Floris de BruinMirjam Hachem2018

samhoud

BUSINESS-IT CONVERGENCE: 5 TRANSFORMATION CHALLENGES EVERY COMPANY MUST TACKLE TO BECOME TECHNOLOGY-ENABLED

3Business-IT convergence: 5 transformation challenges2 Business-IT convergence: 5 transformation challenges

INTRODUCTION

Is your strategy full of terms like ‘digitalization’,

‘agile’ and ‘tech-driven’, but in reality you only

experience superficial change? Rest assured, you

are not alone.

Large traditional organizations, especially in

information intensive sectors, are now being

locked into an ongoing arms race to improve their

performance and offerings through new forms of

digital technology. In our practice, we found five

fundamental challenges that organizations have

to overcome in order to compete effectively in

this digital arena. At the heart of the digitalization

process stands the implementation of business-IT

convergence enabling companies to harness the

creative power of their IT departments and turning

them from a costly support station into an engine

for rapid improvement, innovation and profit. The

outcome is a technology-enabled organization that

evolved from a company digitalizing its existing

products and services to a company innovating

new products and services based on digital tech-

nology.

At the heart of the digitalization process stands

the implementation of business-IT convergence

enabling companies to harness the creative

power of their IT departments and turning them

from a costly support station into an engine for

rapid improvement, innovation and profit.

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This article belongs to the &samhoud series

‘How to become a technology-enabled

company’. The first publication ‘13 lessons

from digital disruptors’ shows what

organizations can learn from the most

successful digital companies today.

It zooms in on organizations that were

founded in the digital age and built around

digital products and services.

Many incumbents struggle to become a technol-

ogy-enabled company, but some turn it into great

success. Why? This article shows that successful

companies differentiate themselves not strictly

through technological progress, but first and fore-

most through their understanding of human be-

havior, organizational structure and especially their

ability to drive effective organizational change.

We focus on large traditional organizations that

became big long before digitalization. They were

built around physical products and services and

are now faced with the challenge to become agile

innovators that can compete in the digital era.

Historically they have developed silo structures

which have become so large over the years that

each department has become a company within

the company. These organizations have large and

complex IT systems that have been building up

since the 1970s to support the business. Turning

large IT departments from support stations to en-

ablers can be a daunting endeavor. In this article

we will focus on the challenges of this process

and in our following article we will provide in depth

examples of what a company can do to address

them. This starts however with an in depth under-

standing.

4 5Business-IT convergence: 5 transformation challengesBusiness-IT convergence: 5 transformation challenges

Companies that are not yet technology-enabled

struggle to turn their IT units into an engine for

innovation. We found that these companies don’t

acknowledge the extent and complexity of the

organizational change ahead of them, thereby

having difficulty in openly discussing the problems

they face right now. Instead these companies

chase silver bullets to save the day while

managers only focus on a singular aspect of the

problem that mostly relates to the domain they are

responsible for. The five fundamental challenges

that these companies face are:

1 The question ‘Is our business model still relevant

and for how long?’ is not (sufficiently) discussed.

2 Business people no longer understand the core

processes they are working with because they

don’t understand the underlying technology.

3 The IT-landscape has become so complex that

it should be understood and managed as an

eco-system.

4 The internal organization of business units, IT-

units and external providers is too complicated

and bureaucratic to navigate.

5 Employees feel powerless to achieve change

across organizational boundaries and therefore

focus on their own turf only.

To tackle these challenges effectively, it is crucial

to address them in an integral manner. Only then

the change towards a technology-enabled organi-

zation can be successful.

STOP CHASING SILVER BULLETS AND START TALKING ABOUT THE ELEPHANTS IN THE ROOM

6 Business-IT convergence: 5 transformation challenges 7Business-IT convergence: 5 transformation challenges

Many companies

come to the uncom-

fortable conclusion

that drastic changes

have to be made. They

need to give up their

silo structure, integrate

business and IT units,

overhaul their IT

legacy systems, get

different people on

board, and change the

style and composition

of their leadership.

“

”

The question

‘Is our business

model still relevant

and for how long?’

is not (sufficiently)

discussed.

Every company has to make a decision about

which markets and target groups it wants to focus

on, its value proposition and the way it organizes

itself internally to deliver that proposition. The result

of this decision is the company’s business model.

