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This book examines the massive changes currently taking place in the business world and commonly known under the label “digitalization.” In addition, it describes the significant impacts of technological innovations on processes, products, services and business models.

The digital transformation resulting from these developments leads to disruption for many enterprises and industries. While for many years, IT departments mainly concentrated on fulfilling the requirements of business departments effectively and efficiently by means of high-quality IT services and operations, today’s IT departments are increasingly expected to actively co-design and co-create the enterprise.

This book describes how information technology enables innovation for businesses, and how IT departments can proactively and in a timely manner collaborate with the business departments of their corporation to leverage these innovations. It also delineates the implications of digitalization for the structures, processes and people in today’s IT departments. IT leaders and managers who are responsible for corporate IT, as well as practice-oriented researchers, will find valuable inspirations and guidance in this book, the central mission of which is to encourage and enable a more proactive role for IT in the digital transformation processes.

"This book demonstrates the impact of digital transformation on IT organizations and their management. It also presents potential risks for technology availability, security and data protection. The authors develop a vision of what IT management should look like in ten years if it is to continue playing an important role in the company. The book seeks to motivate IT executives and managers with IT responsibility to actively adapt their thinking and their IT organizations before they are forced to react to external pressure. Definitely worth reading!"

Sven Kreimendahl, Director Business Technology Services, Campana & Schott

Inhaltsverzeichnis

Frontmatter

The Digital Revolution: How Technological Trends Change the Business World

At present, the business world is changing drastically. Applying and using new information technologies in the business context lead to a significant change. In certain cases, it can even lead to the displacement of established business and value chain models—and this at an enormous speed. British journalist, Hamish McRae, exemplifies this change with the companies Uber, Facebook, Alibaba, and Airbnb. These four companies can be regarded as purely digital companies, since their Internet-based business models are fundamentally based on the innovative use of modern information technologies. All four companies are also market leaders in their respective segments and have replaced established competitors in a relatively short period of time. A closer look reveals to what extent the new, successful market players differ from their competitors who have “traditional” business models. Uber is, for instance, probably the largest taxi company in the world, but does not own a single taxi. The world’s most popular media company, Facebook, does not produce its own content. Alibaba, the world’s largest retailer, maintains no warehouse stock levels. And Airbnb, the world’s largest provider of accommodation, does not own hotels. Hamish McRae summarizes the development as follows: “Something big is going on” [1]. In addition to the intensity of these developments, the speed of transformation is remarkable. A central reason for this is the changed speed at which users accept new media at the consumer level. While radio took 38 years and television 13 years to gain an audience of 50 million people, the Internet’s “conquest” took only 3 years. Recent Internet-based services such as Facebook, Twitter, and Instagram took less than 12 months [2].
Nils Urbach, Frederik Ahlemann

The Development of Corporate IT: From the Beginnings to the IT Department of the Future

Due to the trend towards digitalization that is described in the previous chapter, it is crucial for many companies to successfully, effectively, and efficiently produce innovative business and value creation models, to develop appropriate IT solutions, and to realign their own companies in order to remain competitive. In this context, the concerned IT departments are called upon to play a proactive role in the innovation process and to accompany, or even drive, the changes regarding the necessary IT support. At present, however, the majority of IT departments do not yet fulfill this role completely, because they—as reactive service providers—often do not have the structures, processes, or skills to systematically develop (business) innovations. Furthermore, IT departments are often perceived as bureaucratic, inflexible, and not on an equal footing with the business departments. For example, in the event that business departments request short-term changes to information systems, the changes are not implemented quickly enough—from their point of view—if the IT department’s timeframe for making the changes is too long. However, in the digitalization context, the ability to quickly modify information systems is of great importance. The question that arises at this point is why it appears as if corporate IT, in many cases, is not optimally positioned for the challenges of the digital transformation. In order to answer this question, we need to give an overview of the most important development steps in corporate IT. Understanding this history, should help better determine the changes that are necessary for the digital transformation.
Nils Urbach, Frederik Ahlemann

