As IT companies approach digital transformation, key issues remain a struggle

While IT organizations are making progress with their own internal digital transformation, they are still struggling to support the broader enterprise, reallocate the technology portfolio, implement a more agile technology infrastructure, drive innovation, and improve customer-centricity, according to The Hackett Group.

IT critical development areas in 2019

The 2019 IT Key Issues Research found that IT has limited capability to address many of their highest priority objectives. In addition, plans to address these deficiencies fall woefully short, calling into question IT’s ability to live up to the business expectation to serve as a true strategic business partner.

IT leaders have confidence in their ability to manage cyber and data risk — their top-ranked enterprise- and function-related priority. But they are insecure about most of the other top objectives identified for 2019, the research found.

The study found that IT organizations have low capability to address issues in many other areas ranked as the most important, including: improving functional agility; improving customer-centricity; improving data management and analytical capabilities; aligning skills and talent with business needs; and modernizing data architecture.

The issue is made worse by the fact that IT is severely resource constrained. The research found that less than 20 percent of IT organizations report a current or planned improvement initiative in these areas in 2019. Only one in four is addressing known talent gaps and alignment issues. Less than 10 percent are working on modernizing their data architecture.

Looking at budgets and staffing for 2019, IT expects to fare better than the other business services areas such as finance, procurement, and HR. Budgets are anticipated to rise by 2.2 percent, and staffing will drop by just 0.2 percent.

Spending is also shifting somewhat, with a significant increase in the percentage of the budget going to “build” processes such as infrastructure and application development, and a slight decrease in spending on “run” processes. But in the context of predicted revenue growth of 5.7 percent, this still leaves dramatic productivity and efficiency gaps that must be overcome by continued gains in operational efficiency.

Digital technology adoption on the rise

Digital technology adoption is also on the rise, the research found, with more than 90 percent of companies showing some level of adoption for cloud-based applications and a large jump in robotic process automation (RPA) adoption expected this year.

Over the next two years, IT organizations expect to see dramatic growth in adoption of a wide array of digital tools and systems, including RPA, ERP modernization, and data and analytics tools for visualization, master data management, analytics, and data architecture.

Despite the challenges, IT’s business stakeholders in finance, procurement, HR and other areas are optimistic about the function’s future. Two years ago, only about one third said IT had the competencies and resources to support them in their digital transformation.

This year, that number has risen to nearly half. By 2020-21, 80 percent of stakeholders say they expect IT to have the competencies required to be a valued business partner. The question remains, will IT be able to deliver on this optimistic expectation?

“IT has made progress on partnering with the business to move forward with digital transformation. They’re improving, and the business is seeing benefits,” said The Hackett Group Senior Director, IT Research Advisor Rick Pastore.

“But the low number of improvement initiatives planned for 2019 imply that IT leaders simply don’t know how to fix their remaining shortcomings, or they’re overwhelmed by the breadth and depth of the challenge. They’re also hampered by legacy issues like infrastructure complexity, outdated architectures, and project development approaches that are an impediment to agility. Given IT’s ambitious goals for the next two years, it’s critical that they find a way to regain improvement momentum.”

Changes in IT spending allocation in 2019

According to The Hackett Group Principal and North American IT Advisory Practice Leader Lisa Palmer, “IT organizations have been wrestling with many tactical projects, with business making demands much faster than IT can respond. So fundamental structural issues like inefficient legacy processes, skill gaps, and lack of alignment are becoming more exposed.

“Making changes in areas like soft skills, architecture, and culture doesn’t happen overnight, and it can feel overwhelming. It requires a holistic approach to reinventing IT. Headway is being made, but it’s significantly slower than needed.”

The Hackett Group’s 2019 IT Key Issues research, “2019 CIO Agenda: Developing Critical IT Capabilities,” is based on results gathered from about 150 executives in the US and abroad, most at large companies with annual revenue of $1 billion or greater.