To transform into a digital enterprise, first reinvent IT

Phil Wainewright Profile picture for user pwainewright August 1, 2014
You wouldn't let a turkey decide the festive menu so don't put IT in charge of your digital future. McKinsey and others advise a 2-speed strategy for enterprise transformation

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Why is IT doing such a terrible job of adapting to the new generation of digital technologies?

Writing on this topic on last week, Bernard Golden cites an instructive tale from by Erik Brynjolfsson and Andrew McAfee's new book, The Second Machine Age:

[W]hen electric motors began to replace steam power in factories, factory designers continued the practice of a large central motor running manufacturing machines via complex systems of belts and pulleys.

They couldn't envision new designs with smaller motors attached to the machines themselves. It took a new generation of factory designers to internalize the potential of smaller electric motors and create designs more appropriate for their capabilities.

This strikes me as a fitting analogy for what we see happening in enterprise applications today. Forward-thinking organizations are embracing a new breed of agile, highly responsive, digital-native applications, just like the small electric motors in those earlier times.

Business as usual?

Meanwhile, the rest of the world is busy trying to extend its existing IT systems out to serve this new world — porting ERP to VMware or Amazon Web Services, adding mobile app containers, or rearchitecting the underlying technologies (think Oracle Fusion or SAP HANA). These initiatives remain oblivious to the need to reinvent not only the IT infrastructure but also all of the business processes that have evolved around it over the years. They are too focused on 'business as usual' and ignore the 'why?' that's driving the change.

Why is everyone so bogged down in trying to perpetuate pre-digital structures? Golden concludes it is because the wrong people are in charge:

Asking IT about public cloud computing is like asking the turkey about Thanksgiving — you can be sure of a negative response.

Beyond IT's worldview, the new digital era is evolving rapidly and forward-thinking line-of-business executives are eager if not desperate to engage with it. They understand the importance of transforming into a digital enterprise, in order to remain competitive or seize new opportunities.

In the past few years, cloud connectivity and smart mobile devices have made it possible to automate and digitize interactions to an extent that was barely imaginable before. There is a new generation of mostly cloud and mobile applications that automate these often business-critical interactions at the edge of the enterprise.

These digital-era applications are often known collectively as systems of engagement, in contrast to the inwardly focused systems of record that IT has grown up with. This new generation of applications will ultimately become even more prized in the digital enterprise than the previous generation, in the main because they enable the interactions that realize value for the organization. As such, they set the standards of agility, responsiveness, security and availability that the rest of the IT infrastructure will have to measure up to.

Reinventing IT

So how does the enterprise prepare for this digital future? A recent McKinsey Insights article suggests by-passing slower IT processes with a two-speed approach as a means of reinventing IT to support digitization:

Reinventing the IT function requires far-reaching changes, from talent to infrastructure, and takes multiple years to complete. Fortunately, companies can adopt an approach that delivers results quickly while still reshaping IT for the long term.

This two-speed approach requires first building a 'high-speed' IT function to work alongside the existing IT function, focusing on one or two valuable business areas such as web and customer relationship management. It enables the company to address its most critical IT areas within 18 months before scaling up to cover the remaining areas.

Successful transformations avoid fractures between the high-speed and legacy IT functions and are driven by the CEO and business leaders who treat it as one of their top priorities, not just as an 'IT effort'.

This two-speed approach makes it possible to deliver quick wins in those edge activities that are most likely to benefit from new digital technologies, at the same time as being most remote from the core systems.

Going back to the analogy of electrifying the steam-driven factory, it's a bit like deploying small electric motors to the outlying workshops first, and only later beginning to dismantle all the belts and pulleys on the main factory floor.

What the McKinsey article leaves unsaid is how to approach that reinvention of the incumbent systems and processes. Transforming the IT is challenge enough. Changing ingrained behaviors is something else.

Remaking business processes at the heart of the enterprise to be digital-native requires a complete overhaul of management practices that many will resist. While it's true there are plenty of digital-native enterprises in the world today, no one yet knows what a fully digital pharmaceutical giant, global bank or manufacturing conglomerate looks like. This remains uncharted territory for early adopters to explore.

Disclosure: Oracle and SAP are diginomica premier partners.

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