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June 5 2015

Bricks, Bytes, Behavior, and Branding: Four Pillars of the Digital Workplace

The Edge, Amsterdam

When thinking of a digital workplace strategy, you might—understandably so—expect that it primarily involves technological change. However, at last week’s European Conference on Information Systems, a panel of academic and industry experts led by MIT CISR research scientist Kristine Dery pointed out that this couldn’t be further from the truth. Technology can be potentially disruptive and is therefore an important consideration, but the key success factor of a digital workplace strategy is a holistic approach to the workplace that revolves around the employee. If we want more engaged, innovative, and productive employees that add value over and above industry averages, then we need a strategy that is built on four pillars.

Bricks. The physical work environment is the traditional embodiment of the workplace, and therefore also remains an important cornerstone of the digital workplace strategy. As the office provides a sense of community and affiliation with the organization, we see that many organizations re-envision their office environments to stimulate interaction and collaboration. Activity-based working areas and quality coffee corners are generally considered the staple of the new office, but forward-looking companies are using technology to augment their employees’ work experience. Take a look at Deloitte’s new Amsterdam office, The Edge, where an interconnected lighting system with 6,000 sensors links with mobile phones to provide employees with a more comfortable and personalized work environment. In addition, this system can provide real-time information about building occupancy, allowing employees to quickly find teammates or colleagues with certain areas of expertise for face-to-face interaction.

It is important, however, to note that there is no “best office building.” The physical work environment has to match employee work needs as well as organizational culture. Open plan, collaborative environments may not be a good fit if most of the work requires concentration or if the culture is focused on individuals. Get the bricks wrong, and employees will appropriate the office in ways that you never imagined (often to work in modularized environments) or leave it altogether opting to work from home or from external co-working spaces instead.

Bytes. Technologies that enable us to work and collaborate independent of place and time have existed for well over a decade, but organizations are still searching for a “physical minimum” and “virtual optimum.” Additionally, we see that enterprise social networks (such as Yammer and Chatter) are used to create virtual office spaces, enabling greater levels of work transparency as well as better connectivity between co-located and remote workers. Add to this SMACIT (social, mobile, analytics, cloud, and Internet of Things) technologies and we have unrivaled opportunities for more evidence-based management.

We need to ensure, however, that technologies implemented to make new work practices possible don’t also make work life more complicated for employees. It is important that we integrate isolated systems and applications into unified solutions that fit daily work practices. Keeping up with workplace IT demands and ensuring consistent quality of delivery therefore requires a complex set of capabilities in terms of storing, integrating, analyzing, responding, and subsequently learning from organizational data to deliver value. Making sure that work across the broader organization gets easier thus means that life in the IT department will have to become a whole lot harder.

Behavior. Changes in the physical and virtual workplace serve as enablers to spark change in what is generally considered the most important pillar: the organizational culture and behavior of employees and managers. With employees at the center of the digital workplace, it becomes especially important to focus on what is needed to inspire and drive employees to apply their competencies to build organizational value. This typically requires a new set of organizational values built around self-management and a continuous cycle of trust, empowerment, responsibility, and transparency. Employees largely decide for themselves when, where, how, and with whom they wish to work—fueling a process of continuous learning and collaboration. This makes a digital workplace strategy truly a continuous journey, as opposed to a transformation project with a set end state.

However, increased levels of autonomy may not be desirable for every employee. For example, increased levels of autonomy can be particularly difficult for employees with a high need for structure; managers need to recognize this need and provide adequate support through regular feedback. We also found that managers accustomed to high levels of control typically face difficulties in more supportive roles as coach or connector, which provides an additional layer of complexity when dealing with a changing organizational culture.

Branding. The fourth and final pillar involves continuous dialogue with employees from every layer of the organization. A successful digital workplace strategy is typically a mixture of bottom-up and top-down initiatives that create common ground between the organization and its employees. Yet as work changes, a variety of responses that cannot always be predicted emerges. Regular and actionable feedback mechanisms through enterprise social networks, online innovation platforms, and mobile feedback apps therefore become critical to keep molding the workplace. These systems need to be transparent, collaborative, and carefully managed to ensure that they help to build the digital workspace in conjunction with employees.

The physical workplace, the technology toolkit, and the ways of working also send important signals to the labor market about the organizational brand. In an environment where digital capabilities are in short supply, this becomes an important way to attract and retain talent. We see that employees are not just placing high value on the physical work environment, but also on access to required technologies, flexible work practices, and overall systems as well as connectivity that just makes work easier.

Addressing these four pillars in unison is not an easy task, as managers from Facilities, HR, and IT departments are prone to working in silos. That is why several panelists proposed an addition to the C-suite: the Chief Work Officer (CWO). It would be the CWO’s task to integrate digital workplace efforts across departments and to guard the design focus on the employee. Do you recognize the need for a CWO in your organization? And which stakeholders would you (or do you) involve in your digital workplace strategy? We would like to hear your experiences!

Nick van der Meulen is a visiting postdoc student at MIT CISR who is working with research scientist Kristine Dery (kdery@mit.edu) and research associate Ina Sebastian (isebasti@mit.edu) on the 2015 MIT CISR research project, “Inventing the Digital Workplace.” This blog acknowledges the contributions from panelists Lizette Engelen, Eric van Heck, Sabine Hess, Marleen Huysman, Isabel Moll-Kranenburg, Pascale Peters, and Tim Sluiter.

March 10 2015

Is the Digital Workspace New? Lessons from Building 20

Imagine a place of work where the windows leaked—or fell out if the winds got high enough, the roof leaked to the point of pouring through in heavy rain, and soot blew in from the city. It was searing hot in summer and freezing cold in winter and there was “always the noise, the strange, unfiltered sounds of everyone else’s work.”i This was the now-famous Building 20 at MIT. Built as temporary space during World War II, it was meant to outlast the conflict by only six months. And yet fifty-five years later, it still provided a home to some of the world’s leading scientists and life-changing innovations in areas such as radar, sound systems, photography, cognitive science, and linguistics. During its lifetime, Building 20 claimed to have housed over 20% of the US’s physicists, including nine Nobel Prize winners.

So how does a workplace that is falling apart, decidedly uncomfortable, and probably not all that safe come to play such an important role in fostering some of the most creative innovations that the world has ever seen? Many have suggested that it was the mix of people thrown together in adverse conditions that spawned extraordinary creativity. Others have attributed it to the freedom to ignore all campus building and wiring constraints: the ability to pull down walls, rewire technologies, reconstruct spaces, and be creative about the way the building itself was used that helped its occupants to see things differently. Noam Chomsky recalled in 2011, “It looked like it was going to fall apart. There were no amenities, the plumbing was visible, and the windows looked as if they were going to fall out, but it was extremely interactive.” Perhaps a reminder, therefore, to all of us that big problems often get solved with collaboration and a willingness to break the rules.ii

People inhabited Building 20 any time of the day or night—the building breathed life across its three floors 24/7. There was constant noise: the noise of people, noise of machines, and the building itself creaked and groaned as it weathered the elements. So just as spaces were reinvented, time was framed around individual body-clocks, anticipated noise levels, and deadlines. It was often late at night that unlikely collaborations took place as people wandered corridors seeking the origin of new noises and finding company.

As we struggle with how to best create collaborative and innovative spaces to work that are agile enough to succeed in the digital era, Building 20 offers a few lessons:

