Good Work

https://www.strategy-business.com/feature/Good-Work?gko=a9de1&utm_campaign=GoodWorkTwitter&utm_medium=social&utm_source=Twitter
by Bhushan Sethi and Carol Stubbings

Today’s employees want jobs that are intrinsically rewarding and that fit their values. And though the meaning of work is different for each person, companies that act now to address these demands will gain a lasting competitive advantage. See also “Five Ways Companies Can Give People a Good Work Experience.”

In the last few years, business leaders have turned their search for creative, innovative talent into something of an arms race. They understand the competitive advantage of being a highly rated place to work, and they are striving to show just how much they value their employees. The recreation rooms and wellness centers springing up at many companies have helped in recruiting, but they can also be seen as superficial. To attract the best and brightest people, young and old, companies must take a stand on profound questions being raised today about the value of human activity in the workplace. These questions concern not just Instagrammable workplaces and perks; they concern the context and the content of organizational activity. People want to do “good work,” in two ways: They want intrinsically rewarding experiences, and they also want to make a contribution that fits with their values.

Part of this new focus on the nature of work has to do with technology. Robots and artificial intelligence (AI) are threatening to replace some human tasks, and it isn’t yet clear what jobs will be left or how jobs will be reconfigured. But what humans will most likely focus on are the more participative, collaborative, and transparent aspects of business. As companies seek their employees’ commitment, not just their clocked-in time, people will naturally think less transactionally and more strategically about their jobs; the emphasis will be on the roles people play in how tasks get done, or the input, and the value of that work, or the output.

Typically, institutions lag behind when technological revolutions occur. It took almost a century to relieve the appalling working conditions that were initiated during the Industrial Revolution. Laws designed to regulate work in the age of AI are not yet in place. We believe companies can and should act now to find their own 21st-century definition of good work and develop strategies to deliver it, not only for the sake of employees but because it will keep them competitive (pdf).

What is good work (pdf) in today’s world? We believe it should, at the very least, involve a decent workplace context: fair pay, tolerable levels of change, autonomy and control over one’s work, and a chance for fulfillment. Employees who give customers what they want because they are inspired by their job will create a powerful feedback loop that increases business. For some, good work might include a satisfying work–life balance and opportunities to travel. Good work also encompasses the nature of the organization: Is it inclusive, diverse, and respectful? Do people’s values align with those of the organization? Do employees approve of the goals of the enterprise and see how their efforts contribute? There is typically an element of meaningful purpose: Is the organization, in the view of employees, helping to improve the world around it and make life better?

Not every company can save the world. Many areas of work, such as consumer goods and services, can present ethical challenges for people for a variety of reasons. But how employees experience their day-to-day job, in any industry, is something their bosses can and do influence.

If you assume, as we do, that providing a good work experience is truly a significant source of competitive advantage (pdf) for business and government because it leads to better performance and better outcomes — maybe the best source of advantage in a world of complex human–machine interaction — then it is clear that most enterprises need to put considerably more effort into it.

Dissatisfied Rank and File

Large numbers of people are not satisfied with the amount they are working — they feel it’s either too little or too much — and the effect their workload has on their life. PwC’s study “Preparing for Tomorrow’s Workforce, Today” shows that two-thirds of companies are failing to make workloads manageable, and 80 percent don’t prioritize programs to help workers’ well-being or mental health, even though they realize these issues are important. The World Health Organization describes stress as the “health epidemic of the 21st century.”

Myriad factors contribute to employee dissatisfaction. The development of AI makes certain changes inevitable. When jobs are broken down into tasks and some of those tasks become automated, companies need to restructure and revalue people’s contributions. In more and more countries, a job is no longer expected to last a lifetime or lead to a livable pension. People starting employment today will likely retire much later than their parents and work on a much less secure basis, changing jobs often over their working life. Benefits packages and pay policies, however, are still mired in the old “work nine to five, retire at 65” world. The gig economy, the threat of robots, and the overload of 24/7 connectivity are all taking a toll.

Our most recent research explores the factors that can make a difference in creating good work. Our global survey of more than 1,200 business and human resources (HR) leaders in 10 industry sectors in 79 countries clearly shows just how important the human side of work is to people. Working with Lynda Gratton, professor of management practice at the London Business School, we identified 45 organizational capabilities — defined as the ability and the capacity to perform specific tasks that benefit organizations — that are important in today’s working world. We then asked survey respondents which of these capabilities were most vital for the future of their organization. The five selected most often were all related to improving the nature of work: building trust, valuing human skills, supporting mental and physical well-being, managing workloads, and having work spaces that encourage collaboration and creativity.

The survey also asked respondents if their business was taking action to develop these capabilities and others they cited as important. By analyzing these two sets of answers, we identified areas that respondents ranked as highly important for the future but in which relatively low levels of implementation had taken place. This result suggested that it’s a struggle for companies to develop capabilities that engender a good work experience. The results also identified one of the reasons: Organizations are not using technology to help them deliver better on-the-job experiences. Five of these 10 underdeveloped capabilities that put companies at risk — that is, important things that companies are not doing — involve the use of data analytics to make jobs better (see “Making ‘Good Work’ Work Better”).

It’s as if the threat of what technology can do to the workforce is scaring people from using it, even in positive ways. Risk number four in “Making ‘Good Work’ Work Better” highlights the deficit of analytical skills in HR. Organizations understand that workloads are onerous, but they are not using analytics to plan schedules, create better work environments, or prepare for job skills gaps. Career paths are unclear, but training and development are not mapped against what future jobs might look like. There are concerns that bias is limiting diversity in the working world, but companies are not using technology to help here, either.

