If you had a magic wand and you could radically modify the way corporate IT engages itself in organizations, what would you change?
That's the question we asked Joe Peppard, Principal Research Scientist at the Center for Information Systems Research of MIT Sloan School of Management.
Joe provides awesome answers based on years of field research about the need to change the IT structure. His insights cover many areas such as:
- Why the classical IT department holds back organizations in their quest for digital success;
- Where do the real opportunities lie;
- Managing information technologies vs organizing for success with information technology;
- Comfortable positions and longstanding behaviors;
- The inwardly focussed self-management regime of IT departments.
Hello, this is R.M. Bastien and welcome to another episode of the podcast series on radical change in corporate IT. Good Afternoon. Today we have Professor Joe Peppard, who's a principal research scientist at MIT Sloan School of Management. He researches, teaches and consults in the domains of IT leadership, digital strategy and innovation, the execution of digital transformation programs, the creation of value from IT investments AND the roles, structure and capabilities of the IT unit. He has had several academic appointments in Germany, Netherlands, England, Ireland, Italy in Australia, which has led him to publish in many well known publications such as MIS Quarterly Executive, MIT Sloan Management Review or Harvard Business Review, to name just those. He's created, he's written or co-written several books during his long career is most recent book is the Strategic Management of Information Systems Building a Digital Strategy published at Wiley. Joe Peppard, good afternoon.
Good afternoon, Marc.
Thank you. I'm really excited to have some time with you today because the questions I'm going to ask you are the same questions. I've asked several experts, but you're the 1st one that will not only base his answers on experience and opinions, of course, but also on quote-unquote serious research material, which is for me, it's really exciting,
Thank you, and it's great for me to be talking to you because obviously I have read your book, and it's nice to find somebody who actually kind of, I won't say thinks similar to to me, but actually has quite strong views on the role of a kind of a corporate IT function and the the overall perspective of how IT is managed in companies today.
Oh, thank you and that... so that's really promising! So the question is very simple. It's very open ended and is the following. I'm just repeating it for the audience. If Joe you had a magic wand and you could get to the end state and change anything, anything you can think of or you want or you've witnessed elsewhere, you could change the way the IT unit, the IT unit as we as we know it today, you could change the way the IT unit engages itself in the organization so that it maximizes the value it provides to the organization, what would you do? How would you see that going?
Well, let me let me let me start with an assumption and it's an assumption that I've been challenging for many years. This assumption goes back to the time when computers first entered organizations and, of course, today we tend maybe not to use the label of "computers", but obviously the fore-runners to today's kind of digital devices, we did called it computer. So, if you know, we look back at, you know, probably is one of the more enduring ideas, the more enduring concepts in IT, it is the IT department. And of course, you know, over the years, over the decades, the kind of the label attached to this organization unit has has changed, from the EDP department, computer department, IS services, digital business, you know, global digital services, you name it. But essentially, there is this assumption, there is this very, very strong belief that organizations need a separate organizational unit in order to manage the organization's IT resources. From the research that I've done, the conclusion that I'm coming to is that actually the fact that you have an IT unit in the first instance is actually a big challenge for you as an organization if you're looking to digitally transform yourself. That, I suppose, is the rial big insight from the research that I've done it having an IT unit actually holds an organization back in achieving its digital ambitions.
That's awesome. It means that although it is intuitively a good thing to say, I'll have a department to take care of something, what you're saying is that well, things have changed and now you don't need to have that department... So you're ditching the IT department, aren't you?
To a large extent, I am. Essentially what my sort of thesis is that despite the fact that you know in today's digital world, who wouldn't want to have an IT department? is a dominant belief. And I'm really challenging that. I'm actually saying in today's digital world, actually, having an IT department, an IT unit, is actually holding an organization back in achieving its digital ambitions. I know, I know that's a bold statement, but I think what I see again in the research that I'm doing is some pioneering organizations beginning to challenge that position. And what they're looking at doing, and I'm kind of thinking immediately of one global energy company, where the CIO has said to me that in four years time IT won't exist. And by that I mean the IT unit won't exist. Now, what he's not saying is that we won't need to be concerned with architecture or we won't need to be concerned with with cyber-security, absolutely. But it's not necessary that these activities will be housed in an organizational unit called the IT department.