  • Space was reconstructed in Building 20 both through use and a sense of ownership. Small office spaces and difficult working conditions drove people into the corridors to talk and mix in ways they normally wouldn’t have, but did not deny them individualized space for thinking and building. People in Building 20 took ownership of spaces that were uniquely theirs—even physically changing them—at the same time that they seem to have embraced more collaborative, shared spaces. This has implications for both physical and virtual space to enable a richer environment of possibilities combining owned and shared spaces. In the digital economy, owning and creating your own workspace requires toolkits of multiple technologies, physical componentry, and design capabilities that can be personalized. It also requires openness to constructing these spaces with fewer rules and boundaries. Some organizations are already experimenting with personal workspace design using combinations of BYOD, office kits, and flexible spaces. We may not be able to put holes in walls, but we can have more flexibility over how we enable personalized and collaborative work practices.
  • Materiality played a significant, and often overlooked, part of the Building 20 story. People built things in this building. They knocked down walls if spaces weren’t big enough, they soundproofed rooms, rearranged furniture and attached it to the floor, they dragged material substances to all corners of the building to construct and reconstruct their ideas. People didn’t just interact with other people in Building 20, they engaged with the materiality of the projects and ideas. Through this engagement they changed meanings, uses, and the potential of material objects. This led to new ways of thinking and imagining. Collaborative and flexible work environments are about more than people sharing written and spoken words; the materiality of work itself is worth more consideration. Material representation of ideas through physical construction, 3D printing, diagrammatic representation, multimedia communication, and other material forms enable the construction of ideas that can be shared physically and virtually in more meaningful ways.
  • Talent was both attracted and nurtured by the unique opportunities provided by Building 20. It was a chance to work with great people in creative ways, all without the handcuffs of traditional university workplaces. Certain people (not all) were motivated and inspired by the freedoms that Building 20 afforded. As we begin to imagine what talent might look like in the digital era, we need to design workspaces that have an awareness of behavioral norms, material constructs, technologies, and talent to engage these people. Our workplaces may look very different depending on who we’re trying to attract and retain. This suggests that flexibility around space—to shape and be shaped by talent—may be a good way to start thinking about the digital workspace. “Building 20 always thrived on ingenuity among its denizens. I always thought it was because it was so easy to build experiments there—pull wires, bolt things to walls, come and go at any hour.” (Lawrence B. Kilham, Alumnus)
  • Symbolism framed both the physicality of Building 20 and also the role it has in the MIT landscape today focusing on collaboration and innovation. Building 20 is nothing but stories today built around icons of rule breaking and iconoclastic behaviors, brought together under an umbrella of intellectual brilliance. Hacking grew from Building 20, and that culture of “intelligent rule breaking” and critical thinking is now essential to the fabric of MIT. The symbolic impact of new workspaces, e.g., adoption of new technologies, is used by many organizations in our study to signal the need for new ways of working in the digital era.
  • Outputs both defined and validated Building 20. This building is associated with some of the most significant innovations of our time and often linked inextricably to the invented artifact, e.g., the radar designed there. The focus of this workplace was outputs with all manner of unorthodox inputs and processes. Data, collaborations, the building itself were attributed value according to the output and not the intrinsic qualities of the relationships and processes themselves. Our early research findings suggest that designs of both physical and virtual spaces that support evidence-based decision making and speed appear to be more effective in competitive digital environments.
  • Management challenges for Building 20 were the cause of much hand-wringing and concern on many fronts. “Building 20 is the kind of academic melting pot that gives university presidents indigestion. Famed linguist and anti-war activist Noam Chomsky works just a few doors away from MIT’s ROTC offices . . . The music department’s piano repair facility—a computer-free zone, according to a sign on the wall—shares a floor with the nuclear science lab’s shop room.” (Alex Beam, Columnist, The Boston Globe) Enabling people to work outside of the traditional norms of the institution typically requires continual validation based on measurable outputs and a management style based around trust, transparency, and shared learning. Reframing the leadership and management of work is proving challenging for many of the firms in our study.

While Building 20 may seem visually far removed from the digital workspaces of today, we’d do well to take time to understand what it was that made it such an innovative and productive environment. Our current research project on the Digital Workspace is revealing some interesting insights into how new ways of working are being managed to position organizations effectively for the digital era. If you have an interesting story to share around new ways of work and how the impacts are being evaluated, please contact Dr. Kristine Dery or Dr. Ina Sebastian at MIT CISR.

i Philip J. Hilts, “Last Rites for a ‘Plywood Palace’ That Was a Rock of Science,” The New York Times (US Edition), March 31, 1998, http://www.nytimes.com/1998/03/31/science/last-rites-for-a-plywood-palace-that-was-a-rock-of-science.html.
ii Brian Bergstein, “EmTech: A Legendary MIT Building’s Lessons on Innovation,” MIT Technology Review, September 23, 2014, http://www.technologyreview.com/view/531011/emtech-a-legendary-mit-buildings-lessons-on-innovation/.

Kristine Dery is a research scientist at MIT CISR. She discusses the digital workplace in a recent blog post, “Reimagining the Digital Workplace,” and a video of the same name, “Reimagining the Digital Workplace.”

 

February 24 2015

Using Big Data to Build a Strategy Toolbox

There is academic debate regarding whether big data helps or hurts strategy. In our research at MIT CISR, we’ve identified some important advantages to viewing big data as a strategic opportunity. In particular, companies can use big data to greatly improve and innovate their business model—and to extend their strategy toolboxes.

Improving the Business Model

Of the companies we’ve studied, the most successful ones are using big data to refine and optimize business processes and decision making. Big data offers novel sources of data, new techniques for identifying insight, and different ways to act.

For example, companies can leverage big data by embedding sensors in products to track actual usage. They can mine social media for customer feedback. And they can collect customer-produced content to better understand preferences and behavior. This new data allows companies to more deeply understand their customers’ motivations. And companies can act upon new customer insights quickly and more wisely than in the past.

Big data can be used to facilitate improvements to business models across all industries, but successful companies have one commonality: a clear strategic driver underlying the big data initiatives.

Innovating the Business Model

Companies using big data are also finding new ways to generate revenues. Two approaches we’ve studied include data monetization and digital transformation.

Data monetization is the act of exchanging information-based products and services for legal tender or something of perceived value. We’ve found that companies are monetizing by selling, bartering, and wrapping information. Wrapping refers to wrapping information around other core products and services and is particularly exciting to MIT CISR companies, as they can wrap to differentiate a core product or service offering to meet their customers’ informational needs. This makes the product or service more attractive and generates greater revenue.

Enterprise digitization—outputs from things like sensors, robots, and automated business processes—generates new and different types of data. Companies that manage their digitization well will know more about their employees, partners, and customers. This deep knowledge is a critical capability facilitating the identification of the new partnerships, new customer segments, and new markets, all of which are needed to be competitive in a business ecosystem. Using big data, companies can transform in ways that change the traditional competitive landscape.

Are you using big data to improve and innovate your business model? How are you using big data to extend your strategy toolkit?

Barbara H. Wixom is a principal research scientist at the MIT Center for Information Systems Research (CISR), and Stephanie L. Woerner is a research scientist at MIT CISR. This post is a summary of an article they coauthored, “Big Data: Extending the Business Strategy Toolbox,” which was published in January 2015 in the Journal of Information Technology (subscription only).

February 10 2015

Tackling Digital Disruption from the Top

Digitization has caused lots of disruption in the financial services industry, with new entrants stealing retail customers and changing customer expectations (see the first post of this two-part series, “How Digitization Is Creating a Fork in the Road for Banks”). Yet it’s only a matter of time before this disruption spreads to more industries.

This is changing the job description for CEOs, who now must take responsibility for the disruption. Why the CEO? Because digitization affects the entire organization. Our research shows that when businesses don’t approach digitization from the top, it results in islands of digitization. It’s then very tough to meet customers’ expectations—much less customize—because you’ll never have the complete picture. Sales will know about sales, financing will know about bill paying, and operations will know about product delivery preferences. Customers don’t want this disconnected approach. They want to be seen as a whole entity by the entire organization.

CEOs have to tackle disruption in three ways:

  1. Simultaneously cut costs and innovate. CEOs have to create an ambidextrous organization that can deliver low cost and innovation simultaneously. Every year, companies need to pull out 3–5% of cost PLUS create bottom-line impacting innovations! Why? Mostly because of search. It’s so easy for customers to search to find the best credit card rates, the best auto insurance, the newest products, the best deals, etc. Target’s CEO highlighted this problem in the media when he talked about how customers in his store use their phones to search for lower prices at competitors on his free Wi-Fi. Regular innovation is critical, as it helps defer the cost pressures by having something new—and less price sensitive—each year. Why ambidextrous? Because we need to simultaneously cuts cost with one hand and change the game with the other.
  2. Amplify customer voice. The best way to meet customer needs is to amplify consumers’ voices inside the company. They have to know what the consumer wants and give the consumer a way to talk to the organization and feel heard. CEOs can’t sit around a boardroom with board members and talk about what they think the customer wants because too often they will be guessing. Instead, they need to use social media, big data, or tools like Net Promoter scores to find answers. TripAdvisor is a great example of a company that gives consumers a voice with customer-driven reviews, ratings, and forums.
  3. Perform organizational surgery. To accomplish the first two tasks, CEOs will often need to perform radical organizational surgery, because most companies were not designed to thrive in a digital, always-on economy. To achieve great customer experience, USAA reorganized, creating a Member Experience Group organized by life events, and restructuring other areas of the organization. Customers no longer deal with a specific product area (such as car loans) but rather a specialized group of employees who can help them navigate a range of products around their current life event. For example, for buying a car, this includes setting up the loan, purchasing the car, and taking out the insurance policy. These major organizational surgeries are disruptive and change the balance of power inside of companies, but are needed for them to thrive in a digitally disrupted world.

While it may be tempting to make digitization the responsibility of the IT unit, these changes require leadership from the top. Like it or not, they are now the responsibility of CEOs.

Is your CEO ready to tackle digital disruption?

This is the second post in a two-part blog series on this topic by Peter Weill, senior research scientist and chairman of MIT CISR and Stephanie Woerner, a research scientist at MIT CISR. In a related video, “The Role of the Financial Services CEO Is to Deal with Digital Disruption,” Peter Weill details how CEOs can tackle digital disruption.

January 27 2015

How Digitization Is Creating a Fork in the Road for Banks

Digitization is creating a lot of opportunities, but with those opportunities come challenges. This is especially the case in financial services, where digitization is causing noticeable disruption. Banks are going to have to make some radical changes if they want to stay profitable and relevant to a broad range of customers.

What is happening in this landscape?

