Digital Transformation Management

The process to strategically control and steer demand for IT services, aligning demand within the division and in between divisions to achieve business effectiveness and value contribution

Goals:

• Introduction of internal market discipline through expert buyers
• Spend of IT investments according to business priorities
• Strategic development of the business and IT architecture
• Improved controlling and benefit tracking of IT investments

Tasks: 

• Strategy & Governance --> portfolio management

2 modes (1. Marathon runners / 2. Sprinters)

Mode 1: Cost leadership through exploitation (defender)

• Reliability
• Waterfall, high documentation
• Long term deals enterprise wide
• Conventional projects
• IT centric, removed from customer

Mode 2: Differentiation through exploration (prospector

• Agility
• low documentation
• small, short-term deals
• new, uncertain projects
• Business-centric, close to customer

--> GOAL: strategic ambidexterity 

4 different archetypes of Bimodal IT (Haffke et al)

1. Project by project Bimodal IT

• Case by case decision which project methodology is used

2. Subdivisional IT --> Pandora

• One IT organisation, but divided into 2 subdivisions (one working in traditional and the other in the agile way)
• Question of alignment, because of separate budgets, methodologies etc. Also about which project should be managed by which part of IT organisation

3. Divisionally separated Bimodal IT

• 2 separate organisations, one IT function and one Digital Division

4. Reintegrated Bimodal IT

• Final stage of evolution, but doesn't have to be
• Traditional mode only focus on backend/backbone systems, all other projects in agile mode

Is about strategic alignment, risk management, policies and procedures, control and accountability. Is about organizational arrangements to drive business alignment, which is related to superior firm performance. But also a conformance driven concept, in order to stay in business (auditor view).

Derives from corporate governance and IT strategy. Has two main elements

1. Performance and business impact

• Strategic alignment, delivery of business value through IT, performance management

2. Conformance and regulative compliance

• Risk management, policies and procedures, control and accountability

Agency theory describes a relationships between a principle and an agent. Builds on the assumption of purely rational behaviour and no intrinsic motivation. However, both possess by default intrinsic self interest and moral hazards. Both wants to optimize own areas and there is information asymmetry.

The relationship between business, IT and corporate management faces an agency problem. Based on intrinsic self interest of all actors, problems such as information asymmetry and moral hazards evolve, which is why the interplay of these stakeholders can be problematic. To overcome this there are certain mechanisms, which ensure that the interaction between business and IT is structured through contracts, that define who does what, who decides what and who controls whom and who is accountable.

Mechanism to overcome the moral hazard and information asymmetry.

-Signaling: Convey information by e.g. monitoring

-Screening: Business gets decision rights

-Incentives: incentivise IT based on contribution to business value

-Norms: restrict behaviour by e.g. SLA, chargeback agreements

Ensure that the interplay between business and IT is structured through contracts which define who does what, decide, who controls whom and who is accountable for what.

Framework to illustrate how decision rights are allocated. Tool to structure and define IT decision making on the corporate level. Consists of 5 domains and 6 archetypes

Domains:

• IT principles, IT architecture, IT infrastructure, Business application needs, IT investments

Archetypes:

• Business monarchy, IT monarchy, Federal, IT duopoly, Feudal, Anarchy

Strategic implications

Firms may differ in their IT governance approach (centralized / decentraliced), but can still perform equally well if they follow a consistent system. In contrast, firms that mix different decision making patterns in a seemlingly unsystematic way, are often performing poorly.

• Firms need to centralize the IT governance if they pursue competitiveness through cutting cost (defender, cost leadership strategy). Bundle IT infrastructure

  • Governance mechanisms: Executive committees, capital approval

• Firm that seek steady growth (prospectors, differentiators) should rather decentralize the IT governance. Use shared services only selectively

  • Governance mechanisms: local accountability, budget approval, risk management

• Asset utilisation (could be analyzers) balance contrast between governance for profitability and governance for growth

  • Governance mechanisms: BITA managers, SLA & Chargeback, IT leadership decision-making body

However, in times of digital transformation, esp. through shadow IT, the governance matrix should not be followed rigidly. There is no one-size-fits-all solution as the governance matrix implies, system by system should be distinguished, and give responsibility to business users as its not always a bad thing (fosters innovation)

3 grovernance mechanisms that are used to implement and complement shared decision making patterns between business and IT units and within IT units. Are a tool to reason about the relationship between IT and business units, or demand and supply IT, but can also be used to look into a specific IT organisation, e.g. bimodal IT organisations

Structural:

• temporary groups, task forces, shared decision making in committees, hierarchy structures

Procedural:

• formalize the flow of the interaction between different individuals, roles and those committees
• strategy definition process, portfolio management and IT investment decision process, project controlling procedures, SLA, chargeback

Relational:

• aim at integrating stakeholders informally, creating a shared mindset and culture
• communities of practice, interdepartmental events, culture of innovation

Any information technology artifact (i.e., hardware device, software application) acquired or used by business managers or users without required approval or oversight through corporate IT units.

