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Next-Generation IT: The New Operating Model for a Digital World

In a constantly evolving digital playing field customer expectations are rising, and the technology sophistication of many consumers (customer as well as business stakeholder) is growing, IT knows it has to change its game.

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In a constantly evolving digital playing field customer expectations are rising, and the technology sophistication of many consumers (customer as well as business stakeholder) is growing, IT knows it has to change its game. After all, tech-savvy business users are increasingly sourcing and provisioning their own solutions these days, encroaching on IT’s traditional domain. At the same time those decisions are disrupting how IT operates and the value it provides to the business.

According to a KPMG report, Next Generation IT Operating Models, CIOs can better respond to this disruption by embracing a new operating model that meets the needs and challenges of today’s more savvy and capable business stakeholder.

“IT organizations are in jeopardy of further losing relevance if they don’t change,” says Denis Berry, the principal leading KPMG’s CIO Advisory Practice in the U.S. “It’s not just about disruptive technology, but shifting expectations and the fact that people in the business are getting more capable with technology.” Business people can readily go out and buy SaaS solutions that can be up and running in the cloud within hours or days, a “seismic shift” from the days of protracted development cycles in the mainframe age, he explains. Berry offers Johnson & Johnson as an example, which recently announced it plans to move 85 percent of its applications to the cloud by 2018, while last year they shut down their last mainframe. “It’s eye-opening,” he says. “Several years back, you would have never thought a global company would completely move off their mainframe.”

IT still has an essential role to play, of course, but it is changing and has implications for its operating model —that is, its relationship with the business, the services it provides, as well as its processes, organization, capabilities, decision-making, governance, and approach to sourcing. Berry explains that the operating model for most IT organizations had been built upon a “design-build-run” model where IT teams would ask users what they want, get sign-off and go build it. Once built, the application would run in a hosted production environment, typically a data center. “That design-build-run model is not as valued by the business anymore, and in fact is in inhibiter to business agility,” he says.

The new IT operating model

According to Next Generation IT Operating Model, if IT is going to remain relevant, a new operating model is required that “can change the basis of the IT-business relationship to leverage emerging technologies and sourcing alternatives to satisfy these new stakeholder expectations.” This incorporates three essential capabilities:

1)    IT as broker. Those in the IT organization need the right skills and relationships to understand the business as well as understand the technology-enabled capabilities that can help the business achieve its strategic objectives. As a result, IT serves as a broker, connecting their business colleagues with the vast and growing sets of technology options that may be available to them. They help the business understand important technology considerations such as performance, integration, and supportability.   

2)    IT as integrator. IT works with service providers to configure, customize and integrate their service offerings into their organization’s specific business environment. IT addresses linkages with existing legacy solutions, to make sure that technology works effectively across the organization, data is appropriately leveraged and that enterprise policies and considerations such as security and privacy are properly addressed.

3)    IT as orchestrator. IT makes sure that the acquired and integrated services continue to meet the functional and performance needs of the business, and that enterprise obligations are met on a continuing basis. With the fast-changing landscape of service providers and service offerings, it is essential for technology-savvy professionals to stay on top of the vendors, the services and how they are integrated into the business. 

The CIO, says Berry, needs to serve as the champion for all of the above, positioning IT for the next generation of disruption, which he emphasizes must holistically address the various components of IT’s operating model.

How IT can embrace this new model

Most IT organizations, says Berry, have a long way to go in terms of embracing this next-generation IT model. “Most are still in the design-build-run mode, even as they talk about the need to shift from a service builder/ operator to a service integrator,” he explains.

The biggest struggles, he adds, are changing the IT culture and building the essential new digital capabilities. “There is a lot of inertia built around the current models,” he says. “It’s very difficult to take people who write code and tell them we won’t be building software anymore, or turning to someone who is used to gathering requirements and saying we will start with ‘out-of-the-box’ functionality. It’s about changing the processes and the overall culture.”

IT leaders can move to a new IT operating model by taking a number of important steps: 

  • Build the right skills. For IT, moving from being a builder of applications to a broker of services requires new capabilities, which means disruptive technology skill building and talent management are critical priorities for CIOs. “CIOs are telling us they are struggling to execute on their priorities, and falling further behind, in the absence of critical skills” says Berry. This was highlighted in the recent Harvey Nash/ KPMG 2016 CIO Survey, where 65% of CIOs report that skills shortages are preventing them from keeping up with the pace of change in their businesses.
  • Invest in innovation. An organization may choose to be on the innovation forefront or be a fast follower, says Berry, but it needs to take a position and make the necessary investments that advance their efforts. “It’s not just about industries getting ‘Uberized’ — I think people are getting tired of hearing that,” he says. “While it may get most of the headlines, established industries and businesses are using disruptive technologies to spur more incremental innovation, including changing the dynamics of customer relationships; how data is being used and how products are distributed.” IT organizations, he says, need to keep up.
  • Strengthen IT’s business understanding and relationships.  This is more than souped-up business relationship management. It’s about building a true understanding of the business atop strong and trusting relationships. “It’s about demonstrating the value of those relationships and making sure the conversations are focused on helping take the business to the next level,” says Berry. 
  • Embrace cloud. The journey to the cloud, says Berry, is “an unstoppable trip we’re all on.” For example, business users are finding compelling functionality using cloud-based SaaS solutions. At the same time, IT is using IaaS to move away from data center operation and PaaS solutions to provide the mechanisms for business and IT to work together.  This strategy uses agile approaches and methods to rapidly develop and integrate systems where the business seeks to build software to exploit a distinctive competency for competitive advantage. Regardless of the “flavor” of the cloud, a “cloud first” strategy is becoming table stakes. 
  • Run IT with business discipline. Transparency and financial management discipline are key to taking IT to the next level, says Berry. “So much CIO and IT organization attention is spent managing and reporting on things that are not truly value adding or moving the ball forward,” he explains. “Getting the fundamental ‘business of IT’ disciplines in place and operating smoothly is essential for IT to focus on serving the needs of the business,” he explains. 

For more information, download Next Generation IT Operating Model here

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