In discussions with business executives over the last 12 months, Forrester has recognized that there is a concern that IT, or the delivery of IT services, is hindering rather than enabling business transformations. Discussions often lead to the focus of operating models, whether they should be focused on revenue or cost and efficiencies. Forrester’s research on adaptive operating models has recognized that in designing an IT operating model structure, IT executives must consider a series of key questions. The first key question is where demand is coming from: Is it revenue streams or cost and efficiencies streams or both?
- Many organizations are structured around their revenue streams. Revenue streams may be products or services or customers. For example, Lloyds Banking Group, like many financial services organizations, focuses on customers — retail, corporate, and so on. Governments tend to be focused on services — social security, passport, tax, and so on. Other verticals like auto may be more product-aligned — auto cars and car loans. An operating model to support these would be looking at the top line.
- Other organizations compete on price. They tend to be functionally aligned and treated as cost centers. The focus is on the bottom line. Typically, organizations are structured around HR, finance, IT, product management, and so on.
This begs the question whether an organization should have multiple operating models — one to support the top line and one to support the bottom line. The answers to these questions impact the CIO. How does the CIO set up to support one or both structures? Current adaptive operating model research has identified five key elements of the IT structure, as follows:
- The minimum viable organization (MVO). The MVO is the smallest-sized organization to support a demand. The MVO should be right-sized and thus support the demand in accordance with its maturity. As an example, a demand in the innovation stage will need a small team. In a growth stage, the MVO will need more resources, then less when the demand is stable. An organization has multiple MVOs based on products, services, customers, or functions.
- Internal scaling skills. An organization needs to keep key skills and knowledge within the organization. CIOs will need to consider which skills are key and what level of skills is sustainable.
- External scaling skills. An organization needs to also consider what is available in the market. Should the CIO use the market to support legacy systems in the MVO? Should emerging skills be provided by third parties until they are mature?
- Internal common skills. An organization with multiple MVOs will identify demand for common skills. Examples would be marketing, tech infrastructure, security, HR, and so on. CIOs will need to consider which skills are key and what level of skills is sustainable.
- External common skills. Many organizations unbundle capabilities and consume them from third parties. For the CIO, if cloud is the deployment strategy, maybe utilizing the cloud expertise of the service provider is better than building an internal skills pool.
These five elements generate a matrix, with MVOs being the demand (revenue or cost) and the others being supply. CIOs must then determine whether the supply skills are centralized, embedded in the demand teams to form integrated teams, or distributed. The CIO must be able to reallocate resources based on demand to be adaptive.
To contribute to this ongoing research on tech talent management, please contact Gordon Barnett.