The New IT Operating Model for Digital

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1 The New IT Operating Model for Digital A Pragmatic View of the Evolution of Corporate IT and the CIO BCBS Spring 2017 IT Roundtable New York, NY Jaime M. Capellá

2 WHAT BUSINESS LEADERS MEAN BY DIGITIZATION Digitization Opportunities for the Incumbent Enterprise Digitization leads to an integrated, customer-centric perspective across the enterprise. PRODUCT Changes to the Product or Service Portfolio Using data and technology to enhance existing products and services Smart products Remote user interfaces User-customized products Open platforms Launching new products or services beyond the core business portfolio Serving rides, not selling cars Selling outcomes, not products CHANNEL Changes to Sales, Marketing, and Customer Service Capabilities Improving channel coordination and performance Social customer service Mobile customer service AI-driven sales assistance VR product demos Transforming channels to match customer behaviors and preferences Omnichannel marketing Checkout-free stores OPERATIONS AND WORKFORCE Changes to Other Business Capabilities Improving productivity or optimizing enterprise activities and processes Robotic process automation Autonomous digital assistants Machine-led threat analysis Digital currency Making broad improvements in one or more corporate functions Driverless trucks Digital manufacturing Enhancement Scope of Change Transformation Source: CEB analysis. Note: In this document, we will treat digitization, digitalization, and digital as synonymous Gartner Inc. and/or its affiliates. All rights reserved. IEC170938

3 Digital Maturity BEING UBERED : A WIDENING CONCERN Examples of Digital Disrupters High Media & Entertainment Apple TV Retail Telecom Financial Services Apple Pay Insurance Transportation and Hospitality Healthcare Industrial Manufacturing Energy Emerging Government Source: CEB analysis CEB. All rights reserved. CIO165212PR

4 Digitization Changes the Meaning of IT 2016 CEB. All rights reserved. CIO165536PR_10a

5 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy 2016 CEB. All rights reserved. CIO165536PR_10a

6 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy 2016 CEB. All rights reserved. CIO165536PR_10a

7 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy All IT Projects Are Business Projects 2016 CEB. All rights reserved. CIO165536PR_10a

8 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy All IT Projects Are Business Projects All Business Projects Are IT Projects 2016 CEB. All rights reserved. CIO165536PR_10a

9 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy All IT Projects Are Business Projects All Business Projects Are IT Projects Sole Provider of Technology 2016 CEB. All rights reserved. CIO165536PR_10a

10 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy All IT Projects Are Business Projects All Business Projects Are IT Projects Sole Provider of Technology Partner with Business Led-IT 2016 CEB. All rights reserved. CIO165536PR_10a

11 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy All IT Projects Are Business Projects All Business Projects Are IT Projects Sole Provider of Technology Partner with Business Led-IT Cost Center (SG&A) 2016 CEB. All rights reserved. CIO165536PR_10a

12 Digitization Changes the Meaning of IT Business Strategy Drives IT Strategy Business Strategy = IT Strategy All IT Projects Are Business Projects All Business Projects Are IT Projects Sole Provider of Technology Partner with Business Led-IT Cost Center (SG&A) Digital Transformation Driver (COGS) 2016 CEB. All rights reserved. CIO165536PR_10a

13 WHAT IT S OPERATING MODEL MUST DELIVER 1. Customer-Centric Focus 2. Speed and Flexibility 3. Fluid Role Boundaries Source: CEB analysis Gartner Inc. and/or its affiliates. All rights reserved. IEC170938

14 THE NEW IT OPERATING MODEL FOR DIGITAL Key Features of the IT Operating Model for Digital 2 Adaptive Business Engagement 1 Products Over Projects 4 Customer- Centric Design Applications Development Infrastructure Engineering Operations and Support 3 Agile, DevOps, Continuous Delivery PMO Enterprise Architecture Information Risk 8 Data Strategy Over Ownership 9 Adaptive Skills and Mindset 5 6 Applications Building Blocks Cloud-Based Scalable Infrastructure 7 Strategy Over Governance, Management Over Operations Source: CEB analysis. Review the New IT Operating Model for Digital 2017 Gartner Inc. and/or its affiliates. All rights reserved. IEC170938

