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CIO at the Crossroads: The Enterprise IT as a Digital Factory

By on June 22, 2015 in Strategy

The progressive movements of the digital transformation as well as new megatrends like the Internet of Things (IoT) let CIOs finally reach a crossroads. Even if statements like “IT is a business enabler” were ignored as “one of these phrases” in the past, the reality brings CIOs back down to earth. No doubt, the CIO still has a pivotal role. However, he has to meet the challenge to understand the enterprise IT as a service provider for its internal customers to enable the company to reach external customers with new digital and hybrid products. This only works if he considers the “Digital Enterprise” en bloc and restructures the enterprise IT to a “Digital Factory”.

Yesterday’s IT: Keep Things Running

Over the last three decades, IT departments worldwide have developed, introduced, updated and detached a rash of IT systems. They have digitized their companies by introducing and maintaining ERP and CRM systems, office solutions and self-developed applications. So far, they didn’t have awarded another significance. The IT department was just the maintenance of the “IT engine room”, no colleague wanted to deal with respectively was able to deal with.

Today, suddenly everything is completely different. Due to the “Consumerization of IT” and the easy access to IT resources, every employee is now able to use an iPhone or a SaaS application. It is even worse, suddenly everybody is bawling for the digital transformation. In most IT departments there is a lack of understanding for this. Transforming digital? Eventually, digital systems have been introduced and maintained over the last 30 years. Indeed, the term “digital transformation” is a little bit confusing, especially if one is working in IT for decades and has seen all developments. The digital transformation describes the radical shift of a company to an entire interconnected digital organization. Based on new technologies and applications more and more processes and process elements are reshaped and are adjusted to the requirements (real-time, connected) of the digital economy. So, it is about the tight integration of entire process and supply chains within the company as well as with partners, suppliers and customers. Finally, it is about a closer customer relationship and an optimized understanding of the customer by serving a better customer experience. Thus, the digital transformation influences customer and business relationships and changes respectively create new value chains. Among this influence, companies have the chance to develop new business models.

So, the IT department has much more responsibility as just keeping the status quo. The IT needs to understand themselves as a strategic partner and business enabler and tightly engage among different departments to understand their needs and requirements. In the digital age and during the digital transformation this can become a strategic competitive advantage for the company.

This is also the overall feedback from German companies. The results of Crisp Research’s “Digital Business Readiness” study has shown that the majority of the interviewed companies see their own IT department as a strategist (34 percent) respectively an ideas provider (21 percent) in the context of their digital transformation.

Thus, the expectations are high, which is strengthening by the fact that more than half of the respondents (58 percent) understand the digital transformation as an IT paradigm. So, IT departments and CIOs are under pressure to act as an enabler and ideas provider for digital processes and ways of working within other departments – with good reason. Hidden champions even global leaders can be found in several industries of Germany’s economy. However, especially these companies should spend very much attention to the digital change in order to retain their competitive and innovation capabilities in the future or ideally reinforce them.

The Internet of Things and the Industrial Internet are both an allegory for the digitization of all industries. New smart products will be developed and existing “analog” devices will be enhanced with sensors, thus “smart” extended and admitted into the digital value chain. Existing organizational and IT structures don’t support IT departments any longer to make the digital mind shift in good time and to react with innovative ideas to the requirements of corporate divisions to proactively serve the customer with new products and solutions. The digital transformation requires a rethinking and a radical change within IT departments. One step of this transformation is the change from an enterprise IT to a digital factory.

From an Enterprise-IT to the Digital Factory

CIOs don’t create any direct value for their companies if they just setup and operate an IT environment with standard applications. In this case they are just the supporting force in the background without having any influence on the business model respectively the business success. Those CIOs who have developed own applications in the past and thus already participated in the business success belong to the innovators of the IT guild. However, also they have to rethink their approaches. Because applications and other IT solutions have been completely focused on static processes in the past. Today’s customer expectations, new business models as well as solutions for the Internet of Things are following a dynamic behavior (so to say in real-time) and thus need to be considered in all processes and the user experience.

In order to handle the challenges on the technical side, IT departments should stop thinking in silos and instead start to transform themselves into a corporate “digital factory”.

In the center of the digital factory is a cloud based IT environment that is representing the “digital power plant” powered by infrastructure-as-a-service (IaaS) and/or platform-as-a-service (PaaS). The power plant hosts an “Application Platform” where applications are developed and operated as well as an “Analytics Engine” for the analysis and preparation of data. The resulting insights are accessible for the applications running on the application platform. The application platform can be used to develop completely new products or to digitize existing products, for example, to extend it with a sensor or a smart unit. The digital power plant is supplied with existing internal and/ or digital external resources like data or cloud services. Thus, a hybrid environment is created. The digital or digitized products like mobile apps, SaaS or IoT solutions and engagement solutions that have been created in the power plant provide the digital factory continuously with data, which leads to an ongoing improvement of the products respectively to new products. The integration of the digital factory with typical enterprise business solutions like ERP or CRM systems should also be highly considered to create a value from the existing data and to interact better and more predictive with existing and new customers.

