The transformation to the digital enterprise requires that CIOs drive the creation of a digital platform in 2016 – but they need to be bold to ensure they embrace the opportunities.
George Ambler, executive partner of Gartner Executive Programmes, says the research company’s latest CIO Agenda survey shows that organisations are starting to evolve to platform businesses.
He points to the Henoit Hotel in Japan, which is the world’s first robotic hotel.
There is a robot at the front desk. Customers can choose to interact with humanoid robot, or a dinosaur-like one. Once a customer checks in, they will be escorted to their room by a robot which will display a video about the venue. On arrival at the room, your door opens with facial recognition.
Inside the room, a robot responds to instructions or dispenses information. Food, drink and amenities are available from vending machines throughout the hotel.
“This is not just a toy,” says Ambler. “The management wanted to reduce their costs by a quarter. And the amount of data they are able to collect from a digital anthropology perspective is important. It will allow them to evolve the experience and make sure it is pleasant going forward.”
Hospitality is not the only industry facing disruption, Ambler says. Industries across the world are being disrupted by digital technology.
Gartner asked CEOs and CIOs what percentage of their revenues would derive from digital over the five years, and found it rising dramatically to 37% from CIOs and 41% from CEOs.
“So digital is a serious area for CEOs,” he says.
It’s not just the private sector that’s embracing digital; In the public sector, digital processes are expected to rise to 71% in the next five years.
Ambler points out that even non-traditionally tech-savvy areas like farming are embracing digital.
Enterprises are focusing on a number of areas when it comes to digital transformation. They are more revenue from better operations; more business through digital channels; and tighter partnerships.
“There seems to be a trend towards digitising what we do today,” says Ambler. “But digital is no about automating processes – we can do that already. It’s about new processes and products.”
The amount of spend being put into digital budgets is going into BI/analytics at 39%; infrastructure and data centre at 27% and cloud at 25%.
In South Africa, CIOs are putting less emphasis on cloud, but this is expected to change going forward as pressure to adopt cloud grows.
South African companies also don’t emphasise mobile as much as the rest of the world. Security is also not given the same emphasis by South African CIOs
“But the threat is evolving,” says Ambler. Now, 59% of CIOs believe the major risk is from security and cyber-related threats; while new competitive and commercial threats are ranked by 41%.
The risk is also split almost down the middle on competition from traditional competitors and competition from digital-enabled companies entering from other industries.
“So surely companies should be investing in disruptive technology rather than looking at automating traditional processes.
“Are we being courageous enough in dealing with the threats.”
A major challenge for CIOs is that there is not enough budget available to fund digital transformation. “Budgets are under constraint but people are having to innovate. As CIOs we have to think creatively about how we can leverage resources across the enterprise to innovate – get more creative about funding he digital initiatives.”
On the technology front, Gartner sees the world shifting to platform-based business rather than system-based business.
“Platform businesses have a different emphasis. System business is about functional areas of the business. Platform businesses are about connections between business functions.
“Uber is an example of this: it manages the connections between buyer and seller, and doesn’t worry about the means of production.
“The benefit is in the network effects that you gain. So we see more and more businesses becoming platform businesses or a combination of both.
Platform businesses have porous boundaries, Ambler says. “Platforms are designed for learning and configuration. They can multi-disciplinary in design.
“But the essential difference is that the value is in the relationships.”
Re-inventing the businesses isn’t easy if there are no new resources, skills or thinking coming into the organisation. “In South Africa we tend not to refresh our gene pool with new ideas and resources,” Ambler points out.
“So how do you move away from an industrial business to a platform business?” he asks. Things that need to change include the leadership platform, the talent platform, and the delivery platform. The infrastructure platform is also important, but CIOs have got that under control.
In terms of delivery, Ambler says Gartner recommends adopting a bimodal development model. “Moving from systems to platform business means you have to exploit the existing business model while exploring new models.
“To do both exploitation and exploration is not easy. Businesses need to have two ways of working: do predictable work while doing exploratory work at the same time.”
In mode one, IT focuses on taking orders and executing. In mode two, there is a more innovative culture.
The Gartner CIO Agenda survey found that 38% of CIOs have now adopted bimodal. These organisations spend about 25% of their IT investments on Mode 2 development.
The practices that make for successful bimodal organisations are led by Agile methodologies and multi-disciplinary teams, followed by adaptive sources, different funding, mode two is outside IT, different metrics, working with SMEs and start-ups, bimodal sub-structures, formal innovation management, and crowdsourcing.
Bimodal disciplines tend to lead to better digital performance, Ambler says. “Those organisations that have adopted at least five of the bimodal strategies are the best-placed in terms of digital transformation.”
And, while many organisations have adopted some bimodal strategies, they are not sufficient on their own – and thse include different funding and adaptive sourcing – strategies that are traditionally not part of the IT discipline.
“Moving from client/server to cloud is a paradigm shift,” Ambler says. “We will have to invent new technologies, new ways of doing things.”
Having accepted that the future of development and delivery is bimodal, CIOs need to look at the talent platform.
“Often this requires new people and new teams,” Ambler says. “Talent is critical if you want o design a digital platform.”
Skills are a major barrier to achieving digital transformation, named by 22% of CIOS; money is a problem for 15%, culture at 12%, alignment at 11% and technology at 9%.
Importantly, CIOs see the talent crisis more clearly than CEOs, with 66% believing that talent scarcity is reaching crisis proportions, compared to 49% of CEOs. Most CEOs still believe that the talent shortage is a business myth.
The short-supply skills are information/analytics at 40%, business knowledge and acumen at 18%, security and risk at 17%, digital at 15%, project management at 13%, software development at 13%, architecture at 12%, leadership at 9%, attracting and retaining skills at 8%, and technical skills at 8%.
Ambler points out that the vendor can be seen as an extension of their talent pool, and that CIOs should be embracing new partners who can help them make the digital shift.
Gartner believes that appointing a chief digital officer will help to accelerate the digital transformation – but the move to appointing this individual is not happening as fast as expected, with 6,6% in 2014, 9% in 2015 and just 9,3% in 2016.
“So this trend is losing momentum,” Ambler says. A lot of the problem was that chief digital officers were appointed but given no resources or bimodal environment to operate in.
Some of these functions have now devolved to the CIO, and 39% of CIOs are now driving digital transformation and innovation.
Today, CIOs are building a better trust relationship with the CEO than ever before, with 50% now in a true partnering relationship, compared to 23% as trusted allies and 25% as pure transactional.
CIOs are still being bogged down with administration and bureaucracy, politics, stress and workload, personnel, business as usual, financial constraints operational issue, change management, IT stigma, and governance. But Ambler says CIOs have to better their political acumen and become better businessmen.
Gartner asked CIOs how much courage CIOs are prepared to take to lead into the digital world: will they passively respond, take the lead or change the game. From a business perspective, are they digitising operations, extending products with digital, digitally driving new business models or exploring digital blue oceans?
“I think courage is lacking in some instances,” Ambler says.
The CIO Agenda survey polled 2 944 CIOs, based in 84 countries and responsible for $250-billion in IT spend,