The remaining at-risk actions on the list involve the work experience itself. Providing flexibility is not yet a reality, even though research shows (pdf) how much it is valued and also shows how much different segments of the population, including older workers and parents, would value a chance to reenter the workplace on their own terms. And although wellness is a buzzword, companies say they are slow to reimagine workplaces in ways that foster well-being.

The Human Factors

At the heart of all the coming changes in the workplace are the people who will make them happen. People’s working life is their life story: They spend more hours working than doing almost anything else. And working lives are getting longer (pdf): Those who live to 60 years of age have around 93,600 productive hours; those who live to 100 have 218,400. The businesses that succeed will be the ones that create the kinds of narratives that people buy into and then their leaders support with action. These businesses will have to be flexible and adaptable. There is no one-size-fits-all approach; the employee journeys of a 25-year-old recent college graduate, a sales assistant, and a midcareer manager are not the same.

Analyzing the gaps between what business leaders know is important and where they are actually taking action, we have identified five specific areas in which organizations can do something now to lessen the stress and anxiety their employees are experiencing. They need to tackle burnout and boost vitality, build social resilience, encourage agility and adaptability, support “intrapreneurship,” and provide autonomy. We’ll take each in turn and describe practical steps to address these issues, with examples of  what some companies are already doing. Our message here is to leadership: Unless senior managers actively embrace this agenda and empower HR to take these actions (see “A Crucial Role for Human Resources”), it will not happen. And unless this agenda’s implementation is measured and linked to management rewards, employees won’t believe it really matters to their boss.

1. Tackle burnout. If people are to thrive and maintain their well-being over longer working lives, then organizations must ensure that their working practices and processes don’t wear employees out. Careers today are marathons, not sprints. But long working hours and being available 24/7 are still seen as proxies for success. Further, it could be that people enjoy their work but simply don’t know how to slow down or are not encouraged to do so. Research has found that 20 percent of employees with the highest engagement levels also report burnout. These “engaged–exhausted” employees have mixed feelings about work: They report high levels of passion and stress concurrently. Companies that don’t recognize the symptoms may lose some of their most driven and hardworking people when they burn out.

Proactively managing workloads and encouraging recovery time — even short breaks — during the day is a good start to boost vitality, but this is easier said than done. The engaged–exhausted are hard to shut down. In 2014, crowdfunding platform Kickstarter started offering unlimited vacation time, but retracted the policy the following year because people simply weren’t using it. The social media management platform Buffer took a different route in 2015: It introduced financial incentives to encourage employees to take more leave. When that didn’t work, it implemented a mandatory vacation policy in 2016. Current data estimates that 56 percent of Buffer employees will have taken 15 days of vacation (or more) by the end of 2018, up from 43 percent. It’s too early to know whether the Buffer employees who took the time off will be more productive, but research indicates that the company could expect an uptick. Rested employees perform better.

Having role models also helps. In 2015, Barclays began to offer a range of flexible initiatives to support people at various stages of their lives, such as those pursuing further studies, parenting, or caring for other family members. The possibilities for workers include working from home, changing or condensing working hours, taking career breaks, and sharing jobs. By telling the stories of people who took up these options, Barclays encouraged more than 3,000 middle and senior managers to become “dynamic worker” champions. In 2017, 57 percent of employees identified themselves as dynamic workers, and their engagement scores, as measured by Barclays, outpaced those of others, with 5 percent higher scores in what the company termed “sustainable engagement.”

People naturally function in what are known as ultradian cycles, periods of high-frequency brain activity (about 90 minutes) followed by lower-frequency brain activity (about 20 minutes). Taking a recharging break every 90 minutesis especially important for workers using computer screens, as they make the brain overly active. There is some initial research that shows that trying to push through the rest phase of the ultradian rhythm triggers the body’s fight-or-flight response. That’s bad news, because it can cause the parts of the brain that handle logic to become less active.

Technology can help here: Some apps and software programs remind and encourage people to take physical and mental breaks regularly throughout the day. PwC Netherlands has made one such tool available to its staff for years. And work spaces can also be designed to reflect the natural rhythm of collaboration. Rows of cubicles are being replaced by communal tables  and comfy corners so people can come together as a group and then break apart. Those table tennis and foosball tables, even if they’re not used regularly, at least signal that employers believe downtime is important. The key is to accommodate your employees with a working environment they want, while also recognizing that forcing spaces on people may not always work. A bad workday in an open-plan office isn’t for everyone.

2. Build social resilience. People may think of loneliness and its effect on their productivity as something that happens outside work, within their own personal networks, but that’s not the case. Despite this being the age of social platforms, rates of loneliness in the U.S. have doubled since the 1980s, and businesses are suffering from absenteeism due to depression. A long-running Harvard University study has found that close social relationships are more important than money in promoting happiness. It’s these close ties that protect people from life’s setbacks and help delay mental and physical decline. Social ties are better predictors of long and happy lives than are social class, IQ, or even genes. But the 24/7 work culture means that fewer people are finding friendships outside the workplace, loosening these important bonds. The number of people who report having a close confidant in their lives has been declining over the past few decades.

