The Perils Of The Digital Divide

digitalIt’s not easy to be a legacy company these days. You’re facing off against more nimble, digital-born upstarts fluent in IT language and unhampered by years or decades of bricks, mortar and mainframes. And you’re expected to do everything better.

But if that’s where you find yourself, you’re in good company. Most businesses today are still mired in what Meade Monger, managing director of AlixPartners, calls the “silos-and-spaghetti” phase: a patchwork of antiquated systems that don’t work well together, with one or more heroic IT managers trying to respond to current demands by putting a better face on the front end. “But on the back end, it’s still a legacy mess,” Monger said.

“Future-ready” companies, on the other hand, that have embraced digital and invested in infrastructure that enables operational excellence and a great customer experience, are surging ahead. Future-ready firms boast net margins 16 points higher than their industry peers, while the net margins of those in the silos-and-spaghetti phase are 5.1 points lower, according to data from AlixPartners and MIT’s Sloan Center for Information Systems Research.

“Future-ready companies don’t centralize all IT decisions in one siloed department, but rather see IT spend as a part of every department’s budget and strategy.”

One of the key differences is how the IT budget is allocated. “High-performing firms are investing much more in infrastructure today,” said Leslie Owens, executive director and MIT CISR senior lecturer. Lower-performing companies are spending more than 70 percent of IT budgets running the business rather than investing in the future. “And they’re falling further and further behind,” added Monger.

Another key difference between the leaders and laggards is how they view IT. Future-ready companies don’t centralize all IT decisions in one siloed department, but rather see IT spend as a part of every department’s budget and strategy. “In a lot of companies, you have the business people and technology people not as connected as they should be—the CEO gives the CIO the budget, and the CIO makes decisions,” said Monger. “But that’s not the way it should be. It should be a collaborative process around how you invest in technology.”

The pathways from silos and spaghetti to future ready range from gradual slope to more radical spike, depending on the company’s business, its customer experience and the threat level from digital-born competitors. But there’s no question all companies have to make the leap, sooner rather than later, to keep pace with digital natives, said Monger, adding that retailers could take a lesson from industrial companies, which are focusing more on building digital  infrastructure in warehouses and supply chains. “As a result, they’re actually more future ready than retailers.”

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