While vendors are very excited about the amazing possibilities of the huge tsunami of new technology, executives who lead organisations need to balance embracing the new technology with the realities of the risks they may be running. Most organisations will have to embrace the new technologies to drive their organisations forward or to defend them from competitors so a level of risk is unavoidable.
The desire to use new technologies is often expressed as the need to innovate, or with a question about cloud, the internet of things (IOT) or one of the other marketing terminologies. We have a unique confluence of opportunity:
· An eye-watering amount of new technology opening up new business opportunities
· Cloud based services are changing the outsource model cost profile, allowing organisations to move faster but also reduces the capital requirement barrier for new business entrants
· A tidal wave of new providers
· A change in the risk as technology is now an integral part of every organisation.
The ultimate success, like so much in business, is a combination of foresight, planning, hard work with an element of luck and good timing. In summary:
The Digital Strategy is owned by the CEO and changes the way the business operates.
· Innovation won’t just happen; it needs to be an integral part of the organisation.
· Leverage the risk assessment process to support innovation and the digital strategy implementation.
· Outsourcing arrangements must support the customer-centric digital strategy.
There is so much opportunity now, the risk is that we will place our bets, or invest our innovation budget on the wrong things. Senior executives are asking the CIO for a Digital Strategy. In those cases, it’s often thought that the Digital Strategy is just the IT Strategy under another name. The most successful organisations in this space recognise that the Digital Strategy is a business strategy, owned by the CEO and implemented by the CIO, CFO, CMO and other C suite executives depending on the industry.
The Digital Strategy will change the way the organisation operates. It demands that the organisation be customer centric rather than product centric. It will change the organisation structure to reduce silos and to become much more collaborative. That will require a change of accepted behaviours by leaders and staff. These are not minor changes, but necessary if the organisation is to leverage the opportunities and prepare itself for disruption. Travelex has talked about the journey of change it is on. Thinking like a start-up is the battle cry.
The Digital Strategy will also be under regular review. In the strategy, there must be a roadmap of technologies under research, ready to be abandoned if they prove ineffective, or irrelevant. Here, having a realistic assessment of the vendors and their ability to execute is really important. We also recommend that there is a second technology roadmap of technologies to watch.
Those that are further away, but may prove useful when they are developed enough to test. In this case, both these roadmaps are at the organisation level and the evaluation team is made up with relevant business and technical interests. These are our suggestions for the two roadmaps:
- Software Defined Architectures & Networks, Network Virtualisation
- Software Defined Storage
- Advanced 3D printing Materials
- Adaptive Security Architectures
- The Device Mesh
- Cognitive, AI & Advanced Learning Systems
- Ambient User Devices
- IoT & IoT Platforms
- Quantum Processing
Most organisations are entering this field for the first time. So how can we ‘de-risk’ this approach?
Organisations have risk assessment and auditing of risk functions. Rather than being seen as the ‘policeman’ of the organisation, this is a chance to re-constitute them as an enabler of great decisions.
As this is a paradigm shift in technology with many ‘start-up’ companies, there is a greater need to assess the vendors as part of the risk assessment. We were last at this level of new opportunities around 1999; so many managers have not experienced this level of risk. Tenured CIOs deal with it regularly. Understanding the organisation’s risk appetite, as is applies to a particular initiative, is important. A particular concern is that many well respected IT players who would not normally be subject to an in depth risk assessment are themselves entering new markets and so provide potentially a larger risk now. They may fail, or change direction. So past reputation is no guarantee of future success.
An organisation’s change of direction, of reorganisation, of opening up new markets need to be subjected to reasonable risk assessment, particularly for public companies with share prices and public reputations to protect and investment analysts to satisfy. Engaging the PR people, to work with the risk people and the technology leaders, would be a sensible approach to explain the new direction and its benefits to investors.
Cyber security and information security are really hot topics these days. While the assumption in many organisations this is well managed, research and public embarrassment indicates that it’s not. Some technologies such as the IOT are particularly vulnerable at this stage of their development. Technologies may be used to reduce risk incidences by better managing the process. Intelligent Network Solutions promise to give far greater visibility and control but more importantly they will enable automation of functions thereby reducing the chances of outages due to human error.
Whether the vendor is a provider of software or platform as a service, applications or wide ranging cloud services, the ultimate success of delivering the strategy will be the quality of the services, the business outcomes they deliver and the time to market that drives the business initiatives.
Outsourcing in some form or other in IT had been around for many decades, but there are still far too many instances where it has not delivered on expectations. The need to be flexible, to innovate coupled with the fact that many organisations have fully outsourced their technology, a customer-centric digital strategy adds another layer of complexity over an already complex situation. Some organisations, such as Astra Zeneca have re-insourced.
Traditional IT outsourcing companies are increasingly cancelling and renewing contracts at the moment to bring forward or secure future revenue. This gives their customers a better negotiating situation, as the Outsourcer, who wants to protect or increase revenue, negotiates with the customer who wants to change direction.
As the vendor becomes more of an integral part of the business, it is important to establish a strategic partner relationship with key vendors. The vendor wants to increase revenue, the customer needs the vendor to stay in business. The vendor is also developing the product or service that the customer hopes will bring some innovative solutions for the business. Some leading organisations have supplier strategy conferences where they open up their business strategy to strategic vendors and learn what the vendors have planned.
Most outsourcing contracts want innovation. Innovation adds risk to the outsourcer as any change, affects the cost model. One way of approaching this is innovation is on a shared benefit basis. This requires a sensible relationship and an element of trust with both parties, but is well worth the effort. Mandating a number of innovative ideas per month or per year often does not generate ideas of quality because the vendors usually do not understand enough about the customer’s business or future plans to provide enough real innovation.
One of the notable situations, is that efficiencies found in the rest of industry are not yet common in the outsourcing industry. It is well worth looking much closer at the potential outsourcing vendor to see whether they are using some of the newer efficiency techniques such as Software Defined Networks, Network Virtualisation, Agile Development, Cognitive Systems and ‘End-to-End’ Management tools. Many of the countries where labour costs are lower are not using efficiencies as they can put more staff on an activity. While this is a cost savings to the vendor, one of the key drivers for outsourcing is time to market – to be able to do things quicker with the vendor than an organisation can do on its own.
Whether the outsourcing partner is a traditional or cloud supplier, most are talking about their cloud solution and the path to the future. Traditional outsourcing contracts are often too long, and inflexible when the business changes. So shorter contracts with clear, business or outcome oriented Service Level Agreements (SLA’s) are required. Certainly, no-one signs the vendor contract without agreeing how the performance will be governed and measured. With a cloud contract, it’s more difficult. Contract financials are more flexible as customers only pay for the resources required and resources can be stood up or removed in a very short time frame. Organisations are opting more for a Hybrid solution utilising Public and Private Cloud and typically will use between 2 to 4 vendors to supply the services so strong Governance, Transparency, and Performance measurement are more difficult to achieve. The customer’s risk is increased.
The C level Trinity that runs most organisations has different priorities but must come together for success. The CEO provides the vision and direction to drive the organisation forward. The CFO reviews the investment potential of new initiatives and manages the risks to the organisation. The CIO delivers on the innovative vision from the technology standpoint and is often the futurologist for the organisation. Others are involved, but for sustainable success, these three roles need to be fully engaged.