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Principle 1: People

The first of the five World Class IT principles – People – focuses on the recruitment, training and retention of employees, to ensure that an IT department is staffed by top-tier talent and delivers excellent performance. This principle looks at multiple areas of assessment for a company’s IT department.

The first area is about inventorying existing skills. What do you know about your IT department’s skills base? Does your company’s IT department have people with the right skills (technical, management, business or other) for the job? In order to efficiently allocate talent or determine what skill gaps exist, companies need to understand the skills that existing employees have and document them in a manner that allows employees to assess themselves against the defined skills base, as well as determine which abilities they should build on. Subsequently, workforce planning should be aligned to the insights or findings from the skills inventory. Within your IT workforce, which skills should be prioritized when recruiting new talent? What does the direction of the company suggest in terms of IT skills that will be necessary? After understanding the existing skills base, it is essential for IT leaders to consider which skill sets will become increasingly important in the future, which skills gaps need to be filled and what  abilities the broader company may value most.

However, like technology, skills can quickly become outdated. Having a structured and thoughtful recruiting approach is vital for an IT department to truly become world-class, as new talent can offer diverse skill sets or fresh perspectives, revitalize existing processes and thinking. Investing in the right people, with the right skills, early on ensures that your IT department has a strong foundational talent base.

Other aspects of the “People” principle – if executed well – will also help your IT department move towards being a world-class place to work. For instance, it is crucial to clarify roles and responsibilities for employees that have various skill sets and of different levels across the IT department, as it can make it easier for employees to succeed in their daily jobs. Moreover, clearly delineating roles and responsibilities helps mitigate redundancies in teams, reduces employee frustration and improves working relationships. In turn, this allows employee performance evaluations to be more easily conducted. Performance evaluations for employees should be prioritized by management, as well as be detailed and constructive. A streamlined, helpful evaluations process can go a long way in nurturing and retaining key talent at every level of the IT department – talent that could play a fundamental role in the future of the company.

Another area that underpins the “People” principle is employee compensation and recognition. Understanding employees’ preferences for recognition and compensation helps enhance employee satisfaction and in turn, their tenure. Additionally, across many industries, IT employees are often overlooked compared to their business counterparts, as they are approached only when technical issues arise. Recognizing and compensating high performers in appropriate ways, as well as emphasizing the relevance that IT’s work has on the business, can incentivize IT employees to go above and beyond in their roles. Career planning – which is heavily related to employee recognition and compensation – is an area which IT leaders should focus on as well. Establishing clear technical and managerial tracks through which IT employees can progress, as well as providing employees with a support structure, will give IT employees the opportunity to define their career goals and motivate them to perform better.

Furthermore, although regarded as difficult to assess, the culture and work environment within your company’s IT department can significantly impact employee happiness and the department’s overall performance. Understanding the existing culture and identifying gaps that need to be filled, followed by implementing positive cultural changes can greatly improve the perception that other business divisions have of IT, as well as facilitate closer collaboration between IT and these other divisions.

In addition to the areas mentioned above, training is vital to how new employees are introduced to the IT organization, how skills are acquired and how practices are shared more broadly. How is training currently conducted in your company’s IT department and how can it be transformed? IT leaders should consider these questions when designing or implementing training, so that training for employees that is up-to-date, engaging and flexible, thereby ensuring that IT employees – both new and existing – are equipped with the necessary skills and knowledge to succeed. Finally, as your company’s IT department continues to evolve, it is essential for IT leaders to think about what the department’s retention strategy should be. A culture of merit-based advancement can help maintain those employees that are looking to develop a career and attract new talent for a truly World Class IT department.  

Principle 2: Infrastructure

Infrastructure – which consists of IT hardware, software, data, components, systems applications and the service desks supporting them – is crucial to the day-to-day operations of the IT department, as well as those of the broader company’s Not only is it imperative to have an efficient, well-managed and highly available IT infrastructure, but it is key for IT to be able to translate infrastructure-related jargon into terms that can be easily understood by IT’s business partners. As such, we assess the robustness of our clients’ IT infrastructure on several elements, which we elaborate on below.

