It’s a sobering lesson that too many organizations have learned the hard way: If your enterprise views IT cost optimization as simply about always doing the same things for less money, then you will struggle mightily with digital business.
To help their organizations compete in a digital business economy, CIOs need to “relentlessly” apply the 80/20 principle, according to John Roberts, vice president and distinguished analyst at Gartner. “IT must focus its energy and abilities on the critical 20% of efforts that produce 80% of business value,” he said. “At the same time, IT can reduce its cost footprint by avoiding spending on work of marginal value.”
He pointed to the example of India’s largest automobile company, where the CIO systematically evolved the IT organization from a traditional “keeping the lights on” role to that of enterprise process and information architect. Eventually, basic IT services were outsourced to an internal IT service company, which freed up the CIO’s IT organization to concentrate on business outcomes – such as turning life cycle data captured at car dealerships into a platform for strategic initiatives.
A 360-degree approach creates value
Taking a 360-degree approach to IT optimization (ITO360) creates opportunities that would be missed by merely cutting costs, said Mr. Roberts. ITO360 is about optimizing business processes and information delivery, and then redefining business models. CIOs who understand – and embrace – this mandate are positioned to change the competitive playing field to the enterprise’s advantage. ITO360 involves this progression:
- Optimize business processes. CIOs can broaden their focus on business process automation to include rationalizing redundant business processes across the enterprise and identifying business capabilities (and processes) the organization will need as it becomes increasingly digital.
- Optimize information delivery. CIOs should add “enterprise information architect” to their job descriptions. A cross-enterprise perspective on information and processes, supported with technology, helps break down data ownership silos, send information flows up and down management chains and across functions, and drive optimum decision-making.
- Optimize business models. Business model innovation is often less about automating and improving internal business processes, and more about digital products, channels and communities beyond enterprise boundaries. CIOs should work with digital leadership to exploit technology’s potential, and look outside the industry for innovative business models.
CIOs acknowledge that reinventing the enterprise as a digital business, focused on value rather than costs, presents myriad challenges. Corporate-wide transformation efforts led by the CEO and other top executives frequently involve ambitious IT cost reduction targets, for example. Other challenges include:
- Business silos
- Incomplete strategy
- Lack of integrated key performance indicators (KPIs)
- Insufficient business/IT engagement skills
- Low IT credibility
“CIOs able to break through the IT cost-cutting barriers are recognized for their leadership qualities and willingness to embrace innovative and strategic changes,” said Mr. Roberts. “They attract the new skills required to play in the digital industrial economy, they maintain clear success metrics, and they are viewed as key members of the digital business team.”
Establish a new leadership team
To create business value in a digital world, CIOs must help establish a new leadership team that includes business peers and other relevant stakeholders — all collaborating to integrate, coordinate and lead digital initiatives throughout the enterprise and its ecosystem.
For example, the IT organization at U.K.-based dunnhumby (a digital customer science company) has a truly non-defensive “how can we help” approach built on IT credibility and openness with the rest of the business. At NewHospitalCo, a high-level and well-structured digital technology governance board keeps the “start digital, stay digital” vision on track. To meet the board’s goals, the CIO, chief medical information officer and chief nursing information officer collaborate on defining processes and integrating information from multiple technologies.