IT relevance and delivery model changes when moving to digital models

How IT’s value is becoming more relevant in a digital age.

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Over the years, companies structured their IT into centrally managed departments organized by functional capabilities. The objective was to improve the delivery of information technology by establishing and meeting service levels and lowering the cost of the function. These services were sold or provided back to the business, which ingested them into the respective business processes. In most companies, this evolution is now mature and the enterprise receives quality services at an ever-decreasing cost per unit. But an unintended consequence occurred.

The unintended consequence

As organizations matured, they looked to establish and maintain both technical and process standards that further aid in ensuring quality and lowering cost. This quest for functional excellence and lower unit cost increases misalignment of enterprise IT from the goals and concerns of the business leaders.

The business increasingly views the enterprise IT function as a hindrance to accomplishing business goals and views IT as being more concerned with technical and process standards and procedures than with the business imperatives. The business views IT as slow and expensive. 

How digital changes this phenomenon

Those perceptions of IT are changing as companies move to embrace digital technologies and digital delivery models. Digital changes the fundamentals of who and how IT services are delivered. We’re just at the frontier of these changes, but they portend to have massive changes for enterprise IT.

Digital models change the focus from the low unit costs of talent factories and trade it for dramatically improved productivity, speed and business impact delivered from cross-functional teams of 12 to 14 members often referred to as “pods.” Because digital technologies (such as cloud, self-provisioning, automated testing and others) integrate and automate the old environment, the new team is not a reorganization of existing talent. A pod’s cross-functional team consists of new skills such as product managers and data scientist as well as the software developers and architects.

The talent impact

These new high-performing teams are often located close to the business decision makers; this makes it difficult to utilize offshore labor. In effect, the pod model trades higher unit cost per employee for:

  • Dramatically enhanced alignment focused on business results
  • Significant reduction in implementation and reaction time
  • Impressive gains in productivity.

The cost impact

Ironically, the combination of better business alignment, speed and productivity in most cases results in significant reduction in total cost of ownership (TCO) once fully implemented.

As an example, let’s compare the average wages for software developers that work in factory models versus wages for developers working in a pod:

  • Offshore factory model: $20,000 to $70,000 per year
  • Onshore pod model: $70,000 to $125,000 per year for junior talent and over $200,000 for senior architects, data scientists and product managers.

I want to point out that the increased wages are due to digital experience and skills, rather than a function of talent being deployed onshore. However, the offshore factory model is dominated by freshers out of college and other junior talent. An onshore digital pod requires that no more than two of the 14 members are freshers and requires that each pod has a senior architect and other senior members. This is a significant contrast that affects costs. Digital talent is also a red-hot employment market, which can drive up costs further.

Whether a company currently delivers its IT services through an internal IT team or buys services from a third party, its unit costs will be much higher in a digital pod model. But that cost is more than defrayed by the improvement in productivity and business alignment along with the greater business impact that is delivered from the pod model.

This model allows engaging with the business at business speed (not IT speed) and focusing on responsiveness to business needs (not unit costs). The implications for how IT is run with the adoption of pods as delivery vehicles are immense. It is driving a massive rethink of technology delivery, ranging from where work is done, how it is done, the wages that are paid and the proximity of IT to the business.

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