Organizations can help prevent this isolation by ensuring that their employees can not only disconnect from work more easily but also have the opportunity to create connections on the job. Managers play an integral part as role models by showing their commitment to avoiding excessive workloads and minimizing unpredictable hours. They can also promote more nurturing work networks. The tools they can use to help build networks are already present in common company software, such as Yammer and Slack. Of course, employees may need encouragement and a reason to use these systems. Tata Consultancy Services has developed its own social network called Knome — a slang term related to the interpretation of DNA — that connects 380,000 workers around the world in one online forum similar to Facebook, and is employed by close to 80 percent of the staff. They use it to exchange both private and work-related information, upload blog posts, and create communities with colleagues who share interests. Employees have created more than 9,500 of these online communities where they exchange ideas and collaborate.

3. Encourage adaptability and agility. In the future, when people regularly live to 100, retraining will become the norm as jobs and skills change. The traditional, just-in-case learning models companies use now will not be enough to keep up with rapid technological change. And the stages when training is needed will be different for a recent graduate, for example, than for a machine tool operator whose job is outsourced to a robot. Companies will need to plan for this type of up-skilling. In Singapore, the government is leading the way by giving grants to workers to help them retrain throughout their working lives, not simply to help them gain new skills but also to help them adjust their expectations of what a working life means.

Data analytics can help predict what skills companies will need, but getting employees to take up training will be a challenge. The Australian retail bank Westpac recently created a social learning platform called Learning Bank for its 40,000 employees that tags content to employees’ profiles; workers select what they want to learn. It’s an informal approach that empowers employees to learn what they choose, when and where they want to learn it. In 2017, Westpac added TechU to encourage people to acquire skills in future technology, according to Dave Curran, bank CIO at the time of the launch. “In my mind, nirvana is where people are self-educating to where their interest is, somewhat guided by the organization and people like me, towards where the demand will be,” he said.

Personalization of experiences helps improve adaptability. At Heineken, which employs more than 80,000 people worldwide, the company’s career track tool helps people move laterally within the organization by listing what kinds of opportunities are available that fit with their personal aspirations. Employees can choose to receive information about the experience and capabilities required for the job they want and how to prepare: In effect, it lets them tailor their development plan to the work they want to do. Fastweb, an Italian telecommunications company, recently launched a rotational development program to increase internal mobility as part of its talent attraction and retention strategy.

4. Support “intrapreneurship.” More young people today want to run their own company than ever before, and older people are also switching to entrepreneurialism. Organizations that fail to create opportunities for “intrapreneurship,” that is, encouraging employees to develop new enterprises and commercially viable ideas within the company, risk losing their own workers’ innovative ideas. The key is to create the kind of environment within a company where innovation is encouraged and people can take risks safely. These psychologically safe settings produce fewer errors in day-to-day work even as they create space for experimentation. For intrapreneurship to work in practice, people need time; creativity is often a function of the quantity of ideas produced. A 2015 study found that the first 20 ideas people generate are often significantly less original than their next 15.

There are different ways to build a supportive, intrapreneurial environment. Rite-Solutions, a software developer, created the Mutual Fun platform five years ago, which works as a virtual stock market for ideas by combining social networking and gamification strategies. An employee interacts with the market by first creating a personalized profile, which allows him or her to find others with similar interests or complementary strengths to work with on innovative projects. They can then invest their intellectual capital (in the form of virtual US$10,000) into the “idea stocks” of the colleagues they would support. A decision algorithm derives each idea’s stock values based on the activity and investments in it, while also calculating a leaderboard of players. Successful Mutual Fun initiatives lead to the formation of volunteer teams that could receive real investment.

Not all entrepreneurial ideas work out, so rewarding failures plays a role in encouraging risk taking. In 2006, Tata Group started its Innovista Awards to recognize innovation, even if the attempts failed, with the goal of fostering what it called “appropriate risk taking.” The uptake wasn’t great at first, but participation grew. In 2018, the company recognized 23 innovators. Normalizing, even celebrating failure can help individuals and organizations learn more about the products they are creating and the markets they serve.

Some organizations hold periodic hackathons in which employees present ideas and compete to tackle specific challenges aligned with the company’s broader strategy. Participants can earn prizes and recognition. Unilever has a startup hub to keep bright ideas generated by its employees in-house. It’s an insurance policy, aimed at validating intrapreneurship. Companies want to replicate the success of lightbulb moments such as 3M’s Post-it Note, but they should not forget that it took a decade for Post-its to become commercially successful. (The project failed three times before finally taking off.)

5. Provide autonomy. Faced with a transforming working environment, employees value choices. People regularly tell survey takers that they would give up income for greater control over how they work and for a more meaningful job. Research on powerlessness by neuroscientists shows how it can result in a lack of well-being, thwart motivation, and even damage cognition. A move toward a more autonomous and empowered work culture can help employees feel more satisfied and lead to stronger job performance and greater commitment to the organization. To paraphrase Dan Cable’s thesis in Alive at Work, employers have to proactively find ways to help people release their inner explorer.

Spotify, for example, groups its more than 2,000 employees into agile teams, called squads, that are self-organizing, cross-functional, and colocated. There is no single appointed leader of a squad. The mantra is that “alignment enables autonomy — the greater the alignment, the more autonomy you can grant.” A leader’s job is to figure out the right problem and communicate it, so squads can collaborate to find the best solution.