Much like Principle 1 (People), the first element of the “Infrastructure” principle involves understanding your company’s existing IT infrastructure, by creating an infrastructure roadmap that displays various components in order of business importance. This exercise can provide the IT department with a comprehensive view of existing tools and technology, help IT understand the components for which maintenance and protection should be prioritized and enable IT leaders to determine a strategy for future investments in infrastructure. A roadmap can also help with efforts to maximize systems’ up-time — another key element of this principle. As systems up-time is directly correlated to business productivity and revenue gain/loss, IT departments should engage in root cause analysis (RCA) when encountering system issues. Moreover, IT leaders should consider the different systems’ criticality to business operations – how can up-time be maximized in a way that is resource and time-efficient? These approaches to issue resolution will allow employees to apply fixes that truly address systemic problems and minimize technical risk to the business.

Overall infrastructure health is, of course, critical to business productivity and revenue attainment as well. Regularly scheduling maintenance and upgrades for all major aspects of infrastructure is a must for any world-class IT department to optimize performance. Additionally, maintenance planning should be based on criteria such as system age, reliability and cost of replacement. This list is not exhaustive, but is a good start to monitoring the status and stability of existing infrastructure. With that, IT leaders should plan to retire and replace infrastructure when appropriate and needed. Incorporating infrastructure lifespan into the IT department’s roadmapping and budgeting process at an early stage can help IT leaders plan for, as well as acquire, replacements on schedule. In turn, this mitigates the risk of a system failure or any interruption to business activities.

Nowadays, another increasingly important element of concern is infrastructure and information security. In addition to conventional physical security practices, a growing number of companies are proactively adopting cybersecurity measures, as well as revisiting existing security practices. Legislation such as the General Data Protection Regulation (GDPR) in 2018 have heightened the sensitivity of issues such as consumer data privacy. Given the wide range of potential threats to security – such as natural disaster, network attacks, viruses, fraud, espionage, data portability etc. – it is crucial for organizations to have a designated team or individual (such as a CISO) whose responsibilities are completely security-oriented, rather than assign security as a second or lower-priority responsibility to existing management The CISO and their team should also be up to date on new security threats and trends, industry regulations or best practices, as well as factor security investments into IT’s annual budgeting and resource planning processes. However, it is worth noting that security awareness and compliance apply to every employee – not just the CISO and their team. Approaches such as socializing best practices among employees, conducting company-wide security training or hosting security simulations can help mitigate the regulatory, financial and technical risk of a security incident.

Consequently, business continuity and disaster recovery (BC/DR) is another element of infrastructure on which companies should heavily focus. Disaster recovery is the process by which business resumes after disaster (which can be both man-made or natural) has occurred, whereas business continuity is about how business resumes during other events besides disaster (e.g. leadership changes). When engaging in BC/DR planning, companies should evaluate and identify the primary business units/functions, the people affected, as well as the underlying systems, hardware and software to be prioritized in the case of unexpected scenarios. Furthermore, it may be helpful to determine the probability that certain hypothetical scenarios will occur and develop mitigation and recovery strategies based on that analysis.

Finally, IT leaders should focus on improving their service desk (or help desk). It is vital for the help desk to build credibility among its user base (i.e. employees from the rest of the company), since the help desk is often regarded as the face of IT by the rest of the company and can play a small but significant role in deepening relationships between IT and the rest of the business. True World Class IT departments will recognize this and enable their help desk to provide the best services possible, as well as leverage the help desk to boost IT’s reputation for creative solutions. For proposed ways to enhance the help desk function, please refer to the book World Class IT by our CEO, Peter High.

Principle 3: Project and Portfolio Management

Project and portfolio management is becoming more and more essential for IT departments, as the need for greater transparency continues to increase. Previously, a lot of business executives did not always understand what went into procuring, creating and maintaining technology and as such, were often reliant on the cost and time estimates provided by their IT departments. However, recent reporting regulations as well as rapid digitalization of business and commerce means that companies now need more clarity and insight into where investment in IT is going. If executed well, several components of project and portfolio management can distinguish a World Class IT department from its peers – idea generation, prioritization, budgeting, portfolio management, project management and execution, quality assurance (QA) and post-project analysis.

