Expert View published at 09/06/2016

Digitization changes the corporate IT organization – actively embrace or passively accept?

by Andreas Zilch, Lead Advisor – SVP User Business

IT is becoming increasingly important due to digitization and this is clearly recognized by management. In addition to technology and processes, this also requires some organizational changes – upgrading the IT department or establishing new digital business units (DBUs). The decision criteria for both alternatives are manifold and must be carefully analyzed and evaluated.

Expert View Level: Operational

Sectors concerned: All

Topics covered: IT management, Offshore & Global Sourcing

Degree of urgency: Medium

Languages: english, german (click here)

“Digitization” has become an important topic in German companies, especially in the SME sector. Not only IT departments are concerned with the possibilities arising from new technologies and processes, but also management recognizes the need, opportunities and possible risks involved in digitization.

In addition to the business model and technological and process-related issues, organizational changes are also an important component of the future digitization strategy. Information technology is undoubtedly a driver of future development, which would suggest an organizational classification of “digitization” in the IT department. On the other hand, the IT department has a variety of tasks in the company, which can be characterized as “run the business”, e.g. the sound, smooth and cost-effective operation of the ERP (SAP) backbone. Thus, there are often doubts as to whether an IT department is dynamic and flexible enough in its current state to make digitization a success.

Another possibility is to assign an important department (e.g. production) with the role of implementing the digitization strategy. This major department might have the necessary assertiveness, but it does not have the overall view of digitization and its comprehensive processes and would therefore produce only suboptimal results.

The third approach – to which around 60 percent of German companies with more than 5,000 employees are giving considerable thought according to a PAC estimation – is to create a new digital business unit that reports directly to management. The independence and thus the potentially high degree of flexibility would mean that this model could be successfully implemented with little concern for ‘inherited burdens’. However, this scenario also poses a risk – integration with existing business models, processes and systems could be completely lost by too much independence – but sometimes this is exactly what is desired. The new DBUs are often set up under their own individual legal status and are geographically separate from the company headquarters.

This would not be a positive development from an IT department perspective since the latter would then largely be reduced to the operation of existing systems and would only serve as executor for IT-driven innovations.

But since the use of technology, networking and the integration of horizontal processes beyond organizational borders belong to the domain of the IT department (or at least should belong), we at PAC believe that the best organizational model would be one that includes a key role for the IT department.

This is shown in the following org chart:

The current CIO (Chief Information Officer) would be assigned the task of “innovation” and would thus change to CIIO (Chief Information & Innovation Officer). Since the challenge of the various requirements for “stability”, “dynamics” and “speed” remains, two other departments would be created that would be assessed and managed according to different KPIs.

Bottom line:

Companies need to be aware that digital transformation also implies organizational change. This must be well thought through, and PAC recommends a leading role for the IT department.