Gaming software company Valve, famous for its flat organizational structure in which no one has a boss, gives employees desks on wheels and encourages them to push the desks around the building to join projects that seem interesting. Valve holds them accountable for the results. Employees are given clear expectations when they join a new project team, and they must complete 360-degree evaluations when projects end to measure individual contributions. In an industry in which innovation is the lifeblood, Valve is thriving, with 360 employees and a 22-year record.

What Should Business Leaders Do?

Headlines that focus on the war for talent are elevating to the boardroom concerns that have traditionally been the domain of HR, such as skills and productivity. In PwC’s 21st CEO Survey, a 2018 look at chief executives around the world, the lack of availability of key skills was number five on the list of top threats to economic success. In 2019’s survey, it has risen to number three. HR professionals will be the guardians of good work experiences on a day-to-day basis, but it will be top leadership that must guide the overall strategy.

A high-quality workplace experience for employees is critical to developing a learning culture — and thus critical to the continuous improvement of the organization’s skills and capabilities. People don’t unleash their productivity if they’re having a bad time at work. Effective business leaders must demonstrate that they recognize the value of the people experience in their company and must work to improve it. They need to craft a narrative about what the future of work means for their organization and what actions they are taking now to deliver on that future. Leaders who understand this will have a competitive advantage. As the examples here show, some companies are already taking the initiative, rather than simply reacting.

Leaders can be the catalyst for change if they make it a priority. They can bring together communities of innovators within their enterprises; they can empower people to deliver in the ways that best suit them by making wellness and flexible working a differentiating source of energy, engagement, and loyalty. And they can find ways to help employees see into the future of their longer working lives. Data analytics are tools that can offer insight into what work will look like, not ends in themselves. They can help judge what skills people will need and determine how to develop the capabilities that sustain employability.

Good work should not be hard to find or hard to describe. To keep their workers’ attention and harness their potential, companies will have to encourage and develop the attributes and skills that make them innately human. If they fail to do that, their greatest resource, people, will simply walk away.

Author Profiles:

• Bhushan Sethi is the joint global leader of PwC’s people and organization practice. Based in New York, he is a principal with PwC US.
• Carol Stubbings is the joint global leader of PwC’s people and organization practice. Based in London, she is a partner with PwC UK.

Resources

1. Lynda Gratton and Andrew Scott, The 100-Year Life (Bloomsbury, 2016): Recommendations for workers, companies, and governments on planning for longer working lives.
2. Frederic Laloux, “The Future of Management Is Teal,” s+b, July 6, 2015: Organizations are moving forward along an evolutionary spectrum, toward self-management, wholeness, and a deeper sense of purpose.
3. Daniel Sgroi, “Happiness and Productivity: Understanding the Happy-Productive Worker” (pdf), Social Market Foundation, 2015: The positive influence of worker happiness on productivity could be an important competitive advantage.
4. Carol Stubbings, “What Women Want in the Workplace,” s+b, March 8, 2018: To close the gender gap, companies must develop transparency on career progress.
5. “Preparing for Tomorrow’s Workforce, Today,” PwC, 2018: Study on the capabilities that businesses need to consider for the future, as gleaned from a survey of more than 1,200 organizations in 79 countries.
6. More thought leadership on this topic at the PwC case studies library

10 Principles for Modernizing Your Company’s Technology

https://www.strategy-business.com/article/10-Principles-for-Modernizing-Your-Companys-Technology?gko=011f8&utm_campaign=10PsTechTwitter&utm_medium=social&utm_source=Twitter
by Leon Cooper and Milan Vyas

Today’s technology platforms are not just new versions of legacy systems. They allow you to design a completely new digital enterprise — as long as you follow these guidelines. See also “A Guide to Modernizing Your Company’s Technology.”

Illustration by Lars Leetaru

The life cycle of information technology is becoming shorter every year. New competitors are disrupting industries by leveraging state-of-the-moment digital practices and processes. Customer expectations are constantly evolving in an accelerating race for the most advanced, hyperconnected, seamless experiences. IT functions are under unrelenting pressure to support leading-edge capabilities such as data analytics, cybersecurity, automated processing, and integration with third-party systems. The easiest way to do this is through platforms that connect everyone to the same cloud-based cross-industry digital infrastructure.

In this context, your company’s legacy IT system, which seemed so capable a few years ago, is rapidly becoming obsolete. The systems modernization you need today is more than an upgrade; you’re playing a new game with new rules, in which you modernize not just the tools and functions, but the way you do IT. The vendors are largely the same, but the options and principles of the past no longer apply. Hardware no longer stands alone. Sensors and Internet connections are embedded in practically every tool, including those that used to be purely mechanical. Software is no longer sold as a package to install. It is offered as a platform, by subscription from the cloud, is automatically upgraded, and is programmed in new ways.

Yet some of the most important factors have not changed at all. Organizations must remain focused on their competitive edge. Modernization efforts must create value for the enterprise. Investors and other stakeholders are as demanding as ever.

Understanding what to get right — the elements of your IT system necessary to reach your goals — is essential. Knowing how to get it right — how to plan, sequence, invest, design, and engage the enterprise around your technological modernization — is equally important. Some efforts fare better than others. We have distilled 10 principles that are common to successful efforts. You can think of these principles as essential guidelines for your digital transformation, from your legacy system to the platforms of the future.

For further insights: See strategy-business.com/techprinciples
Infographic: Opto Design / Lars Leetaru. ©2019 PwC. All rights reserved.

1. Put Customer Value First

Although any number of factors may trigger an IT modernization decision, one explicit goal is paramount: to deliver value. Every investment in technology should amplify the benefits for end customers, whether through better experiences, higher product quality, or operating efficiencies that reduce prices and add value.

