In the digital world, AI is driving the democratization of innovation
AI could potentially add $13 trillion to global economic activity by 2030, representing a 16% increase in cumulative GDP, according to Prysmian.
In the digital world, It’s essential to free IT’s future from the pull of its past
Companies spent over $2 trillion last year on digital transformation. A recent McKinsey research study found that only 12% of companies report achieving their transformation goals over the past three years. On average 43% of the financial benefits are lost during the latter stages of large-scale transformation efforts. Most transformation efforts made some tactical improvements to IT but did little to impact critical changes to the companies’ operating or business models.
In the digital world, business success is the new strategic imperative
What does success look like for your business in 2023? As companies embark on their 2023 plans, they are facing a multitude of challenges and a high level of uncertainty about the impact of financial, social, geopolitical, and technological disruptions…
In the digital world, complexity is the enemy of agility and execution
As companies race to adopt new cloud computing technologies and systems to effectively compete as digital enterprises, they quickly discover that with new systems, applications and processes comes monumental new complexity.
In the digital world, IT should be run as a profit center, not a cost center
The evolution of IT from a cost center to a profit center is at the core of successful business transformations. The wave of new digital technologies are the driving force of new product and service innovation that is redefining how companies engage with their customers, employees and other key stakeholders.
In the digital world, IT is an investment not a cost
Most of you reading this blog are now fully immersed in your company’s annual planning and budgeting process for 2019. Unfortunately, many IT shops still go into this exercise with a defensive mindset that tries to avoid budget reductions rather than an offensive mindset that makes a compelling business case for new technology investments.
In the digital world, sometimes less is more
Most if not all organizations no longer have the capacity to meet the accelerating demand from their customers, employees, supply chain partners and other key stakeholders for faster, friction free ways to engage and connect. From product development to marketing to sales to customer service and IT, teams with limited resources and budgets are stretched to the breaking point to try and keep up with unprecedented increases in demand.
Using the 4 Zone Model to Build an IT Investment Portfolio
“How much value is IT adding to the business?”
This is the one question that most CIOs I talk with struggle to answer. For many organizations, IT’s value is only measured by its ability to reduce costs and optimize the capital expense depreciation of large hardware and software licenses. For others, it’s based on their ability to provide applications and services that enable employees to be more productive. In some cases, IT is seen as valuable resource and contributor to enabling business units to meet or exceed their revenue and profit targets.
Regardless of where your IT group falls across this spectrum of business value there is one unifying theme – IT is not very good at telling its business value story. Part of the problem is that much of today’s story was built on the old Plan, Build, Run model complete with its time consuming requirements process and waterfall development cycles which are now completely out of cadence with the fast-cycle marketplace. This approach has resulted in a large percentage of the annual IT budget being allocated to run the business activities, with a much smaller percentage allocated to change the business activities. This imbalance is only exacerbated by the typical 2% annual budget increases.
How to change the narrative about IT business value
CIOs and their senior leadership teams must make creating and communicating IT’s business value story a mission critical priority. It all starts with a solid framework that defines the multiple ways IT contributes value to any organization. The framework should be realistic, but also simple and capable of being expressed in language that business leaders will recognize and support. The new 4 Zone IT Investment Portfolio is one framework that meets these criteria.
The 4 Zone model enables CIOs to construct an IT Investment Portfolio that apportions the business value of IT in four investment categories. It depicts IT’s spending allocations and provides a clear visual aid for discussing changes to those allocations. For example, based on your organization’s 2016 strategic and operating goals and deliverables, is the weighting of the IT investment allocation aligned with those goals? In this context, most if not all business executives will not only understand the type of value IT investments are targeting, but they will appreciate the challenge and imperative of making smart IT investment choices going forward.
A four zone business value story
Not unlike a personal investment portfolio where risk and return are spread across multiple investment options, the IT investment portfolio is designed to deliver value and returns in four different categories.
Productivity Zone value is created by providing secure and stable operations and maintenance of the company’s systems of record. While most of the ROI from investments in these SORs has been realized, they are still an important and necessary component to the successful operation of any organization. CIOs can deploy our trapped value audit tool to periodically review and identify opportunities to optimize the costs of maintaining and modernizing SORs while also reducing the amount of technical debt. These resources can then be redeployed against new value creation opportunities in the performance and transformation zones.
Performance Zone value is created by delivering a series of user-centric tools, services and solutions e.g. Social, Mobile, Cloud and Data Analytics that enable the company’s businesses to better engage with customers, supply chain partners and other key constituents. CIOs can use our Collaborative IT Governance model to better align future IT investment priorities with critical business outcomes. By contributing directly to creating valuable and enduring customer experiences, IT can demonstrate its ability to help accelerate customer adoption and utilization resulting in new revenues and profits.
