Redesign the IT Operating Model to Accelerate

Digital Business
Refreshed 15 February 2022, Published 28 November 2017 - ID G00344440 - 63 min read
FOUNDATIONAL This research is reviewed periodically for accuracy.

By Analyst(s): Ian Cox, Donna Scott, Simon Mingay

Initiatives: CIO Leadership of Strategy, Governance and Operating Models

Digital business is challenging the existing IT operating model,

which has been optimized for efficiency and internal service levels.
This model now needs to be redesigned as the “I&T” operating
model, which will support digital business with agility, speed and
innovation.

Overview
Key Question
■ How should CIOs approach the design of a new IT operating model to support digital
business?

Opportunities and Challenges

■ Digital business is placing new demands on the IT operating model in terms of
scope, the capabilities delivered and how the model should be optimized. CIOs have
the opportunity to proactively lead the design of a new operating model that
encompasses all enterprise activities related to information and technology (I&T).

How This Report Will Help

Digital business requires a new approach to I&T across the enterprise, with corresponding
changes to the enterprise operating model. This report shows CIOs how to recognize the
need for this approach and lead the creation of a vision for aligning the I&T and enterprise
operating models to address digital business needs. This report looks at emerging best
practices that will require your attention in the next 6-12 months.

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■ You will be able to lead the effort to deliver a new I&T operating model for digital
business. While you proactively scan for the triggers that drive this change, and lead
the enterprise's response, you will have the chance to shape the strategic direction of
your entire organization.

■ Your stakeholders will understand the importance of creating a high-level vision for
how the I&T and enterprise operating models need to change. Relevant stakeholders
will partner with you to develop the vision and build support for the new approach.

■ Your organization will be able to adapt to digital business, technology convergence

(i.e., IT and OT), fragmentation of I&T-related spending, and changes in skill sets and
what is expected of employees, as information and technology activities are
increasingly driven outside of the IT function.

Foreword
Digital business is challenging the existing IT operating model, which has been
optimized for efficiency and internal service levels but now needs to be redesigned for
agility, speed and innovation.

This report addresses the question: How should CIOs approach the design of a new IT
operating model to support digital business?

“Redesign the IT Operating Model to Accelerate Digital Business” was written by members
of the CIO Research Group, led by Ian Cox (director), assisted by Donna Scott (vice
president and Distinguished Analyst) and Simon Mingay (vice president).

Acknowledgments
We would like to thank the many organizations and individuals that generously
contributed their insights and experiences to the research, including:

■ The contributors to our interviews and case studies: Rob Alexander, Capital One
(U.S.); Luke Bazzard, Close Brothers (U.K.); Tracy Harrington, Federal Reserve Bank of
Chicago (U.S.); Kevin Humphries and Dottie Berry, FedEx (U.S.); Stuart Warner,
Fidelity International (U.K.); Keith Moss, Ford Motor Company (U.S.); Tom Bauer,
Hagerty Insurance (U.S.); Chris Fang, Inner Mongolia Mengniu Dairy Group (China);
John Quinn, Medicines and Healthcare Products Regulatory Agency (U.K.); Karl
Gouverneur and John Michl, Northwestern Mutual (U.S.); Steve Siu, Orient Overseas
Container Line (Hong Kong); George Hunt, Sydney Water (Australia); and Terry
Huang, Jeff T. Huang, Lewis Yang and Irene Yang, TrendMicro (Taiwan).

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■ Other Gartner colleagues: Linda Bastoni, Jeffrey Cole, Gail F. Farnsley, Brian Ferreira,
Iain Mackenzie, David Meredith, Bill Swanton and Mark Trasler.

■ Other members of the CIO Research Group: Suzanne Adnams, Mark Coleman, Remi
Gulzar, John MacDorman, Leigh McMullen and Lee Weldon.

Executive Summary
Digital business is placing new demands on the IT operating model in terms of scope,
the capabilities delivered and how the model should be optimized. CIOs have the
opportunity to proactively lead the design of a new operating model that encompasses
all enterprise activities related to information and technology (I&T).

As enterprises adopt and adapt digital business strategies, new capabilities are required —
and innovation, speed and agility become crucial. No longer confined to the IT
organization, the design, engineering and exploitation of information and technology (I&T)
span the enterprise, including its value proposition and offerings. An operating model that
centers only on the activities of the IT organization, or otherwise constrains itself, will be
inadequate for executing a digital strategy.

Throughout this report, we use the term “I&T operating model” to connote this new
enterprisewide scope. The report focuses on the approach our case study CIOs have used
to design, pilot, scale and optimize their new I&T operating models. We also provide a
high-level overview of key associated changes the case study enterprises have made to
their overall operating models. The process of designing and implementing a new I&T
operating model, together with any changes also needed in the enterprise operating
model, provides CIOs with an opportunity to demonstrate their business leadership.

Digital business is driving IT operating model changes

Use of I&T has been spreading across the enterprise for a number of years. The advent of
digital business embeds I&T-related capabilities throughout the organization and also
builds them into the enterprise’s offerings. The traditional IT operating model is no longer
sufficient to handle digital business strategies. The growth of I&T activities driven by
functions outside of IT, with the increasing benefit of an integrated approach to these
activities, requires an operating model that reflects an enterprisewide perspective.

An I&T operating model sets out the parameters and principles for nine inter-dependent
components (see figure below). The business model and strategy, along with elements of
the enterprise operating model such as governance and culture, provide a context for the
I&T operating model in guiding and shaping choices made about I&T.

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Figure 1. The nine components of the I&T operating model

Source: “Why Traditional I&T Operating Models Are Under Stress, and How to Plan a
Response,” August 2017.

Our case study CIOs have used a digital business opportunity they identified, or a change
in the enterprise’s business strategy, to trigger a redesign of the I&T operating model. Their
lessons learned show that using a structured and iterative approach (see figure below) to
creating an I&T operating model helps realize benefits earlier, reduces implementation
issues and increases the speed of scaling the new model.

Figure 2. The stages of building an I&T operating model

Source: Gartner.

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The case studies also highlight the need to change the enterprise operating model to
mirror and support changes being made to the I&T operating model. One of the most
significant of these changes is to establish joint accountability for IT outcomes. For
example, a business unit and the IT organization would both be held accountable for I&T
outcomes that are integral to the business unit’s performance.

Design and pilot the new I&T operating model

Trigger events provide CIOs with the opportunity to show business leadership by working
with key stakeholders to create a high-level vision for how the I&T and enterprise operating
models need to change. With an agreed-on vision in place, the trigger event is used to
identify any new I&T capabilities required to address it, and any changes to how the
existing capabilities need to be delivered. This will lead to a primary change in one or
more of the operating model components. Although the primary change will vary by
enterprise, most of our case studies have identified ways of working, financials or talent
as their starting point.

The most common primary change involves adopting agile and product management
practices within the “ways of working” component. Other changes frequently observed in
our research include the following:

■ Flattening the IT organizational structure and establishing smaller, self-managed

teams

■ Delegating decision rights relating to product roadmaps, prioritization and spending

to business units and/or product teams

■ Colocating business unit and IT staff

■ Allocating product funding to business units, with IT acting as an advisor on

investments

All the components of the I&T operating model need to be synchronized. Therefore, after
identifying the primary change, all components should be reviewed to identify the
changes necessary to design a complete and coherent model.

Piloting the operating model is done to refine the design and shape the approach to
scaling the model across the enterprise. Many of our case studies have also used pilots to
deliver benefits early in high-priority areas, and build understanding and support for
deploying the changes in the rest of the enterprise.

