Digital Transformation in the new abnormal
Digital Transformation in the new abnormal
John Appleby, Avantra
The coronavirus has a huge impact on digital transformation projects and business IT. To make the best out of the situation CIOs should focus on improving customer experience and reducing cost and rely on service partners. Also IT operations automation with AIOps platforms like Avantra can be an important success factor.
The world is going through tough times these days. This also affects IT departments and digital transformation projects. Get to know the new challenges CIOs have to face and learn what they can do to make the best out of the situation and reinvent themselves.
The IT world has been talking about digital transformation for the last five years. According to an IDC report in October 2019, digital transformation would be a multitrillion Euro market by 2023. It has been the topic of every significant IT conference, a thousand webinars, and every CEO expects their CIO to have a “digital transformation strategy.”  Then in March 2020, offices shut down, bars and restaurants closed their shutters, the airline industry ground to a halt, and then the high streets and malls shut altogether. As of April 2020, the USA has 17% unemployment, and the DAX index dropped at one point by 40% (it has since recovered 20% of that loss). Many IT organizations are struggling with difficult questions like “none of my Indian coworkers have laptops, how do I keep the business running?”, “how do we transition our instore services to a digital-only approach?” or “how do we enable our call-center staff to work from their home office?” Some businesses have canceled all IT projects, revoked all budgets, and are minimizing their costs. Indeed, there are industries in which there is no other option. The travel industry, for example, has been gutted. According to a report by Rocketrip, businesses spend 1% of annual revenues on travel, the single most significant operational expense after rent. There is indeed an incredible impact on companies operating in the travel, hospitality, and airline industries, but that is not the full story for the global economy as a whole. The three examples cited above are urgent digital transformation problems, which as leaders, we need to understand how to fix. How can we approach this?
Understand the urgency
Over the last five years, IT leaders have had significant discretionary spending to invest in digital transformation projects. During this time, and for the foreseeable future, purse strings will be much tighter, and boards will inspect every Euro. That isn’t to say that businesses will not invest, only that the urgency needs to be well understood. For instance, the Pennsylvania State Liquor board spent the last two years updating instore payment systems. However, the central distribution center excels in shipping large volumes of product to a small number of stores and cannot cope with drop shipping to hundreds of thousands of different customers. Here is an urgent example of digital transformation. On the other hand, many businesses run software written by SAP, which run back-office systems like finance. This software can continue running until 2030, but many companies had planned a major upgrade in the next few years. Some businesses will need to postpone this upgrade to make way for more urgent digital transformation.
Manage the scope
In the aftermath of the 2008 financial crisis, businesses were much more tactically strategic in how they approached IT. Many IT departments rejected projects which did not provide a return in their first year. However, in the last few years, there has been a return to the enormous transformational projects of the 1990s. It is not unusual for IT projects to have a budget in tens of millions, hundreds of millions, or even billions of euros. There will be a return to much stricter scrutiny of scope and risk of IT projects, and return on investment. In particular, IT leaders will think twice before proposing a multi-year, multi-million euro program of work. Such programs are notorious for overrunning, and not delivering a return on investment. When large IT programs do not deliver, services integrators and software vendors are left pointing the finger, and the customer leaves without a successful outcome. Instead, the pragmatic CIO will look to smaller projects which deliver specific innovations and business benefits. For example, why invest millions in upgrading finance systems to manage creditors better? The alternative is to spend a fraction of the budget and create a supplier por-tal that exposes information about existing finance processes – including artificial intelligence to identify low performing suppliers. Smaller projects like these are not only much less expensive, but they have a much higher success profile and do not risk existing core business processes.
Cost reduction vs. cost avoidance
In recent times, it has been possible to justify projects in one of two ways. One option is a cost reduction, where the project returns money to the balance sheet. Cost reduction typically occurs with either canceling existing services, for example, building leases, software licenses, or reduction in workforce. The other is cost avoidance, which is avoiding a future expense, for example, an increase in a building lease or future expansion of the workforce via hiring. Most recent business case analyses have allowed a combination of both metrics, with cost reduction always being favored. However, this has changed in April, with most business protecting their balance sheets by only allowing initiatives which take cost out of the business. There will always be exceptions where the initiative has a strategic nature, or where there is significant revenue potential, but expect to see cost reduction becoming widespread.
Most businesses have seen the benefits of a “customer first” strategy; for example, SAP Qualtrics are giving away a free remote work pulse survey. The thinking is to improve brand perception by providing something perceived to be valuable for free and gain permission to sell to a new customer base in the future. It stands to reason that customers will invest in digital transformation where the customer is at the center of the investment. For example, we expect an uptick in the number of user experience-focused digital transformation programs, because UX improves customer experience, and leads to happier, more engaged customers.Customers will continue to invest in CRM, marketing automation, and other customer-facing technologies.
On the operations side of the business, automation will fall sharply into focus later in 2020. As the coronavirus has made its way around the world, IT organizations realized that they had far too much reliance on humans performing repetitive tasks. In many cases, there was a business impact to support functions because remote working capabilities were not in place for critical operations professionals. In particular, India-based employers are reeling from decades of office-based working. Most employees only have desktop computers, have limited internet capability at home, and only shared spaces at home for remote working. Moreover, labor costs have steadily increased over the last ten years; employee re-tention has been a challenge, and IT operations roles are much less attractive to potential employees than project work. Organizations will heavily invest in IT operations automation or AIOps, so they can reduce labor risk, and reinvest key employees into innovation. Then, AIOps platforms like Avanatra can be key to success to manage multiple cloud services in one surface, to set up servers with a click of a mouse, and to apply patch upgrades automatically.
What should CIOs do today?
First, CIOs need to make sure they understand the Operational Leading Indicators (OLIs) used to run the business. These are the north star of any change program. Next, set up a cost reduction innovation taskforce. Many businesses have become complacent about their burgeoning overheads, and need to take control over the large portion of IT budgets spent on “business as usual” costs. Thirdly, host competitions, virtual working groups – whatever works in your specific organization – to identify opportunities within the business to perform digital transformation in a way that 1) reduces cost 2) improves one or two of the OLIs identified in the first step. Next, work with the services partners and your executive team to prioritize the initiatives according to money saved, expected improvement in OLI, and customer-strategic nature of the proposed project. Lastly, work with the services partners you have in place today. They understand the pressures your business is under, and want to help be part of the solution. They will likely allow you to shift budget across to innovation and lower the ongoing cost of doing business with them – they know that this is the price of being a strategic partner.
Through the end of 2020, much of the business world will be a difficult place. As business and IT leaders, we can take advantage of the need to improve customer experience and reduce cost, by closely understand business needs and driving digital transformation projects into that direction. It is during tough times that the best run businesses will thrive and reinvent themselves for a world that may have permanently changed. Great IT leaders will guide their companies through these times and come out the other side stronger than ever.