In the Digital Era, Digitally Savvy IT Units Pay Off
Enterprises use digital technologies to engage customers, connect partners and suppliers, create efficiencies, leverage employee talents, and more. But to get the most value from the potential of digital technology, leaders must create and communicate a vision and then guide the enterprise along the journey.
The IT unit and the CIO are poised, but sadly often fail, to take that leadership role. IT professionals are well versed at using technology to help standardise business processes; they understand how to create scalable, secure, reusable digital services.
This ongoing work is essential to become digitised. But now IT leaders must also articulate and execute a digital strategy.
In the organisations we study, we find chief data officers, chief digital officers, chief transformation officers, chief customer officers and many others leading major digital initiatives.
How do CIOs and their IT units stay relevant in this context?
They must build a digitally savvy IT unit: one that is knowledgeable, shrewd and able to make practical judgements around digital.
In this research, carried out in conjunction with Harvey Nash, we aim to show that being one of these ‘digital leaders’ can make a 26 per cent difference in enterprise profitability.
IT units that are digital leaders are great at four reinforcing actions (see Figure 1):
- CIOs working with the executive committee on strategy and digital
- Building digital discipline into the business (e.g. reusable digital services, evidence-based decision-making)
- Focusing on great customer engagement
- Delivering operational efficiencies.
Get all four of these right and your IT unit in turn helps the whole enterprise be more digitally savvy – and those companies have 26 per cent higher profitability.
Let’s look at these four actions in more detail.
Strategic CIO: CIOs in organisations that are digital leaders act more strategically.
They work with the executive team to influence and guide the enterprise on the effective use of digital technologies. They help create a vision on how to use digital to transform the enterprise and grow.
This point indicates that framing the benefits of digital transformation around revenue growth will be compelling to strategic CEOs. (CEOs in these top-quartile digital leaders have a 75 per cent preference for projects that make money as opposed to save money.)
There is still room to improve the strategic impact of CIOs. Even the top-quartile CIOs only rate 59 per cent on a scale we created to measure the strategic influence of CIOs.
Our research at MIT CISR suggests that, besides working with the executive committee, top-performing CIOs spend more time with customers, focus on innovation and do the work to service enable core enterprise capabilities for both internal and external use.
Digital discipline: In digital-leading firms the whole IT unit acts more strategically.
The activities of the IT unit boost the business in three ways: funding, integration and experimentation. Digital leaders manage and control more of the overall spend on IT than enterprises in the bottom quartile – typically on building digital services used enterprise-wide that enable innovation.
These enterprises are more effective at integrating core business processes using digital solutions, thus creating new opportunities for innovation to spread. And finally, these enterprises are more effective at the practice of “test and learn” – scaling up the experiments that succeed and shutting down those that fail.
In a digitally savvy enterprise culture, IT units support evidence-based decisionmaking and provide the necessary infrastructure like A/B testing platforms.
Great customer engagement: Enterprises that are digital leaders build a single view of the customer across all channels and invest in digital technologies that enhance the customer experience.
It is particularly important right now for IT leaders to help the enterprise professionalise how it measures and manages customer experience.
Typically, that involves selecting one or two key metrics like NPS, measuring for customer interactions across channels and working on improving the customer experience every day.
Operational efficiencies: Digital companies still need to ensure secure and reliable transactions and access to master data.
They must invest in automation to improve the efficiency of business processes. Despite the rhetoric over the years around IT units reducing business process costs, the scores here are surprisingly low and offer a fantastic opportunity.
While automating and cutting back-office costs may not be as compelling as meeting new business opportunities with digital innovation, efficiency is an important part of being digitally savvy and will dominate again in the lean years that inevitably will come.
Enterprises of all sizes can benefit from a strong, digitally savvy IT unit but the data suggests it is easier in smaller firms.
Enterprises with less than US$25m in IT budget accounted for 64 per cent of the organisations in the top quartile of digital leaders. And there is no statistical difference in the profitability among the different sizes of enterprises, so enterprises of all sizes benefit from being a digital leader.
A great place to start for CIOs and their IT units to help their companies outperform in the digital era is to lead the way by becoming digitally savvy themselves.
In top-profit firms, CIOs and the IT unit play an important role but only if they lead strategically, leverage digital enterprise-wide, and focus on the ambidextrous goals of creating great customer engagement and delivering operational efficiencies.