Shadow IT is a challenge for IT governance schemes, due to innovation and innovative users.

Problems:

• Security risks, inefficiencies, loss of control, data inconsistency, resource conflicts, application integration issues

Benefits:

• Productivity gains, business innovation

Reasons for shadow IT:

• History of bad IT delivery
• Lack of IT alignment
• Low trust in IT
• Tech-savy business users
• Cloud-based tools, small systems, need for fast time delivery (no long portfolio process)

Identification:

• IT inventory audit
• network analysis
• critical failures

Outcomes:

• Discontinue (phase out)
• replacement
• continue as IT managed tool
• continue as business managed tool

Definition: The implementation and management of quality IT services that meet the needs of the business (customer-focused). A good IT service should be customer oriented, standardized, proven, professional, and continually improved.

Proven. best practices emerged e.g. ITIL

Theory that contrasts goods-dominant logic

Claiming that there are two spheres that overlap, whereas the supplier can never enter the customers sphere entirely and value is only created in the sphere of the customer

Foundational premises:

• Service is the basis of exchange
• Goods are distribution mechanism for service provision
• The customer is always a co-creator of the service
• All actors are resource integrators
• Value is determined by beneficiary

Framework that provides good practices on IT service management and IT processes.

Motivations:

• Improve operational efficiency and costs
• Improve service orientation and service quality
• Improve alignment with customers

ITIL follows a life-cycle and has multiple domains: Service design, Service transition, Service operation, Service strategy

Each domain consists of multiple subprocesses

IT Sourcing is the process of choosing or procuring information technology resources from a party outside of the organization. 

Traditionally, single large deals, now trend rather towards smaller, short-term, cloud-based solutions

Motivators:

• Transaction cost theory: to acquire non-specific and non-core and non-uncertain IT resources more efficiently, for less transaction cost
• Offshoring landscape: labour arbitrage as a major driver

True, but other benefits:

• Costs reduction such as hardware procurement, rent, electricity
• Improvement of service quality
• Access to better technology, innovation

Outsourcing for only reducing cost (financial reasons) not the ideal driver, but looking for achieving the dual goal of reducing costs while improving the service. (e.g. provider might be more specialized and skilled to do that)

4 phases

1. Pre-selection

• Long list creation through market studies, references

2. Request for information, vendor presentation

• Creation of shortlist through high level presentations about capabilites, references

3. Request for proposal, vendor selection

• Invitation of shortlisted vendors to give a concrete offer with detailed proposal, letter of intent

4. Due diligence and contract negotiation

• Last negotiation, SLA, prices, change request flows, inspection of client

3 types

- Independant (hierarchy) --> strategic competence

- Arm's length (market) --> cost efficiency

- Embedded (network) --> technology catalysis

• Firms desiring cost efficiency in their outsourcing relationships may best be served by arm’s-length relationships. (selective outsourcing, medium duration)
• Those wishing to gain access to technology expertise to catalyze their business, may need  to develop network type-of relationships with their providers (comprehensive, long term outsourcing)

Type of outsourcing and how this is performed is subject to strategic alignment. Configurational approaches are superior in explaining the outsourcing success compared to the factoral aspects

Cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared  pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that  can be rapidly provisioned.

Types:

• SaaS
  • Entire software, ready to use (e.g. salesforce, office365)
• PaaS
  • Cloud provider provides the infrastructure, the operating system, middleware and runtime, on which one can directly build and deploy code and applications (e.g. Google app engine, force.com) 
• IaaS
  • cloud providers manage entire infrastructure (serves, operating systems), but no middleware, runtime, data and applications (e.g. AWS, Microsoft Azure)

Characteristics:

• Broad network access
  • capabilities are available and accessible through various client platforms (mobile, laptop etc)
• measured service
  • resources  monitored, controlled and reported
• on-demand self-service
  • capabilities provided automatically without human interaction
• rapid elasticity
  • resources easily  scaled up or down, accomodate peaks
• resource pooling
  • computing resources are shared and pooled to serve multiple customers, multi-tenant model

