Multi-Speed IT Organization

Fintech companies have disrupted the banking industry, offering streamlined processes such as online account openings and quick loan approvals, leaving traditional banks scrambling to keep up. The fast pace of digitization has exposed the limitations of traditional IT systems within banks, where security is paramount. However, some large financial institutions have managed to stay competitive by adopting a two-speed IT architecture. Whether it is 2-speed or multi-speed, the key thing to recognize is that not all IT systems need to evolve at the same pace as that of customers and businesses.

There are many ways to look at the IT Landscape, categorize and move to the multispeed approach. They are:

• Gartner's PACE layered approach
• 2-Speed IT
• Product/Platform Model

1. Gartner's PACE Layered Architecture

PACE Layered Application Strategy?is a methodology to govern?software applications through their entire life-cycle?in support of evolving business requirements. This looks at the entire IT landscape and classifies them into 3 categories:

1.Systems of Record — Established packaged applications or legacy homegrown systems that support core transaction processing and manage the organization's critical master data. The rate of change is low, because the processes are well-established and common to most organizations, and often are subject to regulatory requirements.

2.Systems of Differentiation — Applications that enable unique company processes or industry-specific capabilities. They have a medium life cycle (one to three years), but need to be reconfigured frequently to accommodate changing business practices or customer requirements.

3.Systems of Innovation — New applications that are built on an ad hoc basis to address new business requirements or opportunities. These are typically short life cycle projects (zero to 12 months) using departmental or outside resources and consumer-grade technologies.

Some examples are:

• Systems of Record: Core Transactions Processing, Master Data
• Systems of Differentiation: Unique processes/capabilities, Best of Breed, SaaS, Modules of a suite
• Systems of Innovation: Customer focused new apps/new business models

This classification allows us to understand the nature of change, pace of change and consequently the number of releases required to keep pace. The range (quantum) and the pace of change is very high in systems of innovation and least in systems of records.

In the following diagram, we compare various factors like change process, type of architecture required, funding, development practices etc. across these 3 systems to get an idea about their demands.

2. Two-Speed IT

This approach recognizes the need for agility and innovation in customer-facing processes while maintaining stability and security in core operations. Rather than undertaking risky and costly full-scale IT overhauls, smart IT managers have implemented parallel systems: a fast, agile front-end system for customer interactions, often cloud-based, and a stable, cost-effective back-end system for non-customer operations. An integration platform connects these two systems, ensuring seamless communication and data exchange.

In the agile front-end system, cross-functional teams collaborate closely to develop and deploy apps rapidly, meeting evolving customer needs. These apps enable customers to perform various tasks conveniently, such as checking prices, switching services, or managing accounts. Real-time customer feedback drives continuous improvement, enhancing the digital offering. Investing in tailored solutions for customer engagement can yield significant benefits.

In contrast, the back-end IT system prioritizes stability and reliability to prevent disruptions that could severely impact business operations. Standardization and harmonization drive cost efficiency, supporting essential functions such as enterprise resource planning (ERP), customer relationship management (CRM), and logistics management. Maintaining uninterrupted operations is critical to safeguarding inventory, billing, and customer data, ensuring business continuity and resilience.

A 2-speed IT architecture can be viewed as below comprising 2 clear zones of IT systems each with distinct KPPs, development practices, deployment practices etc. The Core systems of ERP/CRM/SCM etc. run smoothly with efficiency and stability as the core parameters. The architecture is robust and change control is strict. On the other hand, customer facing systems are architected so that faster and more frequent releases are possible using SoA (Service Oriented Architecture), Micro-Services based Architecture and APIs.

3. Product and Platform Based Approach

The product and platform model lays the foundation for scaling up to meet different markets, customers, technologies etc. It aligns technology delivery with strategic priorities, fostering significant business value, innovation, and improved customer and employee experiences. At the same time, it is able to address technical debt, reusability and efficiency of the core engine. However, transitioning to this model is challenging for many organizations.