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Scale and optimize the I&T operating model
Because digital business operates at such a fast pace, any delays in delivering the I&T
capabilities required to support the enterprise’s strategy could adversely impact the
chances of success. Indeed, several of our interviewees emphasized the importance of
scaling the new I&T operating model quickly once the design has been successfully
piloted.

Scaling the model will be a major transformation program. Establishing phases in this
program will make it more manageable and allow specific areas of the enterprise to be
targeted first, where necessary.

Scaling always involves challenges, issues and lessons learned not revealed in the pilot.
The design will need to be adjusted, not just during scaling but as a continuous process.
The CIOs we interviewed whose enterprises were already in the optimize stage talked
about the importance of being able to evolve the I&T operating model by embedding
organizational learning as a key objective of the design.

CIOs have the opportunity to lead the effort to deliver a new I&T operating model for
digital business. Those who proactively scan for the triggers that drive this change, and
lead their enterprise’s response, also have the chance to shape the strategic direction of
their entire organization.

Digital business is driving IT operating model changes

As digital business increasingly drives business strategy, enterprises are using I&T in
new ways. I&T activities have extended beyond the IT organization, requiring new
capabilities and making innovation, speed and agility essential to success. All of these
factors are driving the need for a new I&T operating model.

What is an I&T operating model?

No longer confined to the IT organization, the design, engineering and exploitation of
information and technology (I&T) span the enterprise, including its value proposition and
offerings. An operating model that centers on the activities of only the IT organization, or
otherwise constrains itself, will be inadequate for executing a digital strategy. Throughout
this report, we therefore use the term “I&T operating model” to connote this new
enterprisewide scope.

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An I&T operating model describes how the enterprise will deliver the information and
technology capabilities required to successfully execute its strategy. This model sets out
the approach, parameters and standards in areas such as resources, skills, structure and
working methods. In short, it is a high-level description of “how things get done” in terms
of information and technology.

Historically, how things got done in this respect meant solely within the IT organization, as
no other functions were material to the management of information and technology. Nor
was there any benefit in a more integrated approach to managing technology. What came
to be known as the IT operating model was optimized for efficiency and met internal
service levels, reflecting IT’s traditional focus on back-office activities.

Digital business, technology convergence (i.e., IT and OT), fragmentation of I&T-related

spending, and changes in skill sets and what is expected of employees, have altered what
is required of the operating model in terms of scope, the capabilities delivered and how
the model should be optimized. With information and technology activities increasingly
driven outside of the IT function, and greater benefits to be gained from an integrated
approach, the scope of the operating model needs to extend beyond the IT organization to
cover I&T activities across the enterprise.

Increased emphasis on building digital products and services has changed the I&T
capabilities the enterprise needs to succeed. Similarly, the need for agility, speed and
innovation has replaced efficiency as the primary focus, which in turn demands a learning
and collaborative culture (see “Why Traditional I&T Operating Models Are Under Stress,
and How to Plan a Response” in Further Reading).

“The world has changed. Just ask yourself: If you were a brand-
new digital company, would you have the operating model of an IT
department, or the model of a software engineering firm?”

— Karl Gouverneur, Head of Digital Innovation, Workplace and

Corporate Solutions, Northwestern Mutual

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Recognizing the need for change
Senior business leaders and boards of directors are increasingly aware of the threats and
opportunities of digital business. They are responding by changing their business strategy
to incorporate digital, which in turn places greater emphasis on the role of information
and technology. These changes in business strategy will inevitably change what is
required of the I&T operating model.

For example, when Hagerty Insurance in the U.S. recently focused on supporting new
digital products, the changing demographics of its customer base led the company to
build a digital platform that would allow younger customers to interact with the business
in new ways. In 2013, Northwestern Mutual, a U.S. provider of financial planning,
insurance and investments, developed a new business strategy that identified digital as
an opportunity to use the customer experience as a differentiator, to streamline processes
and to reduce cost. At both enterprises, the changes to business strategy required new I&T
capabilities as well as agility, speed and innovation (see the Hagerty and Northwestern
Mutual case studies in the Appendix).

As our case studies demonstrate, a CIO is very likely to play a leading role in identifying
triggers that result in changes to the business strategy, which in turn result in changes to
the operating model. Thus a CIO who proactively scans for triggers can help shape the
strategic direction of the enterprise, as well as lead the process of designing and building
a new I&T operating model. When responding to triggers identified elsewhere in the
enterprise, the CIOs we interviewed still played a proactive and leading role in deciding the
enterprise’s response to the triggers.

The figures below and on the top of page 12 list examples of triggers and the I&T
operating model changes that may be required in each instance. Note that sometimes
there may be multiple triggers — for example, creating digital revenue streams while
generating internal efficiencies.

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Figure 3. Triggers and potential operating model changes (Examples)

Source: Gartner.

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Figure 4. Triggers and potential operating model changes (Examples) (continued)

Source: Gartner.

A structured approach produces better results

Once a trigger is identified, our research shows that a structured and iterative approach to
implementing a new operating model — design, pilot, scale and optimize — leads to better
results (see figure below). Enterprises using this approach realize benefits earlier,
experience fewer implementation issues and scale the model faster.

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Figure 5. The stages of building an I&T operating model

Source: Gartner.

Our research also shows that enterprises perform various iterations of the steps. For
example, lessons learned through piloting and scaling the new model can be fed back into
refining the design.

Enterprises that have successfully scaled their I&T operating model move into an
optimization stage — an ongoing process of adjusting the operating model. This stage
keeps the I&T operating model aligned with business needs and minimizes the need for
major one-off transformations in the future.

Understand the full impact on the I&T operating model

The I&T operating model is a complex system of nine interdependent components (see
figures below and on page 14). With a change in one component having an impact on
other components in the model, the need for changes across the system must be
considered when changing one or more components. This ensures that the model remains
balanced and the components synchronized.

The business model and strategy, with elements of the enterprise operating model such as
governance and culture, provide context for the I&T operating model and should therefore
be used in design decisions concerning the model. At FedEx, for example, the design of
the I&T operating model mirrors the enterprise operating model, which balances the need
to centralize and share capabilities while allowing business units to innovate in areas
important to their ability to compete. Engagement and collaboration, which are vital to
FedEx’s enterprise culture, shape how decisions are made in regard to IT priorities and
investments (see the FedEx case study in the Appendix).

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Figure 6. The nine components of the I&T operating model

Source: “Why Traditional I&T Operating Models Are Under Stress, and How to Plan a
Response,” August 2017.

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Figure 7. Definitions of the operating model components

Source: Gartner.

According to our research, organizations that limit their design effort to a subset of the
nine components experience issues when trying to deploy their new operating model.
They uncover the full extent of the required changes only during implementation, resulting
in a piecemeal approach. For example, when a major U.S. bank started its operating
model transformation, it prioritized speed over comprehensive design, with changes
implemented as they were identified and little consideration of the impact on other areas
of the operating model. While this approach allowed the enterprise to quickly address
areas needing attention, it entailed significant remedial work to address the impact of the
changes on other areas. In contrast, enterprises that assess and synchronize changes to
all of the components before starting their implementation face fewer challenges during
deployment.

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 “Our lesson learned would be not only to plan the change, but also
to look holistically across the landscape of changes being
contemplated.”

— Managing Director at a U.S. Bank

CIOs can use the tool below and on page 16 to review the current IT operating model and
assess the extent of needed changes. If the gap is significant (i.e., the basic building
blocks for digital are not in place), then an intermediate stage may be necessary to build
the missing parts before the transformation to the full operating model can begin.

Case study example

When John Quinn, CIO at Medicines and Healthcare Products Regulatory Agency in the
U.K., developed a new IT strategy, he realized he needed to transform the I&T operating
model to deliver the major technology transformation dictated by the strategy. However,
since large sections of the IT organization had been outsourced for years, it lacked some
basic capabilities. Over three and a half years, Quinn has been evolving the I&T operating
model through a series of phases. The initial phase addressed the gaps in foundational
capabilities, with subsequent phases building the more advanced digital capabilities.

