Given this, what does a good IT strategy look like and what are the main factors that should be considered? Conrad Thompson asks how these choices provide the means by which IT can be used to deliver strategic advantage for the business.
Many IT strategies focus on commodity services - which are important to get under control, but do not create clear strategic focus or advantage.
Many CEOs are still sceptical as to the value IT can bring and see IT as a cost that needs to be minimised - particularly where many of the IT services, such as email, financial accounts etc. are seen as commodity services offering little perceived differentiated value. In many cases, however, we have seen IT strategies focusing almost exclusively on getting these costs under tight control and ensuring the delivery of an efficient, reliable service at low cost - typically using one or more of the following simple, but powerful, mechanisms:
- Standardising and leveraging economies of scale: Minimise the cost of basic commodity services, such as desktop, email, networks and data centres, by driving standards and economies of scale across the organisation often via outsourcing or off-shoring.
- Using commercial off the shelf (COTS) packages: Many common business processes, from sales to distribution to finance, have well established packages that meet the majority of business needs at an overall total cost of ownership that is better than most in-house alternatives. Organisations are increasingly using such packages to drive standard processes where differentiation does not add value.
- Adopting industry standards and common ways of working: Firms are increasingly seeing the value of using frameworks, such as the IT Infrastructure Library (ITIL®), Skills Framework for the Information Age (SFIA), Prince 2, Unified Modelling Language (UML), Security Standard (ISO 27001), and so forth. Adoption of these standards drives quality and consistency and helps in staff recruitment and development - and can lead to a reduction in ongoing costs.
These mechanisms are often implemented without a clear overriding strategic agenda. In doing so, the criteria for deploying and managing IT can become confused, affecting the consistency of decision-making and the subsequent clarity in which strategic value is articulated to the board. This lack of directional focus is often a contributing factor as to why IT often fails to be represented at the highest level within the organisation. IDG Research found that only 7 per cent of companies report being very effective in aligning their business and IT goals.
One recent example was an insurance company that was struggling to deliver innovative products and provide excellent customer service relative to its competitors. Looking more deeply, it became clear that these strategic goals were being compromised by ongoing pressure to maximise cost savings and provide the fastest returns from every project. These ongoing conflicts made it almost impossible to justify the necessary pieces of infrastructure required for product and customer service development, and as these conflicts weren't satisfactorily resolved it became hard for the IT function to demonstrate it was being successful.
The CIO should be expected, and indeed relied on, to drive benefits using a range of initiatives as part of 'business as usual'. However, we see that all too often IT strategies tend to focus exclusively on good technical housekeeping and fail to demonstrate a really clear strategic focus on where long-term value resides for the organisation.
Clear priorities for maximum strategic value
A CIO must be very clear what the overriding priorities are to get maximum strategic value from IT. An organisation will obtain far more value from its IT investment if it can find a good balance between the overriding priorities against which all decision criteria are measured.
We believe that there are three broad levers of strategic value for IT, based on Michael Porter's generic model, which is still the bedrock of competitive theory1. Much as Porter argued that a company 'stuck in the middle' will be weakened strategically and may not even survive in the long-run, so we believe that the IT function must be equally clear what its value drivers are - over and above 'keeping the lights on' - and use this to maximise strategic value. Figure 1 summarises these three levers and the natural tensions between them.
In reviewing the IT strategies of many organisations and conducting broader market research, we have found that these three levers of strategic value have been a useful way for organisations to articulate visible competitive advantage from their IT and debate the competing tensions between them.
Enhance the customer experience
An organisation that focuses on the customer experience and delivers consistently superior service can gain sustainable competitive advantage as it can charge a premium price and build up strong customer brand loyalty. The IT function has a key role to play here by developing systems that provide a single view of the customer across the organisation, making this information consistently available at the point it is required. PA recently worked with a major global business information supplier to transform the rollout of products and services to its customers globally by providing an integrated customer service platform for all of its products. The programme went on to deliver significant improvements in customer experience.
Reduce the cost of doing business
In many cases this requires achieving economies of scale that are ahead of the competition, or developing streamlined processes across all business units that can take costs out of the business. The critical aspect here is for the business to understand the importance of common and standard processes in its operating model and - it is only when these principles are agreed, often directly by the CEO - that global systems can be developed that are aligned to common and standardised processes. A good example is when a healthcare giant drove a global outsourced model, using four major contracts, over seven years, after significant standardisation.
Innovate with new products or services
This requires organisations to be highly flexible to changing circumstances, being able to quickly offer new product or service lines and new distribution channels. Systems need to be highly configurable and adaptable to new business requirements, so IT is an accelerator for innovation rather than a drag on business change.
A good example of a successful strategy was a TV format innovator who had defined a very clear requirement for technology to help its creative people quickly share formats from TV channels around the world. This provided a platform for them to experiment with format variations and enabled them to quickly exploit new ideas before the competition. Innovation was a very clear priority over and above cost or customer experience and, as a result, the technology strategy and implementation was seen as very successful. We also saw several examples of leading organisations choosing to use their strategic suppliers to provide input into the innovation process.
We believe that unless it is very clear which of these strategies is being pursued as a priority, the IT function will find it difficult to respond in the best long term interest of the business. It is also evident, from the examples, that there are local priorities at a business unit level that often pull in opposite directions to the overriding strategic agenda. Information and technology are normally shared resources across the organisation and so it is important to resolve any conflicting priorities in defining an IT strategy. This requires an open and considered dialogue between the CIO, CEO and heads of business, to agree on the overriding strategic priority for IT. This can then be applied at the business unit level and flexed to accommodate specific needs, albeit within the overall agreed priority for IT.
Three steps to a successful IT strategy
There is no one-size fits all approach to IT strategy but what our findings show is that there are some common themes shaped by clarity around business strategy. This allows the formulation of IT strategy to be a more informed exercise by following three key steps:
- Make commodity services cost-effective at scale by providing the required level of reliable service at the minimum cost through adopting common standards, COTS packages and using economies of scale.
- Identify the overriding business strategy that drives competitive advantage and engage with the board to resolve the conflicting priorities between business units to ensure that the overall strategic value from IT is clear.
- Align your IT strategy to the three levers of strategic value to improve your IT architecture and drive key technical decisions.
Focusing the IT strategy onto clear priorities around the three levers of strategic value will not only maximise returns from the existing investment in IT, but also make it clearer to the rest of the business how IT is engaging to support overall business strategy. This will make IT more successful in its endeavours and, as it is more strategically aligned, will make the entire organisation better placed for future success.
About the author
Conrad Thompson is a member of PA's Management Group, IT Strategy. He leads PA's enterprise architecture service and has expertise in IT strategy, programme management, and business and technical architectures.
- Porter M (2004) Competitive Strategy: Techniques for analysing industries and competitors. Free Press.