15 THE NEW IT OPERATING MODEL FOR DIGITAL Key Features of the IT Operating Model for Digital 2 Adaptive Business Engagement 1 Products Over Projects 4 Customer- Centric Design Applications Development Infrastructure Engineering Operations and Support 3 Agile, DevOps, Continuous Delivery 5 6 Applications Building Blocks Cloud-Based Scalable Infrastructure 3.3x growth anticipated in cloud capacity between Applications Building Blocks: APIs, platforms, data, and reusable services reduce effort and accelerate delivery. Cloud-Based Scalable Infrastructure: IT automation and cloud platforms cut time to scale. Source: CEB analysis Gartner Inc. and/or its affiliates. All rights reserved. IEC170938

16 THE NEW IT OPERATING MODEL FOR DIGITAL Key Features of the IT Operating Model for Digital 2 Adaptive Business Engagement 1 Products Over Projects 4 Customer- Centric Design Applications Development Infrastructure Engineering Operations and Support 3 Agile, DevOps, Continuous Delivery 48% of IT organizations have begun to apply DevOps 3 Agile, DevOps, and Continuous Delivery: Integrated delivery, engineering, and support boost responsiveness and output. Source: CEB analysis Gartner Inc. and/or its affiliates. All rights reserved. IEC170938

17 THE NEW IT OPERATING MODEL FOR DIGITAL Key Features of the IT Operating Model for Digital 2 Adaptive Business Engagement 1 Products Over Projects 4 Customer- Centric Design 52% of IT organizations expect to have some kind of product lines in place in Products Over Projects: Priorities and budgets are set for business capabilities and products, not projects Adaptive Business Engagement: Business engagement approach flexes based on business context Customer-Centric Design: Customer journey mapping used to guide design. Source: CEB analysis Gartner Inc. and/or its affiliates. All rights reserved. IEC170938

18 WHAT ARE IT PRODUCT LINES? IT Product Lines: 1. Align the work of IT by how it is consumed (business outcomes), not how it is produced (technology or function) 2. Control the people, processes, data, and technologies to support a business outcome 3. Establish standing teams to continuously enhance and innovate They are also referred to as to emphasize End-to-End IT Services One owner from strategy to delivery Platforms Matches customers and providers $ Value streams Delivers sustained, not point-in-time, effort Source: CEB analysis Gartner, Inc. and/or its affiliates. All rights reserved. CIO172174

19 FROM PROJECTS TO PRODUCTS Plan-Build-Run Model End-to-End Service/Product-Aligned Model Defined around inputs (SDLC ) Defined around business outcomes (capabilities) Waterfall delivery presumes demand predictability Iterative delivery helps manage uncertainty of digitization Critically dependent on handoffs across silos Fosters shared end-to-end accountability Source: CEB analysis CEB. All rights reserved.

20 CLASSIFY SERVICES BY USER NEEDS Organizing Service Classification Retail Business Capability Aligned Services 1 Commodity Services (e.g., Payroll Management) Competitive Advantage Services (e.g., Pricing Mgmt) End-User Aligned Services End-User Services (e.g., Social Collaboration ) 1 Offered directly to business partners and end-users; managed by Service Managers 2. Wholesale Technical Services (e.g., Global Network) Internal IT Services IT Governance and Operation Services (e.g., EA Program Compliance) 2 Offered internally within IT, often to Service Managers of business-facing services. Shared Service Assets (e.g., applications, hardware, information, people, processes) 3 Not offered as services, but support the delivery of services. 1 Cisco has an additional Business Capability Aligned Services sub-type called Functional Business Services. Immature or non-standardized services are organized in this sub-type until they are either managed for stability into Commodity Services or become Competitive Advantage Services. 2 Cisco refers to Service Managers as Service Owners, but the role is analogous to the CIO Executive Board s definition of a Servi e Manager The Corporate Executive Board Company. All Rights Reserved. CIO SYN

21 DECIDE WHICH CAPABILITIES NEED TO BE FAST Business Capabilities Competitive Advantage Business Capabilities (e.g., Pricing Management) Commodity Business Capabilities (e.g., Payroll) Impacts company revenue. Potential differentiator to competitors. Value of innovation justifies higher costs and risks. Supports back-end and non differentiating business outcomes. Pressure on costs and low tolerance for risk. H H H H L L L L Speed Cost Constraints Speed Cost Constraints Source: Cisco Systems; CEB analysis CEB. All rights reserved. CIO156601PRINT

