Free: Crossing the Digital Transformation Chasm

CROSS I NG THE D I G I TAL TRANS FORMAT I ON CHASM

HOW TO OVERCOME COST, SPEED, AND CAPAC I TY CHAL LENGES IN I T

T H E D I G I TA L T R AN S FORMAT I ON C HA SM

A little more than 10 years ago, a startup called Airbnb listed its first rooms and took its first bookings. Four years later, 10 mil- lion people had stayed at an Airbnb-listed property. By 2019, the company has hosted more than 500 million guests from properties in over 191 countries 1 . Airbnb is now worth $35 billion 2 —more than the Marriott group, and more than twice as much as Hilton Worldwide. That a company can go from zero to mainstream almost overnight is both awe-inspiring and scary. But such is the reality today. As the adoption of digital technologies speeds up, so will the rate of disruption. And Airbnb is not alone. Every industry, from automotive to retail—and even banking—are being disrupted by tech-native companies. Years ago, the appropriate response might have been to defend market share or focus on a niche, but this strategy was only effective against traditional competitors. Today, however, a retailer competes with both the store down the road as well as an e-commerce giant on the other side of the globe. Most large enterprises have a vision for a digital future, but the journey to get there is a difficult one to map. Technology is turning many business conventions on their heads. Not true in the digital age. Tech-native competitors can offer the better prices, fastest service, and wider selections due to aggressive adoption of digital technologies. The onus is now on IT leaders to keep pace with the fast-growing needs of a company. Many large enterprises have a vision of for a digital future, but the journey to get there is a difficult one to map. And failure to adopt the right technologies in time will cost the company its competitive advantage.

1 “Airbnb Fast Facts”. Airbnb. https://news.airbnb.com/fast-facts/ 2 https://www.barrons.com/articles/ airbnb-will-go-public-2020 ipo- 51568908485

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T H E D I G I TA L T R AN S FORMAT I ON C HA SM

We know that digital transformation needs to start with IT, but unfortunately, many IT leaders have their hands tied. In organizations where legacy processes and practices are prevalent, these leaders are busy keeping the lights on and overwhelmed with demand that there isn’t time or capacity to innovate or create value. Or they’re faced with organizational challenges that restrict operational agility, The result is a toxic environment of low integration, low speed, low skills, low adoption of modern capabilities, and high run cost. This gap of systems, skills, readiness, budget, and speed between a business’s digital future and its current state is what we call the digital transformation chasm. Crossing it, and becoming a modern digital business, is the only way to survive. In this paper, we’ll explore the key steps to navigating the digital transformation chasm, discuss the qualities of a modern digital business, and compile a checklist of the first steps you should take—all distilled from our many years of work with the most advanced IT leaders in the industry.

Digital Transformation Chasm

Modern Digital Business

Legacy-centric Business

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YESTERDAY’ S LEGACY-CENTRI C BUS INESS

Immature IT processes

Unconsolidated M&A environment

Legacy systems/ high technical debt

No separation of core and context capabilities

What’s holding IT back? See if you recognize any of these challenges in your organization.

On-premise-centric IT infrastructure

Majority of budget and time spent keeping the lights on

Outdated IT skills

Rising IT costs

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At the core, the objective of every digital transformation initiative should be to overcome the three biggest constraints in IT: cost, speed, and capacity. But it’s not about adopting the latest technologies; it’s about fundamentally changing the way IT works—one befitting its new role as chief innovator, value creator, and productivity booster. Here’s how. CROSS ING THE DIGI TAL TRANSFORMAT ION CHASM

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Take a 360-degree look at how IT operates

Six critical areas can make or break a digital agenda, so a thorough review is the logical first step to identify gaps, pain points, and opportunities for improvement. Your objective here is two-fold: One, determine how well IT is doing against goals (or better yet, industry standards and rates). Two, uncover the drivers of work volume and identify where IT can optimize for speed and cost.

Here are the key questions to ask in each area:

Strategic alignment

1 How aligned is the IT organization with the business?

Are there opportunities to consolidate technology across business units or locations?

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Are governance processes capable of optimizing investment allocation?

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Service delivery process

How are IT processes performing in terms of maturity, comprehensiveness, standardization, and efficiency?

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Which operations and business processes can be automated to improve efficiency?

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Do we leverage external partners and experts to run standard processes, and improve these processes?

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Infrastructure and apps

Is our technology footprint suitable in terms of, scalability, age, cost, capability, and security?

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2 How should the application portfolio be rationalized?

What new technologies should be considered to replace legacy systems?

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Are we regularly utilizing cloud delivery models?

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People and organization

1 How well are employee skills and capabilities, and the organization itself, meeting business needs?

Which functions should be centralized in shared services vs. left separate?

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3 What skills do we need to invest in moving forward?

Sourcing and contracts

1 How is IT utilizing outsourcing and global service delivery compared to industry-standard terms, service levels, and pricing models?

Are there opportunities to reduce, consolidate, or retire contracts?

2

How can IT evaluate and improve its vendor management capabilities?

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Financial management

What is the accuracy of budgeting in regards to overall IT spend?

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Can cloud computing enable cost savings and improved ROI?

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Are there alternative organizational models to improve cost-effectiveness?