Start by developing a solid business case for the modernization effort, showing expected value and innovation. Explicitly include (and agree upon) the most important outcomes for customers. Articulate, with clarity and precision, how each facet of the new IT system will contribute. You should be able to point to measurable improvements in key metrics — for example, customer retention, user experience, sales, productivity, and recruiting.

Use cross-functional teams to plan and design this modernization effort. Functional experts from areas such as IT, strategy, R&D, customer interaction, and operations can all work together in an agile “sandbox” environment to design the changes around a set of coordinated specifications. In this early stage, and throughout the initiative, you thus link leading-edge knowledge of the changing technology with deep, day-to-day awareness of the desired results. As you bring these teams together, you will establish a shared frame of reference — a common language to describe the features you want and the capabilities you are building. This also will help engage new stakeholders as they join in the effort.

A major transportation company revamped its online system this way, improving the integration between the website that handled passenger bookings and the back-office functions that, among other things, routed travel. In its intensive sandbox sessions, the company set up temporary cross-functional working groups, which became known as “tribes.” Charged with planning and executing the modernization, the tribes included IT specialists along with people from finance, operations, and R&D.

In the public sector, customer value translates to public service, but the principle still holds. When the Ottawa Police Service (OPS) in Canada’s capital city resolved to fundamentally transform its service delivery model to better connect with and serve the public, its leadership recognized that the change needed to be driven by the needs of frontline officers and the public. They put in place a robust process to ensure that these officers would generate and validate ideas for technology modernization and IT innovation. OPS’s initiative has been successful enough to be held up as an example for many other policing organizations contemplating similar transformations.

Questions for putting customer value first:

• Why do we need to enhance or transform our technology right now?
• What problems do we expect to solve?
• How will this change deliver value to our customers?

2. Simplify Your Architecture

As organizations have evolved over the past 10 years, the underlying architecture of information technology has tended to evolve with them, often in a haphazard and as-needed fashion. A single organization might have had IT systems based on a variety of coding languages, data structures, integration requirements, and support arrangements. The result was often a complex network of technologies: fit for purpose in each individual application, but difficult to adapt, refresh, and integrate. It often required significant effort to make changes, or even to understand the implications of changes on stakeholder needs and business performance.

Modern modular platforms have changed all that. Standardization of software code and integration standards have enabled systems to interact more fully without requiring bespoke designs. Tools such as application programming interfaces (APIs) allow companies to develop interoperable components that fit together in standard ways and interact seamlessly. Formerly separate systems, such as those for payments or customer relationship management (CRM), can now be linked to a single, configurable platform, with the ability to share data across the enterprise.

Instead of assuming a trade-off between simplicity and the features you need, look for systems that give you both. Many modern systems can combine simplicity at the back end with enhanced functionality at the front end. The leaders at GE Digital exploited this when they designed their modular platform that they use in-house and for customers such as airlines. Based on a cloud infrastructure and incorporating the Internet of Things, the system integrates applications built by other companies (such as Oracle), by GE’s customers, and by GE itself. GE followed the model of smartphone apps, but on an enterprise scale.

Simplicity makes it easier to take advantage of the software-as-a-service (SaaS) model, which allows organizations to procure increasingly complex functions on demand from their existing software providers without needing to manage the implementation or underlying resources. As with the consumer smartphone apps revolution, the new SaaS enterprise-level apps compete on quality and ease of use. The best ones rise to the top, containing costs and providing better experiences for the people interacting with your organization. As you implement these systems, you’ll learn that most customers and employees don’t want an overabundance of menus and features. They prefer simple, flexible commands that move them quickly to their desired results.

Embracing a simplified architecture requires a change in thinking, particularly when considering options for new systems and partnering arrangements. Establish clear IT design principles, focused on simplicity and strategic functionality. Shift from asking “How do we connect our components?” to asking questions about adding value, attracting customers, and making life easier for your employees.

Questions for simplifying your architecture:

• How can we best simplify our technology systems environment?
• Where is the modularity in our current system environment? Is it flexible enough for our needs?
• What data and functionality will be accessible — from customers, business partners, and operations — when we better integrate our system?

3. Design for Flexibility and Speed

Modern organizations have a constant need to adapt within an ever-changing environment, requiring continuous innovation in products, services, and practices. Their systems must also have the flexibility to keep up.

The technology systems of the past competed on functionality. They were designed to do one or two things very well, and the organization adapted to focus on those one or two activities. When the enterprise needed to change its focus, the structures and processes of the system held it back.

Today’s more modular systems can be much more flexible. They can rapidly accommodate a range of possibilities for connection and configuration. So seek out modular platforms that can accommodate a wide range of plug-and-play functions for your business — including those that haven’t been designed or even imagined yet.

Develop your own capabilities for the design and deployment of future-ready IT systems that can flex as needed for innovation. Learn to use them to quickly reorient your operations while retaining the quality of user experience that your customers and staff expect. For example, your sales and service staff can reconfigure your customer engagement systems as the market changes. Your CRM system can lead teams to think more creatively about identifying and approaching customers.

To assess the fitness of new IT systems or upgrades, adopt a minimum viable product (MVP) approach. This approach consists of a “bare-bones” installation, covering the few features that are absolutely necessary to demonstrate the system’s value. Release an MVP to a small group of employees or customers, and then ask those early adopters for responses — or better yet, observe them using the system. You will learn what features customers care about, what features they don’t, and what features are missing.

