Building the digital platform for the new algorithmic business

The digital journey must be led by CIOs, though to ensure this is possible, their agenda must contemplate, along with investments and projects for the evolution of the architectural IT platform, transformation journeys focusing on building a digital business platform (connected, dynamically reconfigurable and open). The journey develops across three guiding principles: delivery, talent and leadership. Vice president and Gartner fellow Dave Aron tells us what this is about.

“Algorithms define actions; the business value lies in the algorithm, though which one can unearth data, analyze them, interpret them…” This was highlighted a few weeks ago in Orlando at the Gartner Symposium/ITexpo by Peter Sondergaard, senior vice president at Gartner and global head of Research: “algorithmic business is the new face of digital business and the economic value comes from the ‘connections’ the company will be able to establish. In the digital age, algorithms represent the core of new interactions between the company and the market (clients, users, suppliers, partners,…). The value does not lie in the data, but in the algorithms that ‘tell you’ what to do (and not just to business, but with the IoT in mind, to agents, applications, things,…)”.

If already with the idea of digital business, we clearly saw the absolute need for the CIO to take on a leading role – which in Gartner’s vision, must increasingly turn into bimodal IT, i.e. able to operate under two guiding principles, the infrastructural one on the one hand and the organizational one with processes and expertise on the other hand. With the concept of algorithmic business, it is clear that the CIO’s Agenda can no longer be postponed and the underlying vision, according to vice president & Gartner fellow Dave Aron, is to “build the digital platform”.

“In 2014, the primary focus of the CIO’s Agenda was associated with the need to ‘tame the digital dragon’ by directing efforts towards a mix of activities designed to renovate the IT core, creating a digital IT leadership and building ‘bimodal capability’ to allow the IT department to run at two different speeds: that of the marathon runner and that of the sprinter, which correspond to an IT department simultaneously involved in projects requiring a more traditional approach, focusing on safe and reliable systems and other ones which instead need an agile, quick and innovative IT department,” says Aron. “In 2015, we noticed a CIO Agenda mainly led by the need to ‘overturn the digital leadership’ with pathways and projects that have seen corporate IT departments work on several fronts: 1) in terms of systems and infrastructure, on transformation and integration between old and new (legacy, digital); 2) from the planning and governance point of view, on the change of approach in terms of value and risk (from visible to assessable, especially in terms of measuring IT costs); 3) finally, from a cultural point of view IT worked on defining new approaches (also from a point of view of expertise) focusing more on the business vision and less on technological ‘control’ ”.

A wealth of expectations…

2016 will therefore be led by the need to make the most of the lessons learnt during the journeys undertaken: “for the CIO, the digital journey continues with the construction of the digital platform,” says Aron.

As outlined by Gartner through the analysis resulting from the research it conducts every year by surveying almost 3,000 CIOs [this year’s CIO Survey was addressed to 2,944 CIOs in 84 countries, 1,075 of whom in 47 countries of the EMEA region. It analysed IT projects that generated overall spending for more than 250bn dollars in investments – 92bn were spent by companies in the EMEA region – Ed.], which shows a first important fact: “digitalisation is escalating and the bar of expectations associated with business (namely the turnover generated precisely by new digital models – figure 1) will increase significantly over coming years,” according to the Gartner analyst. “It is interesting to note how also the public sector, where one cannot speak of revenue but of digitalised processes, expectations for the next 2 and 5 years show a forecast for pervasive digitalisation that will involve 60-70% of processes.”

In actual fact, Aron notes that “when we asked CIOs what were the main repercussions of digitalization on their business, the main answers were: a higher turnover from improved operations (34%) and more business opportunities from digital channels (21%). However, these replies show a ‘limit’: the CIOs only consider the potential of digitalisation at an operational level… but there’s much more to it! One can infer this when, by rephrasing the same question, we asked CIOs to classify which were the first 3 most significant impacts of digitalization in their opinion; along with the opening of digital channels and the improvement of processes, this resulted in replies such as ‘strengthening partnerships’, ‘engaging users’, ‘making employees more productive’”.