No Business Without IT: IT Is the Central and Indispensable Driver of Entrepreneurial Value Creation

Information technology is already an important production factor in the majority of companies. In certain industries, IT has also become a strategic resource without which business activity is unthinkable. Banks and insurance companies are examples of this. So, what is new? In order to understand how important IT is for the future, it is necessary to understand how today’s information technology can radically transform value creation and support processes in companies. We presume that, as a result of the digital transformation, IT know-how will be necessary throughout the company. The use of IT will no longer only apply to business processes, but increasingly also to the products and services on offer. IT is therefore becoming a resource that is essential for survival. IT will become significantly more comprehensive, interconnected, autonomous and, above all, creative. Successful future companies often use existing business models only as a starting point for further business development. Accordingly, the demand for faster IT solutions will be even higher in future. The faster they are specified, implemented, and put into operation, the better the companies will succeed in conquering markets and securing competitive positions.
Nils Urbach, Frederik Ahlemann

Development and Operation Are Not Decisive: IT Management Follows the “Innovate-Design-Transform” Paradigm

Ever since its inception, information technology has been viewed as a means of automating and rationalizing business processes. Unsurprisingly, in the years of its development, corporate IT has developed ever more professional structures and processes to accommodate the needs of business departments, plan appropriate IT support, implement them, and then operate and offer them in the form of IT services. IT departments often work in a reactive way, that is, they “wait” for the wishes of the business departments. They are thus usually perceived as internal company support functions or service providers.
Nils Urbach, Frederik Ahlemann

Shadow IT as a Lived Practice: IT Innovations Are Developed in Interdisciplinary Teams Within the Business Departments

The majority of IT projects are still initiated by a company’s business units and only then reactively implemented by the IT department. Due to relatively slow coordination and implementation processes, as well as long development cycles, the resulting IT solutions are often not innovative and rarely disruptive. Consequently, corporate IT is perceived as a service provider rather than a creative innovator. As a result of the increased pressure for change in digital transformation and the ever more convenient sourcing possibilities of cloud computing, the business units are becoming increasingly active with regard to IT solutions—independently and without the involvement of corporate IT. The result is the “individual data processing” or “shadow IT” phenomenon, which is viewed as problematic, specifically regarding the compliance, security, and architecture requirements. In this context, we ask ourselves whether this separation of IT and business is still appropriate in the light of digitalization. We come to the conclusion that IT innovations should ideally be created where they will be used—namely in the business departments. For this purpose, experts from all relevant areas should be involved and work together. This makes the “official shadow IT” a lived practice. In this chapter we discuss the shadow IT phenomenon and present our view on the future cooperation model between the IT department and the business units.
Nils Urbach, Frederik Ahlemann

Innovations Through Networks: Turning Strategic Suppliers into Innovation Partners

There are two reasons why digitalization will lead to greater dependency on external partners than ever before: First, the gradual reduction of vertical IT integration leads to a shift whereby activities are externally outsourced. The keywords in this context are IT outsourcing and cloud computing. Second, the digitalization of many companies requires skills and competences that are not yet available. Although these can be developed in-house, it takes time, which is rarely available. For this reason, partnerships and networks will become more important. For example, trends such as smart grid or smart home technologies will have a lasting impact on the energy sector. Intelligent systems can search for relevant patterns based on mass data concerning the usage behavior of energy consumers to optimize energy consumption, as well as energy generation and supply. However, only a few energy companies have the necessary IT know-how to implement these disruptive innovations completely on their own. In such a case, strategic partnerships with technology companies can be an option to address the lack of competence. In the following, we describe and discuss the trend towards innovation partnerships. We first review the traditional sourcing strategies and their limitations.
Nils Urbach, Frederik Ahlemann

Focusing on the User: Development Processes are Agile, End-User-Centered, and Merged with the Operation

