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.