22 26 Focus resource planning decisions on service roadmaps rather than project queues. SERVICES, NOT PROJECTS, DRIVE PLANNING Service teams led by a Service Manager create service plans and roadmap enhancements for each service. These include estimated costs and ROI for the service enhancements Annual Service Roadmapping Process Service-Focused Activities Plan Roadmap Estimate ROI Roadmap Portfolio Managers provide a portfolio-level oversight over all roadmaps within a domain and finali e roadmaps based on resource availability. Project-Focused Activities Obtain Approval Build In operate mode, all service proposed changes must either be explicitly on the service roadmap or approved by the architecture lead for the affected service. All IT investments are planned and prioritized as new services or service enhancements. Key Benefits of Service-Focused Resource Planning Projects are only created after the service roadmaps are finali ed. 1. Reduces Functional and System Bias Ensures requests for enhancements are framed and vetted in terms of the business capability delivered, rather than system or functional project. 2. Drives Continuous Improvement The lifecycle approach promotes a mentality of continuous service improvement. 3. Eases Resource Coordination Improves visibility of cross-service shared resource needs and provides framework to prioritize resources objectively against business value delivered The Corporate Executive Board Company. All Rights Reserved. CIO SYN

23 ALIGN IT RESOURCES TO CORE BUSINESS CAPABILITIES IT Organizational Structure 1 2 Align IT Resources to Business Value Streams. Drive End-to-End Accountability In Development and Operations. CIO, IT Plan: Relationship Management and Planning Chief Sales and Service Officer Compensation Value Stream IT Domain Director a Business Analysts Chief Financial Officer Financials Value Stream IT Domain Director a Business Analysts Build: Enterprise Applications Delivery Project Team Project Team DevOps Engineers Design and develop automated services architecture 3 Equip Support with Business Domain Expertise and Authority. Run: Enterprise and Operations Business-Aligned Support Team Service Manager a Business-Aligned Support Team Service Manager a Technical Applications Support Staff Primarily contractors; conduct work that does not require business domain knowledge (e.g., patching) Source: Autodesk, Inc.; CEB analysis. a Autodesk uses the title IT Domain Director for its Service Managers CEB. All rights reserved.

24 Organize services into an hierarchy that clarifies how supporting components work with end-to-end IT services. NAB has a well-defined service hierarchy to clearly establish connections between top-level end- to-end IT services and supporting assets. LINK END-TO-END IT SERVICES TO SuPPORTING COMPONENTS AND SERVICES NAB Service Hierarchy Illustrative End-to-End IT Services Customer-Facing Services Customer Account Management Internal Corporate Services General Ledger An end-to-end IT service is supported by multiple technical services, and one technical asset supports one or multiple business-aligned technical services. Service assets are formed by grouping components and mapping their relationships to key technical services. Technical Services CRM Lodgment System Origination Tool BI & Reporting Accounting System These technical services support Customer Account Management. Some technical services support multiple end-toend IT services. These technical services support General Ledger. Service Assets (e.g., query tools, commission tools) 2012 The Corporate Executive Board Company. All Rights Reserved. CIO SYN These assets (servers, storage) may each support multiple technical services.

25 REALLOCATE INVESTMENT AS BUSINESS PRIORITIES CHANGE Ongoing Funding and Resource Allocation Process at Autodesk IT January Annually Business Value Stream (BVS) owners meet to allocate funds across BVSs. BVS owners cascade their funds to dedicated Plan, Build, and Run staff. BVS owners and IT domain directors prioritize projects for their dedicated resources to drive the greatest impact on BVS objectives. Funding Allocation Participants BVS-1 owners BVS-2 owner Monthly BVS owners meet to adjust funds across BVSs as enterprise priorities change. BVS owners reprioritize projects according to their BVS needs. IT domain director IT domain director Between Monthly Meetings For rapidly changing BVSs, the owners of a BVS discuss and reprioritize work as needed to maintain alignment with the BVS priorities. IT domain directors continuously monitor progress against BVS objectives and capability gaps and propose adjustments to priorities as needed. July Source: Autodesk; CEB analysis CEB. All rights reserved.