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Figure 8. Tool: Assess your I&T operating model

Source: Gartner.

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Figure 9. Tool: Assess your I&T operating model (continued)

Source: Gartner.

Assess whether the enterprise operating model is ready for digital

The case studies show that, in most instances, the I&T operating model required for digital
business prompts the need to change the enterprise operating model (see figure opposite).
A key change to the enterprise operating model observed in the case studies was that the
business unit became jointly accountable with IT for I&T outcomes integral to the unit’s
business objectives. Aside from changing the respective roles of IT and the business
units, the shift to joint accountability involves a significant change in how these groups
work together to deliver business and I&T outcomes. This illustrates why an integrated
and enterprisewide perspective of I&T is necessary when designing the new operating
model.

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For example, at FoodCo (a North American food company that wishes to remain
anonymous) and America’s Northwestern Mutual, enterprise governance, and specifically
accountabilities, had to be amended to support I&T operating model changes that resulted
in business units taking responsibility for prioritizing and funding IT investments in their
areas (see the case studies in the Appendix).

Taking the I&T perspective ensures that changes to business unit activities in areas such
as ways of working, places and organizational structure — which must mirror and support
changes in the I&T operating model — are also identified. In some cases, these changes
can have a significant impact on the wider enterprise in terms of how business units plan,
operate and manage their activities.

Figure 10. Typical enterprise changes resulting from an I&T perspective on the operating
model

Source: Gartner.

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In summary, to benefit from the I&T operating model perspective, CIOs must also consider
the wider enterprise operating model — determining where it needs to be adjusted to
enable or support the exploitation of information and technology as part of a digital
strategy. The enterprise operating model provides a context for the I&T operating model. If
the enterprise operating model is not ready for digital business, it can constrain the I&T
operating model. CIOs must be prepared to lead change across the enterprise to support
this new approach to I&T.

Design and pilot the new I&T operating model

Taking a holistic approach to designing a new I&T operating model, and conducting
pilots to test the changes, are crucial to success. This new model is also likely to require
changes across the enterprise, giving CIOs the opportunity to show business leadership.

Take the lead by creating a shared vision

The need for wider organizational changes gives CIOs an opportunity to demonstrate their
business leadership by creating and sharing a high-level vision of how the I&T and
enterprise operating models must align to address the needs of digital business. Gaining
agreement on, and understanding of, this vision are essential to the successful design and
implementation of a new I&T operating model. This can be achieved by partnering with
relevant stakeholders to develop the vision and build support for the new approach.

Shortly after joining FoodCo, the company’s CIO identified the opportunity to use
technology to differentiate a business unit. He partnered with one of the business unit
leaders to create and sell a vision of how this could be achieved. In addition to a new I&T
operating model, the vision required the enterprise operating model to change how
budgets were allocated and managed. Product owners were designated, and business unit
staff focused on the new technology platform and the needs of the customer (see the
FoodCo case study in the Appendix).

Case study example

When George Hunt, general manager digital services and CIO of Sydney Water, joined the
Australian company in early 2016, the first thing he did was examine the role of IT within
the business. He describes what he found as a call to arms for keeping IT relevant to the
organization.

Hunt worked with senior business leaders to identify three key accountabilities that have
informed a new I&T operating model:

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■ Manage and protect information assets.

■ Enable support for core business and operational processes.

■ Support the transformation of the “life stream” program, which consists of IT/OT,
innovation, change, and business evolution.

These accountabilities formed the basis of the executive strategy (which includes I&T) to
leverage digital capabilities. This strategy then drove I&T operating model design.

Design initial changes based on the trigger

With an agreed-on vision, CIOs can design the I&T operating model, using the trigger event
to identify new I&T capabilities required and changes to how existing capabilities need to
be delivered. This will lead to a primary change (or changes) to the design of one or more
of the components.

Figure 11. The design stage of a new I&T operating model

Source: Gartner.

The primary change in the operating model design will vary by enterprise, though most of
the interviewees for this report identified one of three components as the starting point for
their design work (see figure on page 20). The most common primary change was to
adopt product management and agile approaches within the ways of working component.

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Figure 12. Typical starting points for I&T operating model design

Source: Gartner.

At a U.S.-based online travel company, the infrastructure and operations division provides
services to customer-facing brands. To meet customer expectations for greater speed, the
division started designing a new operating model by identifying new ways of working that
would reduce handoffs and streamline delivery of business-oriented products and
services.

At FoodCo, the design process started with funding, including the decision to separate
product and platform expenses so that the budget for investment in products could be
moved to the relevant business unit. Capital One, a diversified U.S. bank serving
consumers and businesses, revised its technology operating model in 2011 to reflect the
growing importance of digital channels. The first of the resulting I&T operating model
changes addressed the need to speed delivery of solutions by replacing existing waterfall
methods with agile working practices.

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When identifying the primary change or changes, CIOs need to work with key stakeholders
such as business unit heads and other CxOs to ensure their commitment and
understanding. Many of the CIOs we interviewed used this engagement to educate key
stakeholders in the primary changes — explaining, for example, why they were necessary,
what they involved and how they would affect other areas of the organization. Given that
some changes may significantly impact the wider organization, such engagements often
require persistence and selling from the CIO to gain stakeholder buy-in.

“You need to be a great salesman. And you need to spend a good

part of your time educating, being an advocate for technology with
the business, and being an advocate for the business within
technology.”

— Luke Bazzard, CIO, Close Brothers

Develop the design across all components

Regardless of the starting point, all components need to be reviewed to ensure that the
operating model remains balanced, with any changes needed for completion of the design
identified. Because changes will often have an impact beyond the IT organization,
developing the design across all components also establishes the full scope of any
changes needed in the enterprise operating model. This also paves the way for
implementation.

The reasons cited in our research for taking a holistic approach to designing an I&T
operating model include the following:

Provides a clear vision of the end state or target operating model. Without such a view,
significant delays are likely during the transformation program as the need for additional
changes becomes clear. Thus the transformation can sometimes feel like a never-ending
process.

Enables effective planning and coordination of all changes. Incremental design decisions
can result in too much change being focused on the same teams or areas, increasing
stress levels, impacting performance and provoking resistance.

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Ensures that changes are consistent and cumulative. If initially you design only a subset
of components, then a decision at a later date about another component may impact that
subset (since all components are interrelated). Thus a piecemeal approach to design may
lead to completed changes being reversed or redone based on subsequent decisions. In
addition to wasted effort and possible change fatigue, this can damage the credibility of
those leading the changes.

“First of all, we always think about this holistically. We think in

terms of the destination we’re trying to get to, and working
backward from that.”

— Rob Alexander, CIO, Capital One

The key point is that all areas of the I&T operating model should be designed before
implementation. This reduces the potential for delays and problems, delivering benefits
faster than a piecemeal design approach.

Component design sequences

While the design of the I&T operating model components can be done in any order, some
components are closely related, therefore some sequencing in the design may become
obvious after identifying the primary change(s). For example, the case study enterprises
often addressed ways of working, financials and decision rights in close succession.

The exact sequencing of the nine components will vary by enterprise and be shaped by
factors that include the primary change(s), the current IT operating model and the
enterprise operating model. The figures below, opposite and on page 24 illustrate the
design sequence for three case study enterprises (see the Appendix).

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Figure 13. Capital One: I&T operating model design sequence

Source: Gartner and Capital One.

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Figure 14. Northwestern Mutual: I&T operating model design sequence

Source: Gartner and Northwestern Mutual.

