0:01 NARRATOR: Luminaries, talking to the brightest minds in tech.
0:05 [MICHAEL DELL’S VOICE]: We have always believed that, if we built the right technology, we could amplify and enhance and enable human progress. And when I look at what lies ahead, I realize that we’ve really just barely begun.
0:22 NARRATOR: Your hosts are Mark Schaefer and Douglas Karr.
0:30 MARK SCHAEFER: Hello, everyone. And welcome to the inaugural edition of Luminaries, where we talk to the brightest minds in IT transformation. My name is Mark Schaefer. I’m a college educator and author, and I am inexhaustibly curious about the technology changing our businesses and our lives. You can find out more about me at businessesgrow.com.
0:58 I brought a friend of mine along on this journey. I’d like to introduce my co-host for the program, my friend Douglas Karr. How are you, Doug?
1:07 DOUGLAS KARR: I am doing fantastic and so happy to be here. This is so exciting.
1:14 MARK SCHAEFER: Since this is the first show, why don’t you tell our audience a little bit about you?
1:18 DOUGLAS KARR: Fantastic. Well, I’m a technologist, as well, and have been around since the advent of the internet. Started my days off actually as an electrician wiring up networks because we didn’t have IT teams back then and then through today, where I own my own agency and have a publication online, where we’re talking about mostly marketing related technology.
1:41 MARK SCHAEFER: Awesome. And when you say [LAUGHS] you’re a technologist, as well, that’s the first time anyone has implied I am a technologist.
1:50 Hey, look. We have an entirely appropriate beginning to our exploration today. We’re going to learn from some true experts. How do we define IT transformation? And at the end of this program, we’re going to provide you with some free tools, where you can get access to a research report and also a tool that will help you assess the progress of IT transformation for your own business.
2:20 So let’s get this party started. We’re joined on the show today by two amazing guests from Enterprise Strategy Group. Doug and I have had an opportunity to have a few preliminary chats with these fellows. We’ve looked at their research. And they have done something extraordinary here.
2:41 John McKnight is vice president of research and analyst services. And Adam DeMattia is the director of Custom Research. John and Adam have authored an incredibly interesting study that both helps us define the path to IT transformation and also identify the benefits these leading companies are realizing. So welcome, gentlemen.
3:10 JOHN MCKNIGHT: Thank you very much, Mark. Thank you, Doug. Appreciate the introduction. Very good to be with you today.
3:16 MARK SCHAEFER: Yeah, you’re our kickoff guests. How cool is that. Now let’s get into this because there is just so much amazing information. And I do hope our listeners will take the opportunity to download this report and look at it themselves. But here’s the first thing that really struck me– was the clever way that you identified– you defined IT transformation and then used that definition to apply it to your research. So could you talk about this really unique approach– how you identified IT transformation to really be the basis of this study?
4:04 JOHN MCKNIGHT: Sure, absolutely. So there’s really two answers to that question. IT transformation, conceptually, is a good place to start. And that’s really all about modernizing infrastructure, rethinking development efforts, revamping IT processes and organizations, ultimately, so that IT can move faster, reduce costs, and better support the demands of the business, especially those businesses that are undertaking broader digital transformation efforts, which are more along the lines of doing business models and strategies to fully leverage digital technologies.
4:44 So that is kind of the academic definition of IT transformation. But as you said Mark, there’s a more practical definition that we used in this study, that we’ll talk about in a second. And that’s really important because we did find that there are some very significant benefits that organizations can achieve from adopting some of those best practices.
5:04 So as IT analysts and researchers, these are concepts that we cover on a daily basis. But the research part of us can’t help but want to quantify some of these trends. So we set out in conjunction with Dell EMC to establish a way to try to measure IT transformation and the degree of progress that different companies have made towards achieving that ultimate end state.
5:30 So with that, I’ll pass it over to Adam. He can talk a little bit more about the actual study and how we went about trying to accomplish that goal.
5:40 MARK SCHAEFER: Awesome.
5:41 ADAM: Great. Thank you, John. So as John said right within ESG we have our own academic definition for what IT transformation is. The question, then, is how you repackage that within some survey questions. So the research effort we undertook was pretty broad based. We surveyed 1,000 IT leaders from across the globe working at enterprise organizations. So, those organizations with a thousand or more employees.
