Shadow IT Part 2: The Coming [Digital Productization] Wave

Shadow IT Part 2: The Coming [Digital Productization] Wave

Recap of Shadow IT Part 1

Shadow IT waveOur first post on this topic pointed out that in today’s environment, as technology becomes more sophisticated, more analytical, and more social, the skills required for success are changing more dramatically than ever. We argued that the very nature of the work we do is changing; it’s less like an assembly line, and more like a swarm of skills. Marketing doesn’t just market, it points creativity and technology at marketing problems. Operations doesn’t just move the widgets down the line, it tunes the process with technology and analytics.

Creating a successful technology-driven business solution is born from an alchemy of skills that don’t fit well into the standard corporate structure. We argued that this tension between the nature of the work and the departmental corporate organizational form (e.g. sales, marketing, finance, ops, IT) has driven the growth of Shadow IT. More importantly, we noted that Shadow IT is an effect, not a cause, and that getting in the way of this blended multidisciplinary model is like trying to stop the tides.

Since we’ve opened up this gigantic can of worms, our second installment picks up where the last one left off….

Digital Natives: The Millennial Generation in the Enterprise

When was the last time you actually called a vendor to complain, rather than writing a negative review online? (Remember those quaint, frustrating old days when you waited on the phone to hold music while someone got a supervisor?) How much of your holiday shopping did you do online? Do you remember the last time you were actually in a bank?

According to Gallup, bank branch usage is down 50% (Oct 2015, Gallup Business Journal). The National Retail Federation says 46% of consumer holiday purchases are made online (Oct 2015, NRF Consumer Trends); and a recent survey of 500 top retailers showed that ⅔ of customers now tap social networks to register complaints (Dec 16, 2015 Financial Post).

There’s no question that the relationship between customers and vendors is increasingly a digital one. According to Gartner, by 2020, the customer will manage 85% of its relationship with enterprise having had no human interaction. What a difference a decade makes!

Sure, there’s always a snarky one in the back of the hall who preens with vaguely disguised contempt: “that’s all consumer-oriented business, in a B2B world things are different.”

Nonsense. Even the B2B brand experience is increasingly a digital one. Maven Wave often works with B2B-oriented financial institutions such as commercial banks, financial exchanges, traders, and asset managers. The day-to-day relationships in this business are conducted almost entirely without human intervention. The health of these client relationships is made and lost in how the vendor serves the client through its colocated facilities, API interfaces, and web-based servicing applications. In virtually every facet of commerce, the relationship between buyer and seller is increasingly digital, and it’s only the beginning of the beginning.

Millenials

Looking out over the next decade, the coming generational change brings with it a wave of Millennials equal to ⅓ of the US population (US Bureau of Labor Statistics). To quote a certain Presidential candidate, “it’s huge!” By 2017, they’ll be spending $200 billion annually and $10 trillion over their lifetimes (Forbes 11/14/2015). Make no mistake, as customers, as employees, and as consumers, we will all be doing it their way.

They will take control of leadership positions across the enterprise and will bend the world to their liking, as has every generation before them. Clearly, that world is social, mobile, and deeply rooted in the idea that technology progress is (as it has been throughout their lifetimes) virtually limitless. They are the first digital natives and they expect technology to adapt to them at home, at work, and at play.

More than ever, winners and losers will be chosen based on the enterprise’s ability to create design-centered technology experiences for customers and employees.

Although Shadow IT is a pale substitute (the equivalent of cave art), for the multidisciplinary model to which the market will ultimately move (3D retinal scanning movie version perhaps?), the change will be evolutionary, not revolutionary.

So how does an action-oriented, business-driven CIO make the right moves?

The opportunity is most often presented as a question, like the earnest as a preacher on Sunday version, something like: “why does it take so long for an idea to reach a customer?”, or the more popular, passive aggressive, “if we’re so ‘agile’, why can’t we deliver innovation faster, or at least cheaper?”

The plaintive refrain that we’re “moving to the cloud” and “getting Agile” will not be enough. The change is deeper, more elemental. Building a high performance, product-oriented team that can deliver these kinds of solutions requires the blending of two primary disciplines: product management and agility oriented development. Don’t think of it like making a margarita (if it’s weak, just add more tequila), instead think of it like baking a cake. If you shake and bake the correct ingredients the right way, you get a cake. If you don’t, you get a hockey puck. You can’t add more flour and eggs afterward to fix it.

