Digital Business Incompetence Will Cause 25 Percent of Businesses to Lose Market Position
Dubai, July 30, 2014 — As enterprises move to become digital businesses, opportunities are arising for service providers to play a crucial role in the digital era, according to Gartner, Inc. Service providers should begin to align and adapt their organizational structure, capabilities, offerings, and engagement and delivery models to thrive in this new digital environment.
"All signs suggest that organizations have just begun to tap into the potential of digital business; however, organizations that don't accelerate their digital business transformation will lose market position," said Allie Young, vice president and distinguished analyst at Gartner. "Service providers can help organizations with the innovation and industrialization required to transform into digital businesses over the coming decade."
"The market opportunity arising from broad technology changes is creating a digital business opportunity that is forcing a restructuring in strategy, talent, portfolio and organization within services providers," said Susan Tan, research vice president at Gartner. "In the past 12 months service providers have taken explicit steps to prioritize the pursuit of digital business opportunities ranging from restructuring and realigning their organization to forming entirely new business units or subsidiaries. They have announced new digital leaders and investments to organically build or acquire digital skills/assets and many have launched innovation centers to serve as client development labs. The restructuring and new digital business units and leadership are needed to focus investment and develop resources for applying digital technologies to realize business value."
Gartner interprets this as an indicator of the magnitude of the business impact services providers already see in their client organizations as well as an impending threat to their traditional businesses. It also demonstrates a focused commitment and investment to ensure relevancy to current and future customer sets as digital business adoption accelerates.
Services providers should invest executive time in strategy planning and visioning for the future, focusing on how to close capability gaps, how to optimize organization structures, what intellectual property (IP) to invest in and what go-to-market models are new imperatives. This should determine if the current organization structure and leadership will support digital business expansion, or if reorganization or realignment of current organization structures is needed. Once this is complete it is essential to establish digital leadership skills, and acquire or hire the right talent, including capabilities in design, user experience, digital technologies and business consulting.
Service providers must also come to terms with the fact that in a digital world, their existing delivery models will not effectively address new demands evident in fast-paced, often exploratory digital pursuits with buyers seeking business outcomes that complement the decisions that they make and with solutions becoming more sub-vertical, market-specific leaning toward information-driven alignment versus process-driven alignment. Gartner has identified two digital business concepts that will shape the future of client strategies, which service providers must understand and embrace:
Complementary IT Spending Priorities
Gartner's recent CIO research shows that considerable new spending goes to improving core systems, as well as spending on new and innovative digital technologies. This means that providers, instead of simply selling more services, should position their services in a digital business context for clients' IT spending priorities, aligned to these two explicit and different needs. Both imperatives are important, in fact complementary, and should be pursued in parallel. For example, service providers cannot ignore the importance of renovating the core (the traditional engagement models), as without this step, exploiting the new digital trends will be unachievable or unsustainable.
Gartner has also brought forward the concept of bimodal IT to address how organizations must operate to capture digital opportunities. To maintain competitiveness in a world of digital business, CIOs need to deal with speed, innovation and uncertainty. This requires operating two modes of enterprise IT: conventional, industrial-strength, slow-to-change and highly controlled versus experimental, iterative and fast evolving. Just as client organizations will require two modes of operation to optimize IT and capture digital opportunities, service providers will also need to adopt a more flexible business model to effectively compete.
Gartner recommends the adoption bimodal disciplines through separate organizational structures to optimally deliver client expectations for the speed and agility characteristic of digital initiatives ("exploit the new") and traditional/legacy ("renovate the core"). Traditional and digital service offerings should be managed as separate portfolios and relevant capabilities for skills, delivery methodologies and technologies invested in accordingly. It may, at times, be necessary to work with third parties to accelerate solution development and increase marketing success.
"Digital business enablement will span six domains, requiring service providers to realign their core competencies toward a new vision, investments and offerings for a portfolio that delivers innovation, transformation and industrialization for buyers' digital businesses," said Ms. Young. "With the broad range of services and equally broad array of digital strategies of providers, it is critical that service providers clearly define their own portfolio and focus, and identify the targeted buyers appropriate for their selected services."
More detailed analysis is available in the report "What Service Providers Must Do to Succeed in the Digital Era." The report is available on Gartner's website at http://www.gartner.com/document/2808330.
Additional analysis on the impact of digital business is available in the Gartner Special Report "Digital Business." The special report can be viewed at http://www.gartner.com/technology/research/digital-business/ and includes links to reports and video commentary that examine what is driving the convergence of people, business and things that disrupt existing business models, and how IT leaders can take their place among the digital leaders of the future.
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