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Figure 15. FoodCo: I&T operating model design sequence

Source: Gartner and FoodCo.

Typical changes being made for digital business

The detailed design of each component will again vary by organization, informed by
enterprise governance and culture. Still, our research shows that changes made by
enterprises designing their I&T operating model tend to have certain features (see figure
opposite). A CIO can use this figure as a checklist of the changes needed to properly
respond to a digital business trigger. Again, many of these changes will need to be
supported or mirrored by changes in the wider enterprise operating model (see Further
Reading for more on designing and implementing the changes listed in the figure).

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Figure 16. Components of the I&T operating model, with the changes that digital
business entails

Source: Gartner.

Resources will be centralized, with other areas of the model federated

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It is worth noting that, in addressing the needs of digital business, none of the case study
enterprises adopted a decentralized structure for I&T (in a decentralized model, business
units operate independently, with no central involvement, control or coordination). The
resources of their respective IT organizations were either already centralized or have been
moved to a centralized structure as part of the new I&T operating model, in both instances
with a direct reporting line to the CIO (or to the senior I&T role in the enterprise).

In many other components of the I&T operating model, however — such as decision rights
and funding — the case study enterprises have adopted a federated approach (in a
federated model, business units operate with a degree of autonomy in some areas, but
within an overall framework defined by a central IT organization). Indeed, even though I&T
resources are part of a centralized IT function, they are often aligned to the products,
business capabilities, areas of the value stream, and/or the business units they are
supporting. This means that while business units have decision rights for prioritizing the
work of the resources, there is central control of architectural and design principles. The
result is a much more nuanced approach to I&T than in the past, when the IT operating
model was either centralized or decentralized.

The general rule is that I&T operating model decisions should match the orientation of the
enterprise as a whole. Differences generate serious risk of misalignment, poor
performance and organizational friction. Where the I&T approach deviates from the
business orientation, this should be for well-understood and explicitly managed reasons.
All the case study enterprises have made the implicit or explicit decision to accept that
digital business demands a more integrated I&T strategy, which necessitates the more
nuanced approach we’ve been describing. Enterprises that struggle to manage this
complexity will likely have greater difficulty executing an integrated business and I&T
strategy.

“It’s not about centralized versus decentralized. To me this is a

polarized, older way of thinking. To meet or exceed customer and
marketplace demands, we need to use a much more complicated
matrix for operating and staying as fast as possible.”

— Kevin Humphries, Senior Vice President, Enterprise Services, FedEx

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The main reason for the centralized IT organizational structure of the case study
enterprises is the recognition that information and technology become strategic assets
when pursuing digital business. The alignment of I&T resources to the enterprise reflects
this, enabling rapid changes of direction in line with decisions about which business
capabilities and products should be given priority (this process also occurs at the
enterprise level in line with the business strategy). We note that several case study
enterprises also stated that it would not have been possible to implement the I&T
operating model required for digital business with decentralized resources.

Case study example

When CIO Luke Bazzard joined Close Brothers, a U.K. merchant banking group, I&T was
decentralized across multiple business units, with a small central team. Each business
ran its own systems and had its own datasets. Bazzard led the development of a new
technology strategy focused on improving the customer experience (particularly across
business units), using data as a strategic asset, enabling better insight internally and
creating value for customers. After gaining stakeholder agreement on the strategy,
Bazzard turned to the I&T operating model. He created more shared centers of excellence
(testing, customer journey, analytics and sales excellence). A key early deliverable was to
hire an experienced and very business-focused senior technology team.

“One of the real drawbacks of a decentralized organization is that

it’s really hard to drive coordinated change, especially if you’re
making big changes that affect the whole organization, such as
going entirely to agile, or moving the infrastructure to the cloud. If
you’re trying to coordinate all that among decentralized teams
that report to different places, it would be almost impossible to
achieve.”

— Rob Alexander, CIO, Capital One

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Use pilots to test the design, then refine and test again
Pilots are critical to testing operating model changes before they are widely deployed.
Lessons learned during a pilot should be used to refine the operating model design and
shape the approach for scaling the model across the enterprise (see figure below).

Figure 17. Piloting the I&T operating model

Source: Gartner.

The nature of the operating model changes will determine the pilot’s configuration and
scope. Typically, a pilot covers the following:

■ An area or team within the IT organization

■ One or more products or business capabilities

■ One or more business units or functions

Piloting operating model changes requires business stakeholders who are willing to be
part of a test bed for the new approach. They should understand both the nature of the
changes and the impact on their business unit or function.

Case study example

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For a utility that wishes to remain anonymous, the increasing pervasiveness of
technology (IoT, IT/OT and analytics), along with a need to increase efficiency and focus
investments on growth activities as opposed to running IT, triggered operating model
changes. In response to this trigger, the IT leadership team designed a model that
included a virtual team concept — “teams without walls” — comprising IT and electricity
network teams. These colocated teams take a product management approach that
employs agile methods, new technology methods, and strong collaboration with other
teams working in high-value and high-return areas. “Teams without walls” has succeeded
in delivering products quicker (e.g., a network outage management dashboard), with less
cost and greater organizational agreement, and without increasing technical debt.

Pilots are especially important to delivering benefits early in areas with an immediate
business need for the new I&T capabilities. A successful pilot builds understanding and
support for deploying the changes across the rest of the organization. Indeed, in some of
the case study enterprises, a successful pilot prompted other areas of the business to
request that they be the next to adopt the new model.

“Now people are coming to us and asking, ‘Can you implement the
new model in my part of the business, too?’”

— CIO, FoodCo

Some of the researched enterprises took a minimum viable product approach to designing
and piloting operating model changes — deploying a subset of changes as a pilot and
then using the results to develop a more detailed design.

Following its decision in 2011 to exploit digital channels, Capital One started to pilot agile
ways of working as a replacement for its established waterfall approach. Using the
lessons learned from this pilot, the bank scaled agile over two and a half years. The focus
on agile led to a holistic design for the new I&T operating model that included colocation
of product teams, changes in tooling, and rethinking of the talent model and sourcing
strategy (see the Capital One case study in the Appendix).

Design, pilot and repeat

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Whether a full design or a minimum viable design is being tested, CIOs should be prepared
to iterate between the design and pilot stages (see figure below). Thus, rather than
conduct a one-off “pilot and refine” exercise, many organizations will move between the
two stages many times as they repeatedly test and refine their design over a period of
time.

Figure 18. Be prepared to iterate between the design and pilot stages

Source: Gartner.

Case study example

At Hagerty Insurance, CIO Tom Bauer used pilots to test and refine the new operating
model design yet deliver quick benefits. Adopting agile and a product-based approach
were key changes in the new design. In an early pilot, the business experienced a number
of issues when a new billing solution went live. In all areas where these issues occurred,
it had been assumed that the product owner (who was in the billing function) would be
able to cover them.

Upon reviewing the pilot, the organization realized it had to change how it defined a
product and how product owners were selected. For example, instead of viewing functions
such as billing as a product, key processes such as “quote to issue” were classified as
products. This, in turn, changed what was required from product owners in terms of their
knowledge and their ability to make decisions across the end-to-end process. It also
required a new approach to involving multiple stakeholders in the development of new
features. Aside from changing the I&T operating model design, this change had
consequences for the wider organization which, until that point, did not have a single
executive who owned key processes or products spanning multiple functions (see the
Hagerty Insurance case study in the Appendix).

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 “Choosing the right pilot is crucial to success. And you need to be
prepared to refine your design and make ‘in-flight’ changes during
the pilot.”

— Tom Bauer, CIO, Hagerty Insurance

Scale and optimize the I&T operating model

Scaling a new I&T operating model is a major undertaking. A phased approach makes it
more manageable and can help in delivering benefits earlier to high-priority areas. CIOs
should review and refine the design as it scales — and beyond — to ensure that it
remains aligned with business needs.

