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For tech to be a real driver of innovation and growth, IT needs to reorganize itself around flexible and independent platforms.
“The question is not how fast tech companies will become car companies, but how fast we will become a tech company.” This is how the board member of a global car company recently articulated the central issue facing most incumbents today: how to operate and innovate like a tech company.
The tech giants of today have been some of the most innovative companies in the past generation. A handful of industry leaders, such as Ping An and BMW, are fast joining their ranks by reinventing their core business around data and digital. What distinguishes these tech companies is that their technology allows them to move faster, more flexibly, and at greater scale than their competitors. IT is not a cumbersome estate “that gets in the way,” but an enabler and driver of continuous innovation and adaptation.
The reason this is a competitive advantage for tech companies is because their IT is organized around a set of modular “platforms,” run by accountable platform (or product) teams. Each platform consists of a logical cluster of activities and associated technology that delivers on a specific business goal and can therefore be run as a business, or “as a service,” as technologists say. These platforms are each managed individually, can be swapped in and out, and, when “assembled,” form the backbone of a company’s technology capability. Just as important is that the business and tech sides of the company work closely together and have the decision-making authority to move quickly.
This modular, platform-based IT setup of tech companies is what enables them to accelerate and innovate. They can experiment, fail, learn, and scale quickly: they can get products to market 100 times faster than their more lumbering peers (think weeks instead of months). With this kind of speed and flexibility, IT can and should become a focus for innovation and growth at the executive committee and board level. With new technologies and ways of working coming online, tech should be a competitive advantage, not a burden as it is in far too many companies today
What a platform-based company looks like in practice
One of the global leading banks created about 30 platforms. One such platform was payments, which consisted of more than 60 applications that previously had been managed independently from each other. The top team decided to bring the 300-plus IT people working on development and maintenance of payments together with the corresponding people on the business side. Under joint business/IT leadership, this entity was empowered to move quickly on priority business initiatives, to modernize the IT structure, and to allocate the resources to make that happen.
The team shifted its working model and started running the payments platform as an internal business that served all the different parts of the bank (think payments as a service). This approach made it clear where to focus specific tech interventions: removal of nonstrategic IT applications; modernization and accelerated shift of the target applications into the cloud; connectivity to enable swapping solutions in or out easily; and, most important, a major step-up in feature/solution development for the internal business clients. This platform-based way of running the business was then progressively rolled out across the group. Prioritization is set by the top team (because empowerment does not mean anarchy), and all IT interventions are run the same way, to ensure consistency and replicability.
This is in stark contrast to the way large organizations normally act. Just establishing a business unit to manage a new offering or running a typical large IT project generally becomes a multiyear endeavor.
Think of a platform not just as technology but as a service, or what Silicon Valley calls a “product.”
Platforms focus on business solutions to serve clients (internal or external) and to supply other platforms. They operate as independent entities that bring together business, technology, governance, processes, and people management and are empowered to move quickly. They are run by a platform owner, who takes end-to-end responsibility for providing the solution and operating it like a service. Platform teams are cross-functional, with business, IT, and anything else that is needed, such as analytics, risk management, and so on. (Some companies call this a “tribe.”) They work in an agile manner, delivering the solution itself, enabling continuous business-led innovation, and developing and running all necessary IT.
A platform-based company will have 20 to 40 platforms, each big enough to provide an important and discrete service but small enough to be manageable. To simplify platform management, it helps to group them into three broad areas: customer journeys, business capabilities, and core IT capabilities (See Exhibit 1).
For example, in personal banking, the customer-journey platforms cover the customer experiences of searching, opening an account, getting a mortgage, and so on. The business-capability platforms deliver the banking solutions, such as payments and credit analytics, and the support capabilities, such as employee-pension management, visual dashboarding, and management information systems (MIS). Finally, the core IT platforms provide the shared technology on which the journeys and business capabilities run, such as the cloud platform, the data analytics environment, and the set of IT connectivity solutions (Exhibit 2).
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Oliver Bossert is a senior expert in McKinsey’s Frankfurt office, and Driek Desmet is a senior partner in the London office.