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Five big ideas to avoid doing stupid digital stuff

Steve Hodgkinson | Oct. 30, 2014
It is time for executives to go ‘back to school' to learn how to drive transformation using new digital technologies

The phrase "you can't make a silk purse out of a sow's ear" arises from observing that shared services attempted to reengineer building blocks of systems, processes, people, cultures, and organisations designed to serve single businesses into new assemblies designed to serve multiple businesses. The problem is that the business-specific, outdated and inflexible building blocks were not the right raw materials to build a world-class best-practice IT services organisation. In theory, the transformation is possible, but in practice, it is a very high-cost, high-risk exercise.

In this context, we need to look at cloud services as a better, lower-cost, lower-risk alternative to internal IT shared services.

The gap between the 'art of the digital possible' and the IT capabilities of IT departments is wide, and appears to be widening.

The key difference is that cloud services have been created from fresh new Internet-age building blocks. They are the combination of state-of-the-art technology and state-of-the-art business and operation models. A mature and trustworthy cloud service is a shared service which is proven to work on an arms-length basis in an external capitalist economy. It delivers real and sustainable economies of scale. Its customers have opted in voluntarily because the service delivers compelling functional and commercial benefits. If customers decide to stop consuming the service, the exit costs are (relatively) low.

Executives need to appreciate the unavoidable costs and risks of trying to make a silk purse out of a sow's ear, as well as the attractions of buying a silk purse. As cloud services mature they become an increasingly compelling and trustworthy proposition, while the challenges and risks of creating a comparable internal IT shared service remain unchanged.

4. Every dollar invested in a cloud service strengthens a solution that can be reused by others

The cloud services model is a good vehicle for the promotion of common applications across an industry sector. Cloud services, by definition, are technically and operationally architected for sharing. Their arms-length commercial-delivery approach ensures that the services are exposed to competitive market pressures for innovation and efficiency. The cloud services model creates a virtuous upwards spiral where increasing adoption strengthens the revenues of providers and hence their capacity to invest in new functionality, which further increases adoption. Once a sustainable critical mass is achieved, the service is reliably available and continuously innovating. Competitive pressures both exert discipline on pricing and incentivise ongoing investment in service innovation.

This model is a significant step forward for the creation of sustainable shared services and common-use applications, compared to past failed internal approaches to IT shared services. The reality is that every dollar invested in the purchase of a cloud service strengthens a solution that can be reused by other organisations — in theory and in practice.

 

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