As part of the business enablement, the digital factory should also provide the internal customers with an on demand self-service to serve them with the necessary resources like compute power, storage, microservices, development platforms or other SaaS solutions exactly in the moment when they are acting. This supports them to improve their productivity. Therefore, a cloud environment is the perfect foundation for a digital factory.

The Digital Factory is the Foundation of the Digital Enterprise

In the digital age the IT department is claimed to deliver an essential part to the product and support during its development, enhancement as well as the process optimization. This is the fundamental basis to enable a company serving its customers with the best user experience and to provide them with innovative and superior services. Therefore a radical approach is necessary. This means to bring oneself into question and rethink everything. The old entrenched structures don’t work within a digital company anymore. Modern companies are mostly technology companies, independent from their industry, supported by IT. A clear defined cloud strategy helps CIOs to build the foundation for the digital enterprise. This enables their internal and external customers to experience a convenient and especially faster access to IT resources like dynamic infrastructure, platforms and other cloud services and thus improves the overall productivity and the customer experience.

The digital factory is the foundation for novel digital and hybrid products – e.g. for the Internet of Things – as well as to develop services and prototypes more efficient.

The IT department needs to enhance from a maintainer to a product center. This includes developing new products and extending existing products with digital resources. The digital factory is the technological foundation for this transformation.

Best practice examples show that decision makers have recognized the importance.

  • Klöckner & Co. (CEO, Gisbert Rühl) a steel and metal trader drives its digital transformation with a new detached team. Therefore the center of excellence “kloeckner.i” was founded, which is promoting the digitization together with colleagues from other corporate divisions. The classical IT at Klöckner & Co. is standardized. In its digital factory “kloeckner.i” most of the things are self-developed to manufacture individual products in order to constantly answer the question: “What does the customer need to collaborate easier and more efficient with Klöckner & Co.”.
  • Volkswagen AG (Head of Application Development, Ralf Bunken) considers IT as a central element during the development of a car. Volkswagen specifically analyses data to enhance products and to make its business processes – from development over manufacturing up to sales – more efficient. However, just a digital factory is not enough. Thus, Volkswagen bets on the close and interdisciplinary collaboration across several departments and experts from different disciplines, partly in cooperation with IT suppliers. For example, the responsibility for technology and software in the “Connected Car” project lies in the hands of the automotive developers. The IT is responsible for all things outside the car. However, both areas are working closely together. Volkswagen encourages its approximately 10,000 IT employees by hosting internal hackathons and offering “Data Labs” where each employee can try new things.

Introducing the digital factory requires much more than just a technological restructuring. CIOs should also consider the following topics:

  • Consider the digital transformation as a traversing umbrella across the entire company.
  • Destroy silos and promote interdisciplinary ways of working and acting.
  • Consider the DevOps model and microservice architectures to promote the continuous delivery of IT solutions.
  • Promote and establish developer know-how within the IT department and further adjoining corporate divisions.
  • Consider the API economy as a competitive advantage to increase the customer engagement.
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About the Author

About the Author: Rene Buest is Director Market Research & Technology Evangelism at Arago. Prior to that he was Senior Analyst and Cloud Practice Lead at Crisp Research, Principal Analyst at New Age Disruption and member of the worldwide Gigaom Research Analyst Network. Rene Buest is top cloud computing analyst in Germany and one of the worldwide top analysts in this area. In addition, he is one of the world’s top cloud computing influencers and belongs to the top 100 cloud computing experts on Twitter and Google+. Since the mid-90s he is focused on the strategic use of information technology in businesses and the IT impact on our society as well as disruptive technologies. Rene Buest is the author of numerous professional technology articles. He regularly writes for well-known IT publications like Computerwoche, CIO Magazin, LANline as well as Silicon.de and is cited in German and international media – including New York Times, Forbes Magazin, Handelsblatt, Frankfurter Allgemeine Zeitung, Wirtschaftswoche, Computerwoche, CIO, Manager Magazin and Harvard Business Manager. Furthermore Rene Buest is speaker and participant of experts rounds. He is founder of CloudUser.de and writes about cloud computing, IT infrastructure, technologies, management and strategies. He holds a diploma in computer engineering from the Hochschule Bremen (Dipl.-Informatiker (FH)) as well as a M.Sc. in IT-Management and Information Systems from the FHDW Paderborn. .

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