Today’s CIOs need to figure out how to handle the total digitization of their enterprises. We are already seeing companies in which digitization spending is over 25 percent of the operating budget, and we expect that this will become common. At the MIT Center for Information Systems Research, we have done 10 case studies and a survey to understand best practices.
So far, the landscape of enterprise digitization is diverse in both management processes and spending. In a survey of over 2,012 CIOs, we found that only 39 percent of enterprise-wide investment in digitization shows up in the IT budget.
The remaining expenditures are spread throughout the enterprise–often creating six or seven islands of digitization. Typical islands include production and operations, engineering, R&D labs, knowledge work, digital products, and customer interaction, including social media, mobility and websites.
We’ve found that enterprises are often using one or more of three approaches to managing total digitization:
Convergence: This approach brings all digitization investments together under a single executive. It usually requires new organizational structures to create efficiencies and synergies and to increase reuse. Enterprises using this approach tend to consolidate the key assets of people, data, infrastructure, skills and management processes.
Coordination: This approach doesn’t change organizational structure, but instead adds mechanisms to increase coordination of the big digital investments made by engineering, operations, product owners and other enterprise groups. Leaving the organization structure as is reduces disruption, while coordination mechanisms (such as committees) help units work together and facilitate the delivery of enterprise goals.
Separate stacks: This approach leaves each of the separate stacks (or digital islands) alone to maximize local value and avoid the overhead that results from coordinating the stacks. Here the enterprise is committed to local innovation, typically organized by products or standalone businesses. Capabilities are often duplicated, and accountability for profit and loss is held locally.
Our survey found that 21 percent of the enterprises studied had adopted convergence as their primary approach, while 53 percent focused on coordination and 26 percent had separate stacks.
Which approach or approaches should your enterprise take? And who should make the decision? That depends on your enterprise’s strategic drivers. Convergence is for reducing cost, reducing risk and achieving synergies. Coordination is the right choice for achieving a few enterprise-wide goals such as improving customer experience or asset utilization. The approach of having separate digital innovation stacks is right for enterprises that believe local autonomy boosts innovation and customer responsiveness.
A natural inclination is to use different approaches for different islands of digitization. Many companies adopt this approach successfully, but a word of caution: The more complex your approach to managing total digitization, the more mechanisms you will need, and the more difficult it will be to explain and implement.
A key role of the CIO is to have conversations with other members of the senior executive team and help the enterprise pick one or more of these approaches. Once a strategy is chosen, the IT unit can implement it, reusing lessons learned from dealing with IT silos.
Whichever approach you take, we believe that managing total digitization is one of the biggest opportunities and challenges facing the CIO and the IT unit today.
Peter Weill is chairman and senior research scientist at the MIT Center for Information Systems Research, where Stephanie L. Woerner is a research scientist.
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