LEADINGedgeforum. The Future of Retained IT Repositioned at the Front of the Firm. Executive Summary. June 2011

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1 June 2011 LEADINGedgeforum EXECUTIVE PROGRAMME The Future of Retained IT Repositioned at the Front of the Firm Executive Summary Alex Mayall Kirtland Mead Richard Davies

2 The Future of Retained IT Repositioned at the Front of the Firm We began this project with the quest to understand how, in an era of both increased sourcing and new technology proliferation, Enterprise IT organizations are deciding what skills they should and shouldn t retain in-house. But as our research progressed, we realized that this question was inextricably tied to the larger issue of the future mission of Enterprise IT. We also observed that, while this mission is clearly changing, the nature of the changes was not particularly well understood or articulated. We therefore sought first, to understand and explain how the purpose of Enterprise IT is likely to change over the coming years, and second, what these changes mean to the skills, competencies and cultures that firms need to retain and develop. As the title of this report suggests, the opportunities in information technology have never been greater, but only for those organizations that embrace a much more front-of-the-firm future. Today s ever more demanding marketplace is characterized by both exciting new opportunities and formidable new competitors, many of them based in Asia. Increasingly powerful and cost-effective technologies offer the potential for both differentiation and market access for new competitors. At the same time, the business environment has become more punitive, as we have seen with the recent travails of BP, Toyota and Goldman Sachs. Meanwhile employees and customers have become much more familiar and adept with technology and less willing to be led by Enterprise IT. All these trends have been accelerated by the recent economic downturn. Firms are responding to these challenges by using technology to flatten their organizations and offload non-value activities to external partners, making the networked organization a fundamental business reality. But organizations are also becoming more complex as they strive for greater geographic coverage and more differentiated and customer-specific offerings. In response to the heightened exposure to risk from both cyber attacks and adversarial media firms are also bolstering their risk and security management processes. But they are struggling to reconcile this increased governance with the increasing value placed on information transparency, and the demands of a new generation of managers who want to be connected to information anytime, anywhere. With the worst of the downturn hopefully behind us, and after years of cost cutting, many firms are turning again to innovation and growth. In the course of our research we discovered how some of the most advanced IT organizations we know are coping with the above pressures and working to assure their future in this demanding but opportunity-filled new world.

3 Bottom-line agenda (value through standards) Top-line agenda (value through innovation) Standard processes Formal structures Shared services Process innovation Directed employees Proven technologies New ways of working Networked organization Specialization/IP Innovation at the edge Empowered employees Emerging technologies Figure 1 Enterprise IT has to support two very different business agendas Businesses always have to balance the demands of two strategic agendas: The bottom-line agenda, concerned with improving the efficiency and effectiveness of the current business model the world of Total Quality Management and Six Sigma. Here, business value is achieved through ruthless standardization and leveraging economies of scale. The recent business downturn has raised the profile of this agenda, spurring a global drive across all industry sectors to reduce costs by sharing support services and outsourcing non-core activities. The top-line agenda, focused on creating new business value the world of disruptive change and high-risk ventures. Here, business value is achieved through innovation. This is the emerging priority for many organizations now that the worst of the downturn has seemingly passed. As illustrated in Figure 1, an effective management team has to be Janusfaced, able to rationalize and build on past investments, and at the same time to embrace and take bets on the future 1. Yet these two agendas clearly call for very different and often conflicting skills, management styles, ways of working, behaviours, measures of performance and IT support. Enterprise IT has to decide which side of Janus to emphasize, and develop its strategies accordingly. Many organizations have addressed the bottom-line business agenda through smart procurement. On the demand side this involves working more closely with the business to define and agree requirements. On the supply side it means sourcing the bulk of IT delivery activities to external partners. To ensure success, Enterprise IT facilitates communication between the external partners and the business, but retains firm control of business/it strategy, enterprise architecture, IT portfolio management, and the business/it change roadmap. 1. Janus is the Roman god of gates and doors, traditionally depicted with two faces or heads facing in opposite directions, looking into both the past (on the left) and the future (on the right).

4 THE FUTURE OF RETAINED IT REPOSITIONED AT THE FRONT OF THE FIRM Such organizations have evolved what we call the Company Store model. This provides a limited range of common, externally-supplied services ranging from IT platforms to full Business Process Outsourcing (BPO) offerings, as well as a restricted set of approved standard devices for use by business staff. The emphasis here is on robustness, cost-effectiveness and reliability, rather than on innovation and flexibility. Value Studio Focus Company Store DIY Efficiency Process Manager Figure 2 Advanced organizations are moving from Company Store to more advanced IT models In the most advanced firms Enterprise IT is also addressing the top-line business agenda by moving beyond the Company Store model to a combination of the three models shown in Figure 2: Process Manager This model focuses on adding value through improving, and sometimes radically reengineering, the design of business processes that may serve both business agendas. DIY This model is inspired by the examples of some major Do-It-Yourself retail store chains. These stores offer not just the wide range of products designed to meet the needs of the amateur builder, but also much-needed in-store help. Similarly, in this model, Enterprise IT offers and supports a wide range of self-service technologies, often acting as a coach to employees who are familiar with IT, but are not fully self-sufficient. Studio As in a modern-day Hollywood studio, a changing mix of IT and business skills are brought together to produce innovative solutions to meet sophisticated business needs. These teams are double-deep by nature, having an intimate knowledge of the business and its competitive environment coupled with a deep understanding of the relevant technologies.