To make the challenges we all face more real, take a look at the state of agility adoption. The 9th Annual State of Agile Survey (March 2015) boasts that 94% of those surveyed have “implemented Agile,” (including over half of respondents that claimed software organizations of over 1,000 people). But a short look behind the glittering summary conclusions shows that nearly 50% of those who have “gone Agile,” fail to do many of the basic things that make agile work.

Compare that to your own experience. Has your organization converted to agile and yet received little to no benefit from it?

So, if Agility is the flour in our metaphoric cake, then the eggs are product management and all of its related disciplines (e.g. design thinking, usability, heuristics, analytics, cost, market factors, etc). The enterprise is hiring people with these skills in disproportionate numbers. According to data from WantedAnalytics.com, job openings for product managers and product management skills grew at 5x the rate of traditional marketing and IT jobs between 4Q 2011 and 3Q 2015. Clearly, the increasing demand for these skills shows how their value is perceived. Yet, very few enterprises have implemented successful techniques, approaches, and models to capture its benefits.

Note that product management is a process that runs from the instantiation of demand for a feature (whether for an internal or an external service), through the inclusion of that feature in a product release. As we argued in our first piece on this topic, traditional corporate structures do not readily lend themselves to managing innovation in this blended, multidisciplinary way. Instead, one group controls the budget, another runs a stage gate process to measure progress, business stakeholders have goals, and blah blah blah. The decision making framework just isn’t built to react quickly to changing circumstance, and to creatively spend money on features where it makes the most impact.

The result, at least according to an often cited study by the Standish Group (which is now dated, but likely still accurate), is that 45% of features built in technology solutions are never used. All things being equal, it means we are collectively wasting 45% of the money we are spending – 45%!!

Test it in the lab of your own experience. Here’s a scenario that might seem familiar: after 2 years of fighting with finance for the budget, finally your team has gotten the allocation you need to make some big changes. You get all the stakeholders in a room. Sometime during the first 5 minutes of this meeting, that smart mouth in the back points out that “if we finally got the budget, that budget won’t come again for at least 2 years, so we better think of everything we will possibly need.” Then, whether you call them use cases, business requirements, or user stories, you’ve got a giant list of features to build; and because everyone is making assumptions about what they may need in the future, you can be certain that time, money and effort will all get wasted on features that won’t be used. If this sounds familiar, then all we’re really discussing is the size of the waste basket.

Owning the product, the whole team, and the budget combined with some agile, product management, and continuous delivery, can save most of that 45%, or however much you’re wasting, and either speed up innovation or reduce its cost. To capture this value, organizations have to harness the underlying drivers that have made Shadow IT a phenomenon. The future is stretched out before us and it’s up to us to shape it.

What to Look Forward To

If you’ve followed our story up to now, you are already on the road to a better future. You’ve read our first installment in this series and avoided smoking a new hole in your Nike’s by acknowledging that the tide of change Shadow IT represents is irreversible.

With this installment, it should be clear that there are specific things going on inside your organization that you could change, and would shorten the fuse between idea and innovation.

You understand that it’s an evolutionary change, and that leaving things as they are is not an option. Technology is going to play a more forceful and increasingly critical role in recruiting and retaining great employees, and serving the changing needs of the customer.

Coming up in our last post in the series, we’ll wrap up the loose ends and focus on some specific actions and techniques that can help your organization make the evolutionary change toward this emerging model.

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About the Author:

Brian Farrar
Brian Farrar is a partner and founder of the firm with over 25 years of consulting, technology, and investment banking experience. Prior to Maven Wave, Farrar spent 7 years in technology investment banking. Mr. Farrar has completed merger and capital raising transactions in excess of $2 billion. Farrar served as President/COO of Xpedior Incorporated (NASDAQ: XPDR) a technology consultancy with over $200 million in revenues and 1600 consultants. Farrar also served as President and CEO of Metamor Technologies, a systems integration and software consulting firm with revenues in excess of $80 million. Farrar’s consulting work has achieved recognition by USA Today, The Wall Street Journal, Good Morning America, CIO, and Wired magazine. Farrar is a published author with 6 books on technology related topics distributed in 6 languages worldwide.