•An organization’s ability to be aligned and efficient in  its management of today’s business demands while  simultaneously being adaptive to changes in the  environment (Raisch and Birkinshaw 2008)

•Ability to simultaneously pursue both incremental and  discontinuous innovation (Tushman and O’Reilly 1996)

Defender:

• follows a more stable strategy

• focuses on a predictable market

• stresses operational efficiency and economies of scale

• has a greater fixed-asset intensity

• is conservative regarding change

Prospector:

• continuously seeks new opportunities

• heavily invests in product R&D and innovation

• creates change in the market

• seeks flexibility in technology

• often lacks controls and operational efficiency

Analyzers:

• Simultaneously minimizes risk  while maximizing opportunities

• Stable core products while seeking new opportunities

• Follows the prospectors, but does not refuse change

Reactor:

• has no clear strategy

•The degree of fit and integration among business strategy, IT strategy, business infrastructure, and IT infrastructure (Henderson and Venkatraman 1993)

•The degree to which the mission, objectives, and plans contained in the business  strategy are shared and supported by the IT strategy (Reich and Benbasat 1996)

Elements: Business strategy and business infrastructure / IT strategy and IT infrastructure

SAM model can be used to understand the needs of other domains when changes to the strategy occur.

4 alignment perspectives / approaches for alignment

1. Strategy execution (IT as an expense) --> Driver is the business (└)

• Business Strategy is the  driver of both Business and  IT Infrastructures

• Priority to improve  business processes,  focus on changing  business infrastructure.

• IT focus is on application  development, driven by  need to support business  infrastructure

2. Technology transformation (Business strategy drives the need to develop the IT Strategy) --> Driver is the business (┐)

• IT strategy needs to define  technologies integral to  business strategy

• Focus is aligning IT  strategy and IT  infrastructure

3. Competitive potential (IT enables strategic opportunities) --> Driver is IT strategy (┌)

• IT strategy and infrastructure are aligned

• IT drives the business. IT strategy necessary to build distinctive core competency

• Business infrastructure needs to evolve to fit new business opportunities enabled by IT

4. Service level perspective (providing IT services) --> Driver is IT strategy (┘)

• Information is a core product or service

• Business strategy and IT  strategy may be aligned

• Focus is to provide IT services for the business that have the potential to enable business infrastructure by fitting IT  infrastructure to IT strategy

IS strategy types:

• IS for efficiency (--> Defenders, as primary focus on cost advantages)
  • Use IS for operational support, internal efficiencies
  • IT being slow, the cow
• IS for flexibility (--> Prospectors, as focus on quick reaction to market needs)
  • Use IS to support the companies markets and product sales, flexibility and quick strategic decisions
  • IT being the horse, fast, but bit expensive
• IS for comprehensiveness (--> Analyzers, as focus on knowledge about competitors to make the best decisions)
  • Use IS to enable comprehensive decisions and quick responses, to gather information

Assumption of the model is that only if the IT strategy fits the business strategy, then alignment is created which results in high business performance.

2 types of digital strategies

• Customer engagement strategy
  • easy for customers to enquire, order, pay and receive support
• Digitized solution strategy
  • reformulates a companies value proposition by innovating products, services and data

Operational backbone (--> link to IS for efficiency)

• the  technology and capabilities that  ensure the efficiency, scalability,  reliability, quality and predictability of  core operations

Digital services platform (--> link to IS for flexibility)

• the  technology and capabilities that  facilitate rapid development and  implementation of digital innovations

Portfolio

• collection of projects and programs, wider perspective
• grouped to facilitate effective management and facilitate prioritization of investments
• businss scope that adapts to strategic goals of an organisation in order to meet strategic business objectives
• ongoing duration

Program

• several related projects
• strategic intention
• wider scope that directly implements selected strategic goals
• improving organization performance
• mid-term duration

Project

• temporary endeavor
• Time, budget, and scope constraints
• specified scope with well-defined work results
• short-to mid-term durations

Reason: to do something new, better or faster

Main idea of portfolio management is to filter project ideas to make sure that the best ideas are selected

Maturity models are used as a tool to describe the evolution in improving internal procedures and practices.

