To effectively support the full-scale digital transformation of the business, IT must move beyond its service provider role and apply a set of unique digital IT capabilities that enable the enterprise's digital operation, according to new “World-Class IT” research from The Hackett Group Inc.
These IT capabilities are: rapidly delivering technology innovation; creating and developing a true digital architecture; becoming a leader in deploying leading cybersecurity capabilities; accelerated service delivery; and supporting an advanced data and analytics enterprise platform.
US$41 million in annual savings
World-class IT organizations are those that achieve top-quartile performance in both efficiency and effectiveness across an array of weighted metrics in The Hackett Group's comprehensive benchmarks. In 2017, that translates to world-class IT organizations spending 21 percent less than their peers, in part by reducing labor costs - world-class IT operates with 16 percent fewer staff.
For a typical $10 billion company this improved efficiency can represent as much as $41 million in annual savings. At many companies, that savings is being reallocated to transform the function and master digital IT capabilities.
"The goal of becoming a digital enterprise has presented IT functions with a much stronger mandate and opportunity to deliver enterprise value that goes far beyond routine service delivery," explained Richard Pastore, a senior IT research director with The Hackett Group. "IT must now enable new business capabilities that position companies to compete in the digital business era."
To do so, IT must master and deliver technology innovation, effectively managing the conversion of innovative technologies into business innovation; modern digital architecture, designing data and services that enhance agility and customer experience; cybersecurity, managing the risks associated with digital transformation; accelerated service delivery, such as adopting service development models that ensure business agility and responsiveness; and advanced data and analytics, deploying infrastructure and analytics that facilitate the ability of the enterprise to derive insights from data.
The stakes are high
The stakes are high for IT to deliver. The new research reveals that digital transformation initiatives can lower the transaction process cost in finance, procurement, and other general and administrative (G&A) functions by 40 percent, bringing costs to within 8 percent of world-class levels.
For companies that have already achieved world-class performance, digital transformation can lower transaction costs an additional 32 percent.
"With the opportunity for such bottom-line gains, businesses are likely to lose patience with IT organizations that are unwilling or unable to provide the necessary digital IT capabilities," said Mark Peacock, The Hackett Group IT transformation practice leader and principal. "Instead, business units will look for outside resources, acquire technologies directly and develop deployment capabilities themselves. The risks of such a digital free-for-all include cost inefficiencies and increased complexity, which create a drag on business efforts to innovate and accelerate."
When it comes to complexity, IT leaders must also look inward. The latest research from The Hackett Group finds that compared to world-class performers, typical IT organizations are burdened with the complexities of managing 10x more end-user computing platforms, 2.5x more business applications and much more chaotic data landscapes. By reducing complexity, IT not only can better deliver on all five digital capabilities, it can self-fund its internal transformation to boost effectiveness.
IT effectiveness and world-class delivery in the digital era increasingly equates to speed and responsiveness. Two years ago, only 15 percent of IT organizations could deliver phases of major initiatives in less than six months. Today that number is 39 percent. And, within two years, 86 percent plan to be delivering at that pace.