Most IT technology in organizations focuses on helping to improve the efficiency of the organizations. However, as digital transformation takes hold, we can now see that a significant portion of these new IT investments focus on building technology platforms that allow organizations to compete for customers. These new “growth-focused” investments behave differently than their efficiency-focused cousins. They create a more dynamic relationship between technology and the business and evolve at a faster rate, often in less predictable ways. This new relationship between the business and technology increasingly calls for a different governance, investment, and management philosophy.
Efficiency-focused technology and the governance and management approaches that evolved to accommodate its needs shaped budgets and organizational philosophies. These approaches, while continuing to evolve, are still relevant and appropriate for managing, investing, and governing the large technology estates that dominate the enterprise IT landscape. However, they are increasingly inappropriate for handling the growth-oriented technology platforms and, if not addressed, constrain their success and thus destroy value.
This places companies on the horns of a dilemma: they now face the prospect of needing two different governance approaches or attempting to operate a single approach, which will prove inappropriate and unhelpful for one or the other of the operating environments or, in the worst case, will prove poor for both.
The Traditional Efficiency-Focused Approach
As companies evolved their IT management, investment, and governance philosophies and approaches, they viewed IT as an investment that allows them to operate more efficiently. This, in turn, evolved approaches to regulate the expenditure on IT, investments, and new initiatives while ensuring high reliability and resilience. The efficiency philosophy percolates through an entire IT organization with a constant eye to improving IT return on investment while ensuring silent running.
The history of most, if not all, enterprise IT is one of laying down continuous layers of technology, sometimes replacing previous investments but most often sitting on top of or beside earlier investments. This sedimentation of technology then requires ongoing efforts to integrate and create data pathways across the stack.
As business organizations learn and use this technology stack, they conform or reconcile their business structures and processes to leverage the functionality and capabilities of the combined technology stack. In doing so, they extract value from the combined technology stack but also create significant barriers to changing it.
The effort and cost to maintain and evolve this environment become predictable, and the current process of annual budgets for both maintenance and development evolved as useful and appropriate governance approaches.
Hence, as we look at the state of IT governance, we see that it evolved to deal with the challenges presented from managing, funding, and overseeing a technology stack and associated organization focused primarily on supporting a company’s efforts to operate and become more efficient.
One of the defining attributes of technology focused on operational efficiency is the rate of change in the technology stack. Several factors dictate this rate of change, such as the amount of change the broader organization is willing to undergo and the level of funding available to support that change and the rate of change of the broader technology market.
Consequently, companies get into a rhythm where they spend significant money on procuring or developing and implementing technology but then only need to spend a fraction of that amount to maintain/support it over time, with layers of technology acting somewhat similarly to rock being laid down in a sea over time. Each year a company lays a new layer of technology over the existing base and builds up a sedimentary infrastructure.
This analogy is far from perfect as companies replace technology from time to time. However, replacement technology often fails to completely replace all the functionality; consequently, companies leave some or all the legacy applications in place. Just like with sand sediments that are laid down over time, which turn to rock, layers of technology that have been in place for many years can be hard to dislodge. All these attributes contribute to the forces that shape and maintain today’s IT organizations.
The Growth Framework
As digital transformation took root, companies increasingly build technology that actively helps them compete in the market through interacting directly with customers, improving customer experience, and attracting new customers.
Technology developed and implemented from this growth helps IT anticipate customers’ needs, changes the way those needs are fulfilled, and delivers exceptional customer experience, which then allows the company to increase market share.
Technologies (platforms) built to enable and drive growth have a much deeper intimacy between customers and technology, employees and technology, and the business itself. The relationship between the technology and the business becomes much more intimate and dependent on technologies than it does with efficiency-focused technologies.
How Investment Differs In The Two Frameworks
The way companies invest in platforms differs from efficiency-focused tech stacks. Investment drivers in the growth framework are a need to respond to become more competitive in the market. Increased customers and market share and/or increased employee satisfaction is the return on investment. Because of the crucial need to improve competitive capabilities, the growth framework makes companies much more willing to invest in platforms.
Platforms evolve at a rate that is orders of magnitude faster than efficiency technologies. Because of the need to continually provide functionality that differs from competitors (which invest in their own platforms), the pace of change in platform technologies is much faster. It requires far more iterations and thus much more change management in the business. It creates a much more dynamic environment.
How The Technical Debt Mindset Differs In The Two Frameworks
Another significant difference is the mindset around technical debt. Technical debt accumulates over years, and it is not unusual for companies to have layers of efficiency-focused technology that is 30 or more years old. In contrast, companies cannot tolerate technical debt for platforms because they must continually reinvest in components already in place. For example, digital transformation for the purpose of competing in the marketplace is nearly always based on cloud and SaaS platforms, which are inherently dynamic.
Platforms constantly expand, extending into new areas and absorbing new functions. Companies use platform technology to push into new frontiers while keeping existing components up to date. Thus, companies on a growth trajectory take a much more aggressive view toward retiring technical debt than those on the efficiency trajectory.
How The Talent Model Investment Differs In The Two Frameworks
There also is a significant difference in the talent model between the growth and efficiency frameworks. In the efficiency framework, it may take 100 programmers to develop an application and five to maintain it. The company then deploys the other 95 programmers to other projects. The company can bring in third-party resources later, if needed.
But in the platform world focusing on constantly increasing competitive capabilities, companies do not redeploy the initial 100 programmers and engineers that build a platform. They are a persistent team that continues working on that project to evolve the technology. Because of the exponential work in evolving platforms, which sucks up resources, a company may need to bring in another 100 engineers in addition to the initial 100, who already conquered the learning curve of the technology and the business.
The continual multiplication of resources necessary for the growth environment of platforms means that a company will continually invest in that environment, as opposed to the efficiency-focused environment that allows keeping budgets constant.
How Service Partnerships Differ In The Two Frameworks
Finally, the two frameworks differ greatly in the way they partner with third-party service providers.
The growth/platform environment increasingly focuses on selecting a service provider that will invest in bringing more capabilities to evolve the platform faster.
In contrast, partnering with third-party service providers in the efficiency framework focuses on lowering the cost to operate.
Platforms are exploding in importance, size, and consumption, and that is not going to slow down. Every company, especially large ones, needs to understand how its investment practices and philosophies must change as they shift from an efficiency-focused mindset into a growth mindset and platform world.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