5 key actions, involved, in this are: effective product design, platform redesign prioritization, business collaboration, tech governance rethinking, and software engineering practice transformation.

What is a product-platform model?

The product and platform operating model is a collaborative framework that unites various functional areas like business or product, technology, operations, and other relevant sectors (such as risk, legal, marketing, and distribution). This model forms teams dedicated to enhancing customer and user experiences and crafting services designed for broad reuse.

In this model, product teams, also known as pods, are responsible for developing and delivering technology-driven offerings or services that are utilized by both customers and employees. Their core objective is to facilitate user activities that generate value.

On the other hand, platform pods constitute the underlying technological and data infrastructure that underpins these product offerings. For instance, a retail search engine may depend on an inventory management platform, which encompasses databases and interfaces for supplier integration. These platform capabilities are crucial for effective scaling, as they provide essential functions required by numerous product pods to efficiently deliver their services.

For more details, refer here.

How to get to Multi-Speed IT?

Establishing a two-speed IT system presents companies with three primary options, each with its own advantages and challenges, as illustrated by various use cases across industries.

1. Building upon existing infrastructure:

This approach involves isolating customer-facing areas of the existing IT organization from routine tasks. Gradually, this leads to the establishment of a two-speed IT architecture.

Key Requirements: There must be processes within the IT organization worth transforming and significant investment in middleware systems to decouple customer-facing processes from the back end.

Companies like Thomas Cook have successfully leveraged this approach by identifying customer-facing aspects of their IT operations and gradually transitioning them into a two-speed IT architecture. By isolating these functions from routine tasks and investing in middleware systems, Thomas Cook was able to adapt to the fast-paced demands of the digital market without compromising security or stability.

Similarly, traditional banks faced with competition from fintech startups have explored this route to modernize their operations. By isolating customer-facing services such as online account opening and loan approvals, banks can maintain security protocols while meeting the expectations of tech-savvy consumers.

2. Starting from scratch:

Companies unable to identify a suitable starting point within their existing IT systems may opt to create a completely new IT organization. This new organization is separate from the old one and takes on the agile role in the two-speed architecture.

Benefit: This method allows for the creation of a system specifically tailored to agile operations without the constraints of existing structures.

Starbucks provides an example of this approach, where the company established a completely new IT organization independent of its legacy systems. By creating a separate entity dedicated to agile IT functions, Starbucks could swiftly adapt to changing market dynamics and enhance customer experiences through innovative digital solutions.

In the healthcare sector, organizations grappling with legacy IT systems have pursued a similar strategy to accelerate digital transformation. By building new IT structures from the ground up, healthcare providers can streamline processes, improve patient care, and enhance operational efficiency.

3. Acquiring specialized expertise:

Companies in urgent need of an agile IT system may choose to acquire another company that already possesses these capabilities.

Benefits: Immediate commencement of work on developing digital offerings, avoiding a prolonged transformation process.

Consideration: Companies taking this route believe the costs of integrating the new organization are outweighed by the profits gained from rapid market entry. - U.S. insurer Allstate exemplifies this approach by acquiring a company with an agile and innovative IT team. This strategic move enabled Allstate to expedite its digital transformation journey and gain a competitive edge in the insurance market.

Retail giants looking to strengthen their e-commerce capabilities have pursued acquisitions of tech startups specializing in online retail solutions. By integrating these startups' expertise into their operations, traditional retailers can enhance their online presence, optimize customer engagement, and drive revenue growth.

Overall, the choice of approach depends on factors such as the organization's existing IT infrastructure, agility requirements, and strategic objectives. Whether building upon existing systems, starting anew, or acquiring external expertise, companies must prioritize alignment between IT and business objectives to achieve success in the digital age.

How to accelerate the journey?