The internal part is also known as the operating

model. In our practice, we see that most companies

have extensive PowerPoint presentations on how

their market - fueled by technology - is changing

and how they should position themselves in it. In

contrast, there is much less clarity on the best way

to organize the company internally to compete

effectively in such a market. In the digital age, the

question of what is the best internal organization

can be a frightening one. Many companies come to

the uncomfortable conclusion that drastic changes

have to be made. They need to give up their silo

structure, integrate business and IT units, overhaul

their IT legacy systems, get different people on

board, and change the style and composition of

their leadership. If a company wants to make the

transformation from technology-supported to

technology-enabled, these discussions must take

place and difficult decisions have to be made.

1

Marketing & Distribution

Product- design

Operations IT

Customer need

8 9Business-IT convergence: 5 transformation challengesBusiness-IT convergence: 5 transformation challenges

In the traditional silo structure, there is a division of

competence where everything related to busi-

ness strategy is handled by the business side and

everything related to technology is handled by the

IT side. This has caused a fatal competence gap:

the business side operates on software with an un-

derlying technology they don’t understand. The IT

side develops (or at least configures) software and

infrastructure to serve strategic plans that have not

been challenged from a technological perspec-

tive. This creates a dynamic where the business

side develops plans and requests without being

able to evaluate whether these are technologically

feasible. The IT department then has to explain

why most of it cannot be developed and fit into

the existing architecture at a reasonable invest-

ment. This causes frustration on the business side.

Business people then turn to external IT suppliers

who always tell them that they can deliver in a

relatively cheap and timely fashion as they are not

constrained by security, architecture or integra-

tion related issues. This reinforces the perception

that the internal IT department cannot deliver. It is

then the task of the IT department to integrate the

outside solutions into the existing systems. When

IT is not in a position to push back sufficiently, this

dynamic creates excessive technological com-

plexity and poor maintenance of existing systems.

Change slows down and costs explode, resulting

in the opposite of what everyone wants to achieve.

Many companies try to solve this problem by

investing heavily into an agile transformation and

the development of multidisciplinary scrum teams.

Unfortunately, many of these efforts don’t lead to

a fundamental change of the organization but only

to a superficial modification. Under the fancy label

of agile, IT is still treated as an internal supplier

that needs to deliver as the business asks. Team

members who should work together as equals fall

back into old hierarchies. We have encountered

some situations in which IT had lost so many bat-

tles over the years that IT leadership has become

far too compliant to this asymmetry. This is the

opposite of what we would expect in a company

that truly wants to compete in the digital era.

“

”

Under the fancy

label of agile, IT is

still treated as an

internal supplier that

needs to deliver as

the business asks.

Team members who

should work

together as equals

fall back into old

hierarchies.

Business people no longer understand the core

processes they are working with because they

don’t understand the underlying technology.

2

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10

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”

The IT-landscape has become so

complex that it should be understood

and managed as an eco-system.

3

As briefly mentioned above, companies are

dealing with highly complex and vulnerable IT

systems. These systems are a mix of old structures

at the fundament, layers and layers of structure

added over several decades and new shiny

applications and gadgets on top. This complexity

is usually summarized under the term IT- land-

scape which conjures up an image of a peaceful

and structured situation. In reality, these ‘land-

scapes’ consist of thousands and thousands of

components with an intricate web of linkages

between them. These components and their

interfaces need to be maintained and upgraded.

This is especially complicated as many of them are

serviced by different suppliers who have their

own maintenance and upgrading agenda. Since

everything is linked, each upgrade or change in

one place can cause major problems in other

places of the system. The term IT-landscape is

therefore misleading. IT can better be described

as an eco-system or biotope (Roeltgen 2006)

which is unique to each organization.

It is important to be aware that a high level of

complexity is to a certain extent inherent to IT and

therefore unavoidable. This is because IT as a

market is currently transitioning into a new phase.

There are so many different standards and

languages that for most software packages it is still

difficult to communicate to other software

packages, meaning that customized interfaces

need to be build. Software packages themselves

are becoming more and more complex too.

Packages like SAP have so many components that

anybody claiming they can reliably estimate how

much time it takes to implement had either unli-

mited resources for an impact analysis or should be

fired immediately. In the same way that the intro-

duction of a new species into an eco-system leads

to unforeseeable consequences, organizations

cannot accurately predict what happens when a

new software application is introduced to the

existing system. They can at best make an

educated guess.