The use of artificial intelligence and machine learning is also critical for flexibility and speed. Employees and customers are used to apps and search engines that guess what they are going to type or select. They understand and accept systems that learn their habits. Already, users expect as much from their enterprise software. A company whose systems understand their behavior, and guide them rapidly to work more productively, will gain their commitment.

Questions for designing with flexibility and speed:

• What aspects of our existing systems are constraining our speed with respect to change?
• Are these aspects necessary? Are there better ways to change direction while managing risks?
• What kinds of unexpected changes have we needed to deal with in the past? What do they suggest about future designs?

4. Engage with Your Workforce and Culture

IT modernization is often seen solely as a matter of changing technology. But changes in technology sustain themselves only if people accept and embrace them. You must therefore align your new systems with the company’s culture — starting with a clear recognition of the new habits that people will need to adopt.

An evolution in technology architecture may well involve a significant cultural shift, with a new structure and new competencies. Consider where the stumbling blocks may be. For example, do employees understand how to analyze the data your company collects while protecting your privacy? Do they have the operational skills to coordinate with external partners? Do they have concerns or qualms that have not been addressed? Armed with that information, your leadership can determine what types of training, support, recruitment, and workforce changes are needed.

Engage users of the new technology, encouraging them to play an active role in the transformation effort. At GE Digital, for example, managers fostered engagement by bringing in all stakeholders from 20 different departments to be certain the right voices were heard. They made sure that users felt they were part of the process, giving them roles to play in implementation and providing regular updates on the delivered benefits. As a result, employees who used the system felt invested in the outcomes. Engagement on that scale isn’t easy, but it is essential.

For more guidance on organizational culture, see The Critical Few: Energize Your Company’s Culture by Choosing What Really Matters, by Jon Katzenbach, James Thomas, and Gretchen Anderson. There already are some powerful elements of your culture — including attributes of the company and behaviors that work well — that you can muster on the side of effective change. In addition, every company has “authentic informal leaders,” people at every level of the hierarchy who are already demonstrating the behaviors you need for modernization because they believe in the new direction. Find these individuals and work closely with them. They can tell you about the readiness of your organization to change, the places where resistance will occur, and the magnitude of effort required to overcome resistance.

For a large insurance provider in Australia, the critical starting point for modernization was to create cultural acceptance of the idea “decommission the old, and embrace the new.” To achieve this, the technology leadership provided a strong mandate for simplification, and communicated it consistently. The mandate helped to rally the teams around a common set of priorities, decisions, and behaviors.

At Ottawa Police Service, where there was a strong culture and deeply held values and beliefs, the new initiative sought to move critical policing applications to the cloud. Frontline staff needed to be convinced that security and privacy issues could be properly addressed. The OPS leadership brought in a high-ranking officer from another geography, someone who people at all levels of the organization could relate to. This person came from a similar police service that had made a similar transition, and now joined OPS temporarily to help make this transition work. In the end, more than 150 police officers regularly contributed ideas. When they were valued and implemented, that created a virtuous circle of more engagement, faster uptake, and still better results.

Questions for engaging your workforce and culture:

• What do people need from the new IT systems to be productive? How do we know?
• How technologically capable is our existing workforce? What skills do they already have and what do they need to develop?
• What kind of cultural changes need to occur for new systems to be adopted? How do we create this?

5. Adopt a Services Mind-Set

The traditional approach to technology treats systems as assets that a company owns and operates. A modern approach treats technology as a set of services that a company can consume and integrate as needed, without necessarily owning the systems at all. Companies can then select and combine services from a range of best-in-class providers, within an overall framework that suits the organization’s unique needs.

This approach redefines the IT function. Where once you hosted and managed systems internally, now you oversee a more open platform. Services are outsourced and dynamically managed; when a service component is not effective, you can adapt or replace it. You no longer care as much about the source of a service; you care about how well it serves your needs and creates value. You judge its financial performance in operational terms — productivity and results measured against cost — rather than by return on asset costs and the costs of maintenance.

One major bank redesigned or replaced a large number of critical systems within a five-year time frame. The refresh affected customer systems, analytics, product development, and core ledgers. When communicating the changes with the bank leadership, the IT group explicitly avoided describing their hardware and software assets; instead, they focused on the services they would provide to internal functions.

This approach made it easier to add new IT functions. For example, when the group installed analytics packages, they naturally gravitated to talk about new ways to use them. The same was true of new marketing tools and the new network for linking branches. Ultimately, the bank made its message about services public. It was investing in modernization, it announced, because it knew the investment would help the bank become the type of financial institution that its customers and partners needed.

Adopting a services mind-set also promotes a more open approach to sharing value with service providers. By using your providers as ongoing partners in innovation, you can shift your focus from negotiating terms to collaboratively generating results.

Questions for adopting a services mind-set:

• What are the essential technology services we provide to our organization?
• Are we organized and funded according to the outcomes we provide rather than the assets we manage?
• What other services could we offer in a cost-effective way if we were better organized to do so?

6. Plot the Journey before Starting

Just as successful transformation is a staged journey, so too are systems modernization efforts. In their article “The Four Building Blocks of Transformation,” PwC organizational change experts Al Kent, David Lancefield, and Kevin Reilly describe how iconic companies — the likes of Apple, IKEA, Starbucks, and Honda — have achieved their success through a fully coherent, differentiated, strategic identity. They methodically developed the capabilities and business models they needed to deliver this vision.

