CIOs must shape their digital innovation through a fundamental shift to a product-centric organization.
Redesigning the organization as a digital business should be on every CIO’s mind. However, digital business designs often do not scale because the organization fails to modify both its business and operating models to support its strategy.
“We surveyed business leaders around the world, and while 66% of leaders think that they are digitally transforming their business, only 11% of CEOs are actually doing so,” says Lars Van Dam, Vice President Analyst, Gartner. “Transformation toward digital business ranks at the top of the CIO agenda for 2019, creating an opportunity for them to own the transformation of products and services, moving beyond an operational role.”
Making the shift from project to product is comparable to creating a product-centric technology organization, like becoming a software or digital business
The shift to a product-centric organization should focus on areas where there is scope to innovate digital initiatives, such as supporting a new business model. Some initiatives will fall under the CIO; others will be executed by product managers and other functions in lines of business.
For example, Hong Kong-based Orient Overseas Shipping and Container Line’s digital transformation started with the realization that data and analytics for internal IT services, such as APIs, could be leveraged for external products and services. The company created CargoSmart, a software as a service platform that provides information and analytics on shipping routes, container locations, and cargo tracking to external and internal customers.
Van Dam says “Making the shift from project to product is comparable to creating a product-centric technology organization, like becoming a software or digital business.”
Product-centric approaches make it easier to rapidly innovate and iterate because they focus on customer experience, evolving requirements, and the strategic differentiation for a product or service. A product-centric model is ideal for integrating digital technologies and scales, offering a high chance of growth and profitability.
Nevertheless, CIOs need more than motivation and eagerness to achieve a successful transformation. Above all, a product-centric organization requires new skill sets, roles, investment models and the right culture.
Gartner has developed a three-step-model that CIOs can follow.
Step No. 1: Do it like the software companies
Digital initiatives can be organized in many ways. First, look at companies that have built successful software technology organizations for rapid learning and addressing quickly evolving requirements. “By their nature, these organizations have had to focus on evolving business models and disruptions,” says Van Dam.
Bosch, Caterpillar, Haier, Tesla and Volvo recognized that delivering digital business initiatives at scale requires capabilities such as continuous product/service development and enhancement, security and privacy management, and data and event collection and real-time analytics.
“When you are tasked with the creation of a digital product team, decide on the structure first, define the needed roles and skill sets, and only then build your team,” Van Dam says. “To support the product manager, it might also make sense to transform part of your IT organization into a digital group that operates product-centric and accelerates the delivery of digital products and services.”
Step No. 2: Adjust investment models
The development and deployment of digital products and services is usually considered an investment, and it is accepted that the team will operate at a deficit until an offering with market traction is established. It is common for digital products not to make money for three to five years after their initial funding, and some take even longer. This calls for a mix of funding sources in addition to corporate allocations.
Step No. 3: Position product management as the core for everything digital
Set the tone for the importance of digital product management as a driver of successful growth and scale. When new offerings fail, it is mostly due to poor requirements. A capable product management discipline is the most efficient way to improve product success odds and drive sustainable growth.
To fulfill its purpose, equip product managers with a clear vision and a strategy for the short- and long-term future. Secondly, establish a set of specific and measurable goals that are both desirable and achievable.
“Digital initiatives have the potential to create new engines of growth that can ensure an organization’s survival. However, they can only be successful if the whole company transforms and becomes product-centric, with the CIO taking the lead on the transformation process,” Van Dam says.
Read more: 10 Culture Hacks for Digital Transformation
Gartner clients can read more in “From Projects to Products — Three Essential Actions for Every CIO Aiming to Transform Their Digital Organizations” and “3 Steps to Ensure Digital Product Management Success” by Lars Van Dam, et al.
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