Large, medium-sized companies established quite some time ago start facing a big problem: their existing business processes become obsolete and too cumbersome over time, making them vulnerable to attack by younger, faster players.
IT solutions can become obsolete — and at the current rate of growth, they become utterly outdated in 5-8 years — as well as the business logic itself, as the world changes. And what was a core competitive advantage some five years ago is the norm or even not enough today. A company may not be seeing specific problems but realise that "something is already wrong in our business", "it's time to change something". One of the issues that business owners and entrepreneurs often realise is "we have grown too big, and our IT systems are imperfect, we can no longer respond quickly to the market needs".
We analysed three approaches to IT transformation in the company that we have observed, and we want to tell you about them. These approaches are as follows:
- Creating a new department within an existing company;
- Spinning off parts of the business into a separate entity;
- Corporate startups.
Business IT Transformation: Creating a New R&D Department
The traditional motto of carrying out reforms is "let's create a new department to deal with our development". It is usually called the 'development department' and the kamikaze person leading it is the development director.
In a better case, the marketing or IT department initiates the reforms. In this case, the department has at least a clear focus: we all intuitively understand what the IT and marketing departments should do and expect them to make breakthroughs in IT solutions efficiency or enter into new market niches.
However, none of this has ever worked in our experience, because one department cannot restructure other departments that outnumber it. Attempts to carry out reforms stubble across "that' s the way we do it here" or "that' s not the way it is done here", and shortly such a pioneering department completely merges with the general background in the company, and the IT transformation programme is considered a failure, the funds spent on development are written off, and everything goes back to the old way of doing things.
Spinning off Parts of the Business Into a Separate Entity
Companies such as Nova Poshta, for example, are trying to spin-off parts of the existing structure into conditionally independent companies. Following Nova Poshta's digital transformation programme, a modern and flexible cloud-based IT environment is being developed alongside the existing monolithic IT infrastructure and is gradually "biting off" parts of processes from existing systems and doing them in a new way. It is the responsibility of a separate team having its staff and contractors. Other companies in the market are taking the same approach.
This approach usually causes a lot of organisational resistance within the company; you will repeatedly hear "it won't work", "they can't do it, because we haven't done it in 10 years". But in general, if the allocated unit has transparent growth metrics, established goals and comprehensible economics of its interaction with the core business, then this approach has the right to live. The development of IT transformation projects can be outsourced to a third party or stay in-house. The primary opportunity we see in this approach is that the company can create a standalone product (IT service). It will serve not only its core business but also help other companies in the market, and perform as a separate business.
Successful examples in Ukraine include the EWA service or the Corezoid process management system. EWA started with one insurance company and now covers 10-12% of the Ukrainian insurance market. And Corezoid evolved from an internal product of PrivatBank into a prominent player in the process automation market.
Whereas spinning off parts of a business into a separate entity requires an organisational reform in the company, corporate startups work somewhat differently.
Usually, a business confronted with some problem or lack of technology wants a solution right "now". There is little to no time to set up a separate company, choose a contractor, an in-house team may not have the full resources, and often there is no clear understanding of what that company and team should do in terms of business-IT alignment.
Corporate startup funding allows you to attract (in fact, buy) innovations from the market along with the team. How does it work?
A company establishes a Corporate Innovation Fund, announces the global problems it wants to solve and takes care of the marketing around these initiatives (conferences, partnerships with IT clusters, direct partner search and the like). In doing so, the company either creates a corporate accelerator to raise innovations from the market or funds into an internal startup/ R&D culture and focuses on the innovations coming from its employees.
As a result, the problem-solving initiatives are both internal and external to the company. That benefits a corporation in a way that it can set a specific high bar for screening projects and technologies in terms of their readiness, and not invest in creating a product "from the level of an idea". Plus, people are working on their product which is usually much more of a motivator than working for a wage job.
Startups get a certain kind of upward mobility and an opportunity to win a big client and become part of the big corporate story.
It is worth noting that this way of transformation has been around for quite some time, yet remains widely unknown in Ukraine. DTEK, Astarta, OKKO, Bosch Ukraine and many other companies have corporate programmes for cooperating with startups in Ukraine. However, it is too early to claim that Ukrainian businesses have fully mastered the new approaches of digital transformation and development. The above method applies not only to large but also for medium-sized companies.
The Corporate Startups strategy has a lot in common with the Spin-off strategy. Despite its more thorough approach, this strategy blends more organically into the company life and provokes less resistance among employees.
Either way, there is no one-size-fits-all approach, and a digital transformation strategy should cater to each company's needs and capabilities. Meanwhile, you can estimate the planned innovations efficacy by calculating the profitability of the future IT project.