Companies should embark on efforts to become adaptive organizations to achieve IT organization and business alignment. While these efforts will impact nearly the entire IT organization and require significant yet incremental change, the results will be reduced costs and a faster-moving, more adaptive and more flexible IT function.
IT organizations are typically high fixed-cost environments. When the business needs new capability, IT groups must build, deploy, and staff. However, when needs change, the IT organization is slow to meet the changing needs. In some cases, the change is minor or temporary, making it nearly impossible for a short-term cost reduction. Importantly, they are stuck with high costs and misaligned personnel. At the core of capital management is shifting risk, from high degrees of financial risk or in changing personnel to a lower risk equation through smarter financial and human capital management. Currently, organizations absorb the risk of financial burdens. They must build a full technology environment, staff it fully, and carry all costs associated with it. Therefore, if those resources are underutilized, the risk is fully in the hands of the organization. When becoming adaptive, organizations find ways to shift risk, sharing more with suppliers. The current outsourcing trends in the financial services industry show a gradual shift in this direction.
However, while outsourcing is a significant option available to companies, adaptive efforts are not entirely about outsourcing. It is a combination of pricing models and modularity in services working together to offer adaptive capability.
META Group Executive Direction research reveals that the greatest benefits from being adaptive are realized when all efforts are in support of an adaptive business process. We define an adaptive organization as one that “actively seeks opportunities, then simultaneously evolves with the demand and structure of its markets in ways that ensure both survival and success.”
SHIFTING TO EMERGING NEEDS
As markets change more rapidly and less predictably, an organization must be capable of shifting its business processes to the newest emerging needs. Underlying an adaptive organization is a culture that fosters creation of new market dynamics. It is not enough to sense and respond to change. That means the organization is reacting, not leading. Winning organizations will seek disruptive opportunities and have the internal structures architected to facilitate rapid exploitation. Internal change agents will commonly be present, actively seeking these opportunities. They will be most effective when the organization leverages well-established processes and tools for execution of change. Internal structures must be integrated to enable rapid movement of resources to the best opportunities.
Integrated strategy formation, execution and process formation will cross all major facets of the organization (e.g., finance, human resources, IT). An adaptive IT organization is a requirement for an adaptive organization. META Group defines such an IT organization as one that is: “enabled to embrace and execute timely, valued change required to support an organization in its evolution.”
An adaptive IT organization is operated from the business perspective (a.k.a. business service management) and leverages model-based processes and technology. Resources are loosely coupled, enabling the dynamic linkage necessary to support new needs. Many IT disciplines are undergoing adaptive transformation. The results will be adaptive applications, infrastructure and operations as the technology core, engaged via adaptive sourcing and linked via adaptive architecture. All adaptive disciplines will become service-oriented and be monitored via adaptive governance.
Each adaptive discipline will experience process changes and refinement with the emphasis on process integration, both within a discipline and across disciplines. The result will be service-oriented architectures (e.g., service-oriented applications, service-oriented operations). Key technologies will act as a catalyst for discipline transformation (e.g., adaptive infrastructure will leverage virtualization, adaptive operations will leverage automation), and each discipline may evolve at its own pace.
ALIGNING IT WITH BUSINESS
META Group has been emphasizing the need to build infrastructure adaptively to help align IT with the business and to be flexible to changing business requirements to integrate new IT strategies seamlessly. Unfortunately, adaptability tends to have soft metrics, which have difficulty demonstrating hard-dollar return on investment (ROI).
Vendors and service providers will continue to develop messaging and products around the theme of the adaptive organization. Vendors are increasingly developing products and services to support adaptive models which lead into more synergies. However, companies still find it difficult to convince executives of the business value of agility due to the difficulty in understanding that value in practical terms. Although some of these moves among vendors are part of an industry consolidation, there is also a clear trend toward integrating functionality between different infrastructure tiers. This benefits IT shops by increasing the likelihood of components working together at earlier planning stages, reducing testing and deployment times.
Many of our clients recognize the need to be more adaptive. This focus includes not only being able to adapt cost models to shifting economic conditions, but also enabling the organization to be more flexible and able to rapidly respond to change. The bigger picture includes being able to change business processes, the project portfolio, existing systems, and staff skills and competencies.
The truly adaptive organization focuses on the time to change, cost to change and quality impact of change in any of these areas. In our recent METAmorphosis conference in Barcelona, Spain, two of our senior analysts, Jean-Louis Previdi and Val Sribar, discovered that most attendees were in agreement on several key aspects of becoming adaptive. There was widespread interest in business process management and a comprehensive approach to improving business processes, particularly those that cross traditional organizational boundaries. These process discussions often led to a focus on streamlining and rationalizing existing application portfolios as a first step in aligning current systems with future business process needs. Interestingly, several IT leaders mentioned that improving core IT processes, such as change management, was a prerequisite to aiding business leaders in business process issues. In other words, the IT organization must demonstrate competency and the ability to improve its own processes before it is allowed to assist the business in business processes.
RESPONDING TO NEW DRIVERS
It is all about seamlessly adapting or changing critical business processes and therefore any associated IT systems in response to a new business driver or economic condition. Thus if an IT organization cannot manage the change in its own processes properly, how will it be possible to win the trust of business executives to assist them in changing their business processes?
Other aspects of becoming adaptive met with more skepticism from the Barcelona audience, particularly in the areas of Web services and utility computing. Web services, XML and modeling of business processes and workflows were concepts that everyone was interested in but that most were only willing to experiment in rather than embrace strongly in the near term. Utility computing was often viewed as just a thinly veiled attempt by vendors to exploit challenging economic times.
We believe utility computing can be a useful adaptive tool, but it requires users to truly understand IT demand and integrate capacity management of existing workloads with the anticipated needs of new projects. We also believe that Web services and related service-oriented approaches are absolutely critical to being adaptive and that organizations should be working these approaches into their plans.
There was also extensive discussion regarding outsourcing, ranging from traditional data centre concepts to application-level services and business process offerings. These discussions included the political and social implications of moving workloads to geographies with cheaper labour rates. The key conclusions were that all organizations should understand the capabilities and rate structures of external service providers, but decisions must be made on more than a cost basis. Rather, adaptive organizations must understand their core values and strategic differentiators, using external parties to further these values rather than undermine them.
In any case, it will be incumbent on adaptive organizations to measure and assess their versatility maturity. Key measurements will include rate of innovation/change, quality, speed, IT costs, total costs, revenues and productivity.
This is a long-term transformation, requiring a vision for execution. When all facets of an organization are adaptive, the biggest impact will be felt particularly in the areas of utility sourcing and capital management, which together can transform fixed to variable costs. However, it will be common to start with individual disciplines and over time transform the entire organization.
— Farahmand is vice-president, META Group Inc., Consulting Canada.