If the IT department goes away, then how would you foresee the work? Because, you know, things have to be done. How would you see the work being taken care of?
Okay, if we looked today at that, what is sort of the dominant model for organizing for success with technology. Again in the research that I've done, I've sort of beginning to use this phrase "organizing for, let's say, successful technology". Because in IT, we talked for a long, long time with the IT operating model, which is very often a concern around, you know, choices that a company makes in relation to integration. Because we know technology brings two great strengths. One is around the integration and the other's around standardization. So for a lot of companies, when they start thinking about the operating model, they're looking at trade-offs with respect of integration, on process standardization, for example. But very, very few organizations, I believe, are too concerned with: Well, what is our organizing model? For me, the organizing model is the arrangement of people, your human resources, the work they do, how they do it, and where accountabilities lie in order to achieve business outcomes. And that gets us right to the core of the issue. Because most companies today, you know, have all of the let's say, the knowledge that they believe is necessary for success for technology corralled into an organizational unit that they call, for one of a better word, the IT department. And I think a lot of CIOs recognize that, you know, this is probably not the best way to organize, but being anchored with the fact that they have an IT unit, they sort of look to manage around kind of the boundary of this of this organization construct. You know, most adopt as I said, what I would call this kind of this "Partnership Model". Of course, you know, it's very appealing. You know, who wouldn't want to be seen as a partner to the business? But I believe that this model is not working. And I think it's based on an illegitimate assumption that IT is a function and it can be managed to such. So it reinforces a kind of a silo mentality. And perhaps as a consequence, it's inwardly focused. Very off when you talk to people who work in IT organization, when they talk about customers, they're not generally talking of the end customer,they're talking about internal employees... And I think, you know, despite the best efforts of IT units staff, you know an upshot of this model is to continue to struggle to generate expected returns from IT investments. You know, merely deploying technology and delivering IT services, which really this organizing model is designed to do, is insufficient in achieving any expected business benefits. You know, how do we ensure that the necessary organizational changes that will actually unlock the benefits, which is a perennial challenge in IT, but it's a real big issue when your roll out this partnership model, as the responsibility, the authority to make the necessary changes in the organization for the benefits to be unlock generally doesn't fall within the realms off the CIO and the IT unit. And I think another consequence we also see is that companies struggling with digital innovation. And it's not that innovation doesn't occur, but it tends to be sporadic and it tends to be haphazard. So I think that this way of organizing does is: it sees the IT unit run with inappropriate practices, outdated oversights. You know, I think one of things that those is it kind of propagates, a way of working and a self governing regime that actually results in the legacy technology and the convoluted architecture that sort of plagues companies. And I think also then, as as more more technology on soul for becomes embedded in products and services, you know, most CIOs still look to "align with the business", which is really, I believe, anyway, and after outdated objective that actually sets them up to fail. For me, the kind of the long shot is that this dominant organizing model, this partnership model is really about: "How do we organize our resources to manage technology?" It's not about addressing the question: "Well, how do we manage our resources in order to deliver value?" And I think they are two fundamentally different questions.. That is one of the big shifts that companies need to adopt and thinking about how they organize for a success with technology. It's not about how do we organize to manage technology per se and deploy technology, etc., etc. It's more about how do we organized in order to deliver business value from technology. So I think it might seem subtle, but I think it's that is kind of a powerful distinction.
The difference between these two these two definitions is: one is more self-contained or quote unquote subject to being siloed, while you have to imbed into your organization the tasks that are related to technologies. is that the right way to see it?
