How To Improve Your IT Operating Model

As Digi-Key Electronics has grown from $1 billion to nearly $5 billion in revenues, CIO Ramesh Babu is making sure its operating model is up to the job.
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What worked at one point doesn’t necessarily work as a company grows. That’s certainly the case for an enterprise’s IT operating model, says Ramesh Babu, CIO of Digi-Key Electronics, a Thief River Falls, Minnesota-based global distributor of electronic components and automation products for more than 2,200 manufacturers worldwide.

Babu, who leads the company’s global vision, strategy and planning of digital technology, spoke to StrategicCIO360 about the key components of a good operating model, how to make sure it is supporting your digital business growth and how IT microservices are like Lego blocks.

What does an IT operating model entail, and is there a recommended IT operating model to follow?

An IT operating model needs to be grounded in your business model and business strategy—it can’t operate in a vacuum. A solid IT operating model must address how you engage, enable and deliver IT strategy to your business. One example of how to think about IT operating models is how Gartner breaks it down, with nine components included in the model, including financials, decision rights, performance, talent, sourcing and alliances, organizational structure, places, tools and ways of working. 

How do you go about redefining an IT operating model as an organization faces a period of immense growth? 

I’m in the process of reviewing and redefining Digi-Key’s own IT operating model right now. Not long ago, Digi-Key was a $1 billion company, and now we’re almost a $5 billion company with massive plans for growth in the next handful of years. And as they say, “what got us there will not get us there.” We were organized with a particular operating model that worked well for us, but with our growth plans in mind, we’re reviewing each component in the model and determining where we need to enhance, where we’re set and where we need to start anew. 

Every company should regularly review their processes in order to position their company for the future. In reviewing the components of our own operating model, we determined that we have made good investments in areas such as tools, but there are elements like talent and performance measurement that we recognized needed some improvement.

We’re engaging with outside parties to find new ways of thinking for some of the elements where we don’t have the core competency, and there are a lot of ideas our internal teams are generating, too. We’re also working cross-functionally with other teams such as our HR team to help inventory and assess things like skills and talent. 

How does an IT operating model support a digital marketplace, and how do you know if your organization could be a good fit for a digital marketplace model?

One measure we use to determine if our IT operating model is helping our digital business grow is the ability to scale. We recognized that the model we were using for our digital initiatives needed to move at a different speed compared to some of our legacy initiatives. We had to quickly adopt a two-speed model where digital businesses move faster. Not everything needs to be lightning fast, but digital business moves at supersonic speeds. Our IT operating model helped expose this speed gap, and by enhancing certain elements of it, we are fixing that gap.  

What are some principles you need to keep in mind as you build a digital marketplace?

When building a digital marketplace, you need to keep in mind flexibility and scale. Thinking about flexibility, an analogy would be Lego pieces. In IT, the Lego bricks are microservices—you can build anything with different Lego bricks or microservices, but the bricks themselves have to be there. For example, the Digi-Key Marketplace is selling X and Y today, but if Z needs to be sold, then we can build on to the existing platform to add that new functionality. 

In thinking about scale, you can think of the common example of Uber expanding from ride sharing to food delivery with Uber Eats. With our marketplace, we are connecting suppliers with customers, without having to stock all the inventory in our Thief River Falls warehouse. As we do that, we are constantly thinking about what other value-added services we can provide to make a partnership with us more worthwhile. 

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