26 IT-BUSINESS INTERFACE MANIFESTO CIO s Manifesto for IT-Business Interface Decision Makers You should see your role as the General Manager of the business capability you are responsible for: 1. Know your customer, and your value proposition. Have a clear, business-focused definition of your business capability, and its value. 2. Be accountable for business capability consumption. Understand the utilization of your business capability from both a cost and value standpoint. 3. Own the product strategy. Have 3 5 year vision for the your business capability, prioritize initiatives, manage budgets, negotiate with vendors, and authorize new features. 4. Actively engage your stakeholders. You should know your business stakeholders, and what other business capabilities you rely on. 5. Know your competition. You should know what real or potential alternatives exist to your business capability. 6. Know your workforce. You should know what current and future skills are needed to operate the business capability and execute your strategy. Desired Skills and Experience Strong ability to communicate, build relationships, and influence others inside and outside IT. Expert in IT pricing and business case development. Experience in performing market and competitor analysis. Working knowledge of effective vendor management and IT continuity management. Source: Cisco Systems; CEB analysis CEB. All rights reserved. CIO156601PRINT

27 Use metrics for service usage, adoption, cost, and value to guide key decisions on service profitability and governance. FOUR METRICS TO MANAGE THE MARKET FOR SERVICES Service adoption might also be measured as number of transactions per service or consumption per region. 1 Service Usage What It Measures: The number of features and service components used versus the number of designed/available service components Service adoption metric is selected based on the specific business value the service provides to the company. See page 43 for the full calculations used for each metric. 4 Service Value What It Measures: The value obtained from a service 2 Service Adoption What It Measures: The percentage of potential adopters who use a service 3 What It Measures: The unit costs for supplying a service to all of the adopters Cost of Service CIO Please EXECUTIVE note that the BOARD CEB program names referenced in this document IT have PRACTICE changed since the time of publication The Corporate Executive Board Company. All Rights Reserved. CIO SYN -CEB

28 Different patterns of usage, adoption, and cost provide critical information about the success of each service in the portfolio. SPOTTING WHEN SERVICES ARE OFF TRACK Common Service Adoption, Cost, and Usage Problem Scenarios The goal for each service is to migrate toward an optimized state with high adoption, high usage, and low cost. Provisioning Mismatch Service Usage Premium Niche Service Usage Bleeder Service Usage Services that stall after time in the market are reviewed for different approaches to growth or for potential retirement. Service Adoption Service Adoption Service Adoption Cost of Service Cost of Service Cost of Service Implies underused features Cost driven by features that are not needed by all adopters Requires removal of features to cut costs Implies niche market Cost driven by features that are not widely needed Requires internal marketing campaign to drive adoption and removal of features to cut costs High cost a barrier to adoption Low usage drives up unit costs Requires removal of costly features CIO Please EXECUTIVE note that the BOARD CEB program names referenced in this document IT have PRACTICE changed since the time of publication The Corporate Executive Board Company. All Rights Reserved. CIO SYN -CEB

29 ADAPTIVE BUSINESS ENGAGEMENT Business engagement approach flexes based on business context 2 Adaptive Business Engagement Products over Projects Applications Development Infrastructure Engineering Operations and Support Applications Building Blocks Cloud-based Scalable Infrastructure 4 Customer- Centric Design 3 Agile and DevOps PMO 7 Enterprise Architecture Information Risk Strategy Over Governance, Management Over Operations 8 Data Strategy Over Ownership 9 Adaptive Skills and Mindset Source: CEB analysis CEB. All rights reserved. CIO165211PR

30 Stakeholders Digital Ability (Manages projects, vendors, and risks) MORE DREAMERS AND TECHIES AT THE INTERFACE Digitization Increases the Diversity of Business Stakeholders at the IT-Business Interface High Representative Examples TECHIES DIGITAL BUSINESS INNOVATORS Neophytes: A finance team needs to be shown the art of the possible and the potential of new analytical capabilities. Dreamers: A marketing team needs advice on assessing the technical viability of a proposed new digital marketing campaign. Techies: A facilities team needs to be shown the enterprise-level implications of a new digital capability. Low NEOPHYTES DREAMERS Digital Business Innovators: A product team needs advice to access data in enterprise systems and build APIs. Low Stakeholders Digital Ambitions High (Understands how digital could transform the business) Source: CEB analysis CEB. All rights reserved. CIO165212PR

31 MORE DIGITAL CAPABILITIES TO KEEP UP WITH Number of Marketing Technology Vendors 3,500 = 230% 3,500 1,750 1,000 2, Source: /chiefmartec.com. Number of Startup Companies by Sector, May Connected Transport Insurance Technology Real Estate Technology Retail Technology Artificial Intelligence Internet of Things Health Technology Fintech Source: / CEB. All rights reserved. CIO165212PR