I'm not too sure if it's the task or it's technology, but it's the task related to leveraging the capabilities of technology. Because again, I think, and I can understand why a lot of business executives do get caught up with technology. And at the end of the day, technology is just a capability. And it's a capability that provides all organizations with the opportunity to do things in different ways. Whether that is, you know, in terms of how they roll out a particular processes, for example, how they re-imagine their business model or how they engage with customers. The capabilities of technology are pretty limited in the sense that you know, they provide, you know, organization with the opportunities to collect data, store data, transmit, process, and present. But with those limited capabilities, we are only limited by our ingenuity, by our creativity and how we put them to work in how we run our organization or in how we compete. And I think that this is not something that you know organizations today can divert to, you know, a separate organizational unit.. On the one hand, we have that piece. And I think also as well as you know, again sticking with the focus the technology gets... because ultimately what we're talking about here is is data and information. It's probably less how do we organize for to deploy and build technology, but more about how to be organize in order to leverage information. And today, you know I kind of tried to characterize that shift, is you know, IT your technology or digital is not a function: it's fabric. You know, it's part of the fabric of an organization.. When we look at the models that we currently have, you know and how we currently organize, they do not acknowledge that. And I think one of the challenges is that we face when we get up this different perspective, is that we need to be innovative in terms of the organizing constructs, because I don't think there are constructs out there at the moment that facilitate where you were just saying there about embedding let's say some of the kind of let's say technology decisions into the business. As I said at the moment, companies use this kind of this partnership model, which is, as I said, you know, it sounds great we're a partner with the business, but it really anchors you in a kind of the legacy of the past, when you know, technology played a very much a background role, a supporting role. But today you know, for any business you know, you may say, well, we're not using technology for any competitive purpose, that may or may not be true, but technology is a competitive necessity. And I think that is probably what differenciates today from let's say we look back 10-15 years ago, where you possibly could have gotten away with not be greater technology. Today you can't.
That's a good point. And I love your parallel or your definition of the fabric. It really fits what it has to get to: not technology as a "separate" thing.
Yes, and look at, let's say, some of the kind of the tech companies that were born digital. I think what we observe is that, really, for them, technology is part of the fabric. It is just part of how they work. And I think that that is something that's missing, let's say, in incumbent organizations. Because a lot of employees would have grown up, you know, in the years some of them, they didn't use any technology! And of course, now they're expected to embrace wholeheartedly new ways of working, embrace technology. And it may not be something that they are that they are comfortable with.
It do agree with you, Joe. I'm thinking now, from a very high level point of view, what you're saying is that the IT department as we know it today should vanish and merge itself into the organization.
Was going to say the phrase I would use is it's kind of it's a more kind of a metamorphosis. It's going to be something different and it may disappear. And I think, you know, if you look at, and again, this is the research that I'm currently doing is I think that there's gonna be continuum and it's going to be different archetypes. So if your product, your services, is digital, so let's say you're you're a bank, for example, your operational processes can be, you know, to be digitized, the IT archetype after that type of an organization will be somewhat different, let's say, than a hospital, for a pharma company or for a retailer or for a construction company. I do think that there probably will be a continuum. At one extreme. you may not have an IT organization as we currently understand it, but at the other extreme there might be there will be some remnants of the existing IT unit. But also there will be other elements that will be also now incorporated in an organization in order to ultimately deliver value and leverage the opportunities.
Would you say that, on this continuum from one end to the other, whether you're at one extreme or the other or in the middle, or whatever, it is more based on importance or the use of data and information into your business processes?
Yeah, absolutely. But also then your product as well. your product or service. You're a mobile only bank, for example, or a digital insurer, you know, you're quite different than let's say if you are a manufacturer of components for the automotive,
Exactly. So if there's a lot of brick and mortar and physical apparatus, then it would be different than bank or insurance companies where my god, everything, everything, everything is about data and about information rather than anything else.
And your product. Your product is effectively information, whereas if you are the component supplier to you know, a big automotive OEM, it's kind of a tangible element. Although again what we're seeing is even these component suppliers are increasingly incorporating software into the product.
Definitely. I guess your answer is that: okay, what you envision is quote unquote "It depends." It depends what business you're in. It's hard today to foresee what should be done, but rather to acknowledge that the some cutting edge organizations have already started to do something about it. And they're probably more in, correct me if I'm wrong, are they more in the left hand side of the spectrum? The end where there's a lot of data and information or it's the products are a data intensive?
