This is not the time for IT executives to be maintaining the status quo. Business conditions require technology leaders to find new ways to deliver innovative solutions that support corporate growth.
That’s one of the key findings of new research from the Hackett Group. The business consulting firm’s report, “Reinventing IT to Support Sustainable, Innovation-Based Growth,” also points out that IT departments have to deal with ongoing reductions in staff, while IT budgets are increasing by only a small amount.
This year, IT organizations are keying in on three main areas. One is to redefine IT’s value to the enterprise, including creating the business relationships needed to support innovation and using metrics to measure IT’s contribution. Another is to develop information architecture and data analytics capabilities that support revenue growth. A third is to realign IT talent to support business needs.
The Hackett Group report also shows that IT organizations are expected to improve efficiency in 2014. Budgets are projected to increase by 1.7 percent on average, and staffs are expected to be cut by 2 percent. When an expected enterprise growth rate of 6.7 percent is factored in, the result is a productivity gap of 8.7 percent and an efficiency gap of about 5 percent.
These gaps will force IT organizations to reduce technology costs and redeploy resources so they can largely self-fund any transformation efforts, the report says.
“IT organizations have a long history of challenges keeping up with the changing needs of the business,” says Scott Holland, Global IT Advisory Practice leader at the Hackett Group. “That’s truer today than ever before.
“As companies focus on improving innovation to drive growth, IT must shift toward a true service mentality that enables enterprise strategy and deepens the IT/business partnership. It’s no longer enough to be simply a utility to the enterprise, with a strict focus on low cost.”
Changes in technology have undermined the total control that IT used to have over critical assets and services, Holland adds. As technology has become pervasive, businesses have had many new options available to them, including cloud-based services and mobile technology. Consequently, “IT needs to up its game and change its mindset,” he advises.
Holland explains that technology organizations must develop a more in-depth understanding of the business, along with the ability to “translate that knowledge into technology solutions that are virtually transparent to users.”
Historically, IT organizations have had a tough time “modeling, projecting and measuring its value contribution to the enterprise,” according to the report. This has to be resolved because today’s companies are increasingly turning to technology as “a source of innovation and competitive differentiation.”
One of the ways an IT organization can improve its value to the business is by collaborating more effectively with other departments in the company. Another is by identifying new business opportunities. The report points out that “IT planning processes must be aligned with enterprise strategy and operational plans in order to establish a direct connection between IT goals and priorities and business success.”
The most significant change, according to the report, is in key performance indicators (KPIs) and performance reporting. IT leaders need to be able to discuss the impact of their efforts, including the value expected, the effect on business outcomes and the importance to business strategy.
In addition, IT organizations need to give high priority to business intelligence and analytics. According to the Hackett Group’s research, “IT leaders rank BI/analytics as their top investment priority. Master data and data quality are second.”
The third area of focus—IT talent—is essential to business success. “Without talent of the right caliber, transformation and recalibration of the IT value proposition cannot succeed,” the report warns. “The best that IT can hope to achieve is incremental efficiency improvement.”
To deal with talent concerns, many companies are “rethinking job profiles and competencies, strategic workforce planning and functional succession planning.”
Another personnel concern is the “mismatch between in-demand roles and the skills and experience of the talent available in the marketplace.” The Hackett Group believes that “a comprehensive strategic workforce plan is required if IT organizations are to avoid the anticipated talent shortage associated with the IT service delivery model of the future.”