Chaebol, Sogo Shosha, Business Houses, Bamboos, Konzern, Xi – call them by any name, conglomerates are economic powerhouses, many with global reach. While in the West they faded from glory in the 1970s, they are back in fashion with several riding the innovation wave in Asia (for example, Google, Elon Musk Group, etc.), and they have been going strong for decades. All this time, they have been contributing to a sizable part of their home countries’ GDPs, helping in nation-building through infrastructure projects and generating thousands of jobs. In Asia, they are seen as nation’s pride, and several generations of workers aspire and feel privileged to work for them.
Prof. Phanish Puranam for INSEAD and Prof. Nirmalaya of London Business School have classified four different types of conglomerates.
- Type A are groups that “hold” a portfolio of usually public companies for the long term
- Type B are classic conglomerates that are public companies, while their individual businesses are unlisted
- Type C are private equity firms that acquire companies and take them out of market view to “repair” them
- Type D are business groups that comprise an unlisted holding company and individual businesses that are usually listed
This article will concentrate on conglomerates of Type B and D, which maintain fairly large headquarters to drive certain common processes through the offices of the Group CFO, CIO, GPO/CPO, CHRO, and so on.
The Group CIOs of these conglomerates have a complex job in the age of digital transformation. The different entities of the large conglomerates operate in different industries and sometimes in different geographies. The current pace of digital disruption and forecasts over the coming years differ per industry cluster, as seen in the yearly Digital Pulse Report published by Russell Reynolds Associates.
So how does the Group CIO, who has the responsibility of driving IT strategy to support enterprise goals, manage this complexity coming from different industries moving at different speeds towards digital transformation?
During my interactions with several of them, they seem to have relegated their role to supporting only the Mode 1 systems – the predictable, stable, backend, legacy IT applications – while leaving the Mode 2 systems – the more exploratory, innovative, agile projects – to different individual businesses, since they require faster decision-making and rapid turnaround.
On the face of it, this segregation of responsibilities, per bimodal IT practice, makes sense, as it frees the individual business to make decisions faster, based on users’ current needs and the speed of digital innovations happening in their respective industries. After all, as in the past, the individual businesses had experience in buying and implementing software, especially in areas related to plant automation and manufacturing execution systems.
Avoiding the pitfalls of delinking the two modes
However, in my experience, completely delinking Modes 1 and 2 has its share of problems if Group CIOs completely cut themselves off from Mode 2 projects happening at the individual business level and focus only on negotiating central IT contracts and cross-charging individual businesses for software use. This approach leads to a diverse IT landscape with a plethora of small off-the-shelf, bespoke systems with limited integration capabilities, leading to several issues, such as:
- Increase in risk and legal compliance
- Data and cybersecurity issues
- Lack of scalability of these standalone solutions
- Lack of a common organizational platform for innovation across the enterprise to leverage cloud, Big Data, the Internet of Things (IoT), blockchain, and scenarios for new business models
- High volume of shelfware for software bought through central contracts
- Inadequate support and service levels from diverse vendors
- Low internal IT skills and high staff cost to maintain different systems
Establishing a strong core team
One of the most effective ways for Group CIOs to address the above issues is to establish a small but strong team of enterprise architects and value advisers in their office. This team should comprise a mix of the most senior IT and business leaders and fresh innovative brains from the new world: data scientists, business architects, and so on. This team can work with individual business and IT teams across their Mode 1 and Mode 2 requirements and come up with recommendations considering all the issues listed above. Their job should be to simplify the IT landscape, apply common design principles, and recommend the use of best solutions for the business. At the same time, keep in mind that they cannot slow down the pace of innovations happening at the individual industry level and the expected time to react.
This team should keep themselves updated on the latest digital innovations happening across industries and act as agents for cross-pollination of new ideas across individual businesses. They should also design and procure a common platform on the private/public cloud for the entire enterprise, supporting services like artificial intelligence, machine learning, blockchain, IoT, Big Data, and so on. These can be leveraged across all the lines of business of the conglomerate, rather than trying to create their own platform on different technologies and restrictive usage rights.
Aligning with C-level execs across the group
Another important aspect could be a regular cadence with other Group CXOs – the CHRO, CPO, Group CFO, etc. – to align on common business practices across the group and standardize IT infrastructure required to support these processes across the groups. The Group CIO needs to shed the image of a senior IT administrator and evolve into a thought leader maintaining strong CXO relationships with top vendors, peers in the industry, and guiding the business and IT community on strategy and roadmap. I have met some very successful Group CIOs who also happen to be the group’s chief strategy officer.
Today, digital technology is transforming our world and enabling new business models, business processes, and ways of working. IT is no more looked as a mere cost center, but an enabler for sustainable growth and industry leadership. The age of digital transformation is a unique opportunity for IT leaders to take the reins of innovation in their hands and rise and shine. Who else can do this job better than the person leading this wave across the conglomerate?
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