That being said, most organizations are dealing

with a much larger amount of IT complexity than

necessary. This complexity is the result of many

suboptimal solutions being implemented in favor of

short-term cost reduction but at the expense of sim-

plicity and stability, which leads to a cost increase in

the long run. What we see is that business leaders

are reluctant to face and accept this reality and IT is

unsuccessful in communicating it effectively, resul-

ting in continued misalignment and dissatisfaction.

IT can better be

described as an

eco-system or

biotope which is

unique to each

organization.

Business-IT convergence: 5 transformation challenges Business-IT convergence: 5 transformation challenges 11

Business-IT convergence: 5 transformation challenges12 Business-IT convergence: 5 transformation challenges

The internal

organization of

business units,

IT-units and

external providers

is too complicated

and bureaucratic

to navigate.

Large-scale project

failures make

business leaders

shy away from IT

The complexity level of an existing IT

system is usually the result of many

decisions taken in the past and is

not easily solved. This brings leaders

into the following conflict: If they

don’t modernize and simplify their

IT eco-system, complexity will grow

even further. Yet, most companies

don’t have the time and resources

to carry out such a major overhaul,

especially if they haven’t allocated

enough resources for maintenance

and optimization in the past

decades. To make matters worse

large-scale IT projects pose in them-

selves a major risk. Megaproject

experts Bent Flyvbjerg and

Alexander Budzier have shown

that the explosion of large-scale IT

projects is not an exception. Data

from 1,471 IT-projects between $167

million and $33 billion shows that

18% of major IT-projects will spin out

of control to the point that it pushes

corporations towards bankruptcy

(Budzier & Flyvbjerg 2012, 2011,

Flyvbjerg & Budzier 2011).

At the same time, maintaining the

existing IT eco-system can cost up

to 60-80% of the overall IT budget,

which at some point has to translate

back to margins and customer fees.

This puts leaders in a double bind:

If we don’t do anything our systems

might fail and the damage caused

might bankrupt us. If we do some-

thing, our project might fail and the

damage caused might bankrupt us.

As a consequence, they shy away

from IT altogether.

Most organizations operate on a so-called fede-

rated IT structure. This means that they have one

central IT department, several decentral IT depart-

ments for the individual business units and dozens

of external suppliers that deliver specific solutions.

In practice, a federated-IT structure leads to a

situation where a myriad of business-stakeholders

puts pressure on the decentral IT department to

deliver solutions as quickly as possible. These

requests are communicated to someone in an

intermediary role positioned between the busi-

ness and the IT side. The communication from the

business side is most often vague and with limited

understanding of the impact on the IT eco-

system. The intermediary then tries to make sense

of what the business really wants and translates it

into a language IT people can understand.

After this many steps need to be taken to get to a

working solution, where responsibility is partly with

the decentral IT department and partly with the

central IT department. Given that the decentral IT

department is part of a business unit, it is steered

as a profit center. It strives for speed over costs in

realizing business requests. Yet, to integrate their

solutions into the eco-system, they have to work

together with the central IT department. Central IT

is steered as a cost center and therefore focused

on low costs over speed. This creates a funda-

mental conflict between decentral and central IT

as they are both organizing themselves based on

different and often conflicting principles. Decentral

IT units work furthermore with many outside sup-

pliers who have their own agenda and interests

complicating the picture even more.

This organizational labyrinth is impossible to

navigate for the individual business employee.

Each request has to go through an entanglement

of rules and dependencies from idea to implemen-

tation. It is often unclear who is responsible for

what and which budget is financing the solution to

a request. For example, one project manager we

worked with had to participate in 30 steering com-

mittees to manage one IT project which caused

major inefficiencies. In another organization we

worked with a CEO who informed us that only 2%

of the money invested in IT came back as working

software while the 98% percent went to waste,

mainly as the result of extreme organizational com-

plexity and miscommunication. Such conditions

make companies highly vulnerable to disruption

by technology-enabled challengers.

4

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13

Decentral IT is steered

as a profit center striving

for speed over costs.

Central IT is steered as a

cost center and therefore

focused on low costs over

speed. This creates a

fundamental conflict

between decentral and

central IT as they are both

organizing themselves

based on different and

often conflicting principles.

Companies must

abandon the tradi-

tional silo structure

and merge business

and IT units together

into one functioning

organism.

14 Business-IT convergence: 5 transformation challenges 15Business-IT convergence: 5 transformation challenges

BECOMING TECHNOLOGY-ENABLED: BUSINESS-IT-CONVERGENCE

People who have an in depth understanding of

business and IT are sorely needed but still hard

to find.