First, idea generation is a process that is often problematic for companies. Many companies only allow more senior staff members to generate and submit ideas for projects, or give staff a limited time window to submit their ideas. These rules often lead to ideas not being sourced from the broader employee population and cause ideas that emerge outside of the submission window to be held off until following years. Given all of these issues, companies could establish a clear governance structure, comprising several review committees of appropriate business and IT stakeholders. This approach could help align idea generation to the company’s overall strategic goals. Within the governance structure, each committee should have clearly designated roles and various levels of the company should be involved, to ensure that perspectives and feedback are representative of the broader employee base. The submission and review process for ideas should also occur more regularly, rather than once a year. Once determined, projects and portfolios should then be prioritized by the review committees. There are many ways to do this, but several criteria to be considered include: strategic fit, cost to benefit analysis, project interdependency, qualitative benefit versus change and risk analysis. For further elaboration on each of these criteria and how they affect the prioritization process, please refer to World Class IT by our CEO, Peter High.

Furthermore, budgeting can occur more easily once projects have been prioritized. By allocating funding to projects in order of priority, the IT department can set an expectation of projects that will be deferred to the next budgeting cycle. Budgets could also account for projects that may emerge later or throughout in the year, to encourage innovation within the department.

Good budgeting, in turn, helps the IT department better manage its portfolios. However, what defines good portfolio management? Several suggestions include: regular meeting cadences, establishing a program management office, effective project monitoring via dashboards and other tools and so on. When it comes to portfolio management, one key challenge that many companies face is the inability to cancel projects, as sunk costs are often used to justify continuing non-performing projects, rather than canceling them and redistributing resources to other initiatives. True World Class IT departments are unafraid to delay or cancel non-performing projects and reallocate resources to initiatives that they know will create more value in the long term. Similar to portfolio management, IT leaders can rethink their approaches to project management and execution. It is interesting to note that true World Class IT departments typically have a well-developed, well-documented project methodology or toolkit that is applicable to and can be tailored to all kinds of projects. In particular, project managers should play a dynamic role in leading and coordinating the teams for the project, monitoring milestones, etc. IT leadership can significantly encourage active and diligent project management by identifying the appropriate talent, as well as recognizing project managers for their efforts. As such, effective portfolio management, project management and execution can enable IT to maximize performance and deliver better results.

Moreover, quality assurance (QA) is often overlooked by many companies, but is critical in ensuring that any technology released by IT is high-performing, high-quality and does not require constant fixes. Some high-level suggestions for bettering QA processes include clearly defining quality gates and involving QA early on in the development lifecycle, but this list is not exhaustive. World Class IT departments have no qualms reviewing and revamping QA processes as needed and ensuring that they are consistent across portfolios and projects. Similarly, performance reporting can be done on a more regular basis to ensure that resources allocation, obstacles and milestones are all being tracked. In particular, World Class IT departments also track benefits – financial or otherwise – after projects have been completed, as such accomplishments can significantly boost IT’s credibility. Finally, post-project analysis is extremely valuable, as it provides the IT department with benchmarks and lessons learned for future project development and idea generation. All of these components combined can truly help IT become more efficient, organized and an example to follow by its business counterparts.

Principle 4: IT-Business Partnerships

Often considered the “holy grail” of an effective IT organization, IT’s strategic alignment with the rest of the business is no longer a nice-to-have, but rather a necessity in today’s digital marketplace. IT’s alignment with the rest of the organization hinges on five key components: cross-organization communication, IT-business strategic alignment, innovation, IT strategy and internal IT communication.

Beginning with communication, it is important to note that true World Class IT organizations do not solely rely on top-down messaging. Rather, top performing organizations establish information channels at every level between IT and the rest of the business. When successfully implemented, IT is simply considered “part of the team” and less of a reactionary internal service provider. Looking inward into the IT organization itself, there must be robust lines of communication underpinning IT’s role as an internal strategic advisor and enabler. Some of the biggest challenges (communication or otherwise) within IT teams stem from artificial organizational barriers and getting mired in the technical details behind a plan. While not apanacea, rotating employees through IT departments and adopting Agile-style approaches to work are two approaches that can help address poor internal IT communication challenges. Mature internal and external (to the rest of the business) communication habits are hallmarks or any true World Class IT organization.

In the midst of effective IT and Business Partnerships lies strategic alignment and innovation. Firstly, each party must have their own documented (and used) strategy to guide both daily and long term decision making. With established strategies in place IT and Business leaders can upgrade their conversations from tactical question exchanges to comprehensive collaborative sessions. IT’s role is to both follow and adjust to the direction the business is heading while providing subject matter expertise and driving decisions around technology investments made by both the Business and IT. In well functioning IT-Business Partnerships there is a healthy sense of co-dependence and trust that allows innovation to truly take root and grow. Without alignment around common goals and a sense of team innovation cannot thrive. In well functioning organizations the line (or wall) between IT is blurred and the strengths of each group underpin future success

The concept of IT-Business Partnership may sound simple, but even digitally native organizations can struggle sharing resources and ideas for the common good of the firm. Moreover, leveling the field between IT and the rest of the business should be a top priority for any IT leader serious on maturing her organization.

