StraTechGy 04: The need to reinvent Enterprise Technology

The stubborn reality of IT in large organizations

Compared to Finance, Operations or Marketing, IT is a relatively new management discipline. And it is not just new, but changing at an accelerated speed, in parallel with the supersonic evolution of technology and the disruption coming from digital business models.?

During this short history, IT has moved from being a pure cost centre with limited strategic value, to become a critical function, with the potential to enable deep transformations and disruptive strategies.

In parallel with this step change in strategic relevance, IT operations have matured in many different aspects, increasing the overall productivity and quality of delivery. Some extensively deployed practices across large organizations include: the deployment of standard methodologies as ITIL or CMMi, the implementation of continuous improvement approaches like Lean IT, the automation of specific tasks like monitoring or testing, or the optimization of sourcing through large multi-year contracts and offshoring models. And, more recently, the adoption of Agile is helping organizations to work in shorter iterations, and is contributing to bridge the gap between business and IT.

However, when we look at the IT architectural landscape of many well-established organizations, the situation is not so good.

If you work at one of these large companies, you just need to ask your CIO or COO to give you an overall view of complexity at any level of your business: Do you have different organizations and systems per country? How many processes and products are alive? How many places store the information of clients or products? How many software platforms, types of servers, communications, programming languages or database systems are managed? If you are able to answer these questions (a challenge in itself) you would be surprised by the immense complexity of your organization.

And, if you look at the details of your IT architecture, you will probably find a combination of large monolithic legacy systems (usually managing the basic transactions and processes of the company) surrounded by different layers of newer technologies (e.g., channels, analytics, processes, IoT interfaces, …) that add important functionality but also increase the overall complexity.

This resulting architecture, with all its complexity, is not the result of a top-down design of your company, but the consequence of incremental technology evolutions, organizational changes, new products, acquisitions, and many other events along the history of your company. You could explain the history of your company from its IT landscape.

The need to reinvent Enterprise Technology

Complexity is the main (negative) driver that explains the differences in operating expenses and time-to-market between competitors, fundamentally between traditional companies (with a long history of incremental evolutions) and neo-companies (built simple and digital from scratch).

Think about Netflix or Spotify: would you imagine if they had a business model and IT stack per country or per client segment? Would they be so quick in introducing changes globally or extending to new geos? Of course, they have differences per market, segment and channel, but they are able to deliver those differences from a global technology stack, keeping complexity under control (even though they are large businesses with multiple scenarios to address)

On the other side of the complexity spectrum, when we look at companies with high complexity, we often have large budgets consumed by day-to-day operations, leaving limited investment capacity available to transform. And we frequently find a situation of operational collapse, as new functionalities require coordinated changes in many different systems, creating significant bottlenecks in delivery.

Up to now, these companies have answered to the first wave of digitization (new channels, digital clients, analytics, IoT…) through digital layers built around old transactional systems. The approach was not perfect, but it worked from a business perspective, although assuming the negative impact on complexity, and consequently on efficiency and time-to-market. ?

However, in the post-pandemic world, companies are facing new structural needs:

• First, in the new digitization wave, companies will create or join external ecosystems, seamlessly integrated with internal processes (e.g., third party products integrated in the commercial portfolio, internal services commercialized as APIs); millions of devices will receive, process and generate real-time events from other devices (on edge) or from transactional processes (on cloud); and artificial intelligence will be embedded in real-time workflows, managing huge amounts of information and requiring processing scalability without limits (on cloud).
• Second, pure digital competitors (neo-banks, neo-insurers, neo-telcos,…), built natively over digital pillars, are not an anecdote any more. They may not have the scale or brand of established players, but they are building their competitive position (and growing) based on their agility, flexibility and efficiency.
• Third, we are living an inflection point in history, with dramatic changes in many different aspects (geopolitics, technology, environment, …) that will require extraordinary levels of flexibility across industries: from dynamically adapting supply chains for uncertain geopolitical patterns, to reinventing processes and products for a zero-carbon world.