6:11 And there were over 50 questions we asked. And when we think about the questions we asked, we categorized them in two broad categories. There were a number of questions to assess the state of these respondents’ IT organizations. So that is the types of technologies they use, the types of processes in place, how refined and automated those processes are, and the level of alignment between the IT organization and the business. So how tightly in concert are those two organizations acting? How much are they communicating? And what’s the status of that relationship?
6:48 The second category was really all about outcomes. So what kind of IT KPIs are these organizations delivering to the business? And what kind of business success are those businesses having? So we used the former set of questions as our scoring criteria. And there were 10 in total, which, based on responses, each respondent could earn anywhere from 0 to 100 maturity points.
7:19 And then we segmented respondents in quartiles to establish four levels of IT maturation– so stage 1 being legacy, stage 2 being emerging, stage 3 being evolving, and finally, the most advanced, stage 4 being transformed.
7:38 DOUGLAS KARR: It was really a very, very clever score card. So really congratulations on that methodology.
7:45 MARK SCHAEFER: And it was interesting, too, that the research resulted in a surprising distribution of those quartiles, as well, basically a bell curve. Can you describe that?
7:58 ADAM: Yeah, absolutely. It quickly became very apparent to us that very few organizations had achieved that most highly transformed state today. Only about 5% of the 1,000 respondents we ran through our scoring algorithm got that grade A.
8:18 MARK SCHAEFER: Wow.
8:19 ADAM: A little bit more encouragingly, on the other end of the spectrum, we also saw relatively few organizations fell into that being mired in that most legacy IT state. So about just a bit north of one out of 10 respondents received that, if you will, failing grade on the curve.
8:38 What we did see is that the lion’s share of respondents fell into either state 2 emerging or stage 3 evolving, 42 and 41% respectively. And so what that really showed us is that organizations are in the throes of this IP transformation journey. Most have gotten started and have made some progress along the curve but very few have reached that nirvana state, where their operations are fully transformed.
9:13 DOUGLAS KARR: As you’re speaking about those top level findings, can you talk a little bit more about what those companies look like and basically what their culture is and what they’re doing so different that puts them up in that top quartile?
9:30 ADAM: Yeah, absolutely. Yes. So as we’ve been talking about, there are three pillars within our maturity model. There’s the technology infrastructure piece. There’s a procedural piece. And there is a culture piece, a people piece.
9:49 And so to achieve a high score on the technology aspects, we look at things like use of all flash arrays, running on premises applications on converged and hyperconverged infrastructure, flexible architectures based on scale out principles as opposed to scale up principles, the use of software defined networking and storage technologies which are less proprietary and more flexible. So all of those factors in responses to questions about the technologies organizations use today are bubbled into that pillar about technology modernization.
10:31 There’s also a procedural piece, where we’re really looking at the level of automation. Because that’s one of the things that we’ve seen in our research with end users when we ask them what transformation means to them. Automation ranks very highly on that list. So we look at things like has the IT organization given end users the ability to self provision resources? Are they operating their IT organization in alignment with public cloud principles, so trying to run like a public cloud provider?
11:06 And then the final piece is really on the people side. And what we’re trying to find there is– these transformed organizations, they’re in close contact with the line of business. They report to the highest levels of the organization, and they’re in close contact, having a two way conversation, about meeting requirements and how successful they are doing.
11:29 MARK SCHAEFER: It’s such a key point. It’s something that I’ve written a lot about– is that that culture is just such an important part of change, any kind of change in an organization. And it really has be sponsored at the top.
11:46 One of the results that I saw in the report that was really exciting to me– and I wanted to ask you about this– was this notion of speed and the ability to respond rapidly to changes in the business, to enable rapid innovation in app development. This was one of the characteristics of the transformed companies. And this just popped out for me because speed is such an important part of business today. I’m wondering if you could talk a little bit more about that.
12:26 JOHN MCKNIGHT: Absolutely, Mark. You’re right on the money. Again, going back to this idea of digital transformation and the way all of these companies that we surveyed are embracing new digital technologies, business models, strategies. Digital transformation is, in many ways, a race. It’s really all about Speed who can innovate the fastest? Who can develop new products and services and new applications first?
12:50 Historically, enterprises have measured application development times in months, if not years. And now companies in all industries have to emulate technology startups in many ways and be much more agile– developing and releasing applications in days and weeks, making sure infrastructure is always available. If you’re using Waze or Uber, no one expects that application to go down for maintenance early on Sunday morning when bars and restaurants are getting out all across the country and all across the world.
