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Digital transformation and the IT department: Effective management and strategy

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Digital transformation and the IT department: Effective management and strategy

Digital transformation and the IT department: Effective management and strategy. The fifth part of Talent Acquisition and Organizational Structure to Drive Digital Transformation (DX) Success explores how to approach and execute digital transformation with the traditional IT department. Learn about organizing for DX success, the importance of pilot projects, and strategic organizational placement.

Digital transformation and the IT department: the pros and cons and leveraging your IT department

We’ve talked about who you should organize for digital transformation (DX). Now let’s take a look at the pitfalls of running a DX organization. When it comes to setting up a DX organization, the most popular choice is to leverage the IT organization already in place. Companies of a certain size already have a separate organization that runs enterprise systems like ERP and HR. Smaller companies may not have that level of organization, but they do have an IT person who is responsible for their employees’ OA experience.

So it’s very natural for them to take on DX when planning and organizing DX. However, as I mentioned earlier, the chances of success are very low if the existing IT department is tasked with DX. Sure, there’s a very small chance that they can pull it off, but for the most part, the results are far from successful. This is the path most companies take, but it can also be the riskiest. Why? Let’s take a closer look.

IT’s limitations and strategies for organizing for DX success

First of all, if your main business is not in IT, you can’t afford to have a large IT department. With a small staff, these organizations are responsible for the operation of existing internal systems and, in some cases, new development projects. For these organizations, keeping existing enterprise systems running reliably is a key performance indicator. And they don’t have a lot of internal headcount to spare.

They rely heavily on external partners to maintain their systems. As a result of this situation, the existing IT department members are mainly required to perform administrative functions, and they tend to focus on the stable operation of existing systems rather than pioneering new technological changes in the market. This is a conservative approach from a technical point of view. Rather than defining and solving problems on their own, they are more likely to leverage the resources of their environment and the partners around them to keep things running smoothly.

Digital transformation and the IT department: Effective management and strategy

I emphasized earlier that sustained DX requires internalization as an enterprise capability. This is why the ability to define the problem and lead the content is more important for DX success than the management capabilities required of IT. If IT continues to work in the same style as it has in the past, with a focus on cost savings or stable operations, it will be slow to get up to speed on DX. The systems, internal processes, and regulations it has created will continue to self-censor against an unclear goal like DX. As a result, you’re stuck in a holding pattern instead of taking action. So what can you do?

Approach DX implementation with a pilot project

One way to start is to leverage your IT organization to run some pilots before you commit to a full-fledged DX organization. The idea is to introduce digital tools and, if necessary, run a few big data or artificial intelligence pilots to see if they can make your existing core business more competitive or even test the waters for the DX you want to pursue.

However, keep in mind that this is a pilot, and the return on investment should be less about the return on investment and more about the fact that you’ve tried something that falls into the DX category in your organization. If you’re satisfied with the results of the pilot and want to take it to commercial scale, it’s a good idea to consider separating the organization. In some cases, pilots can be delivered without any internal resources and with only external partners. Moving to commercialization means you’ve decided to make it a core part of your business. This means you need to think about the structure that will allow you to internalize the capabilities.

The importance of organizational and role separation in DX execution

And while running pilots, it’s a good idea to separate the people working on enterprise systems from the people working on DX, if possible. This separation is necessary to increase the likelihood of success and to lay the groundwork for a dedicated organization down the road, as the two will inevitably have very different goals. As the pace of technological change in IT continues to accelerate, and jobs are increasingly fragmented, it’s not uncommon to see developers with different competencies and specific skillsets.

Based on this understanding, DX should be pursued with the understanding that a new organization should be created if possible, or at least a temporary one if not. In addition, it can grow into a major management issue, so it is recommended to think about the placement of the organization in the approval line regardless of the size of the number of people, such as running the organization directly under the CEO.

Internalize and strategically align your organization for DX implementation

As we’ve said many times, DX must be internalized. That’s why you should start with a separate organization if possible, but if you have to leverage your existing IT department, you should definitely pay attention to the things we talked about today and decide on an organizational structure.

Digital Transformation Outsourcing: What Works and What to Watch Out for

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Digital Transformation Outsourcing: What Works and What to Watch Out For. Explores outsourcing strategies and caveats to drive digital transformation (DX) success in the fourth pillar of talent acquisition and organizational structure. Learn about transforming your internal workforce, leveraging experts, and building sustainable collaboration models.

Basic strategies for digital transformation talent acquisition and the need for outsourcing

New jobs should be based on recruiting people with experience in the field. You can’t just train people to do the job. And even if you outsource, internalization is a must.

The importance of building a DX organization and preparing for the challenges of execution

We’ve covered what the goals and personality of a DX organization should be and how to select leaders. Now, let’s look at how to organize your practitioners and prepare for the challenges of execution. When it comes to implementing DX in earnest, most organizations are likely to face a labor shortage.

To execute DX, you need people who are familiar with the key technologies – artificial intelligence, big data, cloud, and the Internet of Things – and unfortunately, there is a huge shortage of specialized talent in the market. You also need people who are not just developers. For example, we need service planners for strategy and business modeling, service planners for planning new services, and designers for UI/UX/GUI. Depending on the direction of your company’s DX efforts, your staffing needs will vary slightly.