  • New Entrants: Banks are seeing a slow but steady disintermediation and detachment from customers, as new businesses are eating away at the retail banking client experience. PayPal and Apple Pay are examples in the payments space. In insurance, Coles Supermarket, the largest retailer in Australia, sold insurance in amounts rivaling the largest insurance companies. These new entrants, often with great customer experience, are nibbling away at the juicy parts of banking.
  • Functionality: Banking functionality is becoming more embedded and integrated into third-party apps and experiences like retailers and search firms.
  • Margins: Margins are decreasing, and regulation is increasing.
  • Consumer Expectations: Consumers today are more interested in solving life events than buying a banking product. When they buy a car, they want to negotiate the deal, have the car delivered, and arrange for insurance and financing all through a single relationship and mobile app—and on a tablet at 10:00 at night.

This brings banks to a fork in the road. One option is to specialize in handling the back-end of the transaction and let other companies capture the customer-centric front-end, like PayPal using banks to clear payments today. Banks will probably always be the highly regulated, back-end of a financial transaction like payments. But that is a commodity play and a race to the bottom in terms of margins—and it is boring.

The other option is to get out in front of digitization and really ask how to meet customers’ needs with integrated, omnichannel, and fun services. Banks need to think more about customizing services, mining customer data to determine what customers want, and becoming even more digital. This will likely require some organizational surgery to exploit digital and put customers first.

For example, Garanti, Turkey’s second-largest private bank, decided that to successfully target new young customers, it would require a different approach rather than relying solely on its 1,000 branches to engage them. iGaranti was born, a smart financial coaching mobile app that addresses the everyday financial needs of millennials without them going to a branch.

Yes, we see a fork in the road for banks today. But most banks will need to travel down both roads simultaneously. Banks will have to be low-cost, highly regulated, very efficient and industrialized financial transaction processors. At the same time, they’ll need to reinvent their customer experience to delight customers and make banks the customers’ first point of call rather than their retailer, tech company, or telco.

This is the first post in a two-part blog series on this topic by Peter Weill, senior research scientist and chairman of MIT CISR and Stephanie Woerner, a research scientist at MIT CISR. In a related video, “Digital Disruption in the Financial Services Industry,” Peter Weill describes the forms of digital disruption that are impacting the industry.

January 13 2015

Reimagining the Digital Workplace

Just as technologies invite us to be more innovative in our approach to customers and business processes, there are new frontiers for how we might reimagine the workplace. No longer are we restrained by physical locations or time. This provides organizations with opportunities to rethink things like talent identification and engagement, formation of organizational structures, work processes, and communication practices. The challenge for management is to work out how to engage with digital technologies in the workplace to best position employees to create value in the digital era.

A recent MIT CISR poll suggests that most organizations are engaged in discussions at some level on how to reframe the workplace around digital. While a few workplaces are at a very advanced stage of organization-wide transformation focused on greater collaboration, networked approaches, and flexible work practices, a third of respondents are still at an early point in the transformation where adoption of digital has been patchy. For example, some project teams and departments have adopted the enterprise social network yet others remain resistant and dependent on email. By far, the largest group of respondents report that they are at the pilot stage, with new ways of working and digital technologies being deployed in pilots.

Understandably, there is much that management is still unsure about and wants to test before making a larger firm-wide commitment. It seems that at this stage there are more questions than answers around the digital workplace, as organizations are still trying to understand how digital might add value and whether the potential benefits are worth the costs of change.

This is further reflected in the data on who is influencing these discussions. In around 20% of cases, CEOs are playing a pivotal role. In another 20% of cases, CIOs are leading discussions. However, a surprising 25% of these discussions are growing from the bottom up as teams, departments, and individuals engage capabilities such as social networks, knowledge sharing apps, and communication tools to start working in new ways. Unlike traditional technologies in the workplace, digital capabilities are easily accessed and implemented by individuals either using workplace-supplied technologies and capabilities or by bringing their own on board.

Organizations must step up and take notice, but it is important to ask some challenging questions:

  • What do we imagine the digital workplace to look like? E.g., more virtual; more collaborative; having flexible work practices, mobile-only technologies, and work spaces; having combinations of contemporary and traditional work practices
  • Why is this important for the business? E.g., attracts and engages talent; creates more cross-silo/cross-hierarchy interactions; generates a more agile working environment for product innovation; reduces costs
  • What are the implications for practice and how do we make the changes? E.g., recognizing and supporting bottom-up new work practices; creating new challenges for IT in supporting a range of new workplace technologies; managing and supporting remote workers; requiring new skill development; aligning reward structures
  • How can we extract value from new ways of working? E.g., using digital to design new ways of working that engage talent more effectively; redesigning processes to reduce costs; realizing faster time to market for product innovation

We’ve just begun a study on this subject, “Inventing the Digital Workplace,” and would like to hear your thoughts. What does it mean to you when you think about the digital workplace? What are the most critical issues you face in this transformation?

Kristine Dery is a research scientist at MIT CISR, and discusses this subject in a related video, “Reimagining the Digital Workplace.”

December 23 2014

The Growing Demand for Digital Leadership

As organizations increasingly rely on digital technology, there is a growing demand for digital leaders. These are leaders who are both business and digital savvy. They are capable of quickly using technology to come up with business solutions.

However, the best digital leaders know there is another important element to their role. They never lose sight of the digital platform: the technologies, business processes, and data that each organization accumulates over time. The best digital leaders address both immediate local needs and longer-term enterprise objectives by developing solutions that complement past solutions and facilitate future ones. They avoid creating “spaghetti.”

Who are these digital leaders? Given that digital technologies are available to and used by a broader set of stakeholder groups—both to operate more efficiently and effectively and to innovate products and services—digital leadership is no longer solely the responsibility of the CIO. Rather, it’s up to the entire senior management team.

A key question then becomes: What does it mean for the CMO or CFO to be an effective digital leader? Clearly, having access to the latest technology or having a social media account may help, but that alone does not constitute digital savviness.

Effective digital leaders foster collaboration and learning across a variety of boundaries—
geographical, occupational, organizational—in pursuit of synergies enabled by digital technologies across traditionally independent business units (by tyler). The results are things like a more coherent customer experience or shared services that enable business units to focus more on innovating and less on operating. Such leaders learn to identify and manage interdependencies between technologies, as well as trade-offs between solutions that are best for a specific situation and those best for the digital platform.

As we continue to research this area at MIT CISR, we’d like to hear from you. What is your organization doing to ensure it has the digital leaders it needs? What is it doing to build the business savviness of IT leaders and digital savviness of the rest of the business? You can email me examples at nilsfonstad@mit.edu.

Based in Europe, Nils Fonstad has returned to MIT CISR as a research scientist from INSEAD eLab, where he served as associate director.

December 9 2014

Exposing Technology Debt

Do you know the size of your technology debt? Technology debt is the total cost to your company of replacing outdated or unsupported technologies or systems that were poorly architected.

Most IT people know about technology debt, but their non-IT partners are rarely aware of the size or urgency of the debt. Few try to measure it. So when it’s time to replace a system or explain why the company should spend money to fix a system, nobody wants to pay for it. This is dangerous because if a company doesn’t pay off its technology debt, the costs of running and maintaining systems will climb and the risk of failure will grow.

It’s time to expose your technology debt. While you can’t avoid technology debt, here are five things companies can do to get a better handle on the situation:

  • Monitor technology debt by identifying what is out of date or will go out of date, and create a 3 –5 year plan to retire or replace the greatest sources of cost or risk.
  • Track all operating costs against the products and processes they support. Tools like Apptio can help highlight where the costs of running a system can’t be justified by the benefits they generate.
  • Establish a roadmap of capabilities the company wants. This helps identify opportunities to replace old and out-of-date systems with better technologies.
  • Create an infrastructure renewal, managed by the CIO, to fund ongoing retirement of technology debt.
  • Become more serious about using the public cloud. Software as a Service builds updates into annual operating costs, whereas companies must make significant investments when licenses for key software becomes obsolete.

As companies become more digital, they can’t afford to take on more technology debt. What is your company doing to limit your debt?

Jeanne W. Ross is director and principal research scientist at MIT CISR. In a related video—“Technology Debt”—Mihir Shah, Chief Technology Officer at Fidelity Investments Asset Management, describes both how technology debt is generated and how to pay it off.

November 25 2014

Demand Shaping in the Digital Age

In the digital age, there are more ideas out there on how to use IT than companies can possibly implement. They must find ways to select the most strategic business change opportunities, while readjusting and reprioritizing project delivery efforts to optimize speed to market for the right initiatives.

To do this, IT leaders must engage the rest of the business in demand shaping: ongoing negotiation and learning about a company’s most valuable and achievable business change opportunities through which leaders develop a prioritized list of IT-enabled business capabilities. According to MIT CISR research, demand shaping conversations—which must involve IT and the rest of the business—can facilitate senior executive understanding of IT. This is important because we discovered that high levels of senior executive understanding are associated with significantly higher quality IT portfolios, and ultimately with industry-adjusted net profitability.