In many companies, software development processes are largely organized according to the waterfall model. Therefore, the different development phases occur sequentially from analyzing the requirements to the specialized and technical conception, implementation and testing and all the way to the go-live—usually with minimal feedback possibilities between the phases. Development activities focus strongly on technology and function, while user needs and acceptance have hardly been taken into account thus far. This approach appears to be limited in its suitability for the demands of the digital world. If the traditional software development processes from the corporate context were applied to the development of modern apps in the consumer context, there would only be an update every few months or even years. The app would therefore not be successful on the market, since users are presently accustomed to continuous background updates—and therefore to always having up-to-date applications. In times of digitalization, more and more application systems are also aimed at company external users, such as apps for customer service, marketing or sales, but also portals for suppliers and partners, so that user interface design, in particular, becomes a competitive differentiating activity. At the same time, the employees themselves are also becoming increasingly demanding. Particularly the digital natives—people who grew up in the digital world—are becoming less and less tolerant towards poor user-friendliness of software systems.
Nils Urbach, Frederik Ahlemann

Infrastructure as Commodity: IT Infrastructure Services Are Traded on Free Markets and Purchased as Required

In the context of the developments described above, IT infrastructures will be more important than ever before. In future, not only individual business processes, but also entire business models and the continued existence of companies, will depend on the stability, availability, adaptability, and security of IT infrastructures. Furthermore, infrastructure services are presently more standardized, which is why the term “commodity IT” has become established. Specialized service providers can offer a quality that many companies do not achieve in their own IT departments. The question why an internal IT department should still operate its own IT infrastructures, arises in this context. In fact, we predict that the future corporate IT will only in isolated cases use their own servers, configure middleware, and install security patches, and we assume that external service providers will completely take over these parts of the IT value chain. That is not all: Virtualization technologies, cloud solutions, as well as the increasing standardization and precise specification of infrastructure service types and performance classes will create entirely new markets. IT infrastructure services are traded on markets and can be purchased as easily as drawing electricity from the wall socket.
Nils Urbach, Frederik Ahlemann

Digitalization as a Risk: Security and Business Continuity Management Are Central Cross-Divisional Functions of the Company

Digital transformation’s essential characteristic is the innovative use of information technologies with direct business benefits for the company. As we have already pointed out repeatedly in this book, the digitalization of the business world offers numerous opportunities through IT-based value creation, as well as product and business model innovations. However, even in this context, the benefits are not without associated risks. With an increasing diffusion of information technology, companies in the digital world are more and more dependent on the availability of their IT systems. The easy accessibility of systems via the Internet also leads to increased vulnerability. Accordingly, IT security is becoming the “ugly sister of digitalization,” as Ralf Schneider, Group CIO of Allianz, expressed at the Hamburg IT Strategy Days in early 2016 [1].
Nils Urbach, Frederik Ahlemann

Transformable IT Landscapes: IT Architectures Are Standardized, Modular, Flexible, Ubiquitous, Elastic, Cost-Effective, and Secure

Current IT architectures are often very complex—usually much more complex than they should be. A large number of technologies, products, proprietary developments, configurations, and interfaces converge to form a larger whole, which a single person can hardly fathom. Thousands of business application systems are often used in large corporate structures. There are telecommunication, production, logistics, and other systems. The consequences are obvious and clear to every IT manager. Dynamic adjustments are difficult, risky, expensive, and time-consuming. However, in times of digitalization it should be the other way around: simple, with manageable risk, inexpensive, and fast. This can only be achieved with a highly standardized, modular, flexible, ubiquitous, and elastic IT architecture. The goal is “modular IT,” which enables fast, easy implementation of new solutions through the uncomplicated integration of existing modules.
Nils Urbach, Frederik Ahlemann

The End of the IT Department: IT Experts Become Part of the Business Departments and Are Coordinated by a Dedicated Executive Responsibility

