““In the digital age of ‘overnight’ success stories such as Facebook, the hard slog is easily overlooked.””
– James Dyson, British Inventor and Businessman
During the past months, I have worked with various IT organizations on different aspects of digital transformation. As many are part of corporations with over 100 years of history, almost everything digital comes from the IT department.
These IT departments, therefore, often manage enterprise systems and office infrastructure and develop or oversee the development of internal applications while increasingly also creating digital product components or even complete digital products, like customer-facing apps.
While it is understandable that companies want to leverage existing „digital capabilities,“ we increasingly find that this approach is overextending IT organizations and hampering digital transformation success.
You may recall that I recently wrote about the difference between the mental models of native digital and industrial companies.
This division is exacerbated by the differing approaches taken by traditional IT teams versus digital product teams. Consider the following aspects:
Different Mental Models and Mindsets
Many IT departments still follow some „plan-build-run“ model, where they customize or build applications based on pre-defined specifications using project teams that are disbanded once the specifications are implemented. The project result is then moved to the „run“ phase of the lifecycle.
In comparison, digital products are ideally developed by stable and holistic product teams, guided by product managers, who frequently experiment and learn about the needs of users and customers so that they, over time, become intimately familiar with their target audience. These teams regularly assess the product’s performance in getting the customer’s job done and continuously improve their products, especially in fast-moving and competitive environments.
IT teams typically work with simple business cases that assess efficiency gains against build costs based on a defined specification set, with build cost often being the primary decision driver.
Operating in this model requires comparably little business acumen and only one decision in a non-competitive environment. Furthermore, the business impacts of these decisions are rarely reviewed after implementation.
Product teams and the associated product managers, on the other hand, require a keen sense of awareness regarding the various aspects of the customers‘ requirements, as well as the potential business and technical consequences of their decisions. They operate in a complex and constantly changing environment with high competitive pressure and uncertainty.
Product teams, therefore, must understand and profitably manage multiple business model components such as volumes, revenue, cost, profitability, and growth. The required level of business acumen is not typically a trait of IT organizations as it requires a dedicated Product Management organization.
Different Priorities and Value Assignment
The priorities of IT departments and digital product teams differ fundamentally.IT departments prioritize system stability and efficiency, while digital product teams focus on business opportunities and business value, necessitating a willingness to embrace continuous innovation and change .
IT applications and digital products are similar in that they are tools to get some job done.
In a typical IT context, the functional aspects of an application hold greater importance. However, when it comes to digital products, they not only need to deliver functional capabilities but also provide a user experience that is at least as good as their competitors and, increasingly, even with typical consumer appslike smartphone applications. This requires additional user experience design skills that are usually not a part of IT teams.
As mentioned earlier, IT projects still rely heavily on upfront planning. Where requirements are not collected upfront, a centralized „portfolio management“ or similar function often decides which features to prioritize. Even if the implementation teams are „agile“ (e.g., in typical SAFe implementations), they still cannot make customer-centric decisions based on data and insights independently and quickly.
Digital product teams, on the other hand, need to constantly keep users, customers, and measurable business outcomes at the center of their decision-making process. These teams continuously strive to understand and meet user needs and business expectations. This requires them to operate largely independently within the guardrails of agreed organizational and product strategies.
IT organizations typically use relatively rigid project-finance models that focus on implementation costs. This involves estimating every step of an IT project, agreeing upon a budget, assigning resources, and monitoring adherence to the budget.
Product teams require long-term budgets that are based on an assessment of business opportunities and the necessary resources to capitalize on them.Subsequently, funding and resource allocation are determined based on a regular business impact review in the context of the evolving strategy. Unlike IT budgets, digital product budgets are usually managed as a dynamic portfolio of „opportunities and bets.“
In light of these differences and our observations in digitalization projects, we believe that the following steps will accelerate an organization’s ability to harness the benefits of digital technologies:
- Develop a clear digital strategy
- Separate market-facing products from internal IT to allow for different operating models
- Build an empowered Product Management organization to drive digital products
- Change the investment model for digital products to accommodate the different value generation approach
Although some CIO organizations have made significant progress in achieving a digitally transformed enterprise by effectively managing separate operating models, we believe that digital products must eventually become part of a product development function, with Product Management as the link between Business and Engineering.
But check out the thoughts of others below:
The big product and platform transformation
McKinsey’s view on which five actions organizations need to take to scale the product transformation.