Interestingly, demand shaping tools have been around for a long time. Most organizations have some combination of business relationship management, roadmapping, agile methods, strategic program management, operating cost transparency, and post-implementation value assessment in place today. What’s different now is how we’re using them to change IT conversations.

For example, business relationship managers traditionally focus on the question: “What projects do you want?” However, these individuals usually have formal responsibility to both an IT leader and a business leader, understand the customer’s business processes and goals, and can provide technology guidance to ensure maximum return on IT investment. They can change the conversation by asking, “What capabilities does our enterprise need to meet customers’ desires?”

Post-implementation value assessments can also facilitate new conversations. These audits typically measure application usage or adoption, customer satisfaction, and resulting business impacts—both costs and benefits. So instead of asking why a project was late or over budget, companies can use post-implementation value assessments to learn whether the project achieved its business case and how the company can generate more value from the system moving forward.

To see more examples of how the conversation is changed with these tools, read the October 2014 MIT CISR research briefing, “Demand Shaping: Changing the Conversation About IT,” with free registration on the MIT CISR website (access limited to members of MIT CISR sponsor organizations until January 14, 2015).

Who is involved in demand shaping conversations at your organization? How are you using these tools to facilitate IT understanding?

Barbara Wixom is a principal research scientist at the MIT Center for Information Systems Research (CISR).

November 12 2014

Your Digital Source of Competitive Advantage: Where to Start?

When it comes to optimizing digital business models, there are three sources of competitive advantage: content, customer experience, and platform. However, very few businesses excel in all three areas.

Just think about Trip Advisor. Is it known for amazing customer experience or a stellar platform? Neither—it’s largely known for its content. What about USAA? It’s known for customer experience. The Commonwealth Bank of Australia is known for its platform. It’s not unusual for companies to excel in just one or possibly two areas. (Apple is known for combining a great platform with comparable customer experience.)

These are strategic decisions on the parts of those companies, as each source of competitive advantage has different effects on performance. It’s not yet necessary to be a leader in all three areas.

However, our research shows that it is important to excel in at least one source. In each of the industries we surveyed, we found that the top financial performers scored higher when it came to digital business model effectiveness. For example, in the financial services industry, the top third of financial performers had respectively 29%, 35%, and 26% better content, experience, and platform scores than those in the bottom third.

So how do you select an area of focus for your digital business model? The answer depends on your goals.

Content

We’ve found that companies that are strongest in content have faster growth. Digital is all about buzz and offering something new to customers, so content is critical. If your goal is to drive new digital revenue, we recommend focusing on digital content.

Customer Experience

If your goal is cross-selling and driving more revenue per customer, it’s better to focus on improving your customer experience.

Platform

Other companies may prioritize efficiency and flexibility. In this case, it’s best to focus on building and exploiting digital platforms. Interestingly, our study showed that the better platform companies also had lower costs.

Which source of competitive advantage is right for your company?

This is the second post in a two-part blog series on optimizing digital business models by Peter Weill, a senior research scientist and chair of the MIT Center for Information Systems Research (CISR), and Stephanie L. Woerner, a research scientist at MIT CISR. A related article by Weill and Woerner was published in the Spring 2013 edition of MIT Sloan Management Review, “Optimizing Your Digital Business Model.” You can read a related research briefing, “Companies with Better Digital Business Models Have Higher Financial Performance,” with free registration on the MIT CISR website.

October 29 2014

How Can You Win in the Digital Economy?

As more business becomes digital, customers are expecting the ability to interact with companies anywhere and anytime. A recent survey showed that 72% of customers would replace some traditional channels with mobile apps if given the opportunity.

This means that companies need to get serious about their digital business models if they are going to win in the digital economy. If they aren’t focused on providing a great digital experience, they need to get on the ball. Otherwise, they’ll either lose business to industry competitors or to companies like Amazon.

Netflix’s experience is a cautionary tale. Despite revenue growth of 52% in 2011, it seriously annoyed customers when it separated delivery via mail and streaming, and instituted a large price hike. Consequently, it suffered a 79% drop in share price and took two years to recover from that stumble. Its customer satisfaction scores still haven’t reached 2011 levels.

However, optimizing a digital business model is easier said than done. A great model actually challenges the traditional physical business model—and the associated existing power of the current executives—because it’s focused on making the customer experience seamless across all channels. Optimizing your digital business model requires first committing to your key source(s) of competitive advantage.

Content

The first source is content, which includes the digital information consumed by customers, like product information, price, and use details. It also includes digital products, which could be things like e-books, e-saver accounts, credit cards, car loans, movies, software, etc.  Many top digital companies are adjusting their content to appeal to more customers. LexisNexis, for example, has diversified its content to add more value for lawyers. Instead of solely providing public record and case law information, it’s creating unique content—such as opinions and commentary by experts—and forging relationships with legal bloggers.

Experience

The second source is customer experience. This includes aspects like customer-facing digitized business processes, community and customer input, expertise for informed decision making, recommendations, tools, and interfaces. Amazon.com is a leader in this area, offering everything from customer reviews, links to outside retailers, and easy automated payment options—all in an integrated and seamless experience. We found that companies in the top third in terms of digital customer experience have 8.5% higher net margins and 7.8% higher revenue growth than their industry competitors.

Platform

The third source is the platform. This is how a company delivers the customer experience. It may have internal and external components and can deliver digital content as well as manage physical product delivery. The platform includes a coherent set of digitized business processes, data, and infrastructure. For example, Amazon’s internal platform includes customer data and business processes such as customer analytics and human resources. Its external platforms include the phones, tablets, and other devices used by customers to interact with the company as well as Amazon’s partnerships with delivery companies.

How good is your organization in each of these areas? Which is your strongest source of competitive advantage?

This is the first post in a two-part blog series on optimizing digital business models by Peter Weill, a senior research scientist and chair of the MIT Center for Information Systems Research (CISR), and Stephanie L. Woerner, a research scientist at MIT CISR. A related article by Weill and Woerner was published in the Spring 2013 edition of MIT Sloan Management Review, “Optimizing Your Digital Business Model.” You can read a related research briefing, “Companies with Better Digital Business Models Have Higher Financial Performance,” with free registration on the MIT CISR website.

October 15 2014

Making Complexity a Strategic Decision

Whether it’s new technology, new regulations, or new customer demands, companies often view complexity as something that is done to them. Accordingly, many executives think of complexity as an intrusion that requires a reaction.

However, companies mastering complexity to their advantage are much more proactive. They make complexity a strategic decision with the goal of adding value for customers and the company itself.

We’re starting to see this more, as even the simplest of companies are making the choice to increase complexity (i.e., variety and links) in their product portfolio. Capital One is a good example. It started out providing a single service: credit cards. Now it provides credit cards, investing, auto loans, and more. Amazon has a similar story. It began as an online bookstore and is now the “Everything Store” with “earth’s biggest selection.”

Companies that want to add value from complexity in their product portfolio have five options:

Choice

They can follow Amazon’s lead and increase product alternatives. When you shop at Amazon and type in “iPhone armband,” you’ll get hundreds of options. By offering such variety, Amazon ensures that customers get exactly what they want.

Full Service

The convenience of offering full service—or one-stop shopping—is another model. ING Direct Spain has chosen this route, as it began with a single savings product and now offers payment accounts, credit cards, investment funds, pension plans, brokerage services, mortgages, personal loans, life insurance, and savings accounts. It essentially provides one-stop financial shopping for its customers. Amazon provides one-stop shopping too, as customers can buy anything from printer ink to clothing to toys to books on the site, from Amazon or its marketplace partners. And if Amazon doesn’t sell it, the site provides links to external retailers.

Local Adaptation

Instead of offering globally standardized products, Royal Philips adapts products to suit the needs of local markets. Addressing the differing facial hair needs of various ethnicities, a shaver sold in the U.S. will look and feel different from a shaver sold in China.

Customization

Another option involves customizing your products and services to the individual needs of customers. Think about the many ways you can customize your car. (A prior CISR blog reported on BMW’s six-day custom car initiative.)

Integrated Solutions

The final option involves combining products and services in an integrated way to solve a customer’s problem. USAA does this by integrating different products and services involved in buying a car. It makes the process of selecting a car, negotiating a price, obtaining a car loan, and buying auto insurance seamless.

Some companies focus on a single model (e.g., ING Direct Spain neither offers a lot of choices for funds nor customizes/integrates products yet); others choose to follow multiple paths to increase complexity (e.g., Amazon offers choice and full-service, but refrains from customization and integrated solutions). In each case, growing a certain kind of product complexity was a strategic choice with the goal of adding value.

What kind of product complexity adds the most value for your organization?

Martin Mocker is a research affiliate at the MIT Sloan Center for Information Systems Research (CISR) and a professor at ESB Business School, Reutlingen University in Germany. You can read a related research briefing, “Finding Your Complexity Sweet Spot,” with free registration on the MIT CISR website.

September 24 2014

Do You Have a Great Digital Business Strategy?