Principle 5: External Partnerships:

Within many organizations IT is the largest spender and consumer of 3rd-party products and services. Given this concentration of vendor spend, business leaders often lean on IT to drive bottom-line savings by cutting (or increasing) vendor spend inline with the prevailing business climate. The existential (and real) threat of budget whiplash can wear on vendor relationships and breed conflict where partnerships should thrive. The best IT organizations know and segment their vendors, they apply rigorous and fair procurement processes and manage vendor relationships on an ongoing basis. Given the rate of technological change it is unreasonable to assume that IT can deliver an organization’s entire technology needs on its own, but there needs to be a thoughtful strategy behind why work should be done outside the organization’s own four walls.

Establishing governance, process and accountability with vendors begins with adequate vendor segmentation. Segmenting (or organizing) vendors by factors such as their size, strategic importance and total spend will help shape the proper vendor relationship and drive the most value. Taking a one-size fits all approach that treats independent contractors the same as the IBMs of the world can both snuff out potential value-add from smaller contractors, while not providing proper performance controls for large managed service providers. Understanding where each vendor fits across a continuum of factors will help both the procurement process and in-life vendor management.

The best IT groups work hand in-hand with central procurement teams and often form joint or independent teams that can leverage IT’s technology expertise to vet potential suppliers. The procurement process is the time and place for rigorous and fair governance to shine. It is here that inlife performance metrics, penalties and incentives will be set. It is also the beginning of a vendor’s formal relationship with the organization and it sets the tone for the rest of the partnership.

Lastly comes in-life Vendor Management. The best IT organizations recognise this as a discrete function outside of the upfront Segmentation and Procurement processes. It is here that relationships with both key and commodity vendors are built and SLAs are monitored appropriately. This function can be dispersed across organizational subunits or IT can build its own Vendor Management Office, the key is to make sure someone is responsible for each vendor, their performance and the overall relationship. Most vendors appreciate a more hands on approach as it gives them more feedback to improve their own internal contract and service management practices. Moreover, while there should be individuals directly aligned with each vendor Vendor Management is the responsibility of everyone who works with a given vendor. By establishing and more formalize structure, individuals on the IT team are able to better raise grievances and praise and key vendor resources have one place to do the same.

As an IT organization aims to become true World Class it is important for External Partners to not be forgotten. External Partners can help IT deliver its strategic edge both internally and for the end customer. By conducting sound Segmentation, Procurement and Management practices IT will be helping set its partners (and ultimately itself) up for sustainable success.

Technology is transforming our world at an unprecedented rate. New technologies like virtual assistants and augmented reality are changing consumer expectations faster than ever. The impact of cybersecurity breaches is intensifying. And digital enablers are allowing upstarts to steal market share from incumbents in a matter of months or years, rather than decades.
While it is tempting to believe that these disruptive times will eventually stabilize, our analysis suggests that the rate of technological progress will only accelerate. If this year indeed represents both the fastest rate of change we ever have experienced, and the slowest rate of change we ever will experience—as many experts have posited—then this raises a critical question for executives in all industries:
How do I understand the consequences of accelerating technological change, and position my company to capitalize on the opportunities presented by emerging paradigms?
To accomplish this, companies can develop innovation systems that consist of a variety of methods and processes, ranging from strategic foresight to a portfolio of corporate innovation programs. One such program — innovation labs — is gaining steam in corporate America, with some of the biggest and best-known companies opening new outposts focused on developing and scaling breakthrough technologies, processes, and business models.
Through Metis Strategy’s work with Fortune 500 companies and rapidly growing businesses alike, we have identified seven critical factors to consider when creating such a corporate innovation lab.

1. Define the charter

The charter is a concise description of the innovation lab’s objectives and its method for achieving them. But a charter is not just lofty PR: many of the best innovation labs use their charter as a guiding light that provides a deeper sense of purpose and direction. Subsequently, the charter should also clarify what the lab is not focused on.
Consider the differences between the charters of Lowe’s Innovation Lab and of Bayer’s U.S. Innovation Center and Science Hub:

Lowe’s Innovation Lab

Understand how new technology may play a role in the future lives of customers and employees by thinking about potential applications for disruptive technologies to build an innovation roadmap and rapidly prototype new ideas.

