By Andy Rowsell-Jones
Gartner, Inc.
Digitalization in most enterprises is maturing, and as it does, it becomes much more likely that these enterprises will become part of a digital ecosystem. This is an ecosystem where competitors, customers, regulators, other stakeholders and other enterprises exchange information and interact electronically in converged physical and virtual scenarios.
For CIOs, the implications of this change are profound. Many will need to shift their enterprise from a linear-value-chain business, trading with well-known partners and adding value in steps, to being part of a faster and more dynamic networked digital ecosystem.
Gartner’s 2017 CIO Agenda: Seize the Digital Ecosystem Opportunity analyzed how 2,598 CIOs from across 93 countries and all major industries are responding to the age of the ecosystem. The survey found top performers in ecosystems are outpacing typical and trailing performers, with top performers expected to double their ecosystems in the next two years.
Ecosystems support business models that allow enterprises to perform better than their peers that operate independently. Some organizations will create an ecosystem, while many others will add their specific capabilities for anyone to use.
For example, NCC Industry, the industrial business of a large Swedish construction company, created an ecosystem that generates new sources of revenue predicated on solving transportation inefficiencies and handling construction waste and recyclable materials. The company created an ecosystem of suppliers, partners and customers and has turned a cost (disposal of used building materials) into a thriving market possibility that addresses a chief inefficiency (transportation cost).
Anders Torell, head of business transformation and digitalization at NCC Industry, explained, “When there is supply and demand competition, the transportation companies will bid. That puts pressure on their competition and changes the game. The ecosystem creates this competition, and we are also seeing that this can lead to other positions in our industry.”
The 2017 CIO Agenda survey revealed that the top performers focus on three areas: technology, organization and leadership.
Technology interoperability
Although construction is considered a traditional, asset-heavy industry, NCC Industry embarked on its digital business journey by using an “internal startup” to pitch different initiatives. In 2016, it launched “Loop Rocks,” a peer-to-peer site for the exchange of secondary building materials.
Top performers like NCC Industry recognize that startups — and their approach to digital business — are companies designing digital products without the constraints of corporate policies or technical debt. Additionally, they assume their technology will plug directly into the digital ecosystem. While NCC Industry chose to create an internal startup with principles mirroring a real startup, other organizations may choose to acquire or fund startups to gain access to their innovation and technology.
Additionally, transforming the core might mean building more technology in-house. Top performers found the technology they were looking for was so progressive that no one else was building it or startups were creating the technology, but not on an industrial scale. Typical and trailing performers that are not in a position to build in-house, must assess whether they are relying too heavily on outside innovation or not creating transformational technology.
Bimodal and organizational bench strength
For top performers, a combination of Mode 2 and external partnerships is critical to achieving success. In fact, the CIO Agenda survey found that 68% of top performers have adopted bimodal techniques versus only 17% of trailing performers.
For example, when Deakin University created its virtual personal assistant, the “Deakin Genie,” President and CDO William Confalonieri shared that they used a combination of their own development and external resources. “The core is internal development — basically because we couldn’t find what we wanted from vendors, or they were so slow. I have a ‘Digital Future Lab’ where this and many other things are being prototyped.”
Confalonieri added that the ideation process, rather than the deployed technology, is the most important part. “That is our core activity,” he said. “It is the center of our competitive advantage, which all happens internally with my team.”
Closer alignment of IT and business goals, as well as increased innovation, are the benefits nearly all companies are realizing when they adopt bimodal techniques. However, bimodal comes at a cost. Culturally, companies run the risk of resentment between the “cool team” on Mode 2 and the “old team” on Mode 1. But, in reality, the two modes must evolve together. Financially, investing in the technology core and in talent with the right skill sets will run at a higher cost.
Business-aligned leadership
Business growth is a recurring theme in this year’s strategic business priorities, with 28% of the top performers identifying it as a high priority. Top performers noted a focus on innovation, prioritizing value over cost, and shifting IT investment from commodity IT to differentiating IT.
Effective stakeholder engagement is a key component of success for most digital initiatives, even more so in digital ecosystems. What is very notable about the difference between the top-performer group and the bulk of CIOs is their ability both to engage with and win the support of their peers.
Michael Newcity, senior vice president and chief innovation officer at ArcBest, a freight, transportation and logistics company, has some advice for CIOs in the digital world. “You’ve got to get out of your office.”
CIOs need to understand and align with the business priorities of the company to create a higher level of satisfaction among stakeholders. Newcity suggests weekly or daily lunches with people on the business side, as well as sitting in on staff meetings for business units.
Reach digital escape velocity
The end goal is to reach digital escape velocity, where the organization is moving so fast as compared to its peers that it escapes their influence. Reaching escape velocity involves applying energy to escape the biases, habits, systems and cultural gravity of the organization in order to accomplish new goals.
Top-performing businesses reach escape velocity by acknowledging the organization they are trying to change, assessing the risk and applying energy strategically to mitigate it. Once new habits are formed, new processes are embraced and culture is reinvigorated, it takes less energy to sustain the new position.
Moving forward, CIOs should create their digital-ecosystem-ready leadership action plan. It’s important to form a clear view of your current leadership situation, devise a realistic plan for addressing it, choose a few areas of focus and move forward on them.
View a snapshot of the research in the CIO Agenda infographic.
Andy Rowsell-Jones is a vice president and research director in Gartner's CIO & Executive Leadership Research team, with interests in business and technology strategy, management, organization, and profit and cost improvement programs.