32 ADAPTING ENGAGEMENT ACROSS FIVE ACTIVITIES Five Engagement Activities Evangelizing 1 Keep abreast of emerging digital trends and educate business partners on opportunities to create value from technology. Consulting Brokering Coaching Offer advice and frameworks to enable successful business leadership of technology investments. Provide the internal and external connections needed for business leadership of technology investments. Develop employee skills to help them make full use of the enterprise s technology and information. Flex between the five activities based on business partners digital ambition and ability, not their personality or ways of working. Delivering 5 Own the process of delivering technology functionality or provide integration capabilities for business-led technology investments CEB. All rights reserved. CIO165212PR

33 BEST-IN-CLASS EXAMPLES OF ENGAGEMENT ACTIVITIES Evangelizing Heineken IT promotes digital marketing capabilities through an internal creative agency. Click here to read more. Air Products IT offers PMO expertise to help business partners complete project management activities on their own. Consulting CareFusion IT guides business partners on due diligence conversations as they work with technology vendors themselves. Click here to read more. Brokering Coca-Cola IT prepares startups and emergent vendors to work directly with business partners. Click here to read more. Tiffany & Co. IT provides coaching to strengthen the ability of business employees to exploit data. Click here to read more. Coaching Source: CEB analysis. Toyota IT improves innovation outcomes by coaching business employees on developing and pitching their ideas. Click here to read more CEB. All rights reserved. CIO165212PR

34 EMPOWER DEVELOPERS OUTSIDE IT Monsanto s Code Marketplace for Business and Community-Led IT Best Practice Sharing: IT provides technical and other advice on a forum that is open to all technologists inside and outside the company. Code Marketplace: Code development and consumption beyond IT is enabled by a marketplace for business employees to find, create, document, and share code. Open Source Code Repositories: Monsanto makes some of its code open-source to attract innovative solutions and enhancements externally. IT is now part of the science base of the company. Our platform model enables us to disseminate ideas and code to anyone in the company who can create value from it. Source: Monsanto; CEB analysis. Chris Keeley, VP of IT Products and Engineering 2017 CEB. All rights reserved. CIO170913

35 TRANSFORM IT'S OPERATING MODEL FOR DIGITAL Key Features of the IT Operating Model for Digital 2 Adaptive Business Engagement 1 Products over Projects Applications Development Infrastructure Engineering Operations and Support 5 Applications Building Blocks 6 Cloud-based Scalable Infrastructure 4 Customer- Centric Design 3 Agile, DevOps, Continous Delivery PMO 7 Enterprise Architecture Information Risk Strategy over Governance, Governance over Operations 8 Data Strategy Over Ownership 9 Adaptive Skills and Mindset 1 Products over Projects: Priorities set for business capabilities and products, not projects. 2 Adaptive Business Engagement: Business engagement approach flexes based on business context. Source: CEB analysis CEB. All rights reserved. CIO165211PR 2 3 Agile, DevOps, Continous Delivery: Integrated delivery, engineering and support boost responsiveness and output. 4 Customer-Centric Design: Customer journey mapping used to guide design. 5 Applications Building Blocks: APIs, platforms, data and reusable services reduce effort and accelerates delivery. 6 Cloud-based Scalable Infrastructure: IT automation and cloud platforms cuts time to scale. 7 Strategy over Governance, Management over Operations: Central groups refocus on facilitating strategy, innovation, change and risk management. 8 Data Strategy Over Ownership: Coherent strategy and guidelines around data allow for rapid exploitation by distributed teams. 9 Adaptive Skills and Mindset: Staff become technically versatile, collaborative, and open to innovation.

36 Scale of Role DIGITAL CAREER PATHS FOR THE CIO Beyond IT BUSINESS SERVICE PROVIDER President of Global Business Services Delegates digital to others Leads global business services strategy and operations PRODUCTIZER General Manager of Digital Products Builds digital products or services Owns digital revenue streams, goto-market strategies, and pricing EVANGELIST Digital Change Agent Advises the CEO and the board on digital Promotes digitization and enterprise change SYSTEMS PROVIDER Head of Corporate IT Nascent focus on digital Oversees stable enterprise systems Manages IT procurement and integration MODERNIZER Head of the Digital Core Reinvents IT to support digital Provides interoperability across the product portfolio Innovates on the foundations for digital transformation IT Only Efficiency Focus of Role Growth Source: CEB analysis CEB. All rights reserved. CIO167068PR

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