Incubation Zone value is created by IT’s help in identifying, testing and validating next generation product, service and business ideas and leveraging technology enabled innovation to deploy them. This zone also acts as a staging area for all IT projects and provides a prioritization process to determine which of the other three zones would benefit the most from the ultimate value of the project. A rapid agile development approach will enable IT to significantly increase its speed to market and throughput for all IT investments.
Transformation Zone value comes from ITs ability deploy new disruptive technologies to enable the company to launch and scale a material net new line of business. An organization’s ability to leverage technology enabled innovation is becoming a critical source of competitive advantage with the emergence of digital enterprises.
This 4 Zone investment portfolio approach provides a structure and common vocabulary to resolve risk reward discussions between IT and its internal business partners across multiple investment options. It also enables the CIO to characterize and justify IT’s investment recommendations, whether at the C-Suite or Board level, augmented by specific business cases that highlight the ROI from each one.
An investment approach that is aligned with the new consumption economy
In today’s subscription-based consumption economy, the value of IT’s products and services are measured by customer/end-user adoption and utilization. To deliver the maximum business value of IT, CIOs need to effectively articulate how each investment will directly contribute to the successful deployment and utilization of each product or service its supports. As such, IT investments must be able to generate immediate returns which accelerate with increased usage. This means that IT has to significantly increase its speed to market and throughput.
The fast cycle cadence of the consumption economy will require IT to replace the old Plan, Build, Run development process with a new Co-Develop, Assemble and Consume process. This new process puts a premium on making a series of investments and getting market feedback on them quickly so leaders can make the needed changes that will drive further adoption and utilization.
Get started with a current state investment assessment
As a first step, CIOs can use the 4 Zone model to do an assessment of how their budget and resources are allocated across their current pipeline of projects and deliverables. This assessment would allocate each project into one of the four zones and create a baseline of where you are making your IT investments today. You can then ask questions like:
- Is the current weighting of investments by zone aligned with our corporate strategy and goals?
- Do we have the appropriate risk reward ratio across our investment portfolio?
- Are we delivering the desired ROI from our portfolio of investments?
- Are we making the right level of investment to accelerate customer adoption & utilization?
- Does our portfolio of investments maximize the business value if IT across our company?
Creating and effectively communicating a compelling IT business value story is not an easy task. Overcoming legacy mindsets about the role and value of IT requires a strong framework; a well-balanced risk vs. reward investment strategy aligned with corporate goals and deliverables; a new development process that is in sync with the fast cycle market cadence of digital enterprises and a new set of consumption market metrics.
Armed with those tools and that approach, CIOs should be well prepared to make the business case for the value of IT.
As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com
Implementing the 4 Zone Model Playbook
From Strategy to Implementation: Common Drivers & Expected Outcomes
Like any new strategic framework and set of tools and processes, the 4 Zone Model’s value can only be realized through implementation and execution. I have outlined below how some early adopters of the model have deployed different elements of the playbook to address critical issues and opportunities.
The 4 Zone Model is built upon several drivers common to enterprise information technology functions:
- A need for innovative approaches to enable organizations to address five disruptive technologies: Cloud, Mobile, Social, Data Science and Internet of Things.
- A need to evolve from lengthy waterfall-based technology implementations to the more rapid agile development approach. The Plan, Build, Run model will be displaced by a Co-Develop, Assemble, Consume model.
- A need to embed a trapped value assessment process to identify opportunities to shift resources and funds from maintaining legacy systems of record to developing new systems of engagement.
- A need to utilize new methodologies and tools to identify, develop and reinforce the relevant new skills and capabilities necessary to lead and manage a digital enterprise.
The motivation to adopt the Four Zone Model playbook encompasses a number of expected outcomes:
- Higher percentage of IT resources allocated to change-the-business outcomes.
- Significant increase in speed to market and throughput of all development initiatives.
- Strong alignment between future IT investment priorities and critical business outcomes.
- Increased ROI from the portfolio of IT innovation investments.
- More impactful IT presence at the business strategy table.
To respond to these drivers and expected outcomes, the Four Zone Model playbook affords technology teams’ processes and tools which enable them to maximize the business value of IT across all three levels of their organization.
The Starting Point: Mission-Based Teams
In order to move expeditiously, the 4 Zone Playbook begins at the “starting point” with mission-based teams specifically assembled and empowered to attack prioritized desired outcomes. These mission- based initiatives all start from the “Incubation Zone” and seek an exit path to one of the three other Zones depending on the desired outcome.
