Understanding the eight drivers of digital change

Digitalisation is sweeping across many industries – changing customer behaviour, corporate competitiveness and the role of IT. But what does digitalisation actually mean? And what are the digital forces challenging the corporate environment and IT’s role? To be well positioned in the digital race it’s essential to understand how to interpret the digital tsunami and what is driving the change.

In the early age of IT the role of IT was mainly to automate processes and improve access to data and information. Many work intensive businesses were able to reduce their workforce significantly. The business environment was predictable and quite stable, and the focus was on creating business strategies and management tools to control the organisation and drive productivity.

Digitalisation: Integration of digital technologies into everyday life by the digitisation of everything that can be digitised. (businessdictionary.com 2014)

With focus on a single objective and purpose, IT was quite easy to manage. IT was a production unit, producing IT services from a service catalogue in a cheap way to decent quality. There are a number of frameworks and approaches to support efficient IT management based on this role of IT. By increasing maturity of key IT services and the efficiency of IT processes, it was possible to reduce IT costs. The outcome was a standardisation of IT based on the assumption of a highly predictive business environment. This in turn increased the switching costs required to meet changes in the environment.

The increased digitalisation is now changing the game completely. In my view, there are eight forces driving the change:

• Automation of processes and businesses
• Changing customer behaviour (social media, mobility, engagement/experience)
• New digital competition
• Increased demand for improved information management (business intelligence, ERP, big data)
• Global IT services (IT outsourcing and cloud services)
• Increased demand for security and integrity
• Digital innovation (co-creation and crowd innovation)
• Disruptive technologies and business models

These digital drivers are growing in size and magnitude. Each of the eight digital drivers is changing the role of IT in the organisation. We are moving from a situation focused on one dimension (automation) to a situation where we need to manage all eight dimensions in our business and IT management.

The force and magnitude of each digital force depends on industry and location. In some industries such as media, music and printed media, the digital evolution has come further than in the forestry or mining industries.

It is important to understand that it is the legacy belief of a stable and predictable business environment that needs to change, and with that the very assumptions and foundations forming IT strategies. The environment is not stable, and standardisation of IT services and IT outsourcing based on long performance contracts will not create business value in the future. Long planning horizons are not feasible. Today, it is no longer about operational excellence but rather about customer intimacy, where IT is forced to understand the business expectations and adjust quickly to create value. This is a game changer for the IT organisation requiring new goals, new management tools, new competence, new leadership, and new culture.

Research shows that the transformation for the IT organisation is long and difficult. In the HBR article The IT conversation we should be having, the authors argue that close to 50% of CEOs believe that IT has little understanding of the business challenges and has the wrong strategic focus. One consequence is that the business (especially marketing) purchases IT services outside the internal IT organisation to get better support, prices and flexibility. When the business wants to talk about business challenges and meeting customer expectations with IT, IT replies by talking about application platforms, ERP systems and outsourcing projects. This is simply not good enough in today’s competitive climate.

The digital transformation starts with attitude, leadership and a new way of managing the organisation. As consultants, we can support the work with new agile management methods and coach the management team. But the analysis, attitude and leadership must come from within. From an IT outsourcing perspective, the strategy needs to be based on an understanding of the digital forces shaping each company’s industry. With a transactional approach to IT sourcing and a focus on cost optimisation, the journey will become even harder.

Author: Hans Gillior, the Goodwind Company
Email: hans@thegoodwindcompany.se
Blog: hansgillior.wordpress.com