Why it is so Hard to Generate Value from IT – and What to Do About it

In recent years, the label “digital” has entered the lexicon of management and in many organizations, digital has now become a fashionable rallying cry.[i] Digital is simultaneously a technology, an objective, a threat, an opportunity, a workplace, a way of working, and a lifestyle. For some organizations, it is enabling new business models. For others, it offers new ways of engaging with customers. For many more, it represents an entirely different way of doing business and working with ecosystem partners. Organizations are building digital strategies as they look to leverage digital technologies. One certainty in today’s business environment is that most organizations could not survive for very long without their digital systems; indeed, for some, technology provides the source of their competitive advantage while, more often than not, it is a competitive necessity just to survive and avoid being disadvantaged.

Yet, as they embark on so-called “digital transformation” journeys, many organizations are struggling to embrace digital opportunities and rewire themselves as digital enterprises. In a previous article[ii] I looked at how a dominant engagement model has emerged between the IT unit and the rest of the organization and argued that it lies at the heart of this struggle. This engagement model, a consequence of how organizations are designed, leads to practices and ways of working that result in the exact opposite of what the expectation for them are. I made the point that neither side set out for this situation to exist. IT unit staff knows that that are better ways, but struggle to get their message across, and have effectively surrendered. On the so-called “business” side, they are convinced that what they are doing is the best way to manage something that they really don’t believe they fully understand anyway. They can’t be blamed, can they… they just don’t know what they don’t know? Both are in a cycle of destruction, where the best of intentions collide with the dynamics of reality.

Where IT is concerned, the vast majority of organizations organize from a design brief that emphasizes the management of technology rather than on delivering value from technology. As such, the implicit assumption is that all the knowledge to ensure success with technology can be corralled into a dedicated organization unit, usually labeled the IT department or some combination of similar words. While this design logic may have been appropriate in the early days of computing, in this article I lay out arguments as to why in today’s digital world this is no longer the case.

A cornerstone of these arguments is the proposition that success with technology is primarily a cognitive endeavor. Tech may be needed (but even infrastructure is being virtualized), but it first requires thinking, learning, and sense-making if it is to be successfully harnessed. These are all cognitive in orientation but the knowledge underpinning them is distributed across the organization and not confined to any particular organizational unit; especially the IT department. The consequential challenge is how to coordinate and integrate this knowledge to create the organizational know-how to achieve desired business outcomes from technology. This quest has significant implications for any selected organizing model as all models have implications for intra-unit and inter-unit coordination. Some designs are better than others in facilitating the application of knowledge. A further complication is that this knowledge is actually “owned” by employees, yet its application takes place at a collective level (i.e. teams, groups, communities of practice, committees, etc.), so harnessing the collective intelligence also has behavioral and cultural implications.

In this article, I take the reader on a journey that concludes with a model linking the specialist knowledge of employees with a digital capability. Along the way I lay out the terrain, first explaining how delivering value from technology is essentially a cognitive endeavor but that the necessary knowledge is dispersed across the organization.  I then explore the challenges that the design of an organization poses for coordinating and integrating this knowledge, so fundamental for its application. This, I stress, is the key reason why organizations struggle with IT. I then examine the relationship between specialist knowledge (residing in employees) and organizational competences (and distinguish them from capabilities), suggesting that competences represent the collective know-how in the organization to get things done. I then explore how the design of an organization can impact the application of knowledge, before taking a closer look at the choice of coordinating mechanisms and the impact that these can have on this process. I then draw on the concept of social capital to surface the critical importance of employee connections and network in this process, together with the nature of their relationships with colleagues, the level of trust that exists and the values that employees hold. I take a slight detour to review the research in IT governance, suggesting that much of what masquerades as IT governance are actually omissions in organization design. Finally, I revisit the IT-business gap, suggesting that it is the prime contributor to the situation, as well as being the most difficult to resolve, presenting a modern-day catch-22. The article ends with some tentative suggestions as to how organizations can begin the process of building an organization-wide capability to leverage tech.

The link to the full draft article is here.

Endnotes

[i] The irony is that the word digital has been around since computers were invented. Computers are a digital technology and capture, store, manipulate, transmit and present data that can be represented by discrete values, essentially 1’s and 0’s. Indeed, when Ken Olsen and Harlan Anderson co-founded a computer company in 1957, they were looking for a name that would differentiate the company from the “Business Machines” label of International Business Machines (IBM) and chose Digital Equipment Corporation (DEC).

[ii] A new metaphor for IT: How can we know the dancer from the dance? Working Paper, April 2020. See also my research briefing ‘The Metamorphosis of the IT unit,’ Research Briefing, MIT CISR, July 2019.