The IT function of organizations will drastically change in the next five years. Tech will enable companies to disrupt markets, outperform competitors, and improve customer satisfaction, a report from The Hackett Group found.

However, many tech companies currently lag behind. The Hackett Group’s CIO Agenda report identified where these organizations need to improve to better prepare for an agile tech future.

SEE: Digital transformation road map (free PDF) (TechRepublic)

With 70% of IT organizations predicted to be early adopters of tech and 95% of commodity IT services expected to be provided by outsourcers by 2025, the tech enterprise needs to get ready.

“IT’s operating model needs to change so that it can be relevant in the post-coronavirus digital business environment,” said Rick Pastore, senior director at The Hackett Group. The old operating model of a centralized IT function that plans, builds and runs technology services across the business is too slow, too siloed and too distanced from the customer to be effective.”

The responsibility to prepare organizations falls upon the CIO, according to the report. IT will undoubtedly create more value for companies, but it’s up to the CIO to keep pace with the market, provide innovative leadership, optimize the customer experience, and enable agile decision-making.

“In the new model, IT developers join the cross-functional teams dedicated to business customers and products, focusing on co-creating innovative products and services,” Pastore said.

Qualities of other agile organizations

The report found that companies with high-level IT operations perform better in HR, procurement, finance, and in their top and bottom lines. They operate with a 30% higher net margin; 49% higher earnings before interest, taxes, depreciation and amortization levels; and 26% lower operating costs.

These companies enable certain capabilities to unlock this value. The report outlined the following five agile actions high-level organizations do, along with the value each brings.

1. Capability: Customer-first, nimble culture
Value: Four times more likely to have business stakeholders who perceive IT as a valued partner

2. Capability: Value-oriented organization
Value: 32% fewer IT full-time equivalents at a 21% lower cost

3. Capability: Fortress data security
Value: 100% of leading organizations view cybersecurity as a cross-functional enterprise competency

4. Capability: “Searchlight” talent management
Value: 20% lower voluntary staff turnover and smaller gaps in critical skills

5. Capability: Digital platform deployment model
Value: 28% more transactions without human intervention and 54% more processes via self-service capabilities

Where companies lag

The traditional IT operating model functions on a plan-build-run approach, fostering IT process silos and application-centric operations, the report found.

“The biggest barrier to change is IT’s inability to tame the demand for technology projects, which
condemns the organization to a perpetual state of overcommitment and resource shortages,” Pastore said. “IT needs to compel business leaders to own the decision of what goes into the pipeline and to make compromises and prioritize work based solely on strategic goals.”

The report outlined some of the other biggest challenges CIOs face when attempting to improve a company’s agility and value:

1. “Big iron” legacy culture: Reactive, risk averse, resistant to change, rigid and hierarchical internally, rather than externally focused
2. Cybersecurity threats: Rapid increase in volume and severity of attacks, compressed time to respond, difficulty improving defenses due to system complexity, and increase in cloud-based applications
3. Spaghetti bowl complexity: Overwhelming infrastructure and volumes of applications, with limited or inflexible sourcing and asset management strategies
4. Overwhelming demand: Inability to say no and lack of clear demand management strategy and supporting processes
5. IT sweatshop: Outdated skills, shortages of new and in-demand skills, and heads-down work, with little exposure to the business and its customers
6. A black hole of IT cost: No cost transparency and too much time and money invested in “keeping the lights on”
7. What’s innovation?: Lack of a transformational mindset and little support for innovation labs or centers of excellence to explore new technologies

How to change

To overcome those barriers, a company’s IT function must expand and elevate from service provider to strategic peer, the report found. This change occurs when CIOs place IT’s emphasis on enablement and innovation.

“To reduce complexity, IT leaders must convince business leaders to retire little-used systems, resist customization of purchased applications, and adopt modern standardized tools accessed via cloud,” Pastore added.

Organizations can redefine their IT operating models in a number of ways. The report dove into the product/platform-centric model, business services model, and broker-integrate-orchestrate model.

Regardless of the model an organization chooses, they all must be customer-centric and surrounded by agile, data-driven, and digital best practices, the report found.

The report also recommended six key components to be at the foundation of every model, these included technology, service design, analytics and information management, organization and governance, service partnering, and human capital.

To get there, companies should first assess what they currently have, design a future with the previously mentioned components in mind, and develop their plan for getting there, according to the report.

For more, check out Digital transformation: How to make sure your project is a success on ZDNet.

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