How much of an IT investment is enough for organizational transformation? Is their metric to follow while planning a change in business processes?
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In an attempt to redesign the business processes, companies often feel the need to change the core IT within the organization. Embracing new technology and bringing in IT upgrades can greatly help in achieving breakthrough performance within the company. However, whether the savings to dollar invested would continue to grow as smoothly as before remains a question for all.
According to research from Albert Segars and Dave Chatterjee published in MIT Sloan Management Review, the return on investment for many organizations that underwent organization transformations with major IT upgrades looked more like a “W,” the streamlining effort starts and stalls and starts again, resulting in disastrous detours and cost overruns.
Organizational transformation is an important part for businesses, especially in case of mergers and acquisitions where the business is aligned such that each line of business works as a separate entity with its own people, technologies and ways of working. But does that call for a huge investment on the IT and software front right away?
Orchestrating Organizational Transformation
What companies fail to understand is that the organizational transformation is not directly aligned with IT upgrades within the company. While some IT updates may be necessary and obvious, a change in business process cannot be framed as an IT project alone.
“Before executives make a big investment in a new Information Technology system, they need to rethink the way their organization is designed. Otherwise, they may end up with technology that isn’t a good fit for their needs.”
While evaluating the business process, effective planning is critical and may involve the following:
- Focus on transforming the business activities that matter most to the organization without changing its values and its vision.
- Develop enterprise metrics to measure the performance of the organization as a whole and to determine whether IT upgrade is really a need.
- Preserve the processes and technologies that the set the organization apart from the competition.
- Long term planning with careful execution can give better results than a quick fix, big investment in resources and/or starting a new business strategy altogether.
Applying The 80/20 Rule:
The trouble with enterprise planning and organizational transformation is that it is difficult to evaluate the level of IT investments required in order to see good results in a period of time. While monitoring the return on investment is the key to gauge the efficiency of the new system, how much to invest to create this new system is hard to conclude.
In such cases, it may be vital to apply the 80/20 rule wherein the fair amount of IT investment is largely determined by how the business is driven. The 80% of the investment should focus on the 20% of those processes that matter most to the enterprise and if the project is planned, governed and implemented properly the potential payback can be significant.
Consider the global operating model of Mining Companies which basically depends on three core processes: Operational Processes, Management Processes, and Leadership & Cultural Processes. The global operational processes are meant to cover both core mining functions including industrial automation and IT as well as support functions. In this case, IT is leveraged for direct and non-direct back office operations. An increase in back office operations costs calls for an IT upgrade as IT is the key for automated transactions that drive the mining business.
Clearly, organizational transformations require IT upgrades but it may be worth investigating to find out exactly how much IT investment this business process change calls for before it is too late.