Model according to Jeffrey & Leliveld

Level 0: Not existent

• Hey Joe priciple
• No transparency and no prioritization

Level 1: Defined

• Basic mechanisms in place to track such as excel spreadsheets with the opportunities and project spendings

Level 2: Managed

• Project funnel and evaluation scheme in place
• Regular review sessions and review board
• use of portfolio tools
• Portfolio managed by asset classes

Level 3: Synchronized

• Regular reviews with strategy
• Benefits tracking and project evaluations
• Project portfolio aligned with enterprise architecture

Model by Pennypacker (5 levels)

• Maturity assessment by 6 criteria
  • Portfolio governance
  • Project opportunity assessment
  • Project prioritization and selection
  • Portfolio communications management
  • Portfolio performance management
  • Portfolio resource management

Subjective prioritization

• Hey Joe principle --> one with the greatest power or greatest budgets

•Financial assessment

• NPV, however challenges such as uncertainty in terms of predicting, further benefits (e.g. fit to company strategy) are not considered
• ROI
• Payback period

•Multi-goal approaches

• Checklists
  • easy to use, serve as a basic discussion, but all criteria equally weighted
• Scoring models
  • thus scoring model used for checklists, make an assessment on multiple criteria simultaneously
• Graphical portfolios
  • Risk vs value contribution or urgency and value add

•Advanced analytical methods

• Analytical hierarchy process
• Linear programming
• Knapsack

•Combination of different approaches

IT investments should be differentiated in separate IT asset classes rather than being treated as one bulk IT budget

Model about how companies can think about, balance and prioritize IT portfolios

Strategic IT:

• Target at competitive advantage through increased sales or better market positioning
• Supports entry into a new market, development of new  products or capabilities, and innovative implementations of IT (e.g. E-commerce)

Informational IT:

• Provides information for managing, accounting, reporting and communicating internally and with customers, suppliers and regulators (e.g. decision support, analytics)
• Target at increased control, better information, better integration and higher compliance

Transactional IT:

• automate processes, cut costs or increases the volume of business a  firm can conduct per unit cost
• Target at making processes faster, managing repetitive processes thus increase efficiency (E.g. order processing, billing, accounting)

Infrastructure IT:

• provides the foundation of shared IT services (both technical and  human) used by multiple applications
• Target at enabling business integration and standardization and thereby reducing IT costs
• E.g. networks, servers, helpdesk

Transactional + Infrastructure = operations

Informational + Strategic = innovation

The more a company can safe in operations, the more it can invest for innovative purposes

Clear correlation between the types of IT investments and above average firm performance

• Investments into transactional IT are associated with lower costs of goods sold
• Investments into informational IT are associated with higher profits as it enables better decision making and improved quality, thus addresses customer needs better and leads to higher margins
• Investments into strategic IT are associated with higher firm innovation, as it facilitates the development of new features and capabilities
• Investments into infrastructure are associated with higher market value in the long run

--> links to business IT alignment

• Investments into transactional IT would support IS for efficiency (cost) --> defender
• Investments into strategic IT would support IS for flexibility (growth/innovation) --> prospector
• Investments into informational IT would support IS for comprehensiveness (enablement of comprehensive decision making for balanced way of profits) --> analyzer

Control: Decentralized decision making principle

Team structure: Stable, cross functional, agile release trains (ARTs)

Budgeting: Lean budgets, funding the value streams, can be dynamically adjusted

Units of funding: Epics (no definite start/end, hypothesis bases, variable scope) organized in value streams

Evaluation: Lean business case based on benefit hypothesis

Prioritization method: WSJF Weighted Shortest Job First

Segmentation of Investments: by horizons (3: evaluating, 2: emerging, 1b: investing, 1a: extracting)

Keeping track of:

Time: Schedule

Cost: Budget

Scope: Features

Dimensions are highly interdependent

Employee moral is not an objective, but its still very important

Tracking and controlling could happen by Earned value analysis (EVA)

Triangle can be extended with 

Risk: identifying, analyzing, managing and responding to risks that may arise in a program. Risk is an uncertain event or a condition that has an impact on a program objective (cost, time, scope, quality). Assessment then in risk assessment matrix (likelihood vs severity)

Resources: onboarding new people, making sure knowledge transfer takes place

Quality: quality of program and program deliverables

Clash between assumptions of traditional project management and reality --> thats why agile steps in

Agile method (Srum)

1. Backlog (capture requirements in short user stories)

2. From backlog, there is the sprint planning in regular intervals (2-4 weeks), where the product manager will take a batch that will be worked on during the sprint (short cycles)

3. Then the scrum team work on the implementation of these user stories in an agile fashion, with daily meetings where work is distributed and problems are talked about (e.g. dependencies). Within the sprint there is all the analysis, design, building, testing and reviewing of the product increment

4. Then it is released over to the software which is then extended by the functionality which was specified in the backlog