Scale fast and in phases

A new I&T operating model reaches full impact once it is scaled across the enterprise. The
quicker this is done, the sooner the whole organization can generate value from the new
I&T capabilities.

Several of the researched enterprises emphasized the importance of scaling quickly once
the design of the operating model had been tested and refined during the piloting stage.
Digital business operates at a faster pace, so any delays in delivering the I&T capabilities
required to support the enterprise’s strategy could hurt the chances of success.

As we’ve seen, piloting the new operating model ensures that it meets the needs of the
business and provides insights into how the model can be successfully deployed.
Lessons learned when deploying pilots, combined with the use of implementation phases,
will help the enterprise manage quick and effective scaling (see figure below).

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Figure 19. Scaling the I&T operating model

Source: Gartner.

“The biggest lesson learned is that you have to start small, learn
fast and go big scale. Don’t fool around with, ‘OK, now let’s learn
and then go a little further.’ Three years ago, we made the mistake
of doing a little bit at a time. We should have gone all in with agile,
lean and DevOps as opposed to waiting.”

— Karl Gouverneur, Head of Digital Innovation, Workplace and

Corporate Solutions, Northwestern Mutual

Use phases to deliver benefits earlier

Phases enable you to deliver benefits in high-priority areas first, and they make the
transformation process more manageable by controlling the amount of change being
implemented at any one time. You can structure phrases in many different ways — for
example:

■ By business units, areas of the value stream, and/or products

■ By aligning them with technology changes (either in response to digital business or

as part of a major technology-enabled program)

■ By addressing low-maturity areas of I&T capabilities (e.g., agile adoption and

DevOps to change how software is developed and supported)

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 “We had a team that went into various areas and started helping
other teams implement with the right language, ways of working
and toolset. Then they’d move on to the next area. It was a formal
sort of adoption plan.”

— Stuart Warner, Head of Technology, U.K. and Europe, Fidelity

International

Phases also ensure that you won’t spread the resources for implementing change too
thinly, plus they limit potential adverse impacts on the rest of the organization. Several
factors will determine your approach to the phases, including whether digital opportunities
or threats exist in particular areas of the organization, the nature of the operating model
changes and the readiness or ability of business units to adopt the new model. If the
operating model is being deployed parallel with a significant technology initiative, this
may also shape the order and content of the phases.

The figure below shows how these factors influence decisions on whether to scale the I&T
operating model around areas of the business, technology changes or I&T capabilities.

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Figure 20. Decision process for designing implementation phases (Example)

Source: Gartner.

At FoodCo, the CIO is implementing the new operating model on a “pod-by-pod” basis,
where each pod aligns to a part of the organization’s value chain. Fidelity International, on
the other hand, is using phases to gradually increase the maturity of the organization’s I&T
capabilities. The most recent phase at Fidelity is being deployed alongside a major
technology program, without which the latest version of the operating model could not be
implemented (see the FoodCo and Fidelity International case studies in the Appendix).

Establish a transformation office

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Most of the case study enterprises confirm the importance of managing the scaling stage
as a formal change program, supported where necessary by resources with change
management skills, and by the HR team when the changes impact individuals and their
roles. These enterprises typically established a transformation office to plan, coordinate
and monitor the implementation of the changes and create work streams focused on
specific areas of change. An office of the CIO usually takes on the transformation office
role (see “Scoping the Office of the CIO” in Further Reading).

Be prepared to refine your design

Changes to the design are inevitable as you scale — what works in a pilot may not work
across the enterprise. When deploying the I&T operating model more widely, challenges,
issues and lessons learned will surface. These should be captured and used to make “in-
flight” changes as you encounter issues and challenges. As an alternative, you can record
any issues and update your design as part of a formal review process at the end of the
phase. Significant changes, however, may require additional pilots.

For example, Northwestern Mutual is rolling out its new I&T operating model through a
series of work streams covering areas such as talent, tooling and performance
management. As the work streams identify issues and challenges, the design will be
refined or amended (see the Northwestern Mutual case study in the Appendix).

Continuously evolve the I&T operating model

Once you deploy the new I&T operating model, never view it as fixed or static. It will need
to evolve to meet the changing needs of digital business, to exploit technology changes
and to respond to other events that require new I&T capabilities or changes to how
existing capabilities are delivered. Therefore, after you successfully scale the model,
continue to scan for triggers that may lead to a change in the design. This is the
optimizing stage (see figure below).

Figure 21. Optimizing the I&T operating model

Source: Gartner.

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At Capital One, maturing cloud offerings in the financial services sector provided the
opportunity to exploit cloud technologies in a way not possible previously. To create the
new capabilities the enterprise would need to adopt cloud, the company had to redesign
some aspects of its operating model (see the Capital One case study in the Appendix).

At FedEx, the I&T operating model mirrors the structure of the enterprise operating model,
which is based on three cores, or groups of business capabilities. Since the needs of each
group of capabilities differ, the approaches to components such as ways of working,
funding and decision rights also differ. Business capabilities can move between the cores,
but when this happens, a review of the I&T operating model is triggered, which ensures
that it remains aligned to the enterprise operating model (see the FedEx case study in the
Appendix).

The enterprises we interviewed that were already in the optimize stage talked about the
importance of becoming a learning organization. For example, at both Capital One and
TrendMicro (a Taiwan-based provider of cybersecurity solutions), a key objective of the
I&T operating model design was the ability to continually evolve the model by embedding
organizational learning. This often starts with people and uses both recruitment and
training to develop a learning or growth mindset.

“Recruiting for learning agility as well as skill is really important to

developing the kind of organization we want to have.”

— Rob Alexander, CIO, Capital One

CargoSmart is an example of a company where the I&T operating model is not fixed —
hence the importance of the optimize stage. A provider of global ship management
solutions, CargoSmart is part of Orient Overseas Container Line (OOCL) in Hong Kong, one
of the world’s largest integrated international container transportation, logistics and
terminal companies. Formed in 2000, CargoSmart was a very early digital business, using
data and software to provide visibility into ships, optimize routing and improve the
efficiency of terminals — before the word “digital” was even used to describe such
offerings.

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Having been a digital business for over 15 years, CargoSmart has tended to be ahead of
many technology trends. For example, it has long used IoT to provide real-time visibility
into ships and in 2014 introduced geo-fencing and machine learning to monitor and
manage ship arrivals and waiting times at ports, terminals and berths. The I&T operating
model has evolved to support these developments, including the recent adoption of a
product approach and of bimodal IT. When such changes are made to the operating
model, they follow the design-pilot-scale approach.

“We do pilots — experiments to demonstrate results and get more

people on board with the new way.”

— Steve Siu, CIO, Orient Overseas Container Line

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Appendix: Case Studies
Capital One becomes a technology business with a new I&T operating
model
Considered a data-driven pioneer in the financial services industry, Capital One was
founded in 1988 on the belief that information and technology would revolutionize
financial services — a belief that is even stronger today. Based in McLean, Virginia, USA,
and one of the nation’s leading banks, Capital One employs 50,000 and had 2016 revenue
of $25.5 billion.

“Banking is really a technology business”

As the forces of digital disruption accelerate and take new shape, Capital One has
recognized that advances in technology are presenting opportunities and risks for banks,
and that the future winners in banking will operate like leading technology companies.
Acknowledging the growing importance of digital channels, Capital One began to evolve
its business strategy and technology operating model in 2011. As CIO Rob Alexander
points out, “Banking is really a technology business. Our products are intangible, in that
customer experiences are principally delivered through software, data and the
applications we build. In many respects, our products are a lot more about technology
than the products of many companies that we call technology companies.”