13:27 So speed is critical. And the good news is we found that companies that have moved further along that IT transformation maturity journey are in fact being able to be much more responsive. So, Adam, do you want to talk about some of that data?
13:44 ADAM: Yes, absolutely. So we measured in our survey agility responsiveness in a number of ways. So we’re just getting into the actual data. For example, we asked respondents what percent of IT projects– so all the projects that organizations execute over the past couple of years– what percent have been completed ahead of schedule?
14:09 What we saw was, on average, respondents in stage 4 organizations were completing three times as many IT projects ahead of schedule compared to stage 1–
14:21 MARK SCHAEFER: That is just amazing. It’s just amazing. It’s almost like the transformed companies– they’re start up like, aren’t they? They’re just so agile. That number just really popped out at me.
14:38 ADAM: Absolutely. It’s a huge delta.
14:41 MARK SCHAEFER: Huge.
14:41 ADAM: And we thought we saw it show up in a few different places. So that is the macro IT project view– how fast are you churning out and completing your projects. We also have to have a microview, which is you’ve got a request from the business to provision of VM– how long does that typically take?
15:00 And what we saw is that transformed organization were six times as likely compared to legacy organizations to be able to spin up those VMs in under four hours. And in today’s dynamic IT environments, where VMs are being spun up and spun down and scaled dynamically. That capability is a huge benefit for the business.
15:26 DOUGLAS KARR: Wow. One of the things that comes to mind with this is is perhaps maybe that you guys even talk through a myth that people might have. And that’s that IT transformation is this huge undertaking and expense. And I want to talk a little bit more about the economic side of this because your findings really just dispel that myth of– that
15:54 these are companies that are making a massive investment. These are companies that– they’re actually reaching improved economic outcomes by doing this, right?
16:06 ADAM: Absolutely. It’s a great point, Doug. IT transformation is great. And what CIO wouldn’t want to have the capabilities that come along with it? But the fact of the matter is these investments are only going to happen, grow, and sustain momentum if they make economic sense. So we did set out to measure the economic IT transformation in a couple of different ways.
16:33 So one example we asked– not only the time frame in which IT products are being completed– but also the budget component of that question, which is what percent of your projects are being completed under budget. And what we saw in transformed organizations, they were completing an incremental 10% more of their projects under budget compared to legacy organizations.
17:00 So one out of 10 more projects are being done under budget. And we all know the typical view on IT projects, that they’re never done under budget, they’re never done ahead of schedule. And, well, we’re actually seeing that transformed organizations are able to do that.
17:19 MARK SCHAEFER: It’d be interesting to see, at some point, if there was a correlation study between the companies that are in your top quadrant and their financial performance on the street. Maybe you’ve already looked at that. But it seems like these have got to be pretty well-run companies performing at a high level. And my hunch would be that it would be showing up in their financials too. Have you looked at it? Have you gone that far on it?
17:54 JOHN MCKNIGHT: That’s a great question, Mark. We touched on that a little bit in the study. We did not look at equity performance. But I agree. That would be really fascinating analysis. We did ask respondents to report their level of their company’s success in terms of meeting, exceeding, or missing their financial targets. We actually used revenue, not stock performance in the calendar year 2016.
18:28 And we did find that stage 4 or more transformed companies were twice as likely to exceed their revenue goals relative to stage 1 organizations. And there was a very consistent progression going from stage 1 through stage 2, 3, and 4. So there’s absolutely a relation, in our view, between that achievement of IT transformation maturity and business performance, at least, from a revenue attainment perspective.
18:58 MARK SCHAEFER: Yeah, that’s a pretty close indicator I would say. And what about spending? Are the people at the top, are they are they spending more? Is that why they’re achieving more? Or are they spending a bigger percentage of their budgets on updating their legacy technologies?
19:23 JOHN MCKNIGHT: Well, the most interesting finding there and one of the most interesting findings in the study, in my opinion, is that we found that the more mature organizations are spending their IT budgets in a fundamentally different way. So what do I mean by that?
19:41 We asked a question about the percent of their total IT budget that’s spent on maintaining existing systems and IT services versus the percent of that budget that is spent on new IT projects, new application development, more of the innovation side of IT.
20:02 And the dynamic there is, if you are a business today, if you’re a CIO today, you’re getting pressure from the CEO, from the board to embrace and enable these digital transformation initiatives. And very often to fund that, you need to take cost out of the IT environment in other places.
