IT faces conflicts in realities of digital world

IT faces two realities: a legacy environment and a digital environment. When your company commits to a digital future, your legacy environment doesn’t go away. But adopting a bimodal strategy is not successful. Here’s the reality: digital transformation is a game changer that requires changing your business model; therefore, you must drive change into both environments.

A company’s legacy environment is mature, sedimented and complex with many layers of technologies, applications and processes that are interrelated. It is also overspread with the company’s culture and its organizational structure.

What is not well understood, or is overlooked at the outset of rotating into a digital environment, is that the agile digital world requires integration into the legacy environment. Consider the following example of what happened at a leading multinational company.

The company committed to a digital, agile lab environment. Initial results were very pleasing and demonstrated the company could deliver useful work quickly in six- or eight-week sprints.

But challenges arose as the company further embraced the agile lab environment, and the lab began to take on attributes of legacy environment.

For example, the approval process and budgeting process slowed down the labs. Resource allocation mechanisms were another issue, and the shared resources across labs, or pods, caused delays in progress. The technology often found itself well out in front of the change management issues that required implementation of the technology. Prioritization conflicts slowed the digital teams or lab down to a similar pace at which IT had been progressing before implementing the digital lab environment.

The company recognized it needed to do much deeper rethinking around the bank’s legacy organizational structure and culture. It wasn’t good enough just to demonstrate that they could deliver work quickly in six- to eight-week sprints. The remedy necessitated forcing a more radical restructuring. This included:

• Rethinking decision rights, investing those rights in the labs rather than in leadership teams that oversaw the labs.
• Restructuring the talent. Unlike a legacy talent base, a digital talent base is typically organized by cross-functional teams in pods that are tightly aligned to the business. The bank also invested in more senior resources and embedded them in each lab.
• Changing the allocation of resources.
• Developing a different governance structure.
• Establishing a different funding structure, replacing the annual budget funding with a structure similar to the iterative funding structure venture capitalists use. In a digital model, the business is typically much more instrumental in funding activities. Further, the business exercises substantial influence over the direction in how technology is delivered and by whom.
• Creating a change management structure in which they integrated product management techniques rather than program management techniques.

The situation this leading company encountered is not unusual for any organization committing to a digital future. Even if the organization has simplified its legacy environment — automating processes and consolidating the vendor portfolio — the legacy organizational structure around such aspects as decision rights, funding, talent and resource allocation affect the digital world.

A different set of norms and realities exists in the digital environment. Typically, activities are linked to the business trying to accomplish its goals, and IT needs to focus on getting business benefit quickly.

The challenge before IT groups and any company moving to the digital world is how to drive change into both environments. Without addressing this challenge, a company cannot capture the anticipated value from digital transformation.