Prior to MIT CISR’s CIO Roundtable this summer on digital business strategy, we surveyed CIOs about where they are in the process of creating such a strategy. We defined it as reimagining the business to take into account the capabilities of new technologies, particularly SMACIT—social, mobile, analytics, cloud, and Internet of Things. Many replied that while they know a digital strategy is needed, they aren’t yet clear as to what it should encompass or who should lead the effort. Digging deeper through interviews and our Roundtable, we realized that there isn’t just one digital strategy companies are attempting to implement. Instead, there are actually four evolving digital strategies.

The oldest involves innovation and product development. Some industries like media and financial services have offered digital products and services since 2000, and thus are further along in their development of a strategy. However, even non-digital industries are starting to think about these possibilities. While a lot of responsibility for this strategy rests outside of IT, CIOs almost certainly need to be involved to address integration requirements between new and existing products and services.

The other three strategies are more recent phenomena and have different impacts on different types of companies. The first newer strategy is digital marketing. Companies that haven’t traditionally worked directly with end consumers—such as insurance companies selling policies to corporations for employees — are realizing that they do indeed need to communicate with end users who are the ultimate decision makers. Social media has created opportunities—and expectations—for connecting with end consumers. In the case of insurance companies, they are starting to market to employees who can pick from an assortment of policies and even opt to pay for additional coverage. It’s common for the marketing department to take the lead, but IT needs to be ready to help out.

Another newer strategy involves digital operations. We’re already seeing manufacturing companies focus on this, as their production control systems are highly computerized and sensors provide an immense amount of data. We’re also observing it in high-volume transaction industries like financial services. The challenge is that current digital strategies are usually limited to using the Internet of Things to get more data. The next step is figuring out what to do with all that data to add value. It’s easy to become overwhelmed so this is an especially difficult strategy to design and implement, yet it also offers tremendous opportunities.

The final strategy is what we call the digital workplace. This is frequently viewed as an HR issue, but IT can and should get on board with this one now. As trends like remote work arrangements, collaboration technologies, and mobility allow frontline employees to take on more responsibility, decision making is pushed farther out in the organization. This leads to a fundamental change in how people work and the relationship of those employees with managers. It becomes critical to consider how organizations hire and train people as well as how they define roles because it leads to more effective use of people and information. CIOs need to learn how to leverage this because many HR units aren’t positioned for these changes.

Over time, we expect every company will be touched by all four strategies. However, each is significant on its own, so companies need to determine which ones to focus on and when. They need to consider: Where are the opportunities for a digital business strategy? Which strategies can make the biggest impact? Does the company have the right leadership and incentives in place for those strategies?

Is your company ready to take advantage of digital opportunities? Who will you work with within your organization to convert those opportunities into real value?

Jeanne W. Ross is director and principal research scientist at MIT CISR. She is leader of the 2014 MIT CISR research project, “Do You Have a Great Digital Business Strategy?”.

September 9 2014

Lessons on Total Digitization from Top Performers

Total digitization is a big challenge for all companies. It’s also a sizeable investment. Some companies are spending 25% of their operating budget on total digitization, so the stakes are already pretty high. It’s important for firms to implement the right approach to meet their growing digital needs.

In the first blog post of this two-part series, we identified three approaches to total digitization, based on an MIT CISR survey and studies of ten companies:

  • Convergence: Focuses on integrating synergies
  • Coordination: Focuses on coordinating for desired outcomes
  • Separate Digital Innovation Stacks: Focuses on innovating locally

We found that 21% of enterprises primarily use a convergence approach, while 53% use coordination and 26% use separate stacks. However, when we looked at top performers, we saw that 74% of businesses with above-average profit and 54% of those with above-average growth use some form of convergence for their key areas of digitization.

Digging deeper, we saw that top performers could be categorized into two profiles that we call “disciplined and customer-focused” (DCF) and “locally responsive and informated” (LRI). Each profile uses all three of the approaches above, but in different combinations.

DCF Companies

Companies that are DCF manage half of their digital investments using a convergence approach, a third with coordination, and the remainder in local stacks. These are often smaller enterprises with better customer experience. They also use an effective multiparty approval process for new digital investments.

Danske Bank is a good example of a successful DCF company. It uses a combination of strong convergence—it created an entirely new organization called Group Shared Services headed by the COO—with lesser amounts of coordination and local stacks to improve efficiency and promote local responsiveness in different countries. This approach worked well for Danske Bank as it absorbed six banks in five years, reduced operating costs by over 20%, and improved the customer experience.

LRI Companies

LRI firms manage more than two-thirds of their digital investments with coordination, nearly a quarter with local stacks, and the rest with convergence. These tend to be larger businesses with a higher number of reporting units and revenues. They often rely heavily on information sharing for coordination, and they invest in the management of their disparate operations. They also have more digitization in the IT budget, which allows IT to lead consolidation, standardization, and reuse.

Ferrovial, the world’s largest commercial investor in transportation infrastructures, is a high-performing LRI company. With a focus on innovation, Ferrovial combines strong coordination with some local stacks and convergence. More than 53% of its digital investment in operations and 75% in customer-facing areas use a coordinated approach. Other digital investments in those areas and across IT and G&A use convergence. This mixture of approaches allows it to reach a balance between local innovation and enterprise-wide reuse.

There are many lessons to be learned from how high performers manage digitization. Is your company DCF or LRI? How are you using convergence, coordination, and separate stacks approaches to achieve total digitization?

This is the second blog post in a two-part series on total digitization by Peter Weill, a senior research scientist and chair of the MIT Center for Information Systems Research (CISR), and Stephanie Woerner, a research scientist at MIT CISR. (The first post—How Are You Managing Total Digitization?—was published on September 2. You can read a research briefing related to this second post, “How Top Performers Manage Total Digitization,” with free registration on the MIT CISR website.

September 2 2014

How Are You Managing Total Digitization?

Since the 2008 economic recession, companies have looked to innovation to fuel growth. You see this in the wide range of digital investments for everything from mobile apps to business processes to financial products.

This has led to a significant increase in spending on digitization, but it’s often not managed as a whole. In an MIT CISR survey of over 2,000 CIOs, we found that only 39% of digital investment is in the IT budget. The rest is spread throughout the enterprise, creating as many as seven “islands” of digitization.

To better understand how companies are facing this digitization challenge, in addition to performing the survey, we studied ten enterprises and found three main approaches:

Convergence: This approach involves bringing all digitization investments together, usually under one executive. By extracting and standardizing what is common in products, you can then use these features in every product. This often requires creating a new organizational structure to consolidate people, data, infrastructure, skills, and management processes. The goal is to facilitate efficiencies and synergies across the company.

Commonwealth Bank of Australia is a good example of a company using the convergence approach. The company has combined operations and IT into a new unit headed by the CIO called Enterprise Services. As a result, the bank has reduced costs and become a leader in customer experience.

Coordination: Companies using a coordination approach retain their digital islands, yet build mechanisms or bridges to help deliver enterprise goals. Using coordination, BMW created two committees focused on digitization to meet specific company goals. As one of those goals was the design and delivery of a custom car within six days, the committees ensured that each island created and exchanged the necessary information to make that happen. This approach works particularly well when there are one or two company-wide goals like BMW’s custom car. For other companies, the goal might be meeting a new regulation, lowering costs, or improving customer experience.

Separate Digital Innovation Stacks: Enterprises that use a separate stacks approach focus on innovation and local management. Each separate stack—such as different product groups, business units, or geographies—runs its own part of the business autonomously to maximize its local value. These companies tend to have decentralized management and diversified businesses. You can see this at Microsoft, which runs Xbox differently (and separately) from Windows and Bing.

Total digitization is a significant opportunity and challenge, so it’s important for companies to find the right approach for their efforts. Which approach (or approaches) are you using for total digitization?

This is the first blog in a two-part series on total digitization by Peter Weill, a senior research scientist and chair of the MIT Center for Information Systems Research (CISR), and Stephanie Woerner, a research scientist at MIT CISR. You can read a related research briefing, “Managing Total Digitization: The Next Frontier,” with free registration on the MIT CISR website.

August 12 2014

Think Twice Before Selling Data

If selling data isn’t your primary business, you should think twice before you enter the market. The main reason for caution is that it’s not an easy endeavor. It requires a long-term commitment and tremendous effort to sustain competitive advantage.

However, it’s not impossible. Owens & Minor (OM) is a good example of a company that successfully monetized its data as a secondary business. In 1997, the medical supply distributor began selling information about the products and services it distributed from hundreds of suppliers to several thousand hospitals. That information, now called spend analytics, was bought by suppliers to improve decision making around procurement performance.

OM’s information offerings grew over time from reporting and analytics to also include self-service portals and professional services, and then business process outsourcing. Due to this evolution, the company needed to create a distinct division to focus on the information-based part of the firm. That division required unique capabilities, including advanced data and technology management, to cleanse, standardize, and augment clients’ raw data. When necessary, OM acquired or partnered with other businesses to quickly build these capabilities.

Much of that development was driven by competition. Once the company entered the information-selling market, other distributors began to follow suit. Whenever it delivered a new information-based product or service, other distributors—not to mention group purchasing organizations, vendors, professional services firms, and pure-play analytics companies—were quick on their heels with competitive offerings.