Many managers and employees have given up

on change altogether because the magnitude

of it is simply overwhelming. They then focus

on optimizing their own part of the organization,

which often leads to some improvement but not

the structural and deep transformation that the

company needs to become technology-enabled.

Employees feel powerless to achieve change

across organizational boundaries and

therefore focus on their own turf only.

Business-IT convergence is necessary

to stay competitive

Companies in the financial sector are strongly

aware that they have to make great efforts in

digitalization to stay competitive. The crucial point

is that being competitive in the digital age is not a

matter of punctual big-time upgrading or restruc-

turing. It’s not a move from A to B. It’s a move from

A to a state of constant change. This state of con-

stant change is necessary not only to keep up with

technological developments but also with the ex-

pansion of technology-enabled customer expecta-

tions: fast, smooth, intuitive, interactive and highly

personalized are now the basis of acceptability for

a digital product or service to be used. To become

technology-enabled and highly adaptable, com-

panies must abandon the traditional silo structure

and merge business and IT units together into

one functioning organism. This process is known

as business-IT convergence. Bringing business

and IT know-how together is key to generate the

necessary speed to keep up in a fast-developing

environment. Most large traditional organizations

are still at the beginning of this process which

slows them down in comparison to their more for-

ward-thinking competitors. We define the develop-

ment towards business-IT convergence with three

phases of digital maturity. These are explained on

the following pages.

Solving such a complex web of interrelated issues

that span across all the functional boundaries of

an organization is no easy feat. It requires deep

insight and experience in how people and organi-

zations can achieve breakthrough change. In most

organizations, we find people who are acutely

aware of the problems, but they can’t find a way

of communicating their observations and ideas

to the relevant leaders. The discussion between

business and IT on reducing complexity and more

importantly making sure that it doesn’t get worse

over time is difficult and full of miscommunication.

5

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16 17Business-IT convergence: 5 transformation challengesBusiness-IT convergence: 5 transformation challenges

3 phases towards business-IT convergence

We distinguish three phases of digital maturity

that companies have passed through in the past

40 years.

1. Pioneering (1970 – 1990):

This is the phase where a company sets up their

IT-infrastructure for the first time. The IT-depart-

ment is set at a distance and managed as a

support unit and cost center.

2. Industrialization (1990 – 2010):

Business and IT move from a support relationship

to a customer-provider relationship where IT-

employees regard their business side colleagues

as their customers but are not involved with the

end customers of the company. IT is still mostly

managed as a cost center.

3. Convergence (2010 onwards):

Business and IT converge into one functioning

organizational structure where business and IT

employees are teammates and both are involved

with end customers. A significant part of IT is

managed as part of a profit center and driver of

innovation and product development.

Historically speaking, we are now at a point in time

where the economy as a whole is moving towards

phase 3. Companies know that they need to move

along in order to survive and are willing to take

the necessary steps. Where companies struggle is

that they often create superficial changes and then

believe they evolved to phase 3, but with their

mindset and behavior they still operate in phase

2 or even 1. These companies are reluctant to go

through the necessary fundamental organizational

and behavioral change to move successfully into

phase 3.

Toward a solution: A four-step transformation

process to business-IT convergence

We have provided a detailed discussion of the

5 core challenges large traditional organizations

have to overcome in the race to digitalization. We

will now give an overview of a potential solution

to these challenges that we have applied with our

clients and that has helped them substantially in

moving forward. A detailed discussion of this

solution will be provided in our next article.

Before you start: Accept the complexity and size

of the task

Our discussion of the five fundamental challenges

has made clear that there is no silver bullet to

save the day. Therefore, it is crucial to accept the

complexity and size of the task ahead before

embarking on the change to business-IT conver-

gence. Only with a realistic picture of what is

ahead of you, you will make the right decisions

and take the right actions. The first step is meant

to aid in this awareness.

STEP 1: Create a shared understanding

of the organizational eco-system

and urgency of issues

The crucial first step is a thorough analysis of the

situation, but in a different way that you are used

to. Since ineffective behavior is mostly the result

of a lack of understanding of the consequences of

one’s own actions the analysis should make pain-

fully clear how current behavior of people in the

company result in problems and complexity in the

organization and IT eco-system. In our experience

this is an especially valuable insight for the busi-

ness side. In order to achieve maximum impact the

analysis should be explained using zero IT termi-

nology and simple visualizations. This analysis is

key to avoid chasing silver bullets and to align all

the stakeholders around a shared understanding

of the issues they need to address.

