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Why IT Transformation from CIO perspective

Your company at this moment is probably navigating through an IT transformation. Most of the articles and posts I have found provide a very good explanation for this need from the market trends and new disruptive technologies point of view. However I always missed a further explanation of (Question No. 1) the internal dynamics that provoke the necessity to transform our IT organization every time more frecuently and (Question No. 2) a holistic understanding of the factors for maximizing IT performace. Have you made yourself these same questions?

Answer No. 1: Mechanic of IT increasing costs

Already in 2009 in an article from BCG- The Sustainability Challenge, the rule of the organic IT cost increase was well explained based on the relationship between today’s change costs (budget for new projects) and its effect on tomorrow’s running costs. That means that projects that you deliver this year will impact the running budget of the next year in the shape of support, maintenance, license fees, hosting, etc.
To illustrate
Year one:
Total IT Budget = Run cost + Change costs
Year two:
Total IT Budget next year = Run cost [legacy of previous year + run cost of projects delivered in year one] + Change costs

Therefore, given that we cannot expect a decrease of new projects, the CIO has to focus mainly on reducing the run costs via increase of productivity. That sounds logic, but in order to get a feeling of how much we are talking about, let’s take the quantification that is provided in the mentioned article. It is estimated that a company with an average Change costs of 30% would have to generate every year an increase of productivity for the run costs of 10 to 15%, that is a lot!, even if you try to squeeze your suppliers at the risk of significant impact on the quality service. Then what can the companies do? IT Transformation is the answer. Comming back to the article it is recommended to engage in a transformation process every 3 to 5 years in order to catch up with this budget gap. Then the next questions are: Should we expect this time span to shorten evey time more? Can we actually reinvent our IT Organization every second year?

Answer No. 2: Understanding factors and levers to maximize IT Performance

I think that specially those that have worked as Project Managers will find this part particulary interesting, because it encompasses in one expression the answer for the need of different tools, guidelines and practices such as Agile methodology, Agile architecture, multi-sourcing strategy, demand quality management, etc.

The expression is a BCG tool (click image to have a full view).

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According to it you have to master 3 key factors when maximizing IT performance:

1. Demand Quality: When I see this one, I cannot prevent to think of tools like the product backlog in Scrum Methology to priorize the implementation of features/requeriments that bring the most value to the business. This represents an special challenge for the IT department that goes beyond the implemention of a front end for demand management, but to prepare their project managers to challenge the requeriments of the business. Maybe on this regard you have heard of the IT business partner acting as a Consultant.

2. Unit Productivity: This one relates with two main levers:
– The first one encompasses the number of resources necessary to deliver one unit of Output; understanding unit of output as any technical component from the WBS. Here is where processes, methodologies and practices play a key role to minimize the waste during the IT manufacturing process and accelerate the time to market, i.e. fostering team collaboration and autonomy, deliverying early and regularily, eliminating activities (such as extensive documentation) that do not contribute directly to deliver working software and applications. Here we can quote SAP Activate Methodology as one approach to cope with this challenge.

– The second lever refers to the cost by resource unit, and here is where you can put into practice your sourcing strategy; segmenting cases when staff and activitiy types can be either outsourced or even offshored in order to reach a better cost position for the same quality. Because the situation of increasing distributed- and external working teams seems to be inevitable, the current contractual relationship with service providers has to certainly evolve into one of collaborative business networks

3. Technical complexity: This one is maybe the most interesting, specially for those familiar with IT architecture and the concept of technical debt. According to different studies one of the main challenges of the CIO is to run IT efficiently and deliver further inovation to the business in an ever growing ecosystem complexity. The platform vision of HANA targets this problem, simplifying dramatically the required architecture to implement in an agile way new business requirements that combine the digital, transactional and analytical worlds in a seamless and still secure manner. It is then not a coincidence that Simplicity is one of the terms most used by SAP while promoting their new generation products.

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