Structural Talent Challenges Limit Ability of Some IT Organizations to Add Value
MIAMI & LONDON, August 7, 2014 - World-class IT organizations now deliver services at 22 percent lower cost than typical companies, and operate with 9 percent fewer staff, in part by reducing technology complexity and realigning talent, according to new benchmark research from The Hackett Group, Inc. (NASDAQ: HCKT).
The Hackett Group's research estimates that a typical large company (with $10 billion in revenue and about 21,500 end-user equivalents) could save up to $36 million annually by achieving world-class performance levels in IT, freeing resources to focus on higher-value activity and innovation.
The research also finds that talent is emerging as a major challenge to improved IT performance. Offshoring and other factors are causing limited availability of staff with skills that are in high demand, and are likely to create a bottleneck to raising the value contribution for many IT organizations.
"The role of IT has changed dramatically in the past few years," said The Hackett Group Vice President of Research Erik Dorr. "IT has become a key driver of the innovation-based growth strategy that most companies are relying on. 'Digitization,' the explosive growth of data volume, and the integration of technology into virtually every element of the corporate world has created a tremendous opportunity for IT to have a positive impact on the bottom line. We believe that unlocking the value of IT throughout the entire value chain is critical for companies that wish to dominate their industry in the future. World-class IT organizations are well on their way to achieving this today, and set an example others can learn from."
In addition to operating at lower IT costs and with fewer staff, world-class organizations also allocate costs very differently than their peers, The Hackett Group's research found. They spend nearly 30 percent more of their IT budget on build activities that contribute more to improving business processes, and nearly 13 percent less on day-to-day run activities.
Overall, world-class organizations universally reflect two key IT strategy themes, the research found. They operate with lower technological complexity and are better able to realign technology talent to support business strategy.
Managing IT Complexity
Complexity reduction is a clear key to world-class IT performance. World-class IT organizations have dramatically simplified and streamlined a wide range of their operations, according to The Hackett Group's research. This includes utilizing 80 percent fewer technology platforms and 37 percent fewer applications. They also see dramatically lower levels of hardware and software complexity. In addition to helping achieve cost reduction goals, the research found that complexity reduction also helps companies achieve much higher levels of IT effectiveness.
This complexity reduction has an impact that reaches far beyond IT, the research found. It helps reduce process costs in other key business operations areas such as finance and procurement. The research found a very strong correlation between with low application architecture complexity and both reduced operating cost in these functions and reduced technology cost.
Companies aspiring to world-class performance should pursue several best practices to manage IT complexity, the research recommends. They should strengthen enterprise architecture governance to drive the use of standard technology platforms and common data definitions across operating units. Equal emphasis should be placed on cost and flexibility/agility when evaluating solutions. Companies should consider ways to increase their use of cloud-based SaaS (Software as a Service) applications, enterprise versions of consumer applications (e.g., Dropbox) and BYOD (Bring Your Own Device) policies to reduce the number of non-strategic platforms and improve end-user satisfaction. But care is required, particularly with BYOD, where many companies find it difficult to generate cost savings.
To achieve world-class performance, IT organizations also realign their technology talent - including adopting talent management best practices and mobilizing technology talent beyond the boundaries of the function's organizational silo. In particular, as complexity is reduced and IT organizations increase their focus on higher-value activities, they often need to develop new skills and competencies among their IT staff.
In several key areas, The Hackett Group's research finds that skills may become difficult to acquire over the next few years, as a result of increasing demand and limited availability. The problem is accentuated by the trend towards offshoring and outsourcing, which have largely eliminated the internal "farm system" through which IT departments developed new talent.
These talent issues are likely to make it significantly more challenging for IT organizations to increase the strategic value they provide. Among traditional IT skills, security expertise, emerging technology, and application development/configuration skills are all expected to become more difficult for IT organizations to acquire. In several other skill areas which are required for IT organizations to partner more effectively with the business, a similar trend is expected. These areas include data and strategic analysis, business relationship management, and technology leadership roles.
The Hackett Group's research identified several best practices that world-class IT organizations use to realign talent. They mobilize talent already residing in the business, often putting "business technologists" in charge of technology-based innovation. They institute a strategic workforce planning process which takes a long-term view that ties talent strategy to the broader enterprise strategy. And they adopt a comprehensive set of talent management practices, including less formal techniques such as coaching and mentoring, leadership development, and on-the job training, which have been found to be highly effective.
A final best practice in talent management involves optimizing service placement to realign technology talent and realize "economies of skill," the research found. Service placement involves deciding where IT work is executed -- such as in the business unit, in the corporate IT organization, or in a centralized shared services or global business services (GBS) organization. While the optimal split among these options varies somewhat by company, The Hackett Group's research has consistently found that centralizing work in an organizational entity with a core competency in service management, such as a GBS, improves IT performance and allows corporate IT and business units to realign talent toward higher-value activities.
The Hackett Group's 2014 IT World-Class Performance Advantage research is based on an analysis of more than 100 in-depth benchmark studies performed at large companies over the past few years. A complimentary excerpt from The Hackett Group's research insight, "The World-Class Performance Advantage: How Leading IT Organizations Outperform Their Peers," is available with registration at this link: www.thehackettgroup.com/research/2014/pr/wcpa-it/
The Hackett Group (NASDAQ: HCKT), a global strategic business advisory and operations improvement consulting firm, is a leader in best practice advisory, business benchmarking, and transformation consulting services including strategy and operations, working capital management, and globalization advice. Utilizing best practices and implementation insights from more than 10,000 benchmarking studies, executives use The Hackett Group's empirically-based approach to quickly define and implement initiatives that enable world-class performance. Through its REL group, The Hackett Group offers working capital solutions focused on delivering significant cash flow improvements. Through its Archstone Consulting group, The Hackett Group offers Strategy & Operations consulting services in the Consumer and Industrial Products, Pharmaceutical, Manufacturing, and Financial Services industry sectors. Through its Hackett Technology Solutions group, The Hackett Group offers business application consulting services that help maximize returns on IT investments. The Hackett Group has completed benchmark studies with over 3,500 major corporations and government agencies, including 93% of the Dow Jones Industrials, 83% of the Fortune 100, 87% of the DAX 30 and 48% of the FTSE 100.