Navigating IT/OT Organizational Convergence

Overview

In most industrial manufacturing enterprises, it’s the collective responsibility of the operational technology-focused Engineering Services organization and business-focused Information Technology organization to manage people, work processes, and technology.  However, as in other business segments, over time the manner in which people organize and interact with technology must inevitably change.  In particular, ARC Advisory Group has observed that the convergence and overlap of information technology (IT) and operational technology (OT) as part of an organization’s overall digital transformation has created organizational confusion around ownership and responsibility. 

Technological change such as the convergence of real-time operations technology with transactional information technology is but one element of change to which organizations must adapt.  Clearly, if an organization cannot adapt, its ability to serve its customers will decline.  This typically results in dissatisfaction and potentially declining business performance and could ultimately pose a threat to business sustainability. To prevent an organization’s declining performance, it's critical to assess its maturity or ability to evolve and change.  The motivation for change could be for technology, economic, strategic, geopolitical, or other (yet unknown) reasons in the future.  Whatever the cause, organizations need to refresh their thinking periodically and modify their organizational design to adapt and survive.

This report highlights the approaches, frameworks and methodologies necessary to navigate organizational effectiveness and maturity.  The drivers for performing this often critical exercise include:

• Improving the capability of IT and OT functional organizations to address acceleration of digital transformation and Industrial IoT
• Improving the capacity for internal customers to absorb technology and accelerate process change
• Implementing new technologies and applications (such as analytics and mobility) without compromising cybersecurity and while avoiding duplication of effort

• Taking better advantage of existing skills and extracting more value from the infrastructure and data already being gathered

Comparing IT and OT Functional Organizations

To help analyze organizational effectiveness at the intersection of IT and OT, it is often useful to consider common definitions of IT and OT functional organizations. Information technology or “IT” commonly provides the applications and infrastructure that enables business functions to run their respective business processes.  Operational technology or “OT,” in turn, executes the physical value-add via real-time systems.

Historically, the scope and ownership of IT covers the spectrum of systems that support centralized corporate functions like Finance, HR, Supply Chain, Order Management, Sales, etc. These functions and their processes tend to have commonality across industries. However, OT involves the spectrum of systems that deal with the physical transformation of products and services. These task-specific and often mission-critical systems are highly customized for individual industries. They typically fall under the domain of a centralized (global) engineering services group or de-centralized (plant-level) engineering group. ARC has observed that the convergence and overlap of IT and OT groups driven largely by the digital transformation of industry in recent years has created organizational confusion around ownership and responsibility. This historical view is somewhat clouded by technology change and convergence, centralization versus decentralization, and the introduction of common technologies between each area and thus the need for an adequate methodology, organizational model, and assessment strategy of modern IT and OT functions. Table 1 summarizes the impact digital transformation has had on manufacturing and production operations over the last half century. 

A Framework to Assess Organizational Effectiveness

Many industry leaders have found it particularly useful to base their organizational assessment strategy on common frameworks or standards.  A popular example would be the IT/OT organizational effectiveness model and framework based on research by Amy Kates and Jay Galbraith (Designing Your Organization Using the STAR Model to Solve Critical Design Challenges). Organizations have adapted this model to apply to the unique structure and discipline within the industrial IT and OT manufacturing industrial domains. The model includes analyses of mission, activities, capabilities, competencies, and metrics.

Mission: Identifies an organization's overall purpose and operational goals. For example, the kind of product or service it provides, its primary customers or market, and its geographical region of operation. This may include a short statement of such fundamental matters as the company’s values or philosophies, main competitive advantages, or a desired future state.

Activities: The key processes completed by each department. In this context, ARC uses the term “process” to mean a series of connected activities that move information up, down, and across the organization. This includes work processes such as developing a new product, closing a deal, or filling an order. It also includes management processes, such as planning and forecasting sales, managing the business portfolio, setting prices, developing standards, managing production capacity, and resolving conflicts. Processes that cross organizational boundaries force units to work together.

Capabilities: The unique combination of processes, technologies, and human abilities that differentiate an organization. A strategy implies a set of capabilities at which an organization must excel to achieve its strategic goals. The company’s leadership has the responsibility to design and influence the structure, processes, rewards, and people practices of the organization to build these needed capabilities.  Capabilities generally include some elements of know-how, relationship management, work process discipline, and geographical presence.

Competencies: The skills defined for each functional department or division and how monitoring, coaching, and career development translate into building a competent workforce. This includes organizational interface points and how the internal or external organizations contribute to executing the technology or people strategy.

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Keywords: Digital Transformation, Organizational Design, IT/OT Convergence, Organizational Maturity Model, ARC Advisory Group.