Your systems modernization can help you do something similar. Having set a direction based on customer value (as in principle number 1), you now plot a systems modernization road map, that is, a sequence of milestones and markers that you can expect along the way. For example, you might introduce cloud-based capabilities early, so they can be used for other initiatives. Or you may need to modernize some legacy systems as a prerequisite for improving time-to-market for product launches.

For a technology modernization at GE, the business units and geographies shared the responsibility to get core applications up and running. Progress was tied to explicit deadlines and goals, including “reduce quarter close time by 50 percent” and “cut 40 percent in IT expenditures.” Each milestone also included progress toward a predetermined set of core business needs: expanding market share, automating processes, deploying common platforms, rethinking shared services, and ensuring quick wins.

When your organization is early in this journey, ensure up-front buy-in from key senior stakeholders. In his book Leading Change, John Kotter calls this the “powerful guiding coalition.” It consists of change champions from every key area of the business at all line management levels. This coalition helps to ensure ongoing business alignment.

Although it’s planned, your IT modernization should not be rigid. Set it up as a self-correcting journey. In each step, you learn from previous iterations and discuss what could be done better next time.

Questions for plotting the journey:

• What are the critical steps in our migration to a new system? Who will we bring together to implement each step?
• How will we adapt our plan to “course correct” when things don’t go as expected?
• Who needs to be part of our powerful guiding coalition?

7. Organize by Capabilities

Most large and midsized companies cannot reorganize their legacy IT system all at once. Their efforts must be divided, prioritized, and sequenced, or they will be too large and complex to manage. Most IT modernization efforts are organized by project; they are short-lived efforts, framed by conventional enterprise software categories, budgeted and delivered through development teams that disband when the project is complete. This leads to a short-term focus that can distract efforts from the most important goal: building the capabilities that deliver value.

What if you organized by capabilities instead? Your organization’s most distinctive capabilities are the combinations of systems, processes, and functions that deliver value in a way that no other enterprise can match. Think of your systems modernization initiative as an opportunity to energetically improve these capabilities, drawing on your digital expertise. For example, Inditex (the Spanish apparel company best known for its retail brand Zara) has long had distinctive capabilities in customer insight, fashion-forward product design, rapid-response manufacturing, and globally consistent branding. In recent years, it has enhanced these capabilities with an IT modernization that included, among other things, setting up RFID tags for every item it sells. Now it also has an integrated online–offline inventory capability, so that any clerk in a Zara store can instantly locate a garment in a specified size and color, and arrange for it to be shipped directly to the customer — giving the company strengths in customer satisfaction that few, if any, other retailers can match.

Your organization’s customer-facing products and services are central in this approach (it’s sometimes called the “product management–based IT operating model [pdf].”) You logically group applications and infrastructure by the business capabilities they primarily support. Then you find the necessary applications and hardware needed to fill the gaps in those capabilities, and (better yet) to refine and expand your conception of those capabilities, staying steps ahead of competitors.

Organizing the IT operating model in this way offers many benefits. They include enhanced business–IT alignment, ability to deliver faster innovation and greater value, more effective investments, and a simplified vendor landscape. Consider procuring a managed services and solutions provider with which to partner; they may be more familiar with the newer technologies and thus able to deliver more quickly and effectively than you can.

When you organize by capabilities, you don’t worry about the different layers of the technology stack. They’re all in scope. Your IT organization is no longer wedded to legacy concepts; it can help accelerate a digital transformation by applying principles such as mobile access, API-based design, microservices, cloud-based infrastructure, and modular IT structures.

Questions for organizing by capabilities:

• What are the most critical capabilities that differentiate our company and provide value?
• How will our IT modernization enable and enhance these capabilities?
• What technological solutions and vendors fit best with these critical capabilities?

8. Be Agile and User-Centric

When executing the modernization, look for ways to realize benefits faster. Avoid the “big bang” approach, in which you gradually build toward a single all-encompassing systems release. This can involve many months’ wait before results start to be seen. Divide the modernization road map into discrete delivery increments, releasing usable functions on a frequent release cycle. It’s better to be incomplete and rapid than complete and slow, as long as you obtain system user feedback frequently and let that feedback guide you to shift your direction. (Users of your systems include customers, employees, and anyone else who interacts with your company, including regulators, suppliers, and sometimes community members.)

Use established agile frameworks for design and development. These include scrum (consisting of self-organizing teams), disciplined agile delivery (a process for team decision making), the scaled agile framework (which aligns multiple teams), DevOps (practices aimed at reducing software development time), and lean IT (which is based on quality and continuous improvement approaches). Whichever frameworks you choose, train all stakeholders properly in it, so they have a shared understanding of the practices involved.

Even as you embrace agility, remain user-centric, that is, attentive to customer and employee responses, and responsive in the way you incorporate their reactions into your designs. Roll out new features in a way that allows you to test them on different user and customer profiles. For example, you might roll out two different features to members of the same customer group or geographic region to see if they trigger different responses.

Establish a disciplined and consistent approach to user-centricity. You might track people’s behavior on your system by monitoring keystrokes, through surveys, or through direct observation of users struggling with the prompts on their screens or smartphones. Adapt and adjust your system iteratively, building your own capacity for interpreting user feedback. Adopt a continuous improvement mind-set, so you are always looking for opportunities to learn and make your system better. Seize those opportunities.

