Building Practices: the Zone of Confluence
We have all heard the phrase, “Practice makes Perfect.” Physicians have practices and so do lawyers and consultants. Millions of people “practice” martial arts. But what is a “Practice?” For our purposes, let’s say that a practice involves three ingredients: 1) Intentionality, 2) Applied Resources, and 3) Repetition. ITIL 4 defines Practice as a set of organizational resources designed for performing work or accomplishing an objective and identifies 34 practices categorized into three groupings: General Management, Service Management, and Technical Management (Note: Only three practices are in the Technical Management bucket).
IT departments in organizations that are not fully digitalized need to bring themselves “up to speed” very quickly and do not have the luxury of developing or maturing all 34 practices at once. Instead, a better approach is to focus on practices that further the larger organization’s goals. Typically, organizational goals revolve around two basic positions: improving the customer experience and increasing operational excellence. Often, organizations need to achieve progress in both positions simultaneously. Thus, the key is for IT to develop practices that bridge capabilities gaps for both positions.
Practices that propel this “two for the price of one” positional improvement are what I refer to as the “Zone of Confluence.” The “Zone” will be different for every IT organization. For example, an IT shop in an organization where supporting a system of engagement integrated with a back-end system of record is critical to success will likely consider practices like “Software Development and Management,” “Release Management,” and “Deployment Management” as part of the “Zone.” A managed service provider that uses different views of the same catalog for both internal and external customers might add “Service Catalog Management” to the “Zone.”
More generally, the following practices tend to support dual-position gains:
Relationship Management – The purpose of the relationship management practice is to establish connections with stakeholders at strategic and tactical levels of the organization. Usually, when organizations talk about relationship management they are referring to connections between IT and internal business customers. However, there is no reason why this practice cannot be extended to external customers. Establishing a Relationship Management Practice – whether the focus is on internal or external customers – can be challenging and take time to yield results. Start slow and build relationships gradually. In organizations where customer experience management is a department or role that resides within the business, ask how IT can become an active participant in customer experience conversations.
Risk Management – The goal of the Risk Management Practice is to understand uncertainty and manage it in a mature way. In the context of digital business, people often equate Risk Management with Cybersecurity. In fact, it is much broader. For example, there is the risk that adopting a new digital operating model will plunge the organization into financial disaster. There is the risk that our competitors will leverage emerging technology to offer substitute products and steal our loyal customers. There is also the risk of doing nothing and falling behind, which may represent the greatest risk of all. Risk Management activities are often dispersed throughout the organization. From an IT perspective, the focus should be on understanding risks around emerging technologies and how to leverage them to improve consumer experience or operations.
Information Security Management – Along with the rise of digital business, Information Security risks have continued to grow. Organizations collecting payment from customers online face well-known and evolving risks – namely, theft of credit card information. However, even organizations not directly involved in processing payments must protect client and donor information and intellectual property. IT staff involved with information security management should become best friends with product and software development teams, Data Analytics departments, and Research and Development.
Financial Management – Lack of transparency into the cost and value of IT services is a common source of friction between the business and IT. The perception that IT costs too much fuels the push towards outsourcing. In organizations that lack a Finance function within the IT department, it is worthwhile to perform service costing on several critical IT services. Other IT departments will find it worthwhile to proactively provide financial guidance regarding the implementation of new technologies.
Change Enablement – The purpose of the Change Enablement Practice (formerly called Change Control and Change Management) is to ensure that risks have been assessed prior to making technical changes (e.g. infrastructure, software releases, etc.). In some cases, IT departments barely perform technical risk analysis; but in other cases, the amount of rigor placed around change enablement gets in the way of getting work done. This is especially true when it comes to software development, bug fixes, and minor releases. A healthy Change Enablement practice ensures that balance is achieved between slowing down to understand technical risk and ensuring that developers can still get their work done and achieve quick time to market.
Release Management – The purpose of the Release Management Practice is to make new and changed features available for use. Going hand-in-hand with practices such as Software Development, Change Enablement, and Deployment Management, Release Management can benefit the organization by reducing time-to-market with software-related changes. Organizations often combine Release Management with Agile Software Development and even DevOps.
Metrics and Reporting – It is difficult to know how effective the strategy is without a robust way to measure it. Many IT Departments tend to chase a multitude of operational measurements without a clear understanding of how to relate metrics to improvement activities. What’s more, digital businesses need to relate customer experience metrics with corresponding operational metrics (so-called XO metrics). IT can demonstrate value by developing a Metrics and Reporting Practice that tells a story with both inside and outside metrics.
Each of these “Zone” practices can be quite involved and a common question is how an IT department can prioritize developing them. A good approach is to identify a few key areas of the relevant practices and focus on gradually improving.
How to Use the IT Digital Readiness Instrument
- IT-Business Relations and IT Participation
- Risk Management and IT Security Management
- Technology and Automation
- IT Financial Management
- Technical Change and Development Practices
- IT Continuous Learning
- Metrics, Reporting, and Data Analytics
Scores from all areas can be aggregated to yield an overall IT readiness rating. Each area can also be assessed individually.
In either case, rate each question using a scale from 0-5 with 0 being the lowest score and 5 being the highest score.
Aggregate Maturity Score
The following scores apply to the overall assessment:
0-54 – A score in this range indicates that IT is not well-prepared to support the business in its digital initiatives and may need to improve key areas to be an effective partner.
55-120 – A score in this range indicates that IT has some capabilities to support the organization’s digital initiative but needs to improve in key areas.