Bayer Innovation Center & Science Hub

Enable our scientists to reach out to academic institutions and life-science firms to forge new drug-discovery collaborations.

While Lowe’s focuses on identifying and utilizing new technologies to enhance the retail experience, Bayer’s priority is forming partnerships to accelerate drug discovery. Given their differences, it should be no surprise that these innovation labs utilize different metrics, governance models, funding sources, and innovation ecosystems to accomplish their objectives.
When defining the charter, the first step is for stakeholders, including the executive sponsors from the core organization, to define the goals and/or strategic challenges the lab is designed to address. Based on the objective, consideration is then given to the attributes of the innovation ecosystem, governance model, process, budget and metrics best suited to enable the lab to execute towards its goal and measure its progress.

2. Identify innovation metrics

Large companies thrive when business conditions are certain, and their targets are clear. While execution metrics can measure the performance of existing business models, they are less capable of accurately quantifying progress at innovation labs, where the work is sometimes less precise, longer term, or more conceptual. Kyle Nel, Executive Director of Lowe’s Innovation Lab, has noted that “it does not make sense to apply mature metrics to something in its nascent form.”
Innovation labs can develop a portfolio of innovation metrics to measure not only the results of the innovation effort, but also the preconditions and innovation process itself.

Sample Innovation Metrics | Source: Metis Strategy, Strategos, Bearing Point, Future Think

With this focus on measuring both process and progress, innovation metrics help labs assess their innovation maturity, but may also bolster the support of their executive sponsors, especially in the early days. For example, Harvard Business Review notes that “revenue generated by new products,” an output metric, is the metric most commonly used by senior innovation executives. By establishing a portfolio of innovation metrics that also includes input and development metrics, the conversation can shift from focusing solely on results to focusing also on the maturing evolution of the innovation capability. This ability to develop unique innovation metrics has helped Nel push back when Lowe’s executives expect significant revenue growth from new and disruptive products.

3. Employ a process for innovation

Innovation is as much a cultural attitude as it is a business process. A generic approach to innovation may begin by defining the customer and uncovering their unmet need, formulating a hypothesis on what product or service the company can offer to meet that need, and validating the hypothesis by using customer feedback to rapidly experiment and iterate. Further, to foster the right mindset, innovation labs should:

That said, many of the best labs develop unique processes influenced by their charter. Consider Lowe’s Innovation Lab (LIL), which uses a narrative-driven approach to identify and articulate opportunities. First, LIL conducts market research, compiles trend data, and collects customer feedback on unmet needs and pain points. Next, LIL shares this information with science fiction writers who create strategic documents in the form of comic books, which follow characters through a narrative arc that illustrates a new solution to the character’s problem. Then Lowe’s executives use the comic books to make prioritization decisions, and, finally, LIL works with its partners to create the solutions introduced in the comics.

Another example of an organization employing a unique process is X, Alphabet’s “moonshot factory,” which is charged with creating world-changing companies that could eventually become the next Google. X adheres to a three-part formula for identifying opportunities: (1) it must address a huge problem, (2) it must propose a radical solution, and (3) it must employ a relatively feasible technology.
Using this formula, X has spun out numerous subsidiaries under the Alphabet umbrella. One of those companies is Waymo, the autonomous vehicle pioneer that Morgan Stanley recently suggested could be worth $70 billion.

4. Who and how to recruit

If companies believe an innovation lab will help them more effectively navigate the waters of disruption, it is essential that they recruit for passion and cognitive diversity, rather than just skill. Labs often include a wide range of technical and non-technical roles, from data scientists and designers to experts in anthropology and psychology. Breadth and depth of both skill set and mindset are essential components of a successful innovation lab that creatively explores new technologies and business models.
Ideal job candidates should be innate risk-seekers, strong questioners and connectors, and comfortable with failure and restarts. Deloitte Center for the Edge Co-Chair John Hagel described people who have these traits as personifying the “passion of the explorer.”