Questions for taking an agile and user-centric approach:

• Who will benefit most from the changes, and how are they engaged?
• How do our analytics improve our knowledge of their experiences?
• How do we pivot and change our approach when we need to?

9. Invest in Resources That Make the Change Stick

Before commencing modernization, perform a careful analysis of the breadth and diversity of resources needed for a successful outcome. Project management and transformational leadership capabilities are as important as technical capabilities. Be highly selective in forming the team that oversees the effort. Choose people with a strong bias for change, a strong desire and ability to learn, a high tolerance for complex and uncertain situations, and a solid reputation for collaboration and teamwork.

Financial resource allocation is just as important. Align funding to your highest modernization priorities. Be very clear about which areas you will not spend money on. Scrutinize your choices about desired features and technologies to ensure that financial resources are aligned with highest value.

Avoid locked-in situations, in which a single vendor has control over your interactions (because, for example, your data resides in a closed and proprietary system). Insist on open APIs that can connect to a range of other systems. Experiment with open source software and make interoperability and integration a critical part of your technological due diligence. For example, if you use commercial off-the-shelf software, make sure it can link to a variety of databases, including open source products. Look for technologies that easily integrate and work together because of the languages they’re written in and the technology stacks they are built on.

Think through resourcing for the legacy system to keep it running adequately while the new system is being built. Even during the transition, you may need to fund must-do modifications to the legacy system (for example, to meet new regulatory and legislative requirements). Ensure that funding for these types of changes, for both the old and the new systems, has been factored into the overall budget.

Plan for funding to decommission and retire the old system, and to move people to the new one. Include funding for learning and development. Be clear and up-front about the transition plan so that the team with responsibility for maintaining the legacy system understands how important their role is, and what options are available to them. Provide incentives to make sure that these people remain highly motivated while doing what may seem to be unglamorous work.

Questions for investing in resources that make the change stick:

• Which IT investments are linked to the greatest return?
• How do we realign resources to support the transformation while running the business?
• What skills will be needed with the new systems, and how do we build them?

10. Partner Based on Shared Values and Trust

The technological systems that you are modernizing are key to your organization's future. Therefore, do not treat modernization — or the procurement of the goods and services needed to support it — as a transactional event. When selecting long-term partners, invest in special due diligence in excess of your standard evaluation criteria. Your goal is to find companies that can deliver mutual benefits and with which you can develop a working relationship that involves mutual commitment and creative collaboration as well as a fair deal.

If you don’t get this right, not only could the project fail, but the switching costs could be substantial. Therefore, use informal as well as formal ways of gathering information. Seek out companies whose values you share and whose leadership has proven trustworthy. Evaluate the credibility of their work by looking at the technology systems they have built for themselves. Think about how well those systems support their own distinctive capabilities, especially those that would benefit you as their customer.

A good example of how to find the right partner comes from ATB Financial, based in the Canadian province of Alberta. It was founded in 1938 as a government-owned corporation, with the mandate of providing the citizens of Alberta with sources of alternative credit. After a strategic review, the company’s leaders set out to reinvent the enterprise, modernize the core banking platform, and create a digital-first and mobile-first system, oriented toward millennials and other digital-savvy customers.

They recognized the long-term relationships they would need to build, so ATB’s leaders were very deliberate in the way they evaluated vendors. They started by conducting a standard procurement process via RFP to more than 50 potential partner organizations. The list was shortened to 17 using standard criteria such as technological considerations, the ability to meet requirements and commitments, references, financial health, and long-term viability.

However, those criteria were just table stakes. The right partner also needed to share the values that ATB Financial held, and to verify that it could be trusted. ATB thus conducted site visits for each of the 17 semifinalists. It tested each company’s flexibility and speed by asking it to complete a proof-of-concept task, with only two days to work on it after receiving the specs. In addition, during the visits, the evaluation team spoke to employees at multiple levels.

ATB winnowed its short list down to five partners, and ultimately settled on just two: a first choice, and a second choice kept on standby. On a fee basis, the first-choice partner delivered a two-month pilot designed to build out 5 to 10 percent of the critical requirements. This allowed ATB Financial to fully evaluate how open the partner was to change, how fast it actually worked, what tools it used, and overall how compatible the two teams were. The system modernization has made considerable progress and is meeting all key metrics, and the companies’ superior working relationship is credited for much of this initial success.

Questions for selecting a trustworthy partner with shared values:

• What are we looking for in a partner? What values are important to us?
• What criteria will we use to ensure that our partner has similar values?
• In committing fully to a partner, how can we build mutual trust?

In modernizing your company’s technology, your goal is an effective and sustainable vehicle for strategic success. The critical issues, as with any organizational IT effort, are not purely technical. They involve learning how to design systems more effectively, engage individuals, and help facilitate constructive change throughout the enterprise. Taken together, these 10 principles can guide your way.

Author Profiles:

• Leon Cooper is a director in the technology advisory practice with PwC Australia. Based in Sydney, he focuses on fintech innovation, applications of analytics and machine learning to solve complex business problems, and enhancing public- and private-sector partnerships.
• Milan Vyas is a director in the technology advisory practice with PwC Canada and helps lead its cloud advisory service. Based in Toronto, he works with clients across industries to formulate and execute technology strategy, optimize IT operations, and deliver IT transformation programs.
• Also contributing to this article were PwC Canada partner Stovel Ferguson, PwC Australia partner Jane Livesey, and PwC US director Alexis Hall.