by Otto Berkes

Why today’s IT organization doesn’t work anymore

Jan 10, 2018
IT LeadershipIT Strategy

Why the traditional IT organization is on the cusp of radical changes that will reshape its structure, function and culture over the next decade.

Last year, I wrote a book about digital transformation entitled Digitally Remastered – hence the title of this blog and other related posts to come. Through the lens of my experience as co-founder of Microsoft’s Xbox to the launch of HBO’s video streaming service and most recently to founding CA’s new business incubator, I’ve played a part in the fundamentally changing relationship between technology and business. That has changed my own view of technology, and today, I think and operate as a business leader who also has the expertise to be able to use technology effectively to realize business potential.

The breakthroughs made possible by ubiquitous connectivity, ever-increasing computing power, and technology-enabled business transformation and creation have captured our collective imaginations. Although the temptation is to focus on technology alone as the source of innovation and competitive advantage, doing so will fall short.  In partnership with technology, you must shape your processes, capabilities and culture to seize market advantage.

In the classic picture of the enterprise, we see the traditional IT organization supporting business functions within the enterprise; customers are largely outside of the technological firewall of the business. In this legacy model, technology’s relationship to the business is mostly transactional; the business hands off tasks for the centralized technology organization to execute. The enterprise’s customers are often one or more steps removed from the functioning of the business itself, and technology is viewed as infrastructure “plumbing” rather than as a business driver and partner. I would argue that, unfortunately, this model is still very much in force in many enterprises around the world.

Technology’s command economy

If you look at the classic “IT-shop” model as an abstraction of the economics of the firm, what you see is that the traditional IT department is in charge of controlling both supply and demand of technology in the enterprise. Why? Because in the old days, technology (and technological expertise) was a scarce resource, and it needed to be not just managed, but conserved. It was the classic problem of maximization under constraints – how to deliver as much technology as efficiently as possible. The answer? Big applications, partitioned by function, and controlled by IT department “gatekeepers.” Traditional IT was the “command economy” of the enterprise with centralized control of technology production.

Fast forward to today, where technology costs have plummeted, and two-way, 24/7 digital feedback loops with its customers are increasingly the technology model of the enterprise, and you have a serious disconnect: on the one hand you have a modern, forward-facing model for digital engagement, and a dated, backwards-looking organizational and cultural model ill-suited for delivering customer-facing experiences.  Something has to give – and indeed, the first cracks have shown themselves in rogue IT and BYOD demands that have given IT leaders no choice but to meet the technology demands of their people. And, agile itself was a revolt against the slow and inefficient way legacy organizations incorporated technology into their business models and investment decisions.

Now, fast forward again, to a future world where no-code and low-code platforms mean that anyone – regardless of their technology pedigree – can spin up applications and drive business value creation use technology as a lever, and that mismatch with the “classic IT” model looks even more troubling. How relevant will traditional technology organizations and their supporting cultures be when technology becomes even more broadly accessible? The answer is: not very. But what is to be done? And what will CDOs, CIOs and CTOs be called upon to do in the future to actually do? Will they even be called upon? That’s the big question I’d like to explore in this series of posts.

Making the turn: why value streams matter

Technology in the enterprise today is struggling with the current model mostly because it has been built around the idea that controlling technology means controlling cost. This “technology as cost center” model has become so enmeshed with its own annual budgeting process that it’s nearly impossible to measure and understand technology’s ROI. (More on this in a later post and why your CFO may be your new best friend.)

True digital leaders today have turned that idea on its head: for them, technology is about enabling the creation of value streams. If the old model is “funding, technology, delivery, customer,” the new model is more like “customer, value, technology, funding.”  If we look at these oversimplified but highly divergent investment flows and sequencing, the differences illuminate not just the process change but also the new capabilities needed for enterprises to apply technology as a business driver, rather than as an unavoidable cost that must be managed.

The approach that enterprises have applied to technology over the past 20 years is fundamentally at odds with technology’s new role as a critical business enabler.  Enterprises that continue down the same old path risk chronic underinvestment in areas of new opportunity such as big data, analytics and machine learning. Agile has provided an encouraging process improvement, but it has not achieved its fundamental goal of overturning the technology status quo in the enterprise. Over the next series of posts, I’d like to explore what it’s going to take to break out of the old technology order and break into a new world where technology becomes a true value creation machine.