More companies than ever before are now interested in pursuing data monetization. Prior to leaping into this area, learn from OM’s experience:

  • Ensure you have strong competencies in data management and/or data science, technology, pricing, legal, customer service, strategy, and innovation
  • If necessary, invest in new hires and external partnerships to attain those competencies
  • Consider how you will price your new information products within an emerging market
  • Create a dedicated organizational unit accountable for business model execution
  • Understand that achieving and sustaining competitive advantage will be incredibly difficult
  • Be prepared to continuously evolve your offerings to ensure they remain valuable and rare

Are you prepared to enter the data selling market?

Barbara Wixom is a principal research scientist at the MIT Center for Information Systems Research (CISR), and recipient of a Society for Information Management International Best Paper Award in 2000 for “WISDOM Provides Competitive Advantage at Owens & Minor: Competing in the New Economy.”

July 22 2014

Are Your IT Systems Ready To Take You into the Digital Age?

Customers expect a lot from companies in the digital age. Ideally, all of a firm’s offerings solve relevant problems in a seamlessly connected way, while being geared to customers’ individual and differing needs and providing great experiences.

Fulfilling these expectations puts huge requirements on companies’ IT systems in terms of integration and flexibility. However, most large companies are still wrestling with a “spaghetti-like” IT landscape: a mishmash of different technologies employed in a plethora of systems interfacing via makeshift, crisscross connections. Expecting that these system landscapes can take you to the digital world is like expecting a 1958 Super Constellation to fly you to the moon.

Are your IT systems ready to support all of this? If not, it’s time to make some decisions.

Royal Philips recently had to go through this process. After a decade of flagging performance—with revenue reduced by 40%, years of losses, and a share price reduction of 60%—Philips needed to take action. In 2011, Philips’ new CEO Frans van Houten initiated the Accelerate! transformation (read the full case study of the transformation, “Transforming Royal Philips: Seeking Local Relevance While Leveraging Global Scale”).

As part of the transformation, Philips began introducing more innovations that appeal to local markets, e.g., shavers that cater to the differing facial hair needs of consumers in countries such as China and the US; are connected to the Internet, e.g., Philips’ hue LED lighting that can be controlled via smartphone; and work as integrated solutions that combine products, services, and software, e.g., the newly announced healthcare platform connecting Philips’ medical scanners, medical software, and analytics services.

However, in 2011 Philips’ IT wasn’t ready to support all of this. Recognizing that its massive complexity—it had 10,000 applications and 60 ERPs—was prohibiting change, Philips decided to scrap the legacy systems and build a new “green field” IT landscape.

To Philips, this was akin to building a space shuttle while flying it because the company had to rely on the old systems while simultaneously building the new “Philips Integrated Landscape.” The goal was to replace all legacy systems over time to standardize processes for innovation, sales, and the back office.

Thanks to changes in products, processes, and culture, Philips is making significant progress in its transformation. The company met its midterm goals for 2013 and its share price has doubled since its low in 2011. But a lot of the platform build out still has to be built.

Do you think Royal Philips’ “green field” approach is smart or crazy? How are you transforming your IT systems to meet the needs of the digital age?

Martin Mocker is a research scientist at the MIT Center for Information Systems Research (CISR). The full Royal Philips transformation case study linked above, as well as a research briefing about Royal Philips’ transformation—“How Royal Philips Is Moving Toward Its Complexity Sweet Spot”—can be read with free registration on the MIT CISR website. Please note that the research briefing is embargoed to all but members of MIT CISR sponsor and patron organizations until October 15, 2014.

July 8 2014

Are Your Business Rules Creating Business Success or Wreaking Havoc?

Increased automation is key to competitiveness in the digital economy. But automation requires articulating clear business rules and embedding them into systems. Once there, those business rules more or less run our businesses. They take or guide actions ranging from pricing products and services to ordering parts and supplies to defining partner relationships. Before companies started implementing ERPs in the late 1990s, most business rules were in people’s heads. Inconsistency was a big concern.

Automation addresses that concern; once embedded in systems, rules are reliably consistent. The question becomes: Are they effective? When business rules are managed well, they align operational activities to the strategic objectives of the company. But in our ever-changing business environments, how do we ensure that our thousands of business rules have the desired impact on business outcomes?

Just as automated trading rules have occasionally wreaked havoc on Wall Street, long-forgotten business rules can run amok in a business. The great danger with automated business rules is that no one is paying attention to them. Even carefully designed rules may prove counter-productive or eventually become outdated.

Allstate Insurance Company recognized the opportunities and challenges of business rules after it built a new claims processing platform. A team of IT and business people identifies rules related to claims processing, reviews their impact, and decides what changes are necessary. That team can determine which decisions should conform to automated business rules and which benefit from the discretion of an expert. Such analysis has helped the team reduce the time needed to process total loss claims from 40 to 14 days.

While automated business rules offer consistency, other business rules can empower a high-performing workforce. Some decisions demand personal judgment and creativity in order to achieve organizational objectives. In those cases, employees can be coached to optimize intended outcomes, such as speed, cost, and customer delight. 7-Eleven Japan, for example, has excelled by empowering salespeople to optimize inventory turnover through individual decisions about what should be put on the shelves.

At MIT CISR, our sense is that business rules are too often left unmanaged. Automated business rules must be owned by someone who regularly analyzes their impact and can easily change rules that aren’t working as planned—ideally through a rules engine that bypasses IT unit involvement. When rules are intended to guide individual decisions and activities, management must provide four things: clear goals; data to inform each decision; feedback on decision outcomes; and coaching on how to improve performance. And, as with automated rules, designated owners of rules must be authorized to analyze and change them.

In the digital economy, strategy matters but execution matters more. For better or worse, business rules are executing your strategy. Who is minding your business rules?

Jeanne W. Ross is director and principal research scientist at MIT CISR. Read related MIT CISR research briefingHow Business Rules Define your Business Strategy” and learn how Allstate is working smarter with business rules in Working Smarter: The Next Change Management Challenge with free registration on the MIT CISR website.

June 24 2014

Staying on Track in the Data Race

As the hype around big data begins to quiet down, more companies are focusing on how they can transform that data into insights and actions that lead to real business benefits. After all, what’s the point of a data initiative if it doesn’t add value?

We’re now seeing a race to achieve data-based business objectives, yet it’s a difficult race to win. In an MIT CISR study, we identified 100 obstacles companies can face in this process. Those included challenges like data quality issues, data integration problems, lack of engagement by business users, and even a lack of leadership or commitment for change.

While the obstacles are daunting, our study also identified ways to stay on track in the data race. They can be categorized by three sets of best practices:

Increase User Engagement

It’s important to get employees engaged in data projects. It’s common for users to lack the skills to be able to engage, to lack trust in the process, and to lack an understanding of the data. Or they might lack vision for how the insights can be used. By putting some skin in the game, employees can become more actively engaged in the development process. Companies can do this through approaches like using agile methodologies and co-location, or putting business unit hires in the IT unit or data-analytics groups within business units. With user-centric development, firms have a higher chance of investing in data that matters and producing actionable insights.

Develop Hybrids

Companies also should embrace the idea of hybrids. This means developing people who have a combination of business and technology skills. They can be business-savvy IT people or IT-savvy business people. Through hiring practices, employee rotations, and movement across and within IT and business units, organizations can develop a hybrid workforce. This is also supported with user-centric development of data projects, as hybrids have the technical skills and business knowledge to identify what data and insights are important.

Share Achievements

Successful companies on the data racetrack know the significance of internal marketing. When value is extracted from data, they make sure everyone knows about it. It’s hard not to get excited when your company says, “We just saved $X million because of how we are using data!” This can be done through videos, newsletters, knowledge-sharing portals, marketing campaigns, and even “dog and pony shows.” By highlighting the value produced from investments in data, vague ideas can be transformed into actionable and worthwhile initiatives.

If you’re running into some of those 100 obstacles, don’t get discouraged. There are a variety of ways to implement these best practices and get back on the racetrack.

What business initiatives is your organization addressing with data? Are you using these best practices to stay on track?

Barbara Wixom is a principal research scientist at the MIT Center for Information Systems Research (CISR). You can read the full research briefing “Winning the Data Race” with free registration on the MIT CISR website.

June 12 2014

It’s Time IT Is Part of the Business

For years, we’ve been talking about achieving business value from IT. Now it’s time for a change in language and attitude. Instead of referring to “IT and the business,” let’s talk about “IT and other parts of the business.” Why? It boils down to three reasons:

The digital economy is already here

We are in a digital economy and every business uses IT for many of its activities, from delivering great customer experience to implementing core business processes to collaborating globally. It’s even used for things like measuring the status of heavy equipment. It’s clear that IT is not only in the IT unit, but permeates the entire business. Indeed, a CISR survey found that in 2012 only 39% of the average company’s spending on digitization was in the IT budget. Moreover, eventually all of this digitization will be connected. Talking about IT and the business just makes no sense. Worse, it sets up an artificial separation.

