Successful Business Transformation within a Russian Information Technology Company

This article describes a successful business transformation of an information technology enterprise. The topic may be of particular interest, especially because this transformation was accomplished by a Russian company during the republic’s fast growing economic recovery. For addition information, refer to the closely related topics of Enterprises and Businesses, http://www.sebokwiki.org/wiki/Enabling_Systems_Engineering#Enterprises_and_Businesses, Enabling Businesses and Enterprises, http://www.sebokwiki.org/wiki/Enabling_Businesses_and_Enterprises, and Enterprise Systems Engineering, http://www.sebokwiki.org/wiki/Enterprise_Systems_Engineering.

Business Transformation

Successful Business Transformation Within a Russian Information Technology Company

Mikhail Belov IBS - Moscow, Russia mbelov@ibs.ru

I. Background

In 2001 the top management of the IBS company based in Moscow initiated a fundamental transformation to change the company’s strategy and business model. The company was one of the biggest Russian information technology (IT) systems integrators at that time, with about 900 employees. Annual revenues of about $80M were mainly generated by IT infrastructure projects (complex computing systems, multi-service networks, etc.) and hardware and software distribution. The transformation of the company to form new capabilities in IT services and the associated consulting area is the main topic in the case study. During the transformation period (from 2001 to the present) IBS was represented as a set of autonomous business units (BUs), called constituent systems, which are virtual, independent businesses with the following characteristics. • Profit and loss reporting was required for each BU according to management accounting procedures • BU management established and independently conducted human resources, technology, and product policy • A centralized back-office was organized to provide supporting functions for each BU. Thus, BUs do not have back-offices; they rely on and “pay” a corporate governing center (CGC) for these services. A thorough enterprise system (ES) transformation was executed as a set of activities: mission analysis and capabilities decomposition, business architecting, planning of the project program, and implementation of the new business model. Before and after transformation IBS was an exemplar directed system of systems (SoS): the constituent BUs are autonomous but their operations are supervised by CGC. At the same time IBS also has significant features of an acknowledged SoS: the constituent BUs retain their independent development and sustainment approaches, and changes in the company are based on collaboration between the CGC and each constituent; even operations of BUs are not controlled but only supervised/governed by the CGC through “soft” recommendations and coordination. IBS was a quite mature ES before the transformation, and it was thoroughly upgraded to form new capabilities of the whole system as well as of the constituents.

II. Purpose

In 2000-2001 IBS management forecasted considerable growth of the Russian IT services and consulting market based on the fast growing Russian economy, which was rapidly recovering from the national financial crisis of 1998. The largest corporations started overseas expansion and borrowed from international markets to finance this growth. IBS predicted corresponding growth in the complexity of business processes and their associated software and hardware systems all of which should require more consulting and IT services. Based on this forecast, management established a strategy goal to double the share of IT services and consulting from 25% to 50% over one year; further growth in this business was planned as a long term trend. The consulting and IT services business is very complex technologically and organizationally and dramatically differs from IBS’s former infrastructure focus. Thus, a fundamental transformation was required, and it was executed during 2002. Initially detected problems appeared as expenditures exceeding resources, slow delivery of the projects and reworking. Later, as it was expected, new problems appeared, for example, disinterest of BUs’ managers in developing new technologies or raising qualified employees’ motivation. All those problems were solved during transformation and during further development. The first step of the transformation included strategic analysis and mission-to-capabilities decomposition. Five major capability groups to be focused on were defined. The groups and exemplar capabilities for each group are represented at Figure 1.

Figure 1. Mission and capabilities desired.

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III. Challenges

All main challenges were caused by knowledge/information deficit described by three factors listed as a, b, and c below. a. The lack of experience in enterprise transformation (and capability based approaches, even the lack of any textbooks or guides in those areas) was the major challenge which IBS management faced. The task to be solved did not devolve to organizational changes (which was a well-developed and described area), but was appropriately allocated to ES/SoS engineering. In spite of the lack of experience it was decided to prepare and execute the transformation based on the company’s employees without involving external consultants. The following arguments supported the decision. • The task to be solved was not typical, so there weren’t widely used and well tested algorithms or methods, and there weren’t a lot of consultants experienced in exactly what was needed. So only consultants with general experience (strategy consulting, organizational management) might be hired. • The Russian consulting industry in 2001-2002 was not well developed, so only foreign professionals were available. But foreign consultants would have needed to study Russian specifics; such study would have unduly lengthened the duration and increased the cost of the transformation. • A joint transformation team would have to be formed, and IBS employees would have to be involved: management would have to be interviewed and be involved in decision making. In any case all employees would have to participate in change implementations. • External consultants are not stakeholders; so their level of interest in helping to achieve success might not be very high, and their output also might not be outstanding. • Unwillingness to open professional secrets and other intellectual property issues to direct competitors were other factors that prevented hiring of external consultants. Thus, the final decision was to execute the transformation without involvement of external consulting resources. A special BoU responsible for business processes development was established and an “agile-stylized” program management approach was applied to handle challenges and to pursue opportunities as well as to mitigate risks. b. A very high complexity IBS as ES/SoS. Management recognized that the company and its environment was very complex, with a lot different agents, many constituents, and countless relationships; and that ES/SoS might become even more complex after transformation. This complexification happened as the company became an “extended enterprise”, the governing hierarchies weakened, and the demand for more sophisticated relationships increased. c. The risk of mistaken forecast of IT market development. The expected growth of the consulting and services market might have not happened. In this case the transformation would have been senseless. This challenge generated additional emotional stress for management.

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References

Works Cited

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Primary References

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Additional References

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