121-190 – IT is well-prepared to support the organization’s digital initiatives but may need support in targeted areas to become a true partner with the business.
Dimensional Score Breakdown: Relationship Management and IT Participation
0-10 – A score in this range indicates that there is little strategic relationship or partnership between IT and the Business. IT may be considered an “order taker” or “engine room” by the business.
11-22 – A score in this range suggests that some relationship exists between IT and the business. It is likely that this relationship is tactical in nature and that IT does not participate in strategic decision-making. It is also possible that the relationship hinges solely on interpersonal relations without formal roles or structure which calls sustainability into question.
23-30 – IT has a firm relationship with the business at a strategic level. IT is considered a trusted advisor and helps the business make decisions or drives the business by promoting technological opportunities. It is likely that there is still a separation between the business and IT, and further integration may be warranted.
Dimensional Score Breakdown: Risk Management and Information Security Management
0-10 – Scores in this range describe an IT Department that does not have a risk-aware mindset. IT is not aware of the risks and opportunities posed by digital technology and the impact on the business. Cybersecurity likely requires urgent attention and may focus too heavily on technology controls without formal processes in place.
11-22 – In this range, IT is likely to have some cybersecurity controls in place but security may not be fully integrated into other processes. IT may be aware of certain digital technologies but is not fully aware of risks to the business or is not communicating them. Likewise, IT may not be educating the business on ways to take advantage of new technology.
23-30 – IT is well-versed in managing cybersecurity risks and advises the business regarding the threats of new technology. It is likely that IT could improve its understanding of positive risks associated with exploiting technology opportunities.
Dimensional Score Breakdown: Technology and Automation
0-10 – Scores in this range suggest that IT is not using any digital technology and it is not likely that IT automates any significant processes or activities.
11-22 – IT likely has an IT Service Management Tool that is fit for purpose and is making use of some automation. However, the organization is using the IT Service Management tool to manage IT services and activities but other business functions are not being handled by the tool. It is also unlikely that IT is leveraging digital technology in any significant way or is just beginning to investigate digital technologies.
23-30 – IT is using automation in the right areas. It is likely that IT is leveraging an integrated IT Service Management tool, managing systems of record and systems of engagement. IT may be using AIOPs tools to predict and repair IT incidents. IT may be using digital technology to increase operational efficiencies, improve the consumer position, or both. Improvement opportunities potentially involve deploying dual-purpose or ITOPS technologies that bridge the customer-facing end of the business with IT and operations in a “single pane of glass.”
Dimensional Score Breakdown: IT Continuous Learning Score
0-8 – Scores in this range suggest that IT does not have employees with the skills and capabilities needed to make a digital initiative successful. The organization should start by identifying digital skills needed by the organization, providing focused training, and hiring with digital skills in mind.
9-16 – IT has some skills required to support digital initiatives but has gaps in key areas. It is possible that a few key employees have skills in a particular digital technology but knowledge is not widespread. The organization is unlikely to have a clear path for digital skill-building or careers.
17-25 – IT Departments in this range specifically hire employees with digital skills. They also tend to tie employee performance reviews to the acquisition and maintenance of digital skills and capabilities. At the higher end of the range, the organization provides digital career paths and growth opportunities for employees.
Dimensional Score Breakdown: IT Financial Management
0-5 – Scores in this range indicate that IT has little understanding of financial management of IT services and can provide little justification to the business for IT initiatives. The lack of financial acumen earns IT little respect from business executives and makes IT a major target for outsourcing.
6-13 – IT is able to track costs associated with technology (hardware and software purchases) and projects. However, end-to-end IT service costing is elusive and financial awareness is unlikely to be “baked” into all processes, activities, and business cases. IT is not aware of the full cost of supporting a digital business initiative.
14-20 – IT is performing service-based costing and is likely to leverage a platform or software that specifically focuses on IT Financial Management. The business trusts IT financial projections and cost-benefit analyses in business cases. It is possible that IT has not performed service-based costing for all IT services. It is also likely that IT has an imperfect understanding of the full technology costs of supporting a digital initiative.
Dimensional Score Breakdown: Metrics, Reporting, and Data Analytics
0-8 – IT has not identified metrics or is not able to measure anything meaningful. Reporting is nonexistent, incomplete, or inconsistent. IT is not involved with data analytics.
9-16 – IT reports on metrics; but reporting and analysis are likely to be sporadic. It is also likely that too many, too few, or non-relevant metrics are measured. IT operational metrics are tracked but are not tied to business or customer experience metrics. IT may be embarking on data analytics but is not proficient.
17-25 – IT has identified relevant operational metrics and routinely reports on them. It is likely that IT can measure other business or customer experience metrics. Improvement opportunities may lie in increasing data analytics capabilities and more closely relating IT operational and business metrics.
Dimensional Score Breakdown: Technical Change and Development Practices
0-10 – IT does not have formal processes and structures in place for Change Enablement or the processes are ineffective. IT is not practicing DevOps or agile development.
11-22 – In this range, IT may have a formal Change Enablement practice but is not optimally effective or efficient. For example, “bugs,” minor defects, and standard changes may undergo excessive review. IT may be using some agile events/ceremonies and may have begun to experiment with DevOps. However, it is unlikely that an agile or DevOps mindset is shared by all staff.
23-30 – IT has a well-established change enablement practice that appropriately reviews risk using a minimum viable bureaucracy. The organization is proficient in agile development for project teams but may need to improve by integrating agile across teams (SaFE). IT is actively supporting DevOps.