Dion Hinchcliffe's Next-Generation Enterprises

Dion Hinchcliffe

Why IT Leaders Struggle with Digital Transformation

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It's the mantra of our times: There is an urgent imperative to overhaul our enterprises with a raft of digital innovations: new smart products, new supply chains, new data sources, new channels, new business models. That is, seemingly urgent for everyone but the traditional IT department.

Yet as we look at the latest incremental IT budgets -- which I did earlier this week on ZDNet -- and even the more incremental foundational priorities of the average CIO, we see an increasingly large gap. A recent meta-survey of CIO priorities for 2015 shows that the most consistent top three goals for IT this year are high performance wireless, business analytics, and secure network access to the cloud.

These objectives are certainly necessary technology improvements to any organization. But they're also strikingly lacking in ambition, strategic business urgency, and very unlikely to help the organization find a path towards the future, as companies fight off a growing cohort of nimble digital competitors that are busy rethinking our industries in fundamentally contemporary terms.

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While many leaders talk about the innovator's dilemma of not somehow shoehorning our organizations into the mold of Uber and Airbnb for our industry, the real risks are actually more complex and urgent than that. We're not just about to be pushed off the economic road by startups, but by global competitors moving much faster using new digital models, rapidly changing market expectations that pull the wind right out of our legacy businesses without determined digital reinvention, and perhaps worst of all, the now real existential technology threat to our organizations themselves.

We should be clear-eyed as to inaction: The ultimate outcome is market failure, then being merged or acquired for remaining assets, in a new digital world of zero marginal value for traditional business services.

As Brian Wilson recently pointed out, even formerly untouchable industries like banking have become targets for digital disruption. This is happening now to healthcare and insurance, as well as almost every other regulated industry.

At this point, as I look at what corporate leaders, especially boards of directors, can specifically do to rapidly stand-up organized and capable responses to digital change this year, I still see IT as having a central role in the change, but only if it can dramatically alter priorities and focus (while yes, also carrying out their original mandate as well as ever.)

Our attempts at digital transition

The responses that our enterprises have mounted in recent years have had limited effect, often because, as I explored on ZDNet, they're not nearly up to the scale of the challenge. These responses generally have been:

a) Install a Chief Digital Officer to make a P&L of existing and new digital assets.
b) Create a digital business Center of Excellence or strategic initiative.
c) Broadly seek out and work with industry partners who have more digital DNA to jointly develop products, often now through hackathons and contests.
d) Use M&A to buy the digital innovations needed to grow into new markets.

Unfortunately, each and every one of these responses has drawbacks, often substantial. For the most part, particularly for large established organizations, these approaches fail the big test: Will they propel the existing lines of business into the future, or does they just create a apartheid-style model of corporate structure where the legacy business is largely cut off from growth, and only the new digital departments thrive?

There is also the very real and difficult challenge of asking these questions, because that's the very definition of what happens during creative destruction: Legacy products and services dwindle in customer popularity and that part of the business shrinks, while new people with the right skills and acumen join the rapidly growing side of the business.

But meaningful digital transformation is a potentially much less destructive process, more akin to morphing the existing business in place from a legacy caterpillar to beautiful new digital butterfly. There are a lot of good reasons to go down this path, in that it's almost certainly better for everyone if it can be achieved. There will be less unexpected dislocation, a smoother transition for customers, employees, and shareholders, and much better use of existing strengths and resources, to name some of the key benefits.

The issues that CIOs must overcome

But the reason IT leaders in particular struggle boils down to some very hard to resolve obstacles. The long-standing and well known issues holding IT back from digital leadership and results are:

- IT being perceived as a cost center, and its budget is allocated as such. So the requisite boosts in tech spending for transformation increasingly aren't happening in IT, but elsewhere.
- IT departments in charge of business continuity and keeping things running as job #1, far more than they are allowed to innovate.
- Too few skills in creating businesses and being entrepreneurs, and too many staff hired because they can manage risk well in a mature operation.
- Poor alignment or credibility with the business, especially within mid-level IT management, and a tactical, "Dr. No" mindset.

Top sponsor + new change models = success

But ironically IT is well positioned for digital change in many respects: It has most of the technology, the lion's share of the technical know-how, almost all of the data, and is lacking only in corporate mandate, innovation skills/mindset, and resources suitable to break new ground.

The CIO can bring many strengths to the table for digital transformation, but needs a partner to overcome many of these weaknesses and deliver. That partner is one that the CIO must either find on the board or in the strongest owners within the lines of business, or both. This partner can provide business acumen, imperative, and resources. Combined together with the latest change processes, I believe they can create a new digital capability that can take an organization directly into the future.

Dion Hinchcliffe

Dion Hinchcliffe is an internationally recognized business strategist and enterprise architect View more

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