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Create a transformation roadmap

Now that you’ve identified the gaps and opportunities in IT, it’s time to develop a roadmap to address them. The plan should demonstrate how IT will add value, quantify the magnitude of this value contribution, and outline the resources to support this contribution. How? We recommend the following five-step approach: i) Re-engage the business Seek to understand the explicit, as well as the implicit, business strategy. Reach out to business leaders across the organization to find out how technology can become a competitive weapon for your business. Focus on adding value and re-establishing IT’s role as a strategic advisor. To boost IT’s credibility, consider bringing in an external advisor to help with feedback collection and analysis. iI) Target technology-driven business differentiation Identify the business capabilities necessary to execute the business strategy, like shipping a product within 24 hours of receiving an order. See if any technology initiatives may be supporting these capabilities across the company, and find ways to improve them. If the initiative proves not to be a good fit, identify the right technology and applications to take its place. iii) Identify necessary IT organizational competencies Review the processes and approaches of the IT organization to see if it’s ready to support the future business strategy. For example, how will IT add capabilities quickly and efficiently? How will the team obtain the new skills it needs? Consider reorganizing your teams to support your chosen approach such as using a Plan/ Build/Run (PBR) model for infrastructure or agile for digital application development. Look for areas to reduce costs and improve efficiency, particularly with low-value, labor-intensive functions.

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iv) Price, prioritize, and plan Consolidate your findings and recommendations into an integrated, executable plan. Your plan should accomplish three things. One, shift spending to fund new, technology- enabled capabilities. Two, prioritize and rationalize initiatives and investments based on alignment to strategy and value-creation potential. Three, detail plans and budgets to implement the IT strategic plan. v) Validate the IT strategy with the business Establish buy-in from sponsors and business leaders. Help the business see and understand the value of IT. Understand that the creation of a transformation roadmap is only the beginning. Execution is still fundamental to value creation and will need to be constantly monitored to ensure that the IT organization and company are on the right track.

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Rebalance spending

Like many IT organizations, it’s likely that you won’t get additional funding for a digital transformation initiative. But not all is lost. With the right approach, it is possible to self-fund your digital transformation. The key here is to shift spending to fund early cost-saving wins, which would then be used to fund larger projects as the program pays for itself. One way to an early win is to free your team from low-value, labor-intensive work. In many cases, it’s now more advantageous to automate or outsource basic IT services such as end user services, application development, and infrastructure management. Sourcing these functions can enable IT organizations to cut costs by more than 30% while boosting service levels. However, take care to put value first, not costs. Outsourcing must be done carefully with the right partner, and led by the right sourcing advisor. Another quick win is to build modernization into your vendor contracts. Whether it’s an end user service, infrastructure management, or application support environment, your vendors should constantly be making it better, not maintaining the status quo. Treat your vendors as a strategic partner and enable them to drive efficiency and minimize technical debt. Finally, consider adopting a zero-footprint strategy. Running a data center can take up significant effort without providing nearly enough advantages. So when it comes to infrastructure, we can’t understate the importance of using a cloud service provider like AWS or Microsoft Azure to get better flexibility, reliability, and scalability, at lower cost and risk.

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TODAY’ S MODERN DIGI TAL BUS INESS

Technology drives business agility and competitive disruption

Advanced analytics for real-time business decision support

Omnichannel and integrated customer experience personalized with mobile and social

Frictionless cybersecurity

How leading organizations are using IT to drive business performance and results.

Asset-light, cloud-first, automated, and optimized run environment

Active investment in emerging technologies such as blockchain,

IoT, VR/AR, and machine learning

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CON C L U S I ON

Every business has a digital vision.

Whether you’re a healthcare provider that wants to make clinicians better caregivers, a manufacturer that’s building the factory of the future with IoT technology, or a retailer looking to deliver personalized shopping experiences to customers across every channel, you need to traverse the digital transformation chasm to get there. The pace of technological change will only accelerate in the coming years, and companies who fail to deal with the legacy anchor that is holding back the digital agenda will fall behind, lose market share, and become obsolete. IT leaders need to work quickly to reallocate resources to the right projects, people, and technologies to drive business results and performance.

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MAKE YOUR DIGI TAL VI S ION A REAL I TY

Visit us at wavestone.us or give us a call at (610) 854-2700 to speak with one of our digital transformation experts.

About Wavestone US

Wavestone US provides a peer-to-peer approach to IT optimization and transformation. As the North American arm of Paris-based global management and IT consulting firm Wavestone, it has supported the transformationsof more than 200 Fortune 1000 companies across a wide range of industries. Wavestone US is unique in that it offers a practitioner’s perspective on IT strategy, cost optimization, operational improvements, cybersecurity, and business consulting. It is the company’smission to help clients successfully delivertheir most critical transformations and achieve positive outcomes. Driving businesses forward through digital transformation is what we call “The Positive Way”.

www.wavestone.com

In a world where knowing how to drive transformation is the key to success, Wavestone’s mission is to guide large companies and organizations in their most critical transformation projects, with the ambition of a positive outcom for all stakeholders. That’s what we call “ The Positive Way ”.

Wavestone brings together 3000 employees across 8 countries. It is a leading independent player in the european consulting market. Wavestone is listed on Euronext Paris, and recognized as a Great Place To Work®.

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