A holistic approach to designing a new model

According to Alexander, “If you really want to be a great technology organization, you have
to fundamentally change how you operate — from the talent, to the infrastructure, to your
processes for how you build software, to your approach to data. You must make
comprehensive change. Setting up a small team off on the side to drive innovation is a
fundamentally flawed approach.”

The company’s tech transformation was a comprehensive effort that involved a change to
the technology talent model, adoption of agile work practices, a shift to a cloud-first and
an open-source-first approach to software development, and standardization on API and
microservices-based architecture. To ensure coherence of the new strategy across the
organization, the company maintained centralized line management of the technology
organization, but aligned teams closely with business lines.

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To test a subset of the changes needed in the new operating model, the company began
with a pilot that implemented agile practices and product teams. “The pilot was more
about figuring out how to make agile work for us, as opposed to learning whether it would
work at all,” Alexander explains. “We knew this was how we wanted to transform the
organization, but how far we thought we could take agile evolved as we got into it.”

Early changes inform the design of other operating model components

One of the many lessons learned from the pilot pointed to the need for in-house software
development. “A business model based on a customer’s experience with digital
interactions makes it imperative to control the development and management of the
experience,” says Alexander. “Our products are customer experiences delivered through
software and data. If we do not control that, and if we’re not better at that than our
competitors, how can we expect to win in the marketplace?”

At the same time, the IT organization changed its sourcing strategy and began a very
aggressive program of talent acquisition and development. Other changes to the
operating model covered organizational structure, performance, financials, decision rights,
places and tools (see figure opposite).

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Figure 22. Capital One: I&T operating model design sequence

Source: Gartner and Capital One.

Along with recruitment of the right type of talent, Alexander emphasizes the importance of
becoming a learning organization. “A nimble organization that can adapt to how the world
of technology is changing starts with recruiting,” he says. “Recruiting for learning agility
as well as skill is really important to developing the kind of organization we want to have.
But how we develop our talent is equally crucial. We have a big focus on technology
learning and professional development in our organization. Learning and evolving is
essential to ensuring that the operating model remains optimized.”

In closing, Alexander notes that “when you move to a new operating model such as this,
you are never done. The process is continuous. You are always optimizing, adjusting,
evolving. But you go through a big initial inflection point of transformation focused on
both the talent shift and the way you work. The way you kick it off is by building a critical
mass of the kind of talent you need for the future state of your organization.”

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Based on an interview with, and material from, Rob Alexander, CIO, Capital One, July 2017.

“Born digital,” FedEx adapts its I&T operating model to the pace of digital
change
FedEx is a multinational courier delivery services company headquartered in Memphis,
Tennessee, USA. Founded in 1971, it has 400,000 employees and operates in 220
countries and territories. In FY17, revenue was $60.3 billion.

While most enterprises are trying to become digital, FedEx was “born digital” more than 45
years ago, notes Kevin Humphries, senior vice president, enterprise services. The
company’s overnight business model depends on package metadata and tracking.
Humphries adds that the need for real-time data, reflected in FedEx’s early use of bar
codes, makes IT a central component of the business and closely aligns it with the
enterprise operating model.

As Humphries explains, the philosophy of FedEx’s business model and culture is that all
operating units are independent but compete collectively while managing collaboratively.
The enterprise operating model reflects the philosophy in the three cores, or groups of
business capabilities (see figure below).

The multicore consists of business capabilities that are unique to each of the business
units and support the ability to “operate independently.” The platinum core consists of all
shared business capabilities that are not customer-facing and support the ability to
“manage collaboratively.” The purple core consists of external customer-facing business
capabilities that cross the business unit boundaries, enabling the business to “compete
collectively.”

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Figure 23. FedEx enterprise operating model

Source: FedEx.

Humphries notes that the I&T operating model aligns to FedEx’s business philosophy and
its three-core enterprise operating model. While I&T resources are centralized from a line
management perspective, reporting ultimately to the CIO, they align to each of the three
cores and to the business units in the multicore.

“The model is one of high engagement and a 50/50 partnership between the business
and I&T,” says Humphries. “This alignment drives how IT is organized, how it builds and
supports software, and how solutions are funded.” He adds that the I&T operating model
continually evolves in line with business needs, but with the quickening pace of digital
and technology advancements over the last seven years, every facet of the model has
been stressed.

Adapting to the pace of digital change

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The constant tension to decentralize so that FedEx can remain nimble in every location,
business unit, geography and customer segment means constantly evaluating
decentralization’s effect on worldwide global capabilities and making conscious decisions
that reflect the philosophy as manifested in FedEx’s business model. However, Humphries
explains that the response to the demands and increased pace of digital change cannot
be a pendulum swinging from centralized to decentralized:

“You need to respond with a federated matrix. It is not an either/or proposition. If you give
in to the tendency to decentralize, the global capability will become suboptimal. You have
to find a way to meet the pace of change and deliver consumable assets that satisfy more
than one segment of need. The platinum assets really have to be thought out and well
engineered to meet the speed at which the needs of the business present themselves.
These are very difficult variables to put together in an I&T operating model.”

To address this challenge, the matrix structure gives the model fluidity, allowing an
initiative to effectively start at the center in situations where it will benefit several business
units. If this approach proves incorrect, development and decision rights can be shifted to
a particular business unit. “This is very powerful, and underpinned by a proactively
managed culture of collaboration,” says Humphries, who has worked with FedEx
leadership to implement agile at scale and move to an “agile funding model.”

Central to these and other changes is the company focus on using information to meet
customer expectations. “Our business is just as astute in talking about the use of
information and systems as our IT leadership is in talking about the business,” Humphries
notes. “Any company taking the digital transformation journey must not make the mistake
of thinking about two entities. Instead of ‘the business and IT,’ it must be one company
using information and operations to wow customers.”

Based on an interview with, and material from, Kevin Humphries, senior vice president,
enterprise services, FedEx, July 2017.

Fidelity International uses a holistic design for its new I&T operating model
Fidelity International is a financial services corporation providing investment management
services to private and institutional investors. Established in 1969 as a subsidiary of
Fidelity Investments, it became an independent business in 1980. Fidelity International
has more than 7,000 employees in 25 countries, with total client assets of $411 billion
and over 2.2 million clients.

An operating model optimized for a new business strategy

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The company’s new business strategy is to become “digital first” by growing revenue
while keeping fixed costs flat or under control. For Stuart Warner, head of technology, U.K.
and Europe, this has meant changing from a traditional project-based IT approach to a
more flexible, agile development and delivery partnership with the business.

Warner began by experimenting with agile and new tools, focusing in both cases on the
enterprise’s main business applications. While this approach delivered efficiencies, Warner
realized that the business value spread across multiple applications may have been
missed, so his team mapped applications to business capabilities and then identified
product owners, backlogs and overlaps between applications. To improve the operating
model further, the team rationalized the technology environment for both applications and
the infrastructure supporting them.

A holistic design approach generates success and business interest

At the same time, Warner worked with key technical and business leaders to get them
thinking more holistically — that is, outside the technology box. This led to a technology
simplification program and a holistic approach to designing and deploying a new I&T
operating model.

“All of the eventual changes around ways of working, architecture, tooling, DevOps, cloud
strategy, data strategy and so forth came from this thinking and the discussions around
it,” says Warner. “We started with the goal of becoming agile, but then it turned into
something far greater. This changed how we work with the business, how we structure our
organization to meet the business needs of the digital age, and how we evolve.”