20:24 So a very healthy progressive IT organization would have a higher percentage of their IT budget spent on new products and innovation. And that’s exactly what we found in the study. So a less mature organization, say, stage 1 or legacy organization, spends 2/3, 66%, of their budget in 2016, on average, on maintaining existing systems.
20:50 So only about a third is available for new projects and innovation. And that goes down in stairstep fashion until you get to the stage 4 most transformed organizations, where it almost becomes 50/50. So they have 54% of their budget spent on maintenance of existing systems but 46% now available for new projects and innovation.
21:14 And we did some calculations on that based on the average IT budget of those stage 4 companies and what they spend every year, and one of the takeaways or headlines your listeners will see in the report is that that equates to just a little bit south of an extra incremental 50 million US dollars per year available to spend on those exciting new application development and digital transformation initiatives. So pretty profound difference there.
21:43 DOUGLAS KARR: That’s an incredible difference. And it really points to IT transformation truly being an investment, an investment in agility, time completed, new features, more intelligent systems to make better business decisions that are resulting in greater revenue. Wow. That is incredible. And then on that same kind of– I think cultural because that’s truly not just budgetary but that’s a cultural kind of decision from a business standpoint.
22:13 Can you talk a little bit about that business and IT alignment and how that’s a key component to the IT transformation model?
22:25 JOHN MCKNIGHT: Yeah, absolutely. And I think one of the things that’s interesting here to note is, when we talked about IT business alignment, there are a couple of things that come into play there. But one of the hypotheses that we confirmed here is that the IT organizations’ ability to spend that incremental money on innovation is having a positive impact on that relationship between IT and the business.
22:50 The business feels like it’s being better served by the IT organization. But to your question about what does IT business alignment really entail in our model, and that is really that IT leadership has a seat at the table, to the highest places in the organization in terms of strategy, road mapping, product innovation, et cetera.
23:18 So how did we capture that? The first way we looked at that was to understand the reporting relationship of the CIO within organizations. And so what we saw or how we scored respondents was more transformed organizations had a direct reporting line between the CIO and the CEO.
23:40 Secondly, we also looked at the frequency with which IT reports its outcomes, level of service, quality meeting business requirements to the business at the highest level, CEO, and board levels reports with great frequency, so weekly, monthly, or at least quarterly are they reporting those outcomes back to the business.
24:07 And by having that direct line to the CEO and that constant flow of communication between the IT organization and the lines of busines business, we’re seeing the alignment between IT and the business being much tighter. Those two organizations operating in alignment.
24:27 MARK SCHAEFER: That’s so amazing that you found a way to quantify the culture. I just think that’s interesting. And did you see any correlation between that alignment and business results? I’m assuming the businesses that are most aligned in their culture, they must be having the best performance, as well.
24:53 ADAM: Sure, absolutely. We found a couple of things on that front, Mark, that I think are interesting. The first is we found that there was a much higher level of internal stakeholder satisfaction with the IT organization among those business users in more transformed organizations.
25:15 MARK SCHAEFER: That makes sense because they’re understanding each other more. They’re sitting at the same table now.
25:22 ADAM: Exactly. They’re no longer talking past each other. And we found that, as a result, when they have those discussions about technology requirements and service levels, etc., the more transformed organizations report a much more cooperative working relationship between IT and the business. It’s not contentious. It’s not argumentative. They’re both aligned, and that results in– who doesn’t want to work in a more cooperative work environment?
25:51 So transformed organizations were eight times more likely than just stage 1 organizations to say that they have a highly co-operative relationship between the business and IT. So that’s a healthy and ultimately productive development.
26:08 MARK SCHAEFER: That’s a long, long way from my days in the corporate world, where IT was basically a cost to be managed and a necessary evil. And I always hated that. People need to look at IT strategically. They need to look at it as a competitive advantage.
26:27 So I’m heartened by your research. And hopefully that will have an impact on people, too, as they review this.
26:34 JOHN MCKNIGHT: Yeah, absolutely. I was just going to pile on to exactly what you were saying around the concept of cost center versus competitive differentiator. And that’s a data point we actually captured in this research, which was that IT organizations or IT respondents working in transformed organization were seven times as likely to say they were viewed by their lines of business as a competitive differentiator compared to legacy.
27:00 What you just said still plays out by organizations that are legacy or even lower down on the maturity curve. Their businesses still look at them as an inhibitor. But what we saw among transformed organizations, they’re much more likely to be viewed as a strategic asset, a competitive differentiator, or, at a minimum, a value service provider.