Source: Deloitte University Press

Organizations searching for these passionate explorers will find advantages and disadvantages in looking both internally and externally. Internal employees may more deeply understand the customer, but they also may have difficulty looking at problems from a different perspective. External hires may bring new viewpoints and skills, but recruitment may prove challenging.
Companies can use several tactics to attract talent. Buzzfeed’s Open Lab for Journalism, Technology and the Arts, for example, targets specific individuals and groups based on their past projects. Recruitment efforts have been successful, in part, because Buzzfeed offers company resources that support their creative freedoms. Alternatively, companies can be deliberate in how they share their innovation initiatives with the public. For example, Airbus has a blog that reports news from the company’s A3 innovation lab, Airbus Ventures, and from other teams across its innovation ecosystem. This type of focused communication both targets and attracts an audience of individuals who are the most knowledgeable and interested in innovation currently taking place within the industry, and, in so doing, Airbus can create an informal pool of potential new hires. Like Airbus, Target also public about its numerous innovation programs. Some of these programs include (1) a partnership with Techstars for a retail accelerator, (2) an Entrepreneurs-in-residence program, (3) LA25, which they test their top innovations in 25 stores in LA, and (4) Target Open House, a public lab for experimenting with the IoT. As a result of their open approach to innovation, Target was recently ranked the 10th most innovative retailer by Fast Company, which increases general awareness and aids in recruitment.

5. Establish a funding source and budget

The process for establishing a funding source will differ depending on the company. For example, Allstate CIO Suren Gupta has described how a formal Innovation Council evaluates ideas and allocates funding. At other companies, if the innovation ties closely to a particular business unit, then funding may come from that group’s budget.
Though the specifics will vary, a generic process for establishing funding may include:

The actual size of the budget depends on whether a lab is building the technology itself, partnering with other organizations, or acquiring a company, product or talent. Amazon and Google have spent millions of dollars developing parcel delivery drones. Meanwhile, companies like UPS and Daimler AG have opted to partner with—and make strategic investments in—established drone makers. This lowers both the risk and the cost of innovation while still allowing the company to develop new capabilities.
Regardless of how funding is established—or the size of the budget itself—it is critical to measure how much money was spent at each stage of the process: preparation (i.e. percentage of capital budget allocated to innovation projects), development (i.e. R&D spending at each phase of development the innovation process), and results (i.e. percentage of sales from innovation projects). As with the portfolio approach to general innovation metrics, the use of financial metrics across the innovation lifecycle reduces the focus on ROI, which can cripple innovative projects in the early stages.

6. Where to locate the lab

Silicon Valley is the quintessential innovation ecosystem. The region’s unique characteristics undoubtedly make Silicon Valley the right innovation ecosystem for many labs—particularly those charged with discovering and/or acquiring startups, or gaining business and technical intelligence about emerging technologies.

Example Innovation System | Source: Metis Strategy

Other locations should not be overlooked, however. Cities such as New York City, Austin, and Chicago in the U.S.; London, Paris and Berlin in Europe; Tel Aviv in the Middle East; and Singapore, Shanghai and Tokyo in Asia all offer rapidly maturing innovation ecosystems, each with their own unique advantages and disadvantages.
To determine the ideal location for an innovation lab, consider which ecosystem characteristics (such as those highlighted in the adjacent visual) best support the objectives defined in the charter.
For example, former ADP CTO Keith Fulton (now CIO of Bank Systems with Fiserv) has described how ADP’s innovation lab is focused on creating “best-in-class user experiences.” Accordingly, ADP opened its second lab in Midtown Manhattan, since the proximity to top visual design and creative firms provide high concentrations of the right skill sets.
Similarly, Staples Lab runs a lab in Cambridge Massachusetts focused on creating mobile applications, digital platforms, and in-store technologies, a lab in Seattle Washington focused on building next-generation e-commerce platforms and exploring data engineering, and a lab in San Mateo California based lab that has a similar charter to its Massachusetts lab. According to Staples, not only do the multiple locations diversify the talent they are able to attract, but it also allows for close collaboration with a wider range or partners.