Once you’ve decided that DX is an important strategy for your company, building an organization with the necessary skills is a natural starting point. But where do you find these people? The first and most preferred option is to create a new DX organization, but leverage your existing workforce rather than hire new people. This is a way to build the organization through transitional assignments to new roles that don’t necessarily have the experience or technical background for DX projects.

From a management perspective, this is the easiest option because it leverages existing talent. You’re putting someone in a new field with no experience, but with enough training, you can expect great results. It can also be seen as a way to revolutionize the company and streamline management at the same time. However, the bottom line is that it’s not impossible, but it does require an absolute investment of time and money.

Digital Transformation Outsourcing: What Works and What to Watch Out for

Limitations of internal staffing transitions in DX projects

When you’re transitioning people who don’t have experience in a particular field, you usually run a training program to get them up to speed and give them experience on a project or two. However, if there is no one else in the organization with experience, everything is new to them and trial and error is inevitable, even if it’s unintentional.

This is a major reason why DX implementations can take at least a year and up to three years of wasted time. However, this is only the case if the person in charge has enough experience, and if everyone from the head of the organization to the practitioner has been deployed through job switching, it is practically impossible to successfully conduct DX through their own efforts. Therefore, if possible, you should focus on recruiting people with external experience, even if they are the core of each job.

There are several criteria for selecting people to switch roles. The most important thing to look for is an interest in acquiring new knowledge and a passion for self-improvement. Unlike other roles, DX is not one of those fields where you learn all at once and build up your own know-how as you go along, so it’s important to have an open mind and attitude towards change. This, coupled with experience, increases your chances of becoming a great DX person.

Critical considerations and strategic approach to leveraging digital transformation outsourcing

After internal hiring, the next option for executives is to outsource to a specialized company to drive DX. This is an easy decision to make and can be done quickly. However, there are some important considerations. Since the goal of DX is the continuous growth of your company, you shouldn’t outsource every aspect of it. For example, in the case of big data analytics, there are many different roles, from data scientists who do the analysis and modeling, to data engineers who pre-process complex data from existing systems, to people who develop and operate the analytics platform.

However, outsourcing all of these analytics tasks may produce the desired results quickly, but it is not possible to build them into a company’s core competency and advance the analytics results. This is why it’s better to have an internal team of data scientists responsible for data analysis and modeling, meaning that domain knowledge and data expertise are internalized within the company. Having at least one person who understands the company’s domain and who understands the technology in the field is a good starting point for internalization, as it allows you to respond to various risks. For other areas, you can actively consider outsourcing.

The same goes for other functions. Outsourcing due to a lack of internal resources versus outsourcing the entire process because you don’t understand the field are two different approaches with different outcomes. Even if you outsource most of your work, continuous improvement and internalization of business-critical functions is essential.

If you want to create a new business model with mobile services, you need to keep the people who design and develop the apps in-house for the medium to long term. If you outsource this process to a one-time SI project team, you may be able to create a service right away, but you won’t be able to continuously operate and improve it, and it’s likely that the service will eventually fail. It is important to keep in mind that this is not a problem with the SI project itself, but with the different purpose of the business.

Collaboration models and internalization strategies for sustainable digital transformation

Is there anything you can do to improve your odds of success when outsourcing? As mentioned earlier, the nature of DX projects is subtly different from traditional SI projects. It’s not something that can be accomplished in a single assignment, and it requires constant iteration and improvement. It’s important to understand this difference and create a collaborative relationship with your outsourcing partner.

For example, even if you do contract, it’s better to have an operational contract that complements your internal resources rather than a traditional SM (System Maintenance) contract, which means that you need a contract that brings in external experts rather than a traditional SI and SM contract. However, these contracts are only for the supply of manpower, not for finalizing the project scope and date. There is a risk of uncertainty on the part of the hiring organization, but it is a more likely way to keep up with changing goals.

Consider a business model shift to a mobile app. Your first outsourcing contract will focus on the planning and development of your mobile app. The on-site and outsourcing partners would work together to bring the mobile app to market based on a mutually agreed upon timeframe and scope through a project agreement. This is a traditional SI type of outsourcing agreement. Afterwards, a minimum operating agreement for the mobile app to cover errors and maintenance is also concluded, which is the SM contract.

If some features need to be further developed, a new SI contract is signed and the app is improved, which has been the general practice of outsourcing contracts until now. However, these SM contracts are not scoped according to the DX characteristics, but only to secure resources. In this case, the service can evolve into a more sophisticated process as the company continues to collaborate with the acquired personnel and make continuous improvements to the mobile app. Historically, we’ve seen companies start a DX assignment and end up with a stalled project because they don’t have this type of arrangement.

The last point I would like to make is that even with such a contract, it is not realistic to retain all the people involved in the SI contract, so it is important to explicitly declare these conditions in the initial development contract, so that the SI partner is fully aware of them and can start the assignment. It is important to retain at least 30% of the workforce on an operational contract to ensure continuity of development. In addition, as a DXer, you shouldn’t rely on your partner to do all of the work, but rather identify key people who will be co-creating and working with you in the future.