5 Together, these three models encompass much of the future of the Enterprise IT function on the right side of Janus, where business and IT co-evolve and funding is increasingly bundled into wider business initiatives. Business/IT strategy Risk management Influencing business strategy Business operating model Integrating innovative activities Evaluating relevant technologies Educating the business Standards Standard services Enterprise IT Uncertainties and risks Unintended consequences System complexity Behavioural economics Black swans Security Data management ERP Operations Back office MDM Figure 3 Enterprise IT will develop a robust stewardship function Like Finance and Operations, Enterprise IT has a solid, firm-wide view of how the business works. But unlike the other two functions, it also has deep knowledge of the firm s processes, information flows and ongoing change initiatives. This makes Enterprise IT uniquely qualified to play an enhanced governance and control role what we call stewardship. The main elements of this role are summarized in Figure 3. The first task of stewardship is to look out for the best interests of the firm, although the starting point remains managing and mitigating IT-related risks. Enterprise IT should also ensure that the business operating model is adapted to changes in business strategy, in business structure, or in response to the availability of external business services in areas such as logistics, accounting or HR. Stewardship reinforces the DIY and Studio models, as it enables control without the heavy hand of cumbersome rules and formal governance procedures. This will be critical in helping the organization safely pursue IT-enabled strategies for innovation and value creation.

6 The Future of Retained IT Repositioned at the Front of the Firm Enterprise IT Critical skills and competencies Business/IT strategy formulation Enterprise architecture Information management Business relationship management Portfolio management R&D and technology awareness Smart procurement Business consulting Change management IT service management and integration Advanced communications skills Specialized skills Analytics/Business intelligence (BI) Embedded systems Web, mobility, cloud, social media Figure 4 Enterprise IT will shrink to an elite group with more business-focused skills Almost all of the organizations we interviewed for our research project recognized the need for Enterprise IT to acquire new skills and probably new people in order to add significant value in the future. Their consensus view is summarized in Figure 4. Skills and competencies required for the stewardship role were deemed critical, as were skills associated with the business itself, such as business consulting and change management. On the supply side, vendor management (or smart procurement ) was cited almost universally as a vital competence for Enterprise IT. Most interviewees were happy to delegate the operational side of IT services management to their sourcing partners, as long as Enterprise IT retained oversight and control of service delivery. Service integration emerged as a further important responsibility of Enterprise IT, particularly in a multivendor environment where application support, hosting and network services may all be managed by different service suppliers. Conclusion: The future of Enterprise IT Enterprise IT is being transformed by the development of ever more pervasive technology, by a steadily expanding and improving IT services sector, and by the emergence of a generation of increasingly tech-savvy employees. These forces are reshaping the mission of Enterprise IT along three main lines Virtualization, Consumerization and Repurposing: As Enterprise IT s vendor management skills improve, most back-office delivery tasks will be virtualized that is, moved to various types of third-party suppliers, with the exception of the most ingrained legacy systems.

7 In the front office, consumerized, largely self-service technology will be put directly into the hands of professional employees who will need to become double-deep in business and IT to succeed in their fields. In most industries, competitive pressures will require that IT be increasingly built directly into product and service offerings, requiring close-knit, joint business and IT teams. Successful Enterprise IT organizations will be repurposed to participate in this work. As Enterprise IT steps back from the in-house IT development and service delivery activities that once were its core capabilities, it will tend to migrate towards one or more of the three emerging higher-value models: Process Manager, DIY and Studio. Each of these needs very different skills and competencies. All three advanced models will also require a significantly expanded IT stewardship function, able to help the organization manage the many risks and uncertainties that inevitably face a technology-driven business. To obtain and retain these new competencies, Enterprise IT will have to accept and even seek higher levels of staff turnover and recruit many of its people directly from the business, as well as from the supplier and management consulting communities. Over time, Enterprise IT will become smaller, more highly skilled and more strategic in its focus, but will also be more transient. Many more executives and employees will spend time in the function, but fewer will make an entire career there. The net result of these shifts will be a reinvigorated IT function that has rightfully discarded its Retained IT label: a function that will enjoy a new and more valuable future at the front of the firm. The topics discussed above will be explored more extensively in the upcoming LEF research programme.

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