IT Executives leading mission-based initiatives begin the process by asking three key questions:
- Should we do it? Does it align with and support critical business outcomes?
- Can we do it? Do we have the relevant skills/capabilities, tools and capacity to achieve the outcome?
- Did we do it? Do we have the right metrics to measure the achieved outcome vs. the desired outcome?
Mission-based teams are appointed for work which has been identified as a priority for movement from the Incubation quadrant to another Zone within the Model. Expectations for success can be high given the following critical elements:
- Alignment at the leadership level that the work commands sufficient priority to be implemented. Alignment must occur not only within IT but also with all other key stakeholders including internal business partners and shared services partners.
- Formation of the mission-based team includes careful appointment of team members to ensure they have the appropriate skills and competencies necessary to achieve the outcome.
- The initiative must be carefully scoped to fit within the Model’s timeframe boundary conditions (namely pilot initiation to go live within 30-90 days especially for productivity and performance zone projects).
- Active collaboration and critical thinking processes must drive the shared discovery, problem solving and solution adoption. The focus of the team and their work is deliberately narrow, user centric and intentionally innovative.
- Measurement is expected to occur throughout the discovery and design process as well as at the conclusion of the team’s work.
The Outcome is Worth the Journey
What we have learned over the past 12 months is that to successfully introduce and deploy this playbook is a leadership challenge not a management challenge. This is not about just doing what IT has always done better, faster and cheaper. This is about transforming the role of IT from a cost center/support function to a business enabling strategic partner. This is about changing outcomes by changing legacy attitudes, behaviors and actions.
As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.
The 4 Zones Model: A Playbook for the Incubation Zone
Companies have no choice but to up their technology enabled innovation game
According to a recent McKinsey study, more than 60% of CEOs expect up to 50% of their earnings growth in the next 5 years to come from “technology-enabled” business innovations. A recent study of CIOs by IDC found that 57% expect to be defined in terms of delivering business innovation to increase revenue, margins and new products.
In order for companies to be competitively viable in this new era of digital disruption, they have to dramatically increase their ROI on their portfolio of technology innovations. As I’ve stated in earlier blogs, these digital disruptions are fundamentally changing the way companies engage with their employees, customers, supply chain partners and other key stakeholders.
Companies have been spending money on research and development at the fastest pace in 50 years. From last November to the end of March, U.S. companies funded R&D at an annual rate of $316 billion or about 1.8% of GDP which is the largest share ever for the private sector.
As such, it is disturbing to read that, according to a recent Deloitte study, the return on R&D investments by the 12 biggest biopharmaceutical companies fell from 10.5% in 2010 to 4.8% in 2013.
The Incubation Zone: The Three Innovation Playbooks Model
The 4 Zone Model I’ve developed (link to earlier blog http://eepurl.com/blFb3T) is designed to enable CIOs and their senior leadership teams to maximize the business value of IT across their organizations. IT’s charter for the Incubation Zone in particular is to help the company identify, test and validate next generation product, service and business ideas and leverage technology-enabled innovation tools to develop them.
In our work with many companies across multiple industries, we have developed a set of three innovation playbooks to help them better organize and implement their portfolio of technology innovation investments as the chart below illustrates:
At the core of this tool are three distinct innovation playbooks that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:
- Have we differentiated our offer enough to gain real competitive separation?
- Have we created a truly unmatchable offer?
- Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
- Have we gotten to good enough fast enough?
- Have we optimized our opportunities for gains in resource utilization and cost reduction?
- Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?
Our work in this space has also shown us some of mistakes companies make with their approach to innovation which results in a very low ROI on their investments. Here are two rules of thumb to avoid:
- Never tie differentiation and neutralization programs to the same release schedule
- Differentiation has to go far
- Neutralization has to go fast
- Combining the two dumbs you down and slows you down
- Best in class is appropriate for productivity innovations only
- Too low a mark for differentiation (beyond class)
- Too high a mark for neutralization (good enough)
- Benchmarks are for productivity programs only
The Harsh Reality about the ROI on Technology Innovation Investments
As the chart below illustrates, the majority of innovation investments do not deliver the desired results or ROI. These less-than-optimal outcomes most often occur when differentiation projects are launched too soon or neutralization projects take too long.
While there is no silver bullet that guarantees innovation success, when the three innovations playbook model and tools are successfully deployed ROIs have greatly increased in many technology investment portfolios.
In my next blog, I will take a deeper dive into the Transformation Zone and talk about how you can deploy our Three Horizons model to scale net new lines of business that produce material new revenues and profits.
As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.
