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Evolving Business Models Require a New Style of IT

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Dan Gilbert, HP Strategist

 

For years we have heard about the tremendous advantages of technological developments. Right now, a New Style of IT is emerging based on the combination of Cloud, Mobility, Social Interaction and Big Data. However, organizations rarely succeed or fail on the basis of technological innovation. Innovation must be supported by an adaptive business model — or an operating model in the case of public sector — that clearly illustrates its value. Value must be supported by the efficient creation of the product or service, the alignment of that product or service with clear consumer segments and demand criteria, a clear channel approach, and a means of recognizing and managing income and costs.

 

 

The Value Proposition for the New Style of IT

The core capabilities of emerging technologies offer a wide variety of value propositions. The question is: can the organization actually re-structure itself to realize meaningful value? Theoretical value simply isn’t enough. An organization that procures, manages, and generates value out of legacy IT cannot shift into a new environment expecting the same (or improved) results to be achieved automatically. So how do you ensure value preservation and value improvement from current state? This is an operating model question, not a technological capabilities question. Many organizations simply are not ready to operate with the speed and flexibility gained by adopting the concepts driving the New Style of IT.

 

Production of the Products and Services

From an operating model view, the assets, the people, the partnerships, and the critical activities that take place in the creation of the product or service are the “engine room” of any organization. This engine room must efficiently produce goods and services consumers want, the way they want to receive them, and in line with the promised value.

 

A major advantage of the emerging model is the flexibility it presents in structuring an engine room that is focused on almost any consumer segment. Compare the complexity involved in adapting this engine room concept from a commercial entity, say a shoe manufacturer, to that of a government agency dealing with a much broader range of stakeholders, and regulatory restrictions. Without a flexible, open, accessible set of tools, it is unlikely that adopting cloud-based applications or infrastructure would deliver significant improvements.

 

Customer Segmentation

The New Style of IT opens the window to a much broader adoption of multi-sided markets. What are those? The alignment of discrete products and services to different customer markets that are co-dependent. Think of credit card companies — they sell different, yet inter-related, products/services to credit card holders, merchants, and marketers, among others. This is a very stable market approach with extensive growth potential, if designed into the operating model up front. The value of this approach is not the technology itself, but the environment enabled by the technology.

 

You can deliver a better, faster growing and more successful model with Mobility, Cloud, Big Data and Social Interaction… if you approach it from a results-first perspective. This capability can deliver great benefits to a brokered services environment common in government. An organization can take on the role of provider, regulator, service delivery entity, and agent, creating service-focused multi-sided markets in partnership with other organizations — the best mix of parties delivers the best results to the various segments being served. This, however, requires a new approach to governance with clear standards, available data, dynamic rules management, tightly integrated Service Level Agreements (SLAs), clear Separation of Duties (SoD) and, overall, a secure computing environment.

 

The value? A more tightly focused, relevant, and extremely cost-effective service.

 

Channels

The channel challenge can be simple to articulate, yet difficult to solve. How do customers want to consume; how can we communicate across channels and integrate them with our operating models? Think about the layers involved in this multi-sided market approach. IT departments that can only purchase and manage legacy IT are on the path to a dysfunctional operational model, regardless of the superiority of the IT.

 

The “broker” must be the most flexible partner involved. Being a broker means you can integrate channels, operational models, and technology in order to provide a superior result. An IT department focused on outcomes can bypass the limitations imposed by legacy IT. Flexibility and governance are the keys to avoiding vendor lock-in and to developing broker-based standards that create value in the new ecosystem.  

 

Managing Revenue and Costs

Unfortunate complications associated with the New Style of IT are its complexity of revenue and cost management. Digging into such technological capabilities has exposed organizations that are nowhere near as profitable as they could be. Some organizations have suffered from a lack of transparency and clarity in financial terms. Purchasers have found their costs going up, or the organizational disruption required to implement the emerging technologies overwhelming. Therefore, a “Business First” rather than a “Technology First” approach from both the supplier and the purchaser is required.

 

This is a double-edged sword, though, as immature or poorly thought-out operating models can be built too fast. If the model is a new entity, the market will take care of the problem pretty quickly. However, when the hasty new entry is part of a stable organization, it can take longer to spot the flaws. “Business as usual” may allow an ongoing drain on costs and revenue without flagging the problem. Governance is key. The good news is that industries can quickly spot the models that work and will adapt over time.

 

Conclusion

The New Style of IT in all its forms has the potential to transform organizations fundamentally. However, realizing that potential requires resisting the temptation to treat acquisition as yet another IT procurement exercise. The new ecosystem changes how an organization functions. The operating model must be redesigned based on desired outcomes so that value is delivered in concrete terms.

 

NOTE: Business Model segments adapted from the Business Model Canvas developed by Alexander Osterwalder and Yves Pigneur.

 

This blog topic will be explored further in an upcoming white paper on Trends Affected by Cloud Computing. The paper, developed by our team of Public Sector subject matter experts: James Bond, Chief Technologist; Michael Donovan, HP Distinguished Technologist; Judy Douglas, Government Client Industry Executive; Dan Gilbert, HP Strategist and Mateen Greenway, Fellow, CT UK&I PS. will address relevant challenges facing public sector customers.

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