In this aim to strengthen the IT capabilities, industries are leveraging agile IT structures to drive innovation and adapt to changing customer expectations. One notable example is that of a leading retail chain that implemented agile IT practices to enhance its e-commerce platform. By adopting a two-speed IT architecture, the company was able to rapidly deploy customer-facing applications for online shopping, streamlining the user experience and increasing conversion rates. Concurrently, the agile approach facilitated seamless integration with backend systems, optimizing inventory management and order processing. As a result, the retail chain achieved significant growth in online sales and gained a competitive edge in the digital marketplace.

Another compelling use case comes from the healthcare sector, where a large hospital network embraced agile IT methodologies to improve patient care and operational efficiency. By deploying agile development teams and modernizing IT infrastructure, the hospital implemented innovative solutions such as mobile apps for appointment scheduling, telemedicine services, and electronic health records management. These initiatives not only enhanced patient engagement and satisfaction but also streamlined internal workflows, reducing administrative burdens and improving staff productivity. As a result, the hospital achieved better patient outcomes, reduced wait times, and optimized resource allocation, leading to cost savings and operational excellence.

From a broader perspective, the success of agile IT extends beyond individual organizations to the ecosystem level. Collaborative platforms and industry consortia provide opportunities for companies to share resources, expertise, and best practices in agile development, driving collective innovation and accelerating digital transformation across sectors. For instance, in the automotive industry, manufacturers and suppliers collaborate on open-source platforms to develop software solutions for connected vehicles, autonomous driving, and mobility services. By pooling their resources and leveraging agile methodologies, these industry players can expedite the development and deployment of next-generation automotive technologies, paving the way for safer, more efficient transportation systems.

Moreover, the evolution of agile IT is reshaping traditional business models and creating new opportunities for value creation. Startups and disruptors leverage agile principles to rapidly iterate on product ideas, launch minimum viable products (MVPs), and scale their businesses in response to market feedback. For example, a fintech startup utilized agile development methodologies to create a mobile banking app targeted at underserved communities. By prioritizing user-centric design and rapid iteration, the startup was able to address specific pain points, such as accessibility and affordability, and gain traction in the competitive financial services market. As a result, the company attracted investment, expanded its customer base, and disrupted incumbents with legacy IT systems.

Agile IT offers organizations a transformative approach to navigating the complexities of the digital age. By embracing agility, companies can accelerate innovation, enhance customer experiences, and drive sustainable growth in an increasingly dynamic and competitive landscape. Through real-life use cases and collaborative ecosystems, agile IT is reshaping industries, fostering entrepreneurship, and unlocking new opportunities for value creation in the digital economy.

Considerations for Multi-speed IT

• Companies that build an agile IT can reckon with a lead time of around 18 months before the new system delivers valuable contributions.
• Requires a strong crossover of business and IT. All processes in which fast changes count or that enable the company to set itself apart from the competition will in future be the responsibility of the agile IT team.
• IT systems need to be modernized and adjusted accordingly, and strict governance is required to manage this change.
• As a first step, a close interface must be established between business and IT. Cross-functional teams of marketers and programmers must be formed, products and services must be organized into teams, and a product owner must be appointed for each product and each service to coordinate developments and communicate with the organization.
• The product owner acts as a coordinator and moderator, but not a manager.
• The more independently the teams are able to deploy their talents, and the more independently the agile IT is able to act in the organization as a whole, the faster the company will be able to deliver attractive customer offerings.

To Sum up:

• A critical look at the IT Landscape in order to categorize them based on the frequency of releases/changes/speed is essential. Once bucketed, eachvof the category will require different development, architecture, engineering and deployment styles to deliver, maintain and change.
• 3 approaches are Gartner's pace layer, 2-speed IT and product/platform based approach.
• Organizations should plan for a journey to reach the desired speed by starting from scratch, building upon existing infrastructure or acquiring one with the right capabilities.
• Agile ways of delivering in those areas of innovation and volatility will help to meet the speed requirements.