“The speed of current technological breakthroughs has no historical precedent, and the pace is exponential rather than linear,” says
Klaus Schwab, the founder and Executive Chairman of the World Economic Forum (WEF). The financial services industry beats at the heart of the digital revolution, and a quick glance at trends in the insurance segment brings it home: “
Digital intelligence (machine learning, advanced analytics) is enabling micro-segmentation of insurance customers based on their social context, risk appetites and price sensitivities. Shared economies (Uber, Airbnb) and soon autonomous machines (drones, cars, robots) are challenging the traditional actuarial models. Emerging peer-to-peer insurance businesses are threatening the role of the central authority. Connected everything (wearables, IoTs, smart cities) is promising to transform the industry’s raison d’etre from a ‘loss compensator’ to a ‘risk adviser” by influencing or even controlling the risky behaviors of the insured, whether it’s a human or a machine.”
Advances like these are profoundly impacting the business models, competitive forces, customer behaviors and regulatory environments. The ability to exploit the speed of business change has therefore become a key competitive advantage. The question we want to explore is whether the traditional Enterprise IT in the financial services industry is ready for the digital age; and if not, what needs to change.
Since its inception over half a century ago, the traditional Enterprise IT has been functioning as a project organization to deliver change, where IT projects serve as the primary currency of interactions between business and IT. They facilitate distribution of funding, organization of work and deployment of change. Behind the multi-decade success of the project organization paradigm lie two important factors: First, these organizations mastered an assembly line like sequential methodology, a.k.a. waterfall, to efficiently deliver large-scale business change. Second, they relied on a mature, battle-tested management theory, called the program and project management, for successful execution of the waterfall methodology.
© Technology for Alpha LLC Hakan Altintepe © Technology for Alpha LLC
Figure 4 – The journey of how business change is delivered by Enterprise IT
Initially, business changes were delivered through annual releases of enterprise-wide functionality on monolithic systems, e.g., finance, account management, and policy administration. As business models transformed from monolithic enterprises to decentralized businesses, then to Internet companies, and most recently, to digital organizations, the need for implementing rapid business change has accelerated. The traditional Enterprise IT responded by releasing smaller units of change more frequently. However, today’s exponential increase in speed of change brought the project organization paradigm to its limit, as step-size of change can’t be further scaled down for a faster pace.
The struggles of the project organization paradigm allowed another management paradigm — the product mindset — to flourish. In contrast to the project organizations, the product mindset does not require an elaborate and well-defined target outcome, for work to start. Instead, interim changes are expected and welcomed. This is achieved by replacing projects with products as the primary currency of business and IT interactions. Products differ from projects in two fundamental ways: they require a persistent operating structure, and they intend to serve multiple customers; and hence, promote long-term sharing. Furthermore, the product mindset relies on an iterative methodology, a.k.a. agile, based on the lean-manufacturing principles to deliver change in smaller step sizes, fast, reliably and efficiently.
You might be already familiar with terms such as “Bimodal IT,” “Two-Speed IT,” Multi-Speed IT,” “Right-Speed IT,” which are proposed by leading consultancies and IT analyst firms to describe their perspectives of the new generation of the Enterprise IT in the digital age. They all point out the vital role of the new IT in exploiting the speed of change as a competitive advantage, but vary about what it means to an existing Enterprise IT organization. Meanwhile, CIOs are asking: “I already release software quarterly, monthly and weekly. I am clearly exploiting speed, am I ready for the digital age?”
Not necessarily. A weekly systems release to update legacy data, such as rate tables per state, is no match for a digital Enterprise IT, who successfully runs scaled agile programs with a product mindset. There are four key characteristics of the next generation Enterprise IT organization:
Mastery in Product Mindset – Technology products and services serve as the primary currency of business and IT interactions. Product managers own product roadmaps, and they are accountable for maximizing the value throughout the product lifecycle.
Mastery in Scaled Agile Program Execution – Business is engaged. The portfolio, program and agile team constructs are in place to deliver large-scale business change using the agile methodology. Customer commitments, financial commitments, and team productivity are rigorously managed; continuous improvement is engraved into the culture.
Mastery in co-Mixing Competing Management Paradigms – Waterfall is not dead, and agile is not a silver bullet. The business capability, information and application architectures guide how to exploit the strengths of both paradigms. IT operating models streamline interdependencies between business and IT, project and product, new and legacy, development and operations.
Mastery in Executing Enabling Capabilities – Business capability model, API architecture, cloud computing, devops, agile portfolio and program management are a few prerequisite capabilities that traditional Enterprise IT organizations need to invest in.
The art and science of managing the Enterprise IT in the digital age just got more sophisticated. This should be music to the ears of all business savvy technology executives.