7. Develop a strategy for successfully integrating innovation

There is one final challenge, even for innovation labs that successfully deliver results in accordance with their charter: integrating the innovation with the core organization. From Kodak’s invention of the digital camera to Xerox pioneering the GUI, there is no shortage of companies that failed to capitalize on their innovations.
To be sure, innovation integration is the culmination of an innovation lab successfully delivering on its charter, so the way in which the company captures the value of the innovation very much depends on decisions that were made along the way. We recommend that executive sponsors and innovation leaders discuss early and often what successful innovation integration looks like. Here are a few key questions to consider:

While there is no set template for innovation integration, a definable, well-articulated vision of what the desired success will look like should be a primary priority, not an afterthought. In the “scaling at the Edge” framework championed by John Hagel, risk is reduced by innovating at the “edge,” and only high-impact innovations that have demonstrated significant growth potential begin impacting the core of the organization.

Source: Metis Strategy interview with John Hagel, Co-Chairman of Deloitte’s Center for the Edge

More than ever before, established companies are struggling to keep up with both the deployment of new technology by their competitors and consumers’ rapidly changing expectations. Careful consideration of these seven factors can empower companies to build an innovation lab that fosters energetic challenges to preconceived notions, creative experimentation with new technologies and business models, and thorough exploration of potential products and services that will enable it to survive—and thrive—amidst the accelerating forces of disruption.

If you’re not thinking like a software company, you’re already behind.

Software companies focus on codifying and then scaling everything they do. To do that, business subject-matter expertise and technical expertise must become one in the same, converging once siloed disciplines.

In a recent interview with Metis Strategy, Cathy Bessant, Bank of America’s Chief Operations & Technology Officer, explained that convergence must apply to all companies, saying, “Technology has completely changed the notion of business integration. You cannot say the business is technology or technology enables the business—they are one and the same.”

Your company will not be able to compete at scale and speed if delivery teams have not gone beyond typical IT-business hand offs to true convergence. This convergence extends beyond obvious points of technology dependence, such as an eCommerce website or managing internal productivity tools; it is happening everywhere.

“Metis Strategy helped us make big decisions on a number of key initiatives. Their real-world experience coupled with their ability to perform deep analysis gave our organization confidence in our new direction.” – Gary Reiner

Still, many companies struggle with where to start on this transformation. Business function leaders often communicate high-level goals that are difficult for technology leaders to translate into concrete actions, and technology leaders often approach a problem by addressing the technology first, and the business outcome second. They end up six months into a “digital transformation” effort with a disparate collection of projects, but no cohesive sense of prioritization or interdependence to create a more tech-driven future.
The solution to bridge this gap between strategy and execution is for IT leaders to be better collaborators and communicators, and to understand the business and customer needs as well as their business partners do. But that is easier said than done.
Start by rooting your IT plans in a well-defined business capabilities map, and then transform the way that IT goes to market by driving cross-functional operating model convergence in the long term.

Defining business capabilities

Business capabilities are an integrated set of processes, technologies, and deep expertise that are manifested as a functional capacity to capture or deliver value to the organization. They outline “what” a business does, as opposed to “how” a business does it. They are the definition of your organizational skills, best represented in a landscape map that allows you to evaluate the full spectrum of capabilities against each other.
Business capability maps are not just about technology; these tools are designed to improve an organization’s holistic ability to improve a business outcome, and in many cases, it is not the technology that is the constraint, but rather a process, skill, or policy issue.
Consider the process for onboarding a new employee. Strong onboarding capabilities make the experience seamless for the new hire. From the second an employee steps into the office, they might:

• Be welcomed at his/her desk by a hiring manager, who provides a building access card and computer
• Be given orientation training videos on the company’s mission, security protocols, etc.
• Be added to email distribution lists, Slack channels, file access on shared drives, and to recurring meetings related to his/her role
• Be coached through benefits enrollment for 401(k), health-savings accounts, and vacation accrual

Business capability maps are designed to improve an organization’s holistic ability to improve a business outcome.

There are various people, process and technology components behind each of the steps in the employee’s journey. However, the employee does not—and should not—feel the transition between, in this case, HR, facilities, and IT.
If the desired outcome for this capability is to provide a seamless employee experience where the employee is productive in less than three days, the different functional areas should integrate their strategic plans to meet that objective. This is often challenging in an organization that thinks and acts in functional silos, but a capability-driven approach will bridge that gap.

4-step approach to capability-driven IT strategy

  1. 1. Define the business capabilities

Many organizations have never formally documented their business architecture and therefore struggle to understand business priorities. To bridge that gap, IT will generally dispatch enterprise architects or business relationship managers to form bonds with functional leaders, understand their current processes, and identify the pain points. As a result, they map the business capabilities. This exercise elevates technology leaders and their business partners to common ground, on which both can add value to the conversation: one around business process improvement, and the other around technology enablement.
We generally suggest no more than four levels of cascading capabilities, with the fourth level most resembling the associated process. Keep in mind that business capability maps are not organizational charts. By definition, they are anchored by the business outcome, with many functional areas converging to realize that outcome.