Language is powerful and sets expectations

The term “the business” should refer to everyone in the company. After all, they’re creating value or else you’d get rid of them. We hear IT leaders say they want to be viewed, valued, and treated as full business partners. Why then would they define themselves differently with their language? What you say sends messages about you to your colleagues and has positive and negative impacts on your credibility and your career.

Use language to express what you think is the right positioning for you and your colleagues. Phrases that reference “the business” as an organization that doesn’t include IT are the prime culprits here. Examples include: “I need to check with the business.” “The business needs to figure out what it wants.” The implication is that the person making the statement isn’t part of “the business.”

A far more powerful position is to refer to IT and the rest of the business or to specific departments by name. For instance, you could say, “I need to check with product development on that,” or “I’m working with my colleagues in sales and channel management to develop the customer experience metrics.” Changing just a few words moves IT from an order-taker to a proactive business leader. The adjusted language builds credibility, sets expectation, and helps to create a self-fulfilling prophecy of a single-enterprise team that creates business value.

Create business value, not IT services

In the end, action speaks louder than words. Back up the language with actions a business colleague would expect, such as deeply understanding your company’s industry, being up-to-date and competent in your specialty (finance, IT, marketing, etc.), bringing creativity to the table, delivering what you promise, and sharing early signs of trouble. And, of course, expect similar teamwork, transparency, and clarity from people in the other parts of the business.

The job of creating business value is not finished after world-class IT services are delivered and consumed. It’s much more interesting than that. Did we commit as an enterprise to a good operating model? Did we enable our people and use our technology to deploy that operating model effectively? Did we hold each other accountable for dates and costs and did we deliver value that’s measurable in the marketplace? Do those things and there will be no problem convincing anyone about your value.

Admittedly, we’ve been guilty in the past of referring to IT and the business. But no more! Future profitability depends on effective digitization and that’s all about IT. It’s about IT and the other parts of the business working together to create value. So let’s take the pledge: Banish the phrase “IT and the business,” and instead say, “IT and the other parts of the business.” It’s a simple—but powerful—change.

Peter Weill is a senior research scientist and the chair of the MIT Center for Information Systems Research (CISR). David Wright is a consultant and former divisional CIO at Capital One.

May 30 2014

Managing Complexity While Offering Simplicity: What’s Next for ING Direct Spain?

A lot of companies start out offering a single product or service. This keeps things pretty straightforward. After all, you can’t get any simpler than being a one-product company.

However, complexity increases as businesses grow. ING Direct Spain is a good example. In 1999, it began with one savings product. But by 2012 it offered payment accounts, credit cards, investment funds, pension plans, brokerage services, mortgages, personal loans, life insurance, and savings accounts. It didn’t strategically plan for this growth back in 1999. Instead, it grew into the new product categories based on customer demand, success, and an entrepreneurial spirit.

The big question for growing companies like ING Direct Spain is how to manage this increasing product complexity while maintaining simplicity for customers and employees. So far, ING Direct Spain has maintained simplicity by architecting for complexity and focusing on three key areas:

Culture

The company has retained a strict focus on customer experience and enterprise-wide thinking. It puts the customer first, making customer satisfaction a key metric. An example is the way customers open new payment accounts, which in most direct banks traditionally requires multiple steps. ING Direct Spain removed that hassle so customers complete the entire process in a single step. Even employees who aren’t usually in customer-facing roles—like many IT employees—have to regularly do customer-facing work (e.g., in a branch or call center) for a day to not lose touch with the customer. It recognizes that the only way to retain and acquire new customers is through satisfaction and recommendations and that everyone needs to share this mindset.

Organization

The bank also emphasizes cross-functional teams and holds forums to resolve cross-functional conflicts on multiple levels. This is coupled with financial incentives. Employees’ rewards also depend on the overall performance of the bank. They are incentivized to care about the entire company rather than just a single product or department. Simple rules keep employees focused on adding value when they add complexity. For example, every new product has to have the potential to generate at least 5% of the bank’s revenue.

Information Technology

Of course, any new products or changes to existing products will risk adding internal complexity, particularly in the IT systems. To address this issue, the bank emphasizes building and protecting digitized platforms that are designed for reuse and modularity. An example is how customers and call center employees rely on the same technology components. Instead of duplicating functionality, ING Direct Spain reuses the functionality despite different user interfaces. And with the vast majority of customers interacting with the bank digitally, the company involves IT architects early in the product development cycle.

As the bank continues to grow, the next big question is whether all of this is enough? What else should the bank do to continue managing the increasing complexity while maintaining simplicity?

What would you recommend to ING Direct Spain? Please post your comments below, and hear what others have to say in a video of a discussion of the ING Direct Spain case study with CIO Enrique Avila and former COO Werner Zippold. You can also read the full case study, “ING Direct Spain: Managing Increasing Complexity While Offering Simplicity.”

Martin Mocker is a research scientist at the MIT Center for Information Systems Research (CISR).

May 13 2014

Trying to Digitize? Learning How From Emerging-Economy Companies

Who is leading the world in terms of digitization? Surprisingly, it’s not developed countries. In 2012, we saw a significant flip, with emerging economies now at the front of the pack. Companies in those economies are spending more on digitization, are outperforming, and are faster to market with new offerings than businesses in developed countries.

In a survey of 354 companies in 19 countries, MIT CISR found that emerging markets spend 35% more on digitization as a percentage of revenue relative to the global industry average. At the same time, they are spending less on running existing systems: 52% compared to 62% in developed economies. They are spending more on new initiatives: 48% compared to 38% in developed economies. And they are more digitized with core business processes. Add a faster time to market, better customer experience, and higher revenue from innovation, and you have an impressive scorecard for emerging versus developed economies.

Why is there such a big divide? We have a few theories. First, the lack of heavyweight legacy systems in emerging economies means companies can more easily jump on new lightweight technologies like mobile and cloud. In contrast, developed economies have legacy systems to maintain and secure, which costs money.

The second theory involves attitude. Companies in emerging economies are more open to digitization. This is evident in their faster growth. Our survey shows that while margins are similar for both emerging and developed economies, the developed-economy companies grew three times faster in the same industries.

Our third theory is that emerging economy companies have better learned lessons about what it takes to digitize. These include:

  • Transparency—They make costs and performance metrics for each unit transparent. They review those centrally and provide recommendations for poor performers.
  • Strategy—They implement an enterprise-wide strategy process that includes digital spending plans.
  • Business Case—They use an enterprise-wide business case and capital allocation process.
  • Approval Process—They have adopted a multiparty approval process for new digital investments.

It’s all about mindset and how you approach digitization. If you’re a developed-economy company and have operations in emerging markets, why not try some of these approaches in those emerging market operations? It may be harder to implement change in the US or Europe, but try it out in another part of the world. Learn what works and then scale it.

Are you an emerging- or developed-economy mindset company?

Peter Weill is a senior research scientist and chair of MIT CISR. Stephanie Woerner is a research scientist at MIT CISR.

April 22 2014

Shadow IT: Asset or Liability?

Shadow IT keeps many CIOs awake at night. For years, they’ve been worried about how to rein in renegades. But some CIOs are starting to think differently. They look at what we’ve called shadow IT as just one of many IT resources they orchestrate to address business demands.

Adopting a new attitude toward shadow IT requires trust. CIOs need to trust that business users will run projects by IT before they go off on their own, and business users must trust that IT will facilitate, rather than obstruct, their efforts to address local needs. To ensure this happens, it appears that companies need highly effective IT-business relationship managers. These relationship managers take responsibility for understanding both enterprise-wide and local business needs and negotiating priorities. See our January 2014 research briefing, “Demand Shaping: The IT Unit’s New Passion,” for a description of the tools that help relationship managers achieve their goals.

Although shadow IT can become an asset to the organization, Keith Zecchini, CIO at Parsons Brinckerhoff, reminded me that there is a tipping point. Local innovation is great, but only if IT has gained control of shared infrastructure and common enterprise systems. Otherwise, shadow IT can spell disaster.

Southwest Airlines offers an example. It created a shared environment for enterprise systems, but only after auditing all of the company’s shadow IT—literally collecting the random servers sitting under desks. After eliminating nefarious shadow IT activities, IT and business unit partners could then restore some local autonomy in ways that work for everyone.

The good news is that this conversion from liability to asset is becoming less challenging as enterprise processes are put in place. For instance, some companies like Citrix have developed business rule engines (you can purchase these too), which empower employees to adapt systems for their own needs. So if a manager needs to change a formula for something like an automated discount, that individual can make the change without going through IT. Another example involves analytics. The IT unit can set up a data warehouse and tools to allow users to conduct data analysis on their own.

Effective shadow IT requires careful set up, but the technology is out there to make it easier to actually introduce such activity in a disciplined manner. Have you architected your systems environment in order to welcome shadow IT? What secrets can you share?

Jeanne Ross is director and principal research scientist at MIT CISR.

April 8 2014

Driving Value with Big Data

Organizations are relying more and more on big data, but what does it mean to be good at this? What are the best practices when it comes to driving value?