 …a complex journey towards change

Responding to these expectations will be no easy task, but algorithmic business is here, now, and the technological vision must switch from a system-based approach to a model focusing on the concept of platform. According to Gartner analysts, this is indeed where the new role of CIOs must be expressed as best as possible. “ ‘Lagging’ organizations (those that are trailing behind, that stagnate) think that their business is a black box: raw materials come in (suppliers provide the inputs), in-house resources (people, assets, capabilities) generate products and services that are then issued on the market; the value is created inside the company thanks to the assets (figure 3),” says Aron. “ ‘Leading’ organizations, which currently compete in the ‘new digital world’, think that business is a platform (as shown on the right-hand side of figure 3) and that value comes from ‘connections’, first and foremost between the business and its IT department, but also and more importantly outside the company’s boundaries and along its entire ecosystem.”

Therefore, going back to Sondergaard’s words, if the business economic value comes from the ‘connections’ the company can establish, algorithmic business enables these interactions and IT must build the reference digital platform: this is the 2016 CIO Agenda.

The elements of the digital business platform

“CIOs have long understood the strength of the ‘platform-based’ approach of IT architectures,” says Aron, “but what has changed today is the fact that the new digital opportunities and the evolution of threats, including ‘commercial’ and ‘ethical’ challenges that companies must face, reveal the need to design dynamic platforms that penetrate and permeate all business aspects.”

So alongside the definition of an IT architectural platform that can serve as a load-bearing foundation, the CIO must work to build a delivery platform, a talent platform, a leadership platform… all supporting the business model platform (figure 4). “The latter – says Aron – is multidisciplinary ‘by design’ (i.e. fed with all the business departments and external resources revolving around the corporate ecosystem), it is connected and can be re-configured dynamically, constantly learning and paying attention, with ‘porous’ boundaries, i.e. open to cross-breeding.”

And if designing the technological platform has always been a must for the IT department, the most complex challenge for CIOs who intend to lead the digital transformation revolves around the ability to manage delivery, talents and the execution ability of an effective leadership:

1) managing delivery: the CIO survey by Gartner shows how the need to innovate is guiding the penetration of the bimodal IT approach. Translated in terms of ‘features of the delivery platform’, this blends into ‘refactoring’ abilities for the future, i.e. dynamic change in the provision of IT services (supported by flexible infrastructure, equally nimble in terms of change), with positive consequences on digital business performance; this journey is supported by Agile methods, new ‘adaptive sourcing’ approaches, different innovation management models, new measurement metrics;

2) managing talent: the greatest barrier that CIOs themselves believe they face in this complex journey is the lack of adequate skills; the area mostly affected by said lack is the one that revolves around information (big data, analytics and information management), followed by the lack of business knowledge/acumen. “CIOs must think of talent management as a platform – says Aron – and innovate with it by leading a strategy focusing on the following points: staff recruitment and rotation with resources outside IT; working in closer contact with universities and creating internship and co-design models; experimenting by drawing on external resources with crowdsourcing; starting to consider clients, citizens, vendors and partners as an extension (and digital accelerators) of the talent platform”;

3) executing effective leadership: a significant number of CIOs believes they are the ‘digital leader’ or ‘innovation leader’ in their company (respectively 39% and 34% of the panel members of Gartner’s CIO Survey). However, in the CEO’s view, they are not able to share these responsibilities and effectively collaborate with other C-level staff. “For CIOs this means having to work on their leadership style by benefiting from the effects of the platform, that is building a network both inside and outside the company that can effectively support digital leadership,” says Aron. “This means working on processes and policies, setting the ‘pace’ of the journey to change, delegating and defining priorities and at the same time investing on improving one’s expertise.”

“For CIOs working on ‘platformizing’ approaches to delivery, talent and leadership management offers huge opportunities to arrange these business layers, create value for their own company and become the key digital leader,” says Aron.