The question is:

Can you address those new digital needs, compete with large digital entrants and leverage the opportunities of the new post-pandemic era without transforming your core systems and without addressing the structural causes of complexity in your business?

I don′t think so. From my point of view, the new structural needs cannot be delivered following the same incremental approach. It is not just a matter of spend and time-to-market, but a plain and simple question of feasibility.

A full reinvention is needed. That’s the “why” of this article.

Introducing the core principles of a renewed Enterprise Technology Management

The question we need to solve is: how can we multiply the sophistication of technology (to cover new digital needs, to enable business reinvention) while dramatically reducing its complexity (to improve efficiency, quality and agility)?

The challenge is huge, but not impossible, as other industries and companies have shown.

Let’s start with an example that may seem far away from Enterprise Technology. If there is an industry that has mastered the simultaneous optimization of efficiency, quality, breadth of range and innovation, this industry is Automotive.

The Automotive industry is the original source of many of the operational best practices (Lean, Automation, Vendor management, Activity based costing,…) that have been applied across industries and functions, including IT.?In addition, the industry introduced the practice of "Concurrent engineering", as a collaborative effort to create new models that fit the necessary conditions of cost, design, manufacturability, and maintainability; and created the ”Just-in-time” concept, to avoid stocks in a context of uncertain demand. When extended to technology management, “Agile” inherits many of these collaborative and iterative practices.

However, the Automotive industry has gone even further in its operational optimization.

• First, cars are modular and configurable. Every Automotive brand has standard modules that are used across different models. The combination of modules allows for a huge range of models and configuration options. This modularity has a profound impact on efficiency (because of the bigger scale of modules), flexibility (changing one module is easier than changing a full model), agility?(module teams can evolve in parallel as far as they follow the overall guidelines) and lead times (the breadth of modules is much smaller than the breadth of configuration options, so demand forecasting is easier)
• Second, modules are properly segmented. Automotive brands make informed decisions about the strategic relevance of each module or characteristic of the car (e.g., is it the exterior design or the interior design? is it the engine or the safety?) And, based on that strategic relevance they are fully coherent in the way they manage sourcing and R&D resources (e.g., proprietary design Vs market alternative, internal Vs outsourced manufacturing).
• And third, they are able to manage different horizons of innovation. Incremental innovation is managed over stable platforms (e.g., minor aesthetic changes or safety features) and, from time to time, there are radical changes in the overall design of platforms (e.g., the migration from combustion-engine cars to electric cars)

Similarly, the Software industry has applied many of these advanced practices. Software vendors are able to address multiple business scenarios over a set of integrated (though decoupled) modules, and an extensive range of configuration capabilities. And, when moving to SaaS models, they have strengthened these capabilities, being able to run multiple clients on the same Software instance. Simplicity, modularity, configurability are “magic ingredients” behind the scalability and increasing margins of successful Software vendors.

In both cases (Automotive and Software) we find a programmatic approach to how products are designed and built. However, when we look back at the way IT architectures have been progressively built in large companies, we often find a sequence of urgent developments that answered to specific requirements. IT has been managed as a sequence of projects, not as an evolving suite of products. Even when commercial packages were adopted, they ended up being so customized that many of the benefits of the “buy Vs build” option were lost.

That is history. Now, if we want to leverage the opportunities (and not suffering the risks) of the new digitization wave, we need to incorporate a new set of practices that address enterprise technology from a programmatic and product-oriented perspective.

I have organized these practices around 4 principles that can be translated into a profound and?executable reinvention program for your company:

(1) Think modular: a top down approach to flexibility.

(2) Segment modules: the path toward strategic focus.

(3) Make it configurable: a short-term effort to achieve structural agility.

(4) Be disruptive: a claim to reinvent your business.

And an overarching principle that should permeate every aspect of your reinvention: from a sequential view of "technology after business" to an integrated view of "business and technology":

(5) Manage dually: business and technology as twin declinations of a common vision.

These are just the headlines and, hopefully, an initial trigger for your own thoughts and comments. To make the article short, my personal detailed view of these 4+1 principles will be coming in the next chapter, StraTechGy 05, very soon.?