27:25 DOUGLAS KARR: Wow. That is so important. I’ve always talked about the IT culture and whether you have an enabling culture or a disabling culture. And this points directly to that and provides all of the data to back it up.
27:40 We touched I think earlier on in our conversation about how technology plays such an important role. And with everything from an IT standpoint, jumping to the cloud in this utilitarian type world that we’re living in, how does the cloud play into IT transformation?
28:02 ADAM: Yeah. Great question. Public cloud services definitely play an important role. So they offer a lot of benefits to organizations. They help with agility, flexibility, time to market, being able to deploy services faster, et cetera. So the public cloud is going to continue to bring gain crashing within organizations, in these cases, in the right places.
28:26 But the fact is that the public side won’t work for every workload. So we saw that show up a little bit in the data. When we asked respondents what IT transformation really means to them– and we gave them a host of options to select them on– the use of the public cloud actually showed up fairly far down the list relative to other concerns.
28:49 JOHN MCKNIGHT: Right. You’re absolutely right, Adam. And, Doug, the way we think about it is cloud services are one tool, if you will, in the CIO’s tool box. But IT transformation is more about fostering a culture of innovation and responsiveness across the entire organization and infrastructure regardless of the deployment model. And in many respects, part of IT transformation is actually running internal IT more like a public cloud provider.
29:18 Because as Adam has said, that’s been a disruptive technology that has in many ways benefited companies. So whether that offering self-service, more automation, running IT like a profit center, we found that more transformed organizations actually scored higher across all of those dimensions.
29:39 MARK SCHAEFER: Well, we’re starting to come to the close of our program. And I just feel like we’ve kind of scratched the surface of this amazing information that you’ve brought to us. John and Adam, if there was one final learning you’d like to impart to our listeners, one piece of wisdom or encouragement, what would you take out of this report and give to our listeners today?
30:08 JOHN MCKNIGHT: Oh, that’s a great question, Mark. I think the big takeaway I would want the listener to have is that we’ve been able to show with some empirical confidence here that you don’t do IT transformation, as we’ve defined it, for the sake of doing IT transformation.
30:28 There are some clear benefits that result from that effort. So the analogy I often use discussing this is your doctor can tell you to exercise and go to the gym and eat right and take vitamins and get lots of sleep. And those things are all great in and of themselves. But as an individual or a health care consumer, we’d love to know, well, what’s in it for me.
30:51 Will I achieve better outcomes? Will I be healthier? Will I live longer? Will I have a better quality of life? And what we really want to do here for all of the IT organizations listening out there is to answer that question– what’s in it for me.
31:07 And I think hopefully we’ve been able to demonstrate that whether it’s increased responsiveness, better cost efficiency, the ability to spend more on innovation, that there is a lot for those IT Organizations in undertaking this kind of IT transformation effort.
31:24 MARK SCHAEFER: Anything from you, Adam?
31:50 ADAM: Yeah, absolutely. And it ties very closely to what John was saying about the what’s in it for me. One of the things that we saw across the board, whether it was stage 1 legacy or stage 4 transformed or somewhere in between, when we asked people participating in the survey if it mattered to the long term success of the organization that they need to embrace IT transformation, we saw broad based agreement.
32:18 So we thought 3/4 of all respondents, regardless of where they stood today on their journey, say that they strongly agreed that embracing IT transformation is going to be critical to their business’ success in the long haul.
32:35 MARK SCHAEFER: Well, this time has flown by so quickly on our first show. I hope you’ve loved the ideas we’ve presented today. And I hope you’ll continue on this journey with us by subscribing to the Luminaries podcast on iTunes on Stitcher or the channel of your choice.
32:54 I want you to know that you can get your own copy of this enterprise strategy report we’ve been discussing today. It’s called the IT Transformation Maturity Curve Report, as well as a free calculator to use some of the concepts we’ve talked about today to assess your own company’s IT maturity level.
33:18 You can find this at delltechnologies.com/luminaries1, meaning it’s the first episode of Luminaries podcast. So until next time, this is Mark SCHAEFER and Douglas KARR thanking you for your time today and inviting you to join us on the next episode of luminaries, where we are going to get a glimpse of our transformational future with Dell EMC chief technology officer John Roese.
33:50 You won’t want to miss that. We’ll see you next time.
33:56 NARRATOR: Luminaries, talking to the brightest minds in tech. A podcast series from Dell Technologies.