March 27, 2024

In the digital world,

It’s essential to free IT’s future from the pull of its past

Is your company still struggling to successfully transform into a digital enterprise?

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.

The poster child for a successful digital transformation is Microsoft under the leadership of their CEO, Satya Nadella. When he took over as CEO from Steve Balmer in 2014, the company’s stock was trading at $40 a share, a level it had not exceeded in the 14 years Balmer was CEO.

Satya started Microsoft’s digital transformation by pivoting the company from an on-premise, on-desktop business model to a cloud-first, mobile-first business model. In the ensuing 10 years the company’s stock price has risen to $425 a share and the company’s valuation has surged from $300 billion to $3 trillion.

What are the lessons learned for CIOs

There are a number of lessons all CIOs can learn from Microsoft’s successful digital transformation if they want to evolve IT from a cost center support function to a strategic business partner role within their company. It has to start with a leadership commitment to free IT’s future from the pull of its past.

Lesson One: Honestly assess which step on the chart below IT resides on today.

Recent studies and surveys have documented that a strong legacy mindset about IT still exists in many companies:

  • 40-50% of CEOs and Boards still see IT as a cost center, not a revenue generator
  • IT spends 80% of its resources and budget on running the business and only 20% on changing the business

Lesson Two: Align and commit to making the move to the next step up.

In my work with CIOs and their senior leadership teams, we’ve used the slide below to create alignment and commitment to moving to the next step up from the current step the team agreed IT was on. For each step, there are a set of specific actions to be taken to achieve the next step up. They start with the following questions:

  • How does IT create business value?
  • Does IT have the necessary skills and capabilities to deliver that value?
  • What could dilute or disrupt that value?
  • How can IT increase or enhance that value?

To free IT future from the pull of its past, you have to confront these legacy mindsets head-on and build a comprehensive strategy and implementation plan to demonstrate the multiple ways IT creates and delivers business value to the organization.

Using the 4 Zones Model to make the business value creation case for IT

In order for IT to evolve from a cost center support function to a strategic business partner role, it requires demonstrating the multiple ways technology brings business value to the organization as illustrated on the chart below.

Step One: Document the 80% run the business to 20% grow the business resource and budget allocation equation

Early adopters of the 4 Zones model have started by documenting the allocation of their resources and budgets into the four zones as follows:

  • % of IT resources & budget allocated to maintaining systems of record

              o    Productivity Zone – Run the Business

  • % of resources & budget allocated to creating & deploying systems of engagement and systems of intelligence

              o    Performance Zone – Run the Business

  • % of resources & budget allocated to identifying, testing, and validating new technologies

               o    Incubation Zone – Change the Business

  • % of resources & budget allocated to new businesses or acquisitions

               o    Transformation Zone – Change the Business

Step Two: Utilize our trapped value recovery assessment

Early adopters have utilized our assessment to recover resources and budgets that are allocated to low value, run the business functions by identifying systems of record and processes that can be:

  • Modernized
  • Consolidated
  • Eliminated

In the vast majority of these assessments with my clients, we have recovered 20-30% of their budget and resource hours.

Step Three: Redeploy IT resources & budget in new digital technologies

This step then asks where the team wants to invest these resources and budgets:

  • Redeploy resources and budget to develop and deliver new systems of engagement and systems of intelligence
  • Shift from an 80/20% to a 40/60% allocation equation

Many companies struggle deciding which new digital technologies to invest in to best enable the competitive performance of their businesses. The stairway to heaven model below has provided a foundational framework and step by step path forward for making these decisions. It has been very helpful in preventing companies from just chasing the next bright shinny object.

Investing in new digital technologies is a building process where the early stages on the bottom of the stairway have to be in place before the later stages can be successfully deployed. In all cases, when deciding whether or not to invest in a new digital technology, the core decision making question you must ask each and every time is “to what end?” If you can’t clearly define and agree upon the critical business outcome the digital technology will enable, you are not ready to invest in it yet.

Step Four: Increase the operating performance of the company’s business units

In order to demonstrate how digital technologies can directly increase revenues, margins, and profits, CIOs and their senior leadership teams have used the 4 Zones framework to align future IT investments with critical business outcomes. In collaboration with their internal business partners, they have constructed an IT Collaborative Investment Portfolio which allowed them to reach mutual agreement on how to segment and prioritize multiple IT investments by zone.

They start this collaborative dialogue by asking the following questions:

  • What is currently making it difficult for you and your team to achieve your desired business outcomes?
  • What can IT do to better enable your critical business capabilities?
  • What new products and services are our customers asking for?
  • What new digital technologies could disrupt our current customer relationships?

Armed with the answers to these questions, they can begin to talk through multiple investment options and collectively agree on those that will directly impact the desired outcomes they all want to achieve.
There are three core elements that must be fully embraced and leveraged for the successful implementation of this step:

  • Proactive Business Partner Engagement which requires the IT leadership team to actively initiate and help facilitate face to face meetings with their internal business partners. These discussions should focus on new digital technologies (systems of engagement & systems of intelligence) that can increase current customer value and deliver future customer value.
  • Product Adoption & Successful Utilization are the new metrics of success rather than customer satisfaction and NPS scores. It is essential to measure the new product or service adoption and utilization rate and how it directly contributes to generating new revenues and profits.
  • Maximize Digital Technology Value Creation which requires senior IT leaders to reprioritize and redeploy scare resources and budgets away from run-the-business to grow-the-business initiatives. They must incentivize their employees to think like business owners with a P&L mindset, not function heads with a cost center mindset.

Freeing IT’s future from the pull of its past is not an easy task. It requires:

  • Strong leadership from the CIO and senior leadership team
  • The utilization of a solid strategic framework and operational transformation toolset
  • A commitment to redeploy scarce resources and budget from low value, run the business   functions to high value, change the business functions
  • Tangible uses cases of technology’s ability to directly increase revenues, margins, and profits
  • A concentrated communication program to position IT as an investment not a cost

The good news is that the work I’ve done with early adopter CIOs and their senior leadership teams utilizing this approach has resulted in them being able to free IT’s future from the pull of its past.

If this is a journey you want to undertake, I’d welcome the opportunity to discuss how we can put this approach to work for you and your leadership team.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please email them to me on linkedin. And, if this content could be useful to someone you know, please share it here: