From theory to practice: evolutionary stages to Target IT Operating Model

Being able to generate innovation quickly and effectively is now an obligation for businesses, forced to compete in increasingly uncertain, changing, and highly competitive contexts. This requires overcoming traditional processes characterized by high bureaucracy and low flexibility, introducing operating models for innovation based on agile methodologies that involve the entire organization in a cross-cutting manner and consider an increasingly broad and varied ecosystem of actors.

To meet this goal, companies increasingly evaluate their business models by looking at the external market and competitors, eventually requesting an evaluation (and possible revision) of their IT operating model to consulting firms. The IT operating model represents the way in which a company organizes its resources to ensure that daily operations support the IT strategy. Specifically, an IT operating model is a visualization of how a company intends to execute its IT strategy and deliver value to its stakeholders. Applying this concept to innovation means identifying priorities, defining available resources, assigning responsibilities, and monitoring the results of a process that must aim to generate innovation effectively and pervasively in the organization.

Business and IT leaders often use IT operating models to understand how changes in one department can impact other parts of the company and the value they offer.

The benefits of designing and using an operating model include the following:

In this article, we will explore what an operating model is, why it is important, and how organizations can review and refine their operating model to achieve better business outcomes. We will discuss the typical steps involved in the review process and provide examples of companies that have successfully transformed their IT operating model to drive growth and innovation.

The Core Components of an IT Operating Model

The IT operating model describes how an organization’s IT department operates and delivers value to the business, and its evolution reflects how the ability to quickly adapt to changing business needs and technological advancements, leveraging on the combination of the following components:

• Governance: including the policies, procedures, and decision-making processes ensuring that IT activities align with the organization's overall strategy and objectives, and supporting the business in the development of priorities and allocation of technological resources.
• Organization: representing the organisational structure (organisation and function chart), this components refers to the roles, responsibilities, relationships and interaction modes between IT teams and business units. Relevant aspects include the structure of the IT organization, the allocation of resources (including budget-related decisions), and the management of vendors and partners.
• Processes: understanding the procedures and workflows that IT teams use to deliver services and solutions allows the determination of how each contributes to the overall strategy and whether they must be changed/modify to evolve the IT department. Relevant processes include incident management, change management, service request management, and the structures and methodologies used, such as the waterfall approach or more flexible ones (Agile).
• Metrics and Reporting: This component refers to the measurement and reporting of IT operations’ performance and the value delivered to the business. It includes key performance indicators (KPIs), service level agreements (SLAs), and other metrics that help IT teams track progresses, deliver high-quality services and solutions, and identify areas for improvement.
• Tools and Technology: referring to the tools on which the business relies to achieve its goals, this component includes the hardware, software, and any other technological resources used by the IT teams to support business operations. Related managerial decisions include the selection, deployment, and management of IT tools and platforms used by the IT department to help employees collaborate and grow.

From theory…

One of the most widely used methodologies for the design and revision of an IT operating model is based on a 6-stage process:

1. Understand Customer's Context

The main purpose of this stage is to formalize the context in which the Client operates, analyzing its industry, markets, size and offering/products. The objective is to provide a clear understanding of current market challenges and goals for the future and have stakeholders inspired by the ambition.

2. Assess Current IT Operating Model

It is of paramount importance to start, through collaboration with the business process managers, with an evaluation of the current processes in order to understand the activities, working methods, and any shortcomings. This is a crucial step to design the process improvement and bring it in line with corporate objectives. The activities of this part of the process can be summarized as follows: collect and review existing documentation, assess current model and capabilities against standard(s), conduct workshops and interviews and, finally, summarize gaps, pain points and improvement areas. The main objectives of this phase are: (a) Understand the current operating model; (b) Identify key pain points; (c) Identify areas for improvement. This phase is the main focus of the current document and will be extensively described below.

3. Define Intent

This part of the process is carried out through the definition of the operating model vision, identification of the distinctive capabilities and definition of the operating model principles and implications. It is crucial to have extensive executive involvement during this stage to ensure the proper direction is set and that the intent of the IT operating model aligns with the overall business strategy and business model(s) in scope. Key objectives of this stage are: (a) Envision the new IT operating model; (b) Agree on key principles to govern design; (c) Outline the implications of the choices made

4. Create IT Operating Model Blueprint

With the completion of process mapping of the current state and gap analysis, processes must be redesigned and mapped by combining, modifying and possibly eliminating them. In this phase takes place the definition of the following items: Governance structure, critical decisions and accountabilities, Key activities and processes, Organization model and talent strategy, Technology blueprint, Cultural DNA of the organization, Metrics to track performance and incentives. It is important to ensure the client executives are thoroughly engaged during blueprinting so they have ownership of their new organization and what it will take to implement and run it. The operating model blueprint should enable the overall vision of the organization. Each component of the operating model should adhere to the guiding principles and leadership priorities laid out in the vision. Some aspects of the blueprint may be more robust than others (e.g., governance, process, organization, metrics), but all components of the framework must be addressed (e.g., workforce / talent, technology, culture) to understand future implementation requirements for success of the new operating model.

5.??Create Roadmap

After designing the business processes, it will be necessary to design and plan the solution to align the process activities with the business objectives and the planned tools. The high-level process consists in creating a plan for detailed design, defining an implementation plan and finalizing business and value cases.

The Implementation Roadmap includes:

• A defined approach, timeline, team, plan, and impacts for transitioning to the new operating model
• A Benefits Case with an agreed budget for the organization, with defined business case for any transformation requirements

?6.??Adopt & Monitor

The final stage of the process will be completed with the implementation of the defined solution and the establishment of a continuous collaborative relationship with the company contact persons in order to provide support for the optimization and continuous improvement of the model.

Starting from the current IT operating model

When performing an IT operating model assessment, four main areas of interest are typically investigated:

Customer Experience

An operating model positions an organization to deliver unique value to each of its customers, both internal and external. Understanding these customers and aligning the model to them enables the technology organization to effectively deliver high-quality, relevant products and services and maximize the value of technology to the business.

Thus, when performing an operating model assessment, initial questions to be addressed should be:

• How should the enterprise be oriented towards products, services, and customers to maximise value?
• How should the enterprise be organised, where do accountabilities lie for technology, and how do organizational units interact to deliver technology?

To create customer value, a company must first be able to state why customers would be willing to pay for their products and services versus their competitors. This requires defining who your customers are, how they are segmented and what is the unique value proposition for each customer. Once you have defined what value you want to achieve by customer, you can then align your technologies and business capabilities into a portfolio of products and services that will deliver that value.?

Capabilities

Capabilities describe the elements of value used to achieve the customer and business objective, determining how technology is applied to deliver business outcomes. Operating model design involves defining and organizing the capabilities required to optimize business value and address different questions such as:

• What are current technology capability levels, what level of maturity is required in each capability to achieve the enterprise goals?
• How are modern engineering practices, automation and tooling?adopted to enhance service development and operations?
• What is the support model, to assure that technology services are secure, reliable services, available where and when they are needed?

When analyzing client capabilities maturity model, information coming from different input sources are collected, such as documentation on strategic, organizational, financial, and process information requested, and information gathered through interviews survey with IT and business leaders. Once collected, data usually are synthesized for the evaluation of:

• Business and Customers Relationship Management: in order to understands the business priorities, supports strategic & innovative thinking through clear articulation of IT capabilities, filters customer demand and manages expectations on development and delivery of IT services;
• Service Strategy: aligns the IT architecture and plans with the business priorities and ensures that IT resources are deployed appropriately to fulfil approved demand for IT services;
• Service Management & Operation: delivers reliable IT services, enables IT to deliver its commitments to the business by shaping policy, driving performance, making critical decisions and coordinating internal and external functions and builds trusting relationships with 3rd party partners.

Organization

Organization is a critical component of operating model assessment and addresses how the technology workforce will deliver agility and pace through: skills, sources of talent, ownership and accountability, rewards and ways of working.

During the assessment, you will try to find out answers to key questions such as:

• Which skills and competencies are required to deliver technology that enables value creation?
• Which roles are required? How will these be organized, located and sourced to optimize technology delivery?
• How do I inspire a culture of innovation, co-creation & collaboration?

Technology

Architecture, platforms, applications and technology enable operating model outcomes and drive innovation in the company. When performing an assessment, key questions drive the analysis:

• What are key technology drivers influencing company operating model?
• How are they impacting it?
• What are main benefits coming from technology adoption?

…to Practice

Looking at the market, there are numerous examples of organizations that succeeded in adapting to changing market conditions or scaling their business growth by evolving their IT operating model. When identifying the areas of improvement and setting a target IT operating model vision, there are three main aspects to take into consideration:

It is important to acknowledge that tailored changes and IT Operating Model evolutions are necessary for each business to find the right combinations of skills, organizational structure, and technology that best adapt to the business context. In the following sections we will go through some examples demonstrating how CIOs can leverage enterprise governance and culture to transform their IT operating models to fit business context and deliver desired outcomes.

1.??Maturity level of IT

Depending on whether technology represents the core business (as it can be for banking systems handling a high volume of transactions) or a support function (typically in product-based industries), specific strategies could be devised to assist Top Management in making decisions about the development and evolution of the IT department. Technology-driven business transformation are particularly relevant for CIOs, as they are expanding their role and responsibilities. Examples include:

• Major European industrial equipment supplier: As the organization set its business evolution to evolve from a traditional equipment manufacturer towards a digital product integrator, a review of core IT Operating Model features was necessary. Hence, the organization engaged in the definition of a completely new IT operating model in terms of roles, processes and main ceremonies to manage its core platform development. They transitioned from a siloed approach to a product development approach, which increased efficiency and delivery capabilities within the IT team.
• Major Italian media & publishing Company: As technology represents a core lever to achieve cost optimization and increase IT operational efficiency for media companies, the organization set to achieve its targets thanks to the adoption of a new IT Operating Model. Following the analysis of the as-is, it turned out that the best option for the organization was the adoption of a hybrid Operating Model, considering a way of working focused on both products / services and functional areas. In order to fully enable the new IT Operating Model, in addition to training activities on the new processes, an up/re-skilling program was developed to fill the gaps in terms of skills that were missing.

2.??Size and organizational structure of the IT department

Similarly, the size and organizational features of the IT department are crucial elements on which to tailor the IT operating model evolutionary steps. In particular, the enterprise operating structure for IT department determines the trade-offs between the need for economies of scale (with a centralized IT) versus entrepreneurial freedom and local responsiveness (with a decentralized IT) and how these are balanced within the enterprise: reviewing the IT operating model in alignment with the organizational structure is hence crucial to succeed in delivering value. For example:

• Major retailers of electronic health devices: With a globally distributed IT department, the organization aimed to harmonize global, regional and local requests and to sync delivery & release processes: a Target IT Operating model was defined to deliver, run and evolve, while leveraging on an established framework as accelerator, and introducing the adequate degree of customization in global-regional-local organizational contexts.
• Major European defence & security company: A reorganizational change led to the creation of a single IT department, but the absence of strong IT governance implied that it was still working as separate groups serving different business units, maintaining strong heterogeneity of technologies. Through the progressive adoption of a centralized IT Operating Model, the organization gradually managed to realize synergies on the project portfolio, measure performance and quality of IT services, and implement SLAs, processes and tools to support IT delivery and operations.

?3.??Interaction model between business and IT functions

Organizations sometimes conduct IT operating model reviews to become faster and more agile, refine IT capabilities to better serve business needs, and provide proactive support to the organization. Looking at the market, a relevant example is provided below.

Major player in the beverage industry: Among the main challenges faced by the organization, the IT function was not well perceived within the organization and was considered a bottleneck by the business. By introducing multi-speed principles and creating Centres of Excellence around Platforms, they successfully reviewed and evolved the overall IT capabilities, organization, processes and metrics. As a result, the business's perception of IT improved, time-to-market enhanced, allowing for a more proactive approach towards technology / innovation contribution to meet business needs.

Key Takeaways

In this article about IT Operating Model Review & Assessments, we have covered the definition of an IT operating model and how businesses can refine it to achieve better business outcomes. As a main takeaway, the ultimate goal of an IT operating model is to create a link between a company's IT strategy and its operational activities.

We have provided an overview of the steps involved in the review process and discussed the important aspects and questions that organizations should consider when they aim to transform their IT operating model for growth and innovation.

Furthermore, we have highlighted some successful cases from the market that demonstrate how the IT department can better support business needs and contribute to business growth through IT operating model transformations. Cases from the market also exemplified the importance of investigating the following areas when performing an IT operating model assessment:

Customer experience, such as in the case of Major European industrial equipment supplier evolving its business from a traditional equipment manufacturer towards a digital product integrator.

Capabilities, as the case of Major Italian media & publishing Company that, in order to fully enable the new IT Operating Model, in addition to training activities on the new processes, developed an up/re-skilling program to fill the gaps in terms of skills that were missing.

Organization, such as in the following cases:

• Major player in the beverage industry, where a successful review of the overall IT capabilities, organization, processes and metrics was carried out to improve the business's perception of IT
• Major European defence & security company, leveraging on the progressive adoption of a centralized IT Operating Model to realize synergies on the project portfolio and implement SLAs, processes and tools to support IT delivery and operations.

Technology, such as in the case of Major retailers of electronic health devices, which needed to harmonize global, regional and local IT requests and to sync delivery & release processes in order to enhance its globally distributed IT department.

Most importantly, the cases highlighted how carrying out an assessment targeting the above-mentioned areas enable the shaping of a customized IT operating model, and the consequent addressing of the business’ pain-points.

The maturity level of technology within the organization, the size and organizational structure of the IT department, and the interaction model between business and IT functions turned out to be important aspects to consider when identifying areas of improvement and the target IT operating model vision.

Finally, in order for businesses to successfully transform their IT operating model once carried out the IT operating model assessment, it is necessary to also consider the architectural features of the business IT application landscape.

In summary, there is no one model that fits all organizations, but methodologies and best practices that can be adapted to each organization. Looking at the 6-stage process typically used to design and revision the IT operating model, three objectives emerged as key for businesses in order to evolve their IT operating model:

• Remain competitive and address new challenges and opportunities, adapting to new market conditions such as technological advancements and regulatory requirements
• Improve efficiency and productivity, through enhancements allowing to streamline processes and boost enterprise agility
• Scale the business, paving the way to expanded production capacity or the implementation of new technology solutions

CIO/CTOs are particularly aware of the need to transform their operating models in order to keep pace with evolving business environments and achieving digital transformation; Indeed, new business models are a trending topic on CIO/CTO agendas, and, together with accelerated business models, are more frequently discussed on the board/across the C-suite than before the pandemic (source: Accenture CxO Pulse Survey https://cdi.accenture.com/CxOPulse/#/home ).

In the asset management industry for example, results from the 2021 Gartner Financial Services Technology Survey show how firms that successfully transformed their operating models, referred to as digital-leaning, achieved two times better performance on their technology priorities, which is significant; Firms that have started to transform their operating models but are not yet fully there, referred to as transitional, have reduced their failure rate by 30%; However, the majority of firms (74%) are still either in transition or stuck in traditional ways of working (source: Gartner (2022) https://www.gartner.com/document/4020860?ref=solrAll&refval=370044343 ).

But the need to evolve is an enterprise-wide priority for leadership teams across multiple industries: more than 60% of CxO plan to accelerate innovation investments in business model and almost 50% are creating lean decision-making and governance processes to support agility (source: Accenture CxO Pulse Survey https://cdi.accenture.com/CxOPulse/#/home ); Indeed, the examples from the market emphasized the importance for CIOs and CTOs to acknowledge the need for tailored changes and IT Operating Model evolutions in order for each business to find the right combinations of skills, organizational structure, and technology which best adapt to the business context.