Key changes from the IT operating model include moving to agile development and tools,
forming IT product teams and establishing business ownership of products. The IT
product teams are assigned to work with the business units while platform teams set and
manage standards, provide the governance framework and address other overarching
issues. Technology resources have a direct reporting line to IT, with dotted lines to the
business units. A new funding model, redefined roles and a business educated on the
changes and the new roles and responsibilities (such as being a product owner) make it
all work.

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The quick wins resulting from pilots generated interest across the business, Warner
reports, and tangible evidence of a better way of working created advocates of the new
model. “It is very difficult to sell technology functions,” he says. “But the successes sold
people. Having others in the business selling on your behalf has a lot more credibility.
Then you don’t have to sell all the time, and it becomes more a question of how you go
about the full change while keeping the business running.”

A phased approach scales the model

To scale the model across the enterprise, Warner used a phased approach. He sent teams
into selected areas to help them adopt the new language, ways of working and tools. The
“creation” phase of the adoption plan focused on developing and piloting the new
capabilities. In the “consuming” phase, IT teams supported other parts of the enterprise in
adopting the new ways of working.

“It was a formal process that we took people through,” explains Warner. “Everyone needed
to adopt this, and we had a roadmap out to six, 12 and 18 months in the adoption
process.”

Based on an interview with, and material from, Stuart Warner, head of technology, U.K. and
Europe, Fidelity International, July 2017.

FoodCo builds a new I&T operating model to boost sales

FoodCo is a North American food company that wishes to remain anonymous.

Monetizing a digital platform

Shortly after joining FoodCo, the CIO saw an opportunity to use technology to differentiate
one of the company’s business units, part of a $1 billion industry (across all vendors in the
U.S.).

The business unit sells products to community groups that use a network of volunteers to
sell the items in their neighborhoods. The CIO realized that FoodCo was really competing
to get the community groups to order its brand, as opposed to competing for the
consumers of the products (family members, friends, neighbors, etc.), who order from a
volunteer going door to door.

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“We are competing for the opportunity to help community groups acquire and manage
their inventory,” explains the CIO. “What differentiates competitors in this market, then, is
not the product but the technology. We are not selling food products; we are selling a
digital platform that we monetize through these products.”

A new design sets the stage for a new operating model

The CIO took his vision to one of the leaders running the business unit. “I helped her
understand the vision, and soon it wasn’t my vision or IT’s anymore. It was our vision.”
FoodCo then took a human-centric, design-thinking approach to determine what needed to
be done from a community group’s perspective. “At this point, we didn’t talk about
technology at all,” says the CIO. “We just tried to understand the drivers and motivators —
to learn what the community groups see, think and do.”

To provide visibility into the investment required to support the new platform, the CIO
proposed a new funding model that would move the technology investments from the IT
budget to the P&L of the business unit. Responsibility for managing these technology
investments would remain with IT.

“This changed the budget from a capital to an operating expense for the business,” says
the CIO. “The shift to using a product model and a product manager then came naturally.
While the decision to adopt a product approach was straightforward, building
understanding and support across the business took a number of months.”

The CIO then created a team with members from both IT and the business. He filled agile
talent gaps with resources from a consulting firm and began work on an MVP for the new
platform. Changes in funding, ways of working, sourcing, talent and organizational
structure preceded changes in decision rights, performance measures and the enterprise
governance model (see figure opposite).

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Figure 24. FoodCo: I&T operating model design sequence

Source: Gartner and FoodCo.

The CIO reports that the new I&T operating model adopted for the business unit has
proved very successful. “We spent several million dollars, but in one year this business
went from -1% growth to 11% growth,” he says. “The president of the division attributes
8% to 9% of this growth to the new model.”

Though not part of the model’s planning, the changes to the business unit effectively
served as a pilot for a new enterprisewide I&T operating model. Other business units
hoping to duplicate the success of the first unit started asking the CIO if they could be
next. The new model is now being deployed across the enterprise on a “pod-by-pod” basis,
where each pod aligns to a part of the organization’s value chain.

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Based on an interview with, and material from, the CIO, FoodCo, July 2017.

Changing demographics trigger a new I&T operating model at Hagerty

Insurance
Hagerty Insurance is a privately held, family-owned specialty car insurance company
founded in 1984 and headquartered in Traverse City, Michigan, USA. Specializing in
antique car and collectible vehicle insurance, roadside assistance and valuation services,
the company has 900 employees and insures cars, motorcycles and boats.

Hagerty’s core customers own collectible cars that don’t get driven a lot of miles. The
typical 55- to 65-year-old enthusiasts in this group are mainly “analog” customers who
phone Hagerty to obtain insurance and other services, and to discuss their vehicles. In
contrast, the cars considered classics by much younger millennial customers are newer,
and these customers prefer to interact with the company and its products in ways that
reflect their greater familiarity with digital culture.

In 2016, Hagerty’s CxOs decided that the changing demographics and future of the
insurance industry demanded a new business model that would be more digital, offer new
services and attract a broader customer base, while still satisfying the existing base. As
the change agent for this model, they hired CIO Tom Bauer, whose first step was to help
create a shared vision of the future business strategy. This would transition Hagerty to a
membership organization utilizing a digital platform and services to attract new
customers.

The new business model required changes to IT both in the technology used and in the
operating model, which needed to involve the business. “To enable this migration,”
explains Bauer, “you need to have a vision in place before you start communicating. If you
start communicating before you have a clean, clear vision ready to go, discussing the
changes is more likely to cause anxiety than excitement.”

A holistic design leads to successful pilots

Bauer goes on to explain that a key requirement of the new strategy is that IT must
“deliver more, quicker, faster and continuously.” This led to the identification of agile and
product management as key initial changes. Bauer then took a holistic approach to
designing the new I&T operating model, first assessing how the agile and product
management changes would impact all the operating model components.

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“To me,” he explains, “the operating model extends from beginning to end, encompassing
how technology concepts are created, selected, implemented and supported, as well as
how progress, effectiveness and productivity get measured. The net result is to deliver the
right things and execute on them.”

Bauer knew that designing a new I&T operating model would involve more than just
changes to the internal IT organization’s model. He embraced changes across the
enterprise, especially those that would enable business ownership of IT investments and
outcomes. He also used pilots to test and refine the operating model design and deliver
quick benefits.

“Choosing the right pilots is crucial to success,” he says. “And you need to be prepared to
refine your design and make ‘in-flight’ changes during the pilot.”

Bauer cites other challenges in the development of an I&T operating model: “Product
management is difficult to implement. It is hard for the business to understand, and hard
to get the right skills in the product manager/owner. However, once the business
understands, it works really well. Still, it takes six to 12 months, or more, to ingrain the
changes in the business, and for everyone in the business to assimilate them. Education
is key. Piloting is key. And shameless self-promotion helps, too.”

Based on an interview with, and material from, Tom Bauer, CIO, Hagerty Insurance, June
2017.

Northwestern Mutual bases its I&T operating model on a new business

strategy
Founded in 1857 and based in Milwaukee, Wisconsin, USA, Northwestern Mutual offers
insurance and financial-planning products. With 5,500 employees, the company had 2016
revenue of $28.15 billion and managed $250 billion in assets for 4.4 million clients.

In an industry that had not changed significantly for many decades, CTO Karl Gouverneur
saw an opportunity in 2009 to go on the offensive and be disruptive. As fintech was
gaining momentum, he began working with the CIO and other C-level leaders on a plan to
make the client experience the digital focus of the company. Historically, the board’s focus
for tech had simply been on reducing

the IT budget.

Gartner, Inc. | G00344440 Page 50 of 56

In 2013, three years after the company began to fully appreciate the impact of digital on
business, society and culture, the board decided to develop a new business strategy for
the digital world. One of the core business capabilities it wanted to explore was for IT to
pivot from being a traditional waterfall, project-based technology organization to being an
agile software engineering “company” within Northwestern Mutual. This would allow
Northwestern Mutual to use the customer experience as a differentiator — providing a
world-class financial-planning experience that would increase people’s engagement with
their investments and insurance, while digitizing processes to remove paper transactions
and reduce costs.

