Floris de Bruin Mirjam Hachem 2018 samhoud BUSINESS-IT CONVERGENCE: 5 TRANSFORMATION CHALLENGES EVERY COMPANY MUST TACKLE TO BECOME TECHNOLOGY-ENABLED
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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