In view of the developments described in the preceding chapters, it is obvious that the question of how IT departments will be structured in future and where they will be organizationally anchored, is already asked today. There are a number of indications that IT departments, as we currently know them today, will not survive. If more and more tasks are carried out in the immediate vicinity of the business units or directly in the business units (see chapters “Development and operation are not decisive: IT management follows the “innovate-design-transform” paradigm” and “Focusing on the user: development processes are agile, end-user-centered, and merged with the operation”), if large parts of the IT value chain are carried out externally (see chapters “Infrastructure as commodity: IT infrastructure services are traded on free markets and purchased as required” and “Transformable IT landscapes: IT architectures are standardized, modular, flexible, ubiquitous, elastic, cost-effective, and secure”) and if, simultaneously, IT receives more strategic attention than ever before (see chapters “The digital revolution: how technological trends change the business world” and “No business without IT: IT is the central and indispensable driver of entrepreneurial value creation”), then—from our point of view—the current IT department, located on the second or third management level is very poorly positioned for the digital transformation. We are of the opinion that the classic IT department has become obsolete and that the remaining tasks of corporate IT are better suited for a central function, which—in view of the ever-increasing importance of information technology for the company as a whole—should be anchored close to the executive board.
Nils Urbach, Frederik Ahlemann

Demography, Digital Natives, and Individual Entrepreneurship: Employees Become a Strategic Competitive Factor

In the previous chapters, we described—in detail—the challenges and implications of the digital transformation and outlined our expectations and recommendations regarding the future structure of the IT department. An aspect that has been neglected thus far, is the employee’s role in digital change. Exactly as in the past, transformations in the corporate context cannot be mastered without the right and, above all, properly trained employees. However, the trend towards digitalization particularly requires qualifications and skills that are rare in the current labor market. Moreover, the digital working environment is, in many cases, only conditionally compatible with the conservative and hierarchically organized environment of large corporations. Even though the upcoming “war for talents” was forecast and discussed several years ago [1], access to good employees seems to have become a strategic competitive factor at present. More and more “traditional” companies find it difficult to identify new and retain existing employees, especially those with the necessary “digital skills,” for example in IT development or data analysis. For many young career starters, large IT companies, such as Google or Microsoft, or the small, dynamic start-ups are more attractive. There are various reasons for the current personnel-related challenges that companies face. In the following, we will get to the bottom of these causes: first with regard to the demographic and labor market development (macro-perspective) and then with regard to the employees’ development (micro-perspective).
Nils Urbach, Frederik Ahlemann

Summary and Conclusion

In this book we analyzed the current trend of digitalization. We presented and explained ten hypotheses on the development of IT management, as well as the IT department in companies. Digitalization as a trend is unstoppable and will change many companies significantly. This will lead to new products, services, as well as value creation and business models that we are currently unable to imagine. The effects of intelligent systems that use sensors to perceive the environment, learn independently, and analyze unimaginable amounts of data in the shortest possible time may perhaps be even less conceivable. We must not imagine such systems as only isolated computer system. The special potential of digitalization is that computers interact in a global network. Current IT departments are massively affected by these developments. It is very questionable whether their current organizational anchors, task portfolios, depth of value creation, cultures, and their current cooperation with other business units are suitable for keeping pace with digitalization and taking on a shaping role. Those who do not want to become obsolete by these developments should be vigilant and closely observe current trends, as well as technological innovations. But that by itself will not be sufficient. Structures, processes, partnerships, and also the company culture must be prepared in such a way that rapid, agile action and reaction is possible when business opportunities arise from digitalization or when technologies have attained the necessary maturity. In detail, IT managers can—already at present—take a number of measures to position themselves. These include, for example, the optimization of the IT architecture and its preparation with regard to the use of public cloud services, intensified cooperation with the business units, and the establishment of technology scouting. Successful digitalization projects can be used as success stories to position themselves as competent partners.
Nils Urbach, Frederik Ahlemann

Backmatter

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