STEP 2. Start from a shared vision and

fundamentally challenge

your business model

A key driver of successful transformation is uniting the

entire company under one shared vision from where

your business model can be challenged. You have to

examine both the internal organization part of your

business model, your relation to your customers and

your position with respect to competitors. Ask your-

self: do we have the right people, culture and struc-

ture to compete in the way that we want? After get-

ting a clear picture of where you are now, you have to

determine an accurate business model based on the

concept of business-IT convergence. This model then

has to be translated into a clear and flexible change

agenda, where the shared vision functions as a

long-term guideline.

STEP 3. Use an agile approach to implementation

and tackle them in focused sprints with

multidisciplinary teams

Given that business-IT convergence involves change

across organizational boundaries it requires multi-

disciplinary teams to be achieved. In our view this is

a part of the transformation where the use of certain

agile principles work very well to drive the change

itself: multidisciplinary teams that work in iterations

and continuously learn and adjust. But they only

work well if the goals and boundaries (step 2) are

extremely clear and being driven from a shared

understanding by business and IT executives (step 1).

STEP 4. Show and share success,

learn and keep moving forward

To keep the organization motivated and involved

throughout the transformation, it is important to share

and celebrate the successes achieved on the way

together. While this is extremely obvious most orga-

nizations are in our view extremely poor in doing this

effectively. Creativity is lacking, successes are not

seen or not linked to the transformation. Instead try

to use creative and attractive methods to go from

urgency to excitement for the change. For example,

we work a lot with VR and AR solutions to visual-

ize how teams are moving forward and how the IT

eco-system is changing. Every step will furthermore

bring the opportunity to learn and grow allowing to

go into the next step with greater competence and

determination.

1 Pioneering 2 Industrialization 3 Convergence

STEP 3

STEP 4

STEP 1

STEP 2

18 19Business-IT convergence: 5 transformation challengesBusiness-IT convergence: 5 transformation challenges

Budzier, Alexander & Flyvbjerg, Bent. 2011. Double Whammy – How ICT Projects are Fooled by

Randomness and Screwed by Political Intent. In: Saïd Business School Working Papers August 2011.

University of Oxford: 2-33.

Budzier, Alexander & Flyvbjerg, Bent. 2012. Overspend? Late? Failure? What the Data Say About

IT Project Risk in the Public Sector. In: Commonwealth Secretariat (eds.): Commonwealth Governance

Handbook 2012/2013: Democracy, Development, Public Administration. Commonwealth Secretariat,

London: 145-157.

Flyvbjerg, Bent, & Budzier Alexander. 2011. Why Your IT project may be riskier than you think.

In: Harvard Business Review September 2011.

https://hbr.org/2011/09/why-your-it-project-may-be-riskier-than-you-think

Roeltgen, Claude. 2006. Eine Million oder ein Jahr. Hinter den Kulissen der IT - ein Insider berichtet.

SmartBooks.

English translation: Roeltgen, Claude. 2009. IT’s Hidden Face. Everything you always wanted to know

about Information Technology. A look behind the scenes. CreateSpace Independent Publishing Platform.

Companies in all industries have to embrace digital technology

if they want to stay competitive in the future. In this article,

we have shown that successful digitalization is dependent on

successful business-IT convergence. It is through business-IT

convergence that companies can evolve from being techno-

logy-supported to being technology-enabled. It allows them to

harness the creative power of their IT-departments and turning

them into a key driver for innovation and profit. Large traditio-

nal organizations are struggling with the implementation of this

process as it necessitates deep organizational, cultural and

behavioral changes against the background of highly complex

technology.

In this article we discussed the five fundamental challenges

these companies have to overcome to become technology-

enabled:

1 The question ‘Is our business model still relevant and for how

long?’ is not (sufficiently) discussed.

2 Business people no longer understand the core processes

they are working with because they don’t understand the

underlying technology.

3 The IT-landscape has become so complex that it should be

understood and managed as an eco-system.

4 The internal organization of business units, IT-units and exter-

nal providers is too complicated and bureaucratic to navigate.

5 Employees feel powerless to achieve change across

organizational boundaries and therefore focus on their own

turf only.

We then provided an overview of a four-step transformation

process that we have successfully implemented with our clients.

This process will be discussed in detail in our next article.

CONCLUSION

REFERENCES

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