Yeah, yes, I've seen some banks. I have seen some, you know, even, you know, I mentioned this this global energy company. Which again, I suppose their product is quite intangible anyway. And you know there are organizations in both those camps, the organization that I have studied, are looking at, you know, new organizing models. If you're the public sector as well. Public sector looks to digitize its services. One CIO of a European government agency said to me: "You know, we really are a digital factory". So this public sector organisation beginning to see themselves in the quite quite a non traditional way. And as a consequence, they recognized that they need to organize for success in the digital factory in quite a different way. Now the challenge is that not everybody in the organization in particular the senior ranks, you know, sees it this way. So I think one of the big challenges that companies face is that, you know, not every executive has a kind of a similar frame of reference, that is, you know, one big barrier, that does need to be overcome. I don't know, Marc if I've ever told you the story and it that if we look at some of the early maps of the U. S. and looking at California, right up until kind of 18th century, it was generally believed that California was an island floating off the western coast of the USA. Here's the thing. Even though there was evidence to the contrary, that belief prevailed. So we actually had a Spanish missionary priest, father Eusebio Kino, and he actually landed on California, and he was traveling east and him and his missionaries took boats because they expected to encounter water. And of course they didn't. And then when he came back to Europe in 1704 he produced his own map. And his map showed California clearly part of the mainland. And there was a famous Dutch cartographer at the time, a guy called Herman Moll. And he even said, You know what? I have actually had mariners in my office who have sailed around the island of California. For it was only when the missionaries rose high enough in the church that in 1747 the King of Spain declared that California was actually not an island but was actually part of the mainland.
They took 40 years... it took
Oh more!. Yeah, because even before Eusebio Kino produced his map, you know, there was people you know sailors were saying, hang-on, this is not right. I think that has strong resonance with IT. I think, you know, for decades people have been saying, You know "IT is part of the business". That's being a mantra, you know. And yet in a lot of cases and lot of companies, you know, there's been a push back on that. It's sort of, you know, that metaphor of the island's been seen as the the island. But I think what's happening is with these new organizing models, is that they are recognizing that actually IT is not an island. It is actually part of the mainland. And what I would argue that this partnership model that I elaborated on, that this model actually kind of accept while IT is an island, but we're a part of the business. And companies and what they need to do is to discard that mindset. You know, IT it cannot be seen as an island, you know, in the same way that we cannot see, from an IT perspective, our customer as the internal customer. But of course we know that those on the business side (so again even I am getting into the language of IT-and-the-business) yet which again, I think perpetuates this sort of gap. But those on the business side are quite comfortable, actually quite happy to be treated as a customer. There is a kind of an issue around organizing, but I think there's a whole frame of reference and a language that needs to be dismantled. And as I said, there are some companies they are looking to do this.
What would you see also as maybe prerequisites or important steps that need to be done before embarking into any fundamental changes such as those of you're, that we're talking about today.
Yeah, I mean, I think the 1st one is the mindset. Without a doubt, this is what I call this kind of this frame of reference. And by that is I mean again, I often use the analogy of a pair of glasses. Like you, I've been sort of studying this area for a long, long time. So, you know, I see organizations in a particular way when I look through my pair of glasses . When I work with executives and leadership teams and boards very often what I'm trying to do is to have them for, you know, a short time, see the world to my pair of glasses., See their problems, their challenges, their organization as a result of doing that, see new new possibilities. So I think that really is the big challenge. And I know from talking to to CIOs, who are looking to promote a different way of organizing for a successful technology. This, I think, is one of the key issues that they raise. One of the key challenges and keep barriers that they face and one that, really, if it's not overcome or they don't manage to convince enough of their colleague, there really, really going to struggle. The old way is what's going to prevail. And I think it's a case, and again, the phrase I often uses that you know, a lot of the senior executives and board members: they don't know what they don't know. It's not as if anybody on the business side or anybody in the IT side sets out in order for IT to underachieve or IT to fail, or you know, however, we might characterize you know the performance of technology and the inability of an organization to leverage the digital opportunities. But it's just that people believe that what they're doing is the right way. And until we can sort of manage to convince them that there is an alternative, there is a different way. This is part of the challenge today that we face is, you know, in today's digital world, what organization would not want to have an IT department? It's sort of really counter-intuitive. Of course, you're going to need you know, an IT department! And I said, this is part of my argument, is well maybe step back. Maybe you don't. Maybe there is a different way of organizing. Of course we are seeing companies, for example, roll-out Agile ways of working. But from what I've seen in the research that I have done, with their approaches to these new ways of working, embracing Agile, scrum, you name it, the kind of the approach that they are adopting. What I see is that they are addressing the symptoms, not the causes. The symptoms might be well from an IT perspective, were really struggling to get an accurate reading or what the business requirements are, or, you know, maybe is the feeling that, you know, IT are delivering two infrequently. Whatever reason companies are, the answer is Agile. But actually that's really addressing the symptoms. The causes is due to the siloed structure and you know, the organizing concept that's there, the funding model that's an in place, the accountability framework. All of these things, you know really need to be re-imagined if we're going to organize in a in a fundamentally different way for success with technology to leverage the opportunities that you know digital technology affords companies today
Mindset and quote-unquote educate or sensitizing people to do the issues and making in them see things in a different way.