For answers, we looked at comScore, which has been amassing, analyzing, and selling data for fourteen years. To be sustainable, its data not only has to be useful, but actually used by paying customers, or it would have gone out of business long ago. We can learn a lot from comScore by deconstructing its secret sauce, which has three main ingredients:

The Platform

The first ingredient is a cost-efficient, scalable data platform. The key word here is: platform. It’s not just about putting data together to enable a specific process or decision. Rather, the platform must be able to grow and change over time, as data delivery might look very different in five years. It can be off-the-shelf rather than proprietary, because the platform in and of itself isn’t the thing that delivers value. However, it provides the foundation for the process.

The People

The second component is having an analytics-savvy workforce. Many companies think they can simply hire a few data scientists, and all of a sudden they will become good at delivering value through data. However, it takes more than a handful of individuals. You see this at comScore, where everyone across the organization participates in delivering value from data. That extends from the tech people all the way to the business-focused managers. Each group has different skills, but they overlap enough so that they can all communicate.

Actionable Insights

The final ingredient—and perhaps the most important—is actionable insights. At the end of the day, you add no value if no one is using your data. This is challenging because it’s hard enough to get people inside your organization to use data, but to engage others outside your organizational boundary is extremely difficult. The key for comScore is being close enough to its customers to understand their needs and ensure it is creating the right products to meet those needs.

Selling Data?

These are important lessons for any company trying to deliver value from their data initiatives, but they also apply to companies looking to enter the data-selling market. This is an interesting trend, as more companies think about how to profit from the data they collect and analyze. However, you don’t just enter the data game. You need to understand what makes a data analytics company like comScore viable and be able to emulate those capabilities. Do you know how data is adding value to your organization today? How are your employees using it? What decisions are made based on it?

Barbara Wixom is a principal research scientist at MIT CISR. You can read the full research briefing on comScore with free registration on the MIT CISR website.

March 24 2014

Business architecture: Is it happening in the right place?

In the digital age, we think that architecture matters even more for the long-term success of organizations. However, when we hear about architecting, it’s often related to IT. The term isn’t very common on the non-IT side of the business, yet architecture impacts the entire company.

At MIT CISR, we’ve launched a research project, “Making Architecture Matter Beyond IT,” to address questions like how architecture can have a broader impact; how non-IT executives embrace architecture; and how architecture principles have been adopted and sustained, and if they actually make a difference.

Clearly, business architecture is becoming a more established function. In a 2011 MIT CISR survey, almost half of the 146 responding firms had a business architecture function. And if you type in “business architecture” as a search term at the job-search site Indeed.com, you’ll find around 1,000 postings. That’s a lot. (But it’s still little compared to the 50,000+ postings you’ll find if you search for “project management.”)

Despite its gaining prominence, is business architecture growing in the right place? To kick off our research project, we conducted a quick online poll in which we asked participants where their business architects are located (if they have any) in the organization. About 60% of the 118 respondents said their business architects are within IT. That compares to about 50% in our 2011 survey. In companies where those roles are outside of the IT unit, most are distributed among different business units rather than at a corporate level.

It’s probably natural for this role to organically grow in the IT department, but shouldn’t senior leaders be thinking beyond organizational structure? Shouldn’t they be mapping out how all components of the business—including digitized capabilities—work together to help achieve the company’s purpose?

We’d like to hear how you are implementing high-level architecture. How are you engaging non-IT leaders (or senior executives)? What are you architecting and what is the impact?

Martin Mocker is a research scientist at the MIT Sloan Center for Information Systems Research (CISR).

March 5 2014

A Tribute to Jack Rockart

Jeanne Ross delivered the following tribute to Jack Rockart at a memorial service on March 1. Jack Rockart, co-founder of MIT CISR and its director from 19742000, passed away on February 3, 2014.

I’m Jeanne Ross, the current director of the Center for Information Systems Research, also known as CISR, at MIT’s Sloan School of Management. I am here to pay tribute to Jack’s extraordinary academic career, or to use Jack’s term, his TERRIFIC academic career.

Jack is best known for co-founding CISR and serving as its director for 26 years. In that role, Jack showed that research could help improve management practice. His passion for practice-based research helped establish the academic discipline of Information Systems. I think of him as the father—or perhaps grandfather—of IS management.

As a researcher, Jack is probably best known for the concept of critical success factors—a simple framework for helping executives focus IT resources on their most strategic business needs. Over time, he taught critical success factors not only as a valuable practice for managing IT, but as a valuable way of managing your life. Each year when he taught the CSF session at CISR summer session, he would eventually get to a part where he described how he had come to realize that his CSFs for his personal happiness were his wife and children. There wasn’t a dry eye in the place by the time he finished. And I can tell you that it isn’t often that an IT management session brings people to tears.

Jack was a great researcher, but he was an even greater teacher. He taught both executives and MBAs, but I mostly saw him in executive sessions. In the classroom, he would describe something he had observed, and then he would say, “I submit to you…” and finish the sentence with a unique insight. He would then encourage people to either reinforce or debate his point. Typically, the class was electric.

When he taught, Jack liked to put up overhead transparencies that were nothing but a set of empty boxes and then gradually fill in key steps or components of a simple but powerful framework for understanding IT management. He would point to one of the boxes and say, do you know what this is? Of course, we knew exactly what it was—an empty box! He once showed a slide with six empty boxes and said, “Here’s what Jeanne and I are thinking.” All I could think was, “What ARE we thinking?” But Jack would start filling in boxes and we would see the light. It was consistently amazing. His students rarely forgot the experience. I still regularly meet people who tell me that Jack Rockart’s teaching changed their lives.

Like everyone who ever had the honor of working with Jack, I am personally grateful for all he taught me. He shied away from no topic, including what was interesting and what wasn’t, what was funny and what wasn’t, even what to wear and what not to wear. His female-dominated staff, who affectionately referred to themselves as the CISRettes, appreciated his mentorship, his good nature, and his personal caring. More than once he found me sobbing because I just wasn’t getting through to our audience. He would pick me up, brush me off, and send me back into the ring.

And he not only advised CISR staff. It was not unusual for Jack to welcome young researchers into his office. He would listen to them describe their research and often say, “There’s a pony in their somewhere.” For those who don’t know this saying, it means if you keep looking, you are likely to find something valuable in your research results. That simple statement has comforted and even inspired legions of Ph.D. students and young faculty. Even though, if you think about it, a pony is not, say, a horse. What’s more, when Jack said it’s in there somewhere, he was admitting he couldn’t quite find it. But he was saying don’t give up. And that was enough for a young researcher to rejoice that no less than Jack Rockart had praised his work.

Despite his expertise in IT management—or perhaps because of it—Jack was a cautious user. He took a lot of grief for resisting the emerging fad of projecting PowerPoint slides from a computer. He preferred overhead transparencies, insisting that PowerPoint technology wasn’t ready for prime time. Truth was, in the late 1990s, this often turned out to be true. To his credit, when one of us couldn’t get our slides to show, he tried valiantly not to smirk, but he usually failed—I certainly caught him smirking. But at least he never said, I told you so.

In theory, Jack retired in 2002, but he never really retired. He continued to come to CISR sponsor events, to participate in our weekly research staff meetings, and to advise research scientists on their research and presentations.

And as we were throwing his retirement party, he was agreeing to serve as editor in chief of MISQE, a new academic journal written for a practitioner audience. Jack insisted he couldn’t agree to take on the EIC role without Elise’s blessing but, once he secured that, he was all in. He tirelessly negotiated, advised, enticed, cajoled, encouraged, and congratulated authors, funders, reviewers, and editors. He brought credibility to a journal that is now in its 11th year of publication. MISQE was the last of his many terrific contributions to a field that will forever be in his debt.

As we at CISR and throughout the IT discipline carry on without Jack’s insights and encouragement, we are reminded that our time on earth is limited, but our impact on the lives we touch need not be. I know I speak for many here when I thank God for the gift that was Jack Rockart. I miss you, Jack. Thanks for your good counsel and your great friendship.

Share your memories of Jack Rockart in the comments on the MIT CISR Blog post from February 5.

February 5 2014

MIT CISR remembers Jack Rockart

Jack Rockart, the beloved co-founder of MIT CISR and its director from 19742000, passed away on February 3, 2014. Although Jack had retired from CISR in 2002, he remained active until last year, participating in weekly research staff meetings, attending CISR sponsor events, and counseling researchers on their projects and presentations. His passion for IT management research inspired future generations of academics; many can trace back to an interaction with Jack as a pivotal moment in their career development. And many of his former students credit Jack with profound insights that guided their IT management careers.

Special Note: The John F. Rockart Memorial Fund has been set up at MIT to provide support for PhD students at MIT Sloan with preference for students in the IT group (by tyler). If gifts to the fund reach $100,000 by June 2019, the fund will be an endowment fund. To make a gift to this fund, please go to https://giving.mit.edu/givenow/ConfirmGift.dyn?desig=3898240.

Jack Rockart

We at MIT CISR mourn his loss while thanking him for his enormous contributions. Please share your memories of Jack.

Read the tribute that MIT CISR director Jeanne Ross delivered at the memorial service
for Jack Rockart on March 1.