Rethinking governance approaches for digital transformation in incumbent organizations

Digital & IT

Steven IT Governance.jpg

Digital transformation is high on many organizations’ agenda. While a lot of start-ups and entrepreneurs use digital technology very successfully for growth and innovation (eg, new greenfield online banks or e-commerce businesses), incumbent firms often face challenges in successfully exploring and exploiting the opportunities arising from digitalization.

On the one hand, incumbent organizations often need to work within the constraints of existing legacy information systems and with IT governance structures that are focused on, or at least have the appearance of, “keeping the lights on” and “putting the brakes on innovation.” Also, these companies are often set up around inflexible organizational silos in business and IT, stifling the agility needed for digital transformation.

At the other end of the spectrum, we also see established organizations or business units that blindly follow technology hypes and trends (blockchain, the Internet of things, etc.), but in the end struggle with integrating these new innovations into their existing operating model. This hype-driven approach then leads to increasing complexity, security concerns, etc. and, in the end, often a situation in which the promised benefits are never realized.

As a result, incumbent organizations risk missing out on the transformation that is taking place in our increasingly digitalized economy. Recent work in both academic and practice-oriented journals and consultancy practices calls this challenge for incumbent organizations the need for “bimodal” or “ambidextrous” IT. This concept can be summarized as the need to simultaneously combine and integrate “exploitation of IT” – using IT to create and grow efficiency, stability and safety – and “exploration of IT” – using IT for (disruptive) innovations.

As such, it is clear that digital transformation does not just affect organizations’ products, services and business models, but also the requirements for the internal organizational landscape, including leadership roles and responsibilities, governance structures and processes. This includes rethinking the required management structures (eg, the organizational structure around current and future digital assets, separate entities, integrated entities …), management processes (eg, how does the innovation process integrate with the needs of the existing operating model, development approaches …) and human aspects (eg, what type of e-leadership skills do we require to enable bimodal IT governance).

In other words, incumbent organizations will need to rethink their governance approaches if they are to unleash the potential value of digital transformation.

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