To summarize. The key to sustainable DX is to internalize the capabilities within your organization. For this to happen, it’s important to have internal talent, even at the smallest scale, as described above. Keep in mind that if you’re going to train and transition people, you’ll need to give them plenty of time. If you’re outsourcing, you’ll need to build a different kind of collaboration model.

Understand that DX is your work, not someone else’s, and be clear that it should be a tool for continuous innovation. DX is also a human endeavor. Whether it’s done internally or with external help, people are at the center of the process. The key is to make sure they understand the need to continue to execute on DX and to give them plenty of support so that the capabilities remain within the organization.

How to acquire digital transformation talent: M&A, JV, and team-based hiring

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How to acquire digital transformation talent: M&A, JV, and team-based hiring

“How to acquire digital transformation talent: M&A, JV, and team-based hiring”. In this third part of Acquiring and Organizing Talent to Drive Digital Transformation (DX) Success, we’ll talk about different ways to acquire talent for a dedicated digital transformation organization.

How to acquire digital transformation talent: M&A

If your company doesn’t have digital DNA, one way to build a DX organization is to acquire a company that is already digitally savvy and increase its capabilities in a short period of time. Often referred to as talent acquisitions, these deals are not done for financial gain or business synergies.

However, there are very few companies in Korea that have this option, especially in the U.S., where big tech companies have been able to take advantage of it. However, there are quite a few such mergers and acquisitions in the United States, mainly among big tech companies.

Digital Transformation Talent Acquisition Methods: Joint Ventures

The next option is to create a joint venture with a company that already has digital DNA. The benefit of creating a joint venture based on a financial investment is that you’re not bringing DX talent in-house, but you’re still partnering with people who have the expertise. You can also ensure business continuity and reap financial benefits as the other company or joint venture grows. Even if it’s not necessarily financially beneficial, it’s a viable option if you don’t have the internal manpower to execute DX, which can be quite costly. Again, there are examples of this from well-known global companies, and there are also recent attempts by domestic companies.

How to acquire digital transformation talent: M&A, JV, and team-based hiring

Analyzing digital transformation talent acquisition methods and practices in domestic companies

The first two methods are not yet practiced in Korea. Except for a few well-known IT companies, they are hard to find. In general, people only think of talent scouting, not the idea of acquiring an entire company to secure talent. In Korea, Naver’s acquisition of Sunun in 2006 to develop a search engine was a highly publicized M&A for talent acquisition.

Kakao has also acquired several startups to acquire talent, and in fact, they are contributing to the growth of Kakao. However, it is difficult to find such cases in traditional companies other than IT companies. The same goes for joint ventures. Most executives have a lot of control, and in many cases, they want to keep the new investment firm under their control. They are reluctant to create a separate joint venture with no control simply to add staff. While there have been some media reports about the joint venture between LG CNS and cloud provider MegaZone to create Cloud Gram, there have been few examples of joint ventures to acquire IT talent from traditional companies.

The importance of leadership in digital transformation organizations and where to look for talent

So what’s the right way to organize? We’ve already covered the answer above. Create a new dedicated DX organization with strong executive commitment and investment, and hire someone with DX experience to lead it. In short, empower the leaders of the DX organization and give them the power to shape and hire the team. Unlike other fields, IT is structured in such a way that no one person can produce results alone.

This is why there are so-called “gurus” who are recognized as experts in a particular technology. They act as influencers within the community of their peers. Hiring these candidates as DX leaders creates a pool of people who want to join the organization to work with them. It’s a unique hiring culture in the tech industry. Hiring a good leader, a good grunt, can go a long way in building your workforce.

can go a long way in shaping your workforce. Of course, in larger organizations, these people may not be the right fit when compared to internal standards. However, the most important thing to look for in a DX leader is someone who can actually execute DX and show results, so it’s important to look at hiring from a different perspective than the traditional talent requirements.

How to acquire digital transformation talent: Hiring by teams

The next hiring option is to hire in teams. At the risk of sounding like a broken record, the nature of the IT industry is such that you can’t work alone. As the saying goes, you can’t see the hand that feeds the tongue, and collaboration takes time to build trust. While it’s one thing to work toward a deliverable in a limited timeframe, such as an SI project, it’s another to hire in teams to ensure continuity. If the leaders of your DX organization are good enough at team building to bring their own crew, that’s fine, but if not, you’ll need to hire from the open market.

In this case, it’s a good idea to empower leaders to hire and allow them to select their own people. While there are benefits to this kind of leader-centric hiring, there is also a downside. That’s when they leave en masse. In fact, overseas companies often use M&A to acquire technology companies to eliminate this risk. Otherwise, there are ways to compensate them well. In addition to compensation, there is also the option of signing an employment contract with a mandatory service period and a lump sum payment upfront. This is called a retention bonus.

On average, it takes about three years for a DX project to succeed when hiring new IT talent, whether through M&A or general recruitment, who have never experienced the culture of an existing organization. During this time, you’re in it for the long haul, and you need to keep an eye on them to make sure they don’t drift away.