  1. 2. Segment and prioritize the capabilities

Once you define your capabilities, prioritize them to help provide strategic direction to the organization. Not all capabilities are of equal importance to your ability to compete, so you need to ensure you are not boiling the ocean. While there is more nuance in practice, for simplicity, capabilities fall on a scale of achieving competitive parity through sustaining competitive advantage, and it is important to evaluate which are the most important to your business’ success. This segmentation will not change tremendously year by year, unless there are major shifts in the competitive forces at play.

 

• Competitive advantage:
Capabilities that—currently, or in the future—are critical to creating or sustaining your market position in a fundamentally unique way. Customers will hire you because of these capabilities, your employees will love you for them, and your investors will celebrate the cost effectiveness that they bring. For example, you may be able to segment customers and tailor offerings in a way that economizes your marketing spend far better than a competitor. Or, if your competitor competes on price, you may compete on amazing customer service. Thus, you might prioritize your capability on managing customer cases. To be clear, further segmentation is needed within the “Competitive Advantage” bucket; remember: not everything is created equal.

• Parity:
Capabilities that maintain customer expectations and operational needs. You don’t lose (but also probably don’t gain) fans because of these capabilities. For example, your “process payroll” capability probably needs to stay at current levels, but it does not need to be the target of heavy investment and prioritization. This doesn’t mean you don’t invest in these areas. For example, Uber uses Stripe to instantly pay drivers, giving them cash in hand each day, but Lyft also offers this capability. Uber needs to continue to invest in this area to stay at parity, in the case that, say, Lyft started predicting revenue for drivers and giving them advances. Still, if the offerings are similar, they may not be a deciding factor for whether a driver goes with Uber or Lyft.

  1. 3. Evaluate capability maturity

Once you segment and prioritize your capabilities, you should evaluate the current state maturity for each capability, as well as the target future state. Evaluating maturity levels is as much art as it is science. As a result, the defining of maturity levels cannot be done independently, and often the conversation around why something is or is not mature is as valuable as whatever score you give yourself.
We recommend undertaking this exercise with cross-functional groups that have an understanding of the capability from different perspectives. We often evaluate capability maturity as a function of process definition, degree of automation, organizational reach, and the measurement of the business outcome. This evaluation will influence the prioritization of near-term investments and will not always coincide 1:1 with the segmentation mentioned above. For example, if you have low maturity in a “parity” capability, you would still want to invest in that capability to get it up to par.

  1. 4. Roadmap capability enhancements

Enhancing a capability may require investments in people, processes, or technology. Therefore, a converged team of business function experts and technology leaders should jointly identify improvement activities. IT should lead in aligning the technology services (if your organization uses an ITSM approach) and technical architecture needed to enable these capabilities—but all in the context of how the business process may change. Once you have aligned your technical architecture, IT can identify gaps and redundancies. For example, if you have multiple applications supporting your “expense management” capability, you might opt to undertake a cost-benefit analysis of maintaining all of the applications. Conversely, you might discover you have a prioritized business capability of sales forecasting without a technology architecture supporting or enabling that capability. You might identify this an area where a new technology services is needed to provide data analytics to the sales operations team.
Once developed, capability maps can bridge the gap between strategy and execution by driving organizational alignment around where investments are needed.
For example, we recently helped a growing technology company through this journey. The IT organization had been viewed as an order-taker, and it often struggled to get budget consideration for more strategic projects that would add value to the business, but the CIO was intent on evolving the organization into a more strategic partner.
The CIO knew that the convergence of business process improvement and technology enablement was key, so the team worked closely with business function leaders to develop prioritized capability maps across the organization. Then they leveraged the capability maps to identify areas in greatest need of investment, and in turn forced trade-off decisions that resulted in a meaningful prioritization of focus areas that galvanized the team. The converged business and technology teams, oriented around shared business outcomes, had threaded the needle from strategy to execution.
In the end, one of the business partners said, “We have tried to do this many times over the past six years, and this is by far the best it has ever gone.” That is how IT goes to market differently, and wins.

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