In a different way. Yep. Yes. I've actually, from my experience is, so far, the biggest kind of pushback I typically get are actually from IT people within the IT organization. When I sort of socialize some of these ideas with, you know, with their business colleagues, their business colleagues are a lot more open. In the sense that they recognize: hang-on this way is not working! We need to do things differently. Whereas I think from an IT perspective, the existing ways of working these existing ways of doing things actually I think a lot of IT people are quite happy with that situation.
It's very comfortable for many people in IT to have the... to keep the status quo.
That's right and I think from reading your book, I think that was one of the messages that I think you were trying to get across as well, is that it sorts of suites a lot of people working in IT.
Anything else you see as a prerequisite or first steps?
Yeah, I think that's the 1st one. But I kind of feel that this is something that you probably wouldn't need to make a big, bold move. Because I think, you know, I see this, let's say when I when I look at companies that have rolled out Agile, you know, that for Agile to be that same or successful, it's not just about new ways of working. We've got to rethink our funding model. We've got to rethink where accountabilities reside. What I'm saying is that if organizations are going to really re-imagine how they organize for success with technology, that it's going to demand significant changes. And a lot of those changes will probably need to happen at the same time. And that's going to be a big, big challenge. So you need to convince your colleagues in finance for example that, you know, the traditional approach to budgeting, which many of them, you know, love and have grown up with, actually, in today's digital world, that may not be the best way to fund initiatives, for example. In terms of metrics that we put in place, maybe the metrics that are driving behaviours, we need to kind of rethink what those metrics are. Accountabilities as well, you know, the accountability framework that's in place, the governance that we have, again, this would probably also need to change. I think there's quite it is going to be lots of pieces that will need to move at the same time. So from a change management perspective, that's a massive challenge.
Any idea Joe on sourcing because and sourcing as a general term? Back in the nineties, it was big outsourcing movement. It didn't prove to be such a good idea for many, many large companies. Do you have any opinion on how sourcing should be viewed?
Yes, I do. And I think you know, outsourcing is probably a consequence of this kind of island metaphor that if somehow the mainland is unhappy, for whatever reason, with what's happening on its island, and again remember,the island is sort of a sovereign territory of the of the mainland. Well, we will put somebody in charge who has a track record of running islands! You know, so we get IBM or whatever to run the island for us. And again it's driven by that perspective that metaphor, you know, technology as as this island floating off the coast of the main business. You're absolutely right. I think we saw that, you know, right from you know, 1988-89 when Kodak, I suppose, is really the first time a large corporate, you know, outsourced what might be considered this crown jewels. Since then, there's been a massive uptake in companies looking to outsource IT. Because IT was not seen as something that was core to the business. But guess what? You know, you look at what's happening in the automotive industry, the earlier companies to outsource their technology because they didn't see that is their business. Obviously, that was, you know, in hindsight, when we look at where they are today, that was a big mistake. Banks again, were again one of the biggest industry that outsourced IT. But if you look at what's happening again, some of these companies that I have seen that are looking to, you know, rethink how they organize for successful technology they're actually flipping sort of the ratio. So whereas, you know, they may have outsourced 85%, there now in-sourcing, 85%. Bringing back in house is, as one CIO said to me is, you know, when he took over a CIO, he was just shocked when he found that, actually, you know, nobody organization really knew anything about how IT worked. It was all that all that knowledge was with the vendor! And the vendor was quite happy with that situation because that sort of gave them better lock-in. But his view was, Well, you know what we have outsourced the brains. And that was one of the early decisions that he made was to bring it back in house.
