How Strategic is IT? - Assessing Strategic Value
By Al Kiessel on Feb 29, 2012
Why do we care? Understanding the role IT plays in the business will be important in establishing proper scope, obtaining support for initiatives and delivering the greatest value to the organization.
Recently I was working on strategies for Data Center Transformation. The challenge was a scope focused on the technology domain during the Architecture Vision Phase. How do we create alignment to the broader business architecture, when the drivers and KPIs tend to be tied almost exclusively to IT operating and capital expenses, or an idea of supporting business agility?
I was concerned that the technology architecture strategy that I was defining was too vague and treated IT as if it was applied monolithically - Standardize, Consolidate, Optimize. I looked to Strategic Significance as a way that I could potentially provide a more nuanced technology strategy, that took into consideration that IT has more strategic significance to different parts of the organization.
Taking a broad brush approach – we could imply that IT is strategic to almost every modern business. That being without IT capabilities much of the organizations functions would come to a halt. However, what we really are looking at is most likely a wide-ranging application of tactical capabilities applied across the different business functions. So, in this light, IT is as Strategic as a reliable Electric provider.
I think it is fair to say, that the Business Leaders assume that competent facilities people will keep the lights on, just as IT will keep their processes rolling along. So, how strategic is IT?
What is Strategic Value
Strategic Value is about Competitive, Pricing, Cost, Product or Market Differentiation. Wal-Mart’s strategy touches on three of these – Pricing and Cost are talked about widely. Being the low-cost leader establishes a unique place in the market. The can achieve this through their cost strategy, influence upon suppliers and the generation of Wal-Mart specific low-cost products based upon their buying power. Finally, geographic spread – Wal-Mart is everywhere, is a part of a Market dominance strategy.
Strategic Relevance – When IT "Is the Value Chain"
So, when does IT take on the role of a Strategic Differentiator? Ever here of Google or Amazon? There product is IT. This is a bit of an extreme example, but the point is that the closer IT is to the Product or Service the more strategic it's value is to the organization. In the absence of Information Technology what would their product be? Even within the Amazon example, you can not diminish the capabilities that they have developed around order fulfillment. This includes a lot of manual picking and packing, and they are very efficient in how they have implemented this capability. However, if it was not for their ability to reach customers and match customers to products via the Web, they become a catalog retailer of the 1950’s.
Strategic Relevance – When IT is a "Part of the Value Chain"
When else do we see IT as providing Strategic Value? A Recent story about Target and their customer targeted marketing has been in the news. This is how Target uses Predictive Analytics to selectively market to individual customers based upon their buying habits and trends, in conjunction with some very sophisticated algorithms. This allows Target to maintain mindshare and attract new customers, which they claim provides them with about a three-year attachment run. Here we see this Predicative Analytics playing a significant role in Targets Marketing Strategy. The capability is core to their Marketing approach for customer capture and retention.
So Strategic Value can be identified on broad terms where IT is the Business or as specific functional segments within the business. The importance is how close the IT capability is to the actual fulfillment of the business strategy. Both Amazon and Target see IT as strategic; it is just a matter of scope. I am sure they both have General Ledger and HR Systems, but do those IT capabilities provide strategic differentiation?
Technology Archtiecture Strategy - Data Center Transformation
So, if I am in an EA Engagement establishing the Architecture Vision and my scope is the Technology Domain, what are some of the tools I can apply to assess the strategic significance?
A reasonable place to start might be at the Business Architecture. We need to establish our understanding of the Capabilities and Processes that drive the business. Paul Silverstein has developed some useful models for evaluating business value vs. business scope – how much value the organization receives versus how broadly a capability or process impacts the organization. Funding Models might be a useful piece of the puzzel as well.
By individually, assessing each capability we can define them in terms of tactical impact and strategic impact. Next, we can evaluate each from the perspective of IT support required to deliver the capability. We can start with the organizational alignment of IT and the business function to see to what extent the IT function is integrated within the business capability. Where there is tight alignment, we might want to highlight that capability for further analysis within the Architecture Vision Phase. Funding models may provide us with insight concerning the functions dependencies on IT, and how much control the business function maintains over their IT capabilities.
Often we use Strategy Maps, and they provide value. But what if I want to refine the assessment in order to establish tighter line of sight between functional stategies and IT. I have seen some examples of balanced scrore cards used in assessing IT's relative value, but it tended to be applied very broadly. I am suggesting that by assssing IT significance to the individual business function strategies in scope, we may be able to define a technology architecture strategy that focuses where the different standardization, consolidation, and optimization strategies will be most impactful, and return the greatest value.
Models and Tools for refining Strategic Alignment and Significance?
Are there tools you use for IT Strategic Assessment?
I would be interested in hearing how you