An organic, top-down model

The evolution to what would be a new I&T operating model began with organic changes.
IT had been on a journey into lean, agile and DevOps since 2010. The small, agile pilot
steadily grew to cover much larger teams, but according to Gouverneur, when
Northwestern Mutual tried to scale to the software company model and include the entire
organization, different mindsets and ways of working led to misunderstandings and
delays that ran counter to the objective. Clearly, the company would need a more holistic
and structured approach to designing and implementing the full operating model.

“Because the transformation started organically, we learned a lot for a couple of years,”
recounts Gouverneur. “We set up a dojo — a practice facility — and we had lean best
practices and so forth. But when we came to the point where we needed to flip the switch,
we realized we had to design a new I&T operating model from the top down.”

This top-down design process started with answering the question, “Why are we doing
this?” As part of the CIO’s team, Gouverneur and his colleagues then went through all the
operating model components that needed to change to drive the new business strategy
(see figure below). The team also learned from the technological orientation and cultural
mindset of a small fintech startup that Northwestern Mutual had purchased.

Gartner, Inc. | G00344440 Page 51 of 56

Figure 25. Northwestern Mutual: I&T operating model design sequence

Source: Gartner and Northwestern Mutual.

To help roll out the new design, traditional IT was rebranded as the client digital
experience function (CDX). As a function within Northwestern Mutual rather than a
department, CDX is made up of several departments, some of which are traditional IT
departments (i.e., architecture, infrastructure, etc.). These traditional IT departments were
restructured and renamed to support the digital experience of specific customer groups.
Gouverneur became head of digital innovation, workplace and corporate solutions, and all
his peers also received new titles and new assignments supporting a flatter organization.
Next came a formal program comprising nine transformation work streams:

■ Retention of talent

■ Learning and development

■ Product model

Gartner, Inc. | G00344440 Page 52 of 56

■ Compensation philosophy

■ Performance and financial management

■ Talent management and acquisition

■ Workplace environment

■ Communications plan

■ Technology and collaboration tools

A model that continuously evolves

Gouverneur explains how he and other leaders manage the new organization: “The No. 1
priority for the entire leadership team of CDX — myself, my boss and my peers — is to
complete the IT/CDX reinvention. We broke up and flattened the traditional IT department,
and elevated the importance of communication, which includes listening with empathy.
My blog is now focused on the CDX reinvention, along with raising engagement scores
and making sure our town halls take up the change.

“We are now in a continuous learning environment with a growth mindset. We expect to
tweak the operating model as we go — tweaks, not major overhauls. We have a standing
item on our CDX leadership team agenda: Discuss what lessons we have learned and
where we can adjust.”

What advice does Gouverneur have for other CIOs grappling with a new I&T operating
model? “The world has changed,” he says. “Just ask yourself: If you were a brand-new
digital company, would you have the operating model of an IT department, or the model of
a software engineering firm? The answer is obvious, and that’s what we’ve done in
converting the Northwestern Mutual IT department into the client digital experience
function — focused on digital experiences for our clients, our financial advisors and our
employees.”

Based on an interview with, and material from, Karl Gouverneur, head of digital innovation,
workplace and corporate solutions, Northwestern Mutual, June 2017.

Gartner, Inc. | G00344440 Page 53 of 56

Further Reading
Related content
Access report components including tools, presentations and case studies here:

 Redesign the IT Operating Model to Accelerate Digital Business (Report and Tools)

Gartner Executive Programs reports

“Adaptive IT Governance,” 2017 No. 3, G00331833; MacDorman, J. and Gulzar, R.

“Scaling Bimodal: Raising Everyone’s Game,” 2016 No. 10, G00320497; Mingay, S.,
Mesaglio, M. and Scott, D.

Core research
“The Six-Principle Framework for Mastering a Business Agile Mindset,” 13 September
2017, G00341314; Coelho, M.

“Why Traditional I&T Operating Models Are Under Stress, and How to Plan a Response,” 24
August 2017, G00331732; Mingay, S. and Cox, I.

“Mastering the Role of Products in the Digital Era,” 9 May 2017, G00319538; Scott, D.,
West, M. and Gilpin, M.

“Platform Business Models That Adapt and Disrupt,” 1 May 2017, G00322502; Moyer, K.
et al.

“Transform IT Sourcing to Accelerate Agility, Innovation and Performance,” 6 February

2017, G00318743; Jivan, R. and Ridder, F.

“Best Practices for Adopting an Enterprise Agile Framework,” 23 January 2017,

G00278351; Norton, D. and West, M.

“Information and Technology Strategy for the Enterprise on the Cusp of Digital Business,”
23 November 2016, G00316561; Weldon, L., Young, C. and Sinha, M.

“How to Create an Information and Technology Strategic Plan,” 22 November 2016,

G00316555; MacDorman, J., Gabrys, E. and Sinha, M.

“Scoping the Office of the CIO,” 13 October 2016, G00313739; Weldon, L. et al.

Gartner, Inc. | G00344440 Page 54 of 56

“Flattening the Application Organization — Everyone Must Be Part of the Agile Value
Stream,” 13 September 2016, G00310274; Swanton, B. et al.

“How to Establish a Product Management Practice to Drive Digital Business Success,” 17

August 2016, G00314771; Gilpin, M. and Wilson, N.

“The Built-to-Purpose IT Organization,” 26 April 2016, G00307927; Young, C.

“Organizing for Success,” 26 April 2016, G00307973; Mok, L.

“Changing Governance to Exploit Enterprise Agile,” 14 March 2016, G00295282; Swanton,

B. et al.

“Use Design Principles to Drive the Design of Your New I&T Operating Model,” 13 June
2018, G00352664; Cox, I. and Mingay, S.

“Is Your Current I&T Operating Model Right for Your Digital Ambition?,” 29 June 2018,
G00356906; Chen, O. and Scott, D.

“Use Adaptive Portfolio Investment Management to Execute Strategy,” 25 May 2017,

G00375415; Fitzgerald, D. and Kopcho, J.

“How to Establish a Product Management Practice to Drive Digital Business Success,” 22

February 2018, G00314771; Wan, D., Gilpin, M. and Wilson, N.

“DevOps — Eight Simple Steps to Get It Right,” 9 October 2017, G00337418; Spafford, G.
and Head, I.

“Adapt Your Enterprise's Operating Model or Risk Failure in Your Digital Business Strategy,”
30 May 2018, G00360437; Weldon, L. and Prentice, B.

Books
Humble, J. and Farley, D., “Continuous Delivery: Reliable Software Releases Through Build,
Test, and Deployment Automation,” New York, NY: Addison-Wesley, 2010

Humble, J., Molesky, J. and O’Reilly, B., “Lean Enterprise: How High Performance
Organizations Innovate at Scale,” Sebastopol, CA: O’Reilly Media, 2015

Gartner, Inc. | G00344440 Page 55 of 56

Narayan, S., “Agile IT Organization Design: For Digital Transformation and Continuous
Delivery,” New York, NY: Addison-Wesley, 2015

Richman, R., “The Culture Blueprint: A Guide to Building the High-Performance Workplace,”
Culture Hackers, 2015

Ries, E., “The Lean Startup: How Constant Innovation Creates Radically Successful
Businesses,” London, U.K.: Portfolio Penguin, 2011

Worley, C., Williams, T. and Lawler, E., “The Agility Factor: Building Adaptable
Organizations for Superior Performance,” New York, NY: Jossey-Bass, 2014

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