I agree with you. I worked for IBM for on big outsourcing contracts back in the late nineties, early 2000 and hindsight, I can say that they were outsourcing the problem. Copy-pasting the problem into this new vendor. And to me, in my own opinion, the only advantage they had was better, better invoicing, more detail, invoicing and more detailed reports, but still copy-paste of the model and the problems that came with the model.
Yeah, I think that's the ultimate endgame of the engagement model that we currently see in organizations. It is that sort of endgame. And I think a lot of companies, anyway, you know, IT has been psychologically outsourced anyway, because typically it housed away from the main office of the main factory or the main activities of the business. So it's quite easy, you know, that somebody else is now running the show. So I think, as I said, so that is, I think, one of the prerequisites. I think you're the one thing also that I've seen is moving to the cloud. Because I think that does give companies the agility and the flexibility now to do things in quite different ways. Sometimes when when I work with executives around some of these issues, I ask them to imagine a scenario where all of their, you know, the data center, their infrastructure, their applications, everything is in the cloud. And the question I ask, you know, "what's left in terms of, you know, IT management?" What's left? First of all, they struggle, first of all to answer that question. And then I sort of probe them, well, you're probably gonna need a strategy for technology and they nod "Yeah". And you're still gonna have to think about around innovation. "Oh, yeah!" And you're still going to have to think about your overall architecture around, you know, the different cloud vendors that you use. "Yeah, absolutely!" And you're probably still gonna be running projects and programs. "Yeah, Yeah," So I think the very things that are causing the problems, you know, the fact that you know, the struggling, whatever benefits and projects etc., they haven't gone away. So I think that those is that kind of raised the issue, that it's not about the technology. It's really about how we do things, our way of working, how we organize.
Joe, this is so extraordinarily. interesting. I'd like to go on for more and more. But as a concluding comment, is there anything else you'd like our listeners to realize, to know, to understand, as a closing comment?
I think that a lot of companies are looking to become sort of digital enterprises. And if that's what you're looking to become, the idea of having different business units and an IT unit just sort of doesn't make sense. And I think that, you know, what I'm sort of proposing is that, you know, just as sort of the kind of the caterpillar metamorphoses into sort of a butterfly, I think what we're seeing isn't leading companies in some pioneering companies were seeing their IT units similarly transformed into something completely different. You know, as I said during our conversation, that in some cases IT, the IT organization completely just disappears. But in others, I think it will look fundamentally different. So I think we're going to see different archetypes. So a topology of different ways now of organizing. But I think the key sort of message that maybe I would like to leave your listeners Marc is that perhaps they should give a little bit more attention for the organizing model. So it's not not just the operating model which in IT we've be concerned about for a very, very long time, and for reasons that are totally understandable and we still need to be. But I think also now we need to think about the organizing model. And this is not how do we organize an IT department: this is a company level, an enterprise level. And the question is, how do we organize for success with technology. And the old organizing logic was well, what we do is we corral all the knowledge, all the expertise that's necessary to manage the computers, to manage technology into a dedicated organization unit and call it the IT department. Because the challenge is not to manage IT. The challenge is not to manage technology, if it ever was, but it was always framed like that. The challenge is to leverage information. It's to leverage the opportunities that technology affords companies. It's it's to deliver value from technology. And if you take that as your starting point. The way you organize will be fundamentally different than, I would imagine, how your organization currently organizes for success with technology.
Great summary, Joe. First of all, thank you. This has been a very interesting conversation. Lots of material in there. Hopefully, maybe someday we can do another one on some other more finer grained subjects?
Sure, yeah, be delighted to.
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