PA’s Manish Khandelwal, an IT sourcing and transformation expert and Rob Mettler, a digital transformation expert discuss key issues in outsourcing in the digital age following their involvement as panelists in a round table discussion with Outsource magazine. The event was attended by some of the most prominent advisors in the UK outsourcing community.
Following the event, Manish and Rob were asked to discuss in more detail one of the themes addressed during the dinner: the incredible rate of change at play in the outsourcing space today and its ramifications for buyers, providers and the advisory community.
Outsource: Bearing in mind the extraordinary pace of technological evolution we’re experiencing, do you feel that organisations themselves are evolving (in terms of structure, composition, and – for want of a better word – philosophy) as quickly as they need to?
Manish: We are amidst an interesting, but dizzying change cycle where it is sometimes hard to decipher whether it is technology that is forcing the business to change, or the other way round. Irrespective of what drives change, organisations do need to change and many are struggling to evolve at the pace they aspire to, and that is not surprising.
There are three key aspects that make this harder for large organisations in particular.
1) Established functional structures. Organisations have set functional structures and they get used to working in “boxes”. These structures help organisations to deliver what they ought to – but with time, they also lead to insulated behaviours and it is surprising how many organisations fail to harness the IP that sits within them.
2) “But we are different” attitude. Each organisation thinks change is hard, because they say, “we-are-different-to-anyone-else”. The pride of being different leads to prejudice against change.
3) Lack of burning platform. While common wisdom will ask us to change proactively, usually if there is no burning platform, organisations will remain lethargic to change. One cannot blame them for thinking – why change something if it is working?
However, there are ramifications for organisations. Over the last decade, we have noticed that organisations can get wiped out, if they fail to read, react and predict the impact that technology can have on their sector. Organisations will soon be forced to think and design their structures differently; workforces will need different set of skills; and workplaces will struggle to offer jobs for life. The possibilities to collaborate with competitors and organisations from different sectors will increase – and may soon become a necessity.
Rob: Organisations are struggling to adapt to the digital age; those that do are reaping the rewards, those that don’t risk being eroded.
Some 68% of organisations want to create a new type of business through digital, not just doing what they do today in a different way, but by doing fundamentally different things: transitioning from product to service models, becoming more customer-centric and becoming platform-based businesses for example. But only 9% have got there, with only 37% understanding what it means for their organisation and only 18% restructured in line with their ambitions. Culture, leadership, legacy thinking and legacy technology as well as hubris are holding them back.
The impact of this: many will start to see their businesses eroded by innovative agile start-ups. We’ve seen the undeniable impact of Amazon and eBay on retail, NetFlix and YouTube on broadcast, the impact of PayPal on FS – and now the imminent launch of Atom will further disrupt financial services. Companies that transform and embrace digital steal a march on others; for example John Lewis and their omni-channel retailing, Nike and their shift from product to service company and Burberry’s digital makeover are key examples of how those that have moved swiftly have profited and start to dominate their rivals. Those that don’t move will see margins and market share eroded (and in some case like Yell eliminated) as the digital slayers start to intermediate their value chains and move ever closer to their customers.
Manish: Organisations of yesterday needed to ensure that they deliver the best product at the best possible price point. While customer experience mattered, organisations could get away with it. Digital has put the focus firmly back on the customer engagement. Some organisations need to re-think their value proposition from a customer-centricity perspective, and it is not only about finding the right skills, it is equally about bringing a culture change in the existing workforce of the organisation. Those that embrace change will be the winners of tomorrow.
The ramifications for slow movers are significant. Digital has the power to consolidate the market place and create barriers that could only be crossed by innovation. Brands such as Amazon monopolise the market and the wallet share of the consumer making it harder for slow movers. For every new entrant, the challenge is to innovate, and that requires significant cultural transformation.
While many organisations appreciate the need for transformational change, realities of legacy business means that many can only achieve incremental change – which given all the factors at play is necessarily not a bad approach. However, this does not take away the need to be clear about the overarching strategy. Making BPO and ITO decisions separately is commonplace and understandable, given implementing one itself is a significant change for the organisation. However, having an overarching strategy can only help to maximise savings.
Organisations that continue to be frustrated with their supply arrangements need to ensure that they have robust demand management mechanisms in place to begin with. The journey of simplicity starts with visibility, and many large organisations in particular remain opaque.
Budgets are moving away from the CIOs in many large organisations. There are many factors behind this shift, some genuine, some fictional. In some instances, it is the genuine need of the business to be closer to the supply chain whereas in others, it is just a case of IT departments failing to deliver to the expectations.
From the perspective of suppliers, this means investment on three fronts. Firstly, they need to work through an already complex maze of stakeholders and invest in building relationships beyond the IT organisations. Secondly, they need to invest in building and communicating solutions that appeal to the business. And last but not least, they need to build a skill base that is genuinely well versed with the challenges that today’s businesses face and solutions that technology could offer. This is more of an art than science and requires organisations to upskill their employee base.
Rob: Digital opportunities will continue to force both the business and IT to work differently. The nature of digital forces the business to work not just closer, but more intimately and iteratively with IT. Agile is a key case in point, hiring scrum masters without training product owners misses the point – agile done well demands (and makes) business and IT work in synchronisation, with ramifications for governance, methodologies and sourcing required to make it work as well.
Too often we focus on the evolution of the CIO and the plethora of new roles appearing: CDO (Chief Digital Officer or Chief Data Officer – or are they one of the same?). The point is that all the roles of the executive are impacted by digital, and success needs all to respond to the changes – new leadership styles need to evolve, each with an element of disruption added to them. The CIO – if they are of the right mind-set, capability and with focus on value creation – can be in the driving seat, but it’s those elements that get them there, not the title alone. Personally the term “shadow IT” confuses me: it implies that those new services and initiatives procured by business owners are fake, when in fact they are often the very building blocks of the future business. The fact that they may be outside the grasp and control of the current IT department is often a reflection of the value IT is providing to the business.
Leadership is one of the critical success factors for delivering business success through digital transformation. Looking in the market, Andy Street (CEO for John Lewis), Angela Ahrendts (CEO for Burberry) and Jeff Immelt at GE have all been key catalysts for their organisations’ digital successes. PA’s Digital Barometer research confirms this: organisations whose CEOs lead the digital agenda are closer to achieving their goals than those that don’t. But they are the exception; tellingly only 28% of respondents to the Barometer agree their own leadership team understands digital, so what does good digital leadership look like?
Industry leader Jeff Immelt, CEO at GE declared the need for GE to become a top-ten software company based on the opportunities offered by the Internet of Things. This is not just about developing connected turbines and manufacturing equipment; it’s about creating the high-value data and software services that surround them. GE now describes itself as “the world’s premier digital industrial company”, the approach to getting there is one of build, not buy. Yes some of this has been done via acquisition and through software partners, but those partners start to become GE’s future competition necessitating the need to build new internal capability. New skills and resources have been brought into GE, in areas like software development and analytics, as well as new business skills like product owners and commercial people. Clearly this has changed not only the role of IT in GE, but every role in GE.
As the pace of technology innovation continues we’ll see AI, robotics, virtual reality and driverless vehicles moving from the research lab into the mainstream – each of these providing new business opportunities to those that recognise them; in turn the introduction of each will demand new changes to supplier and customer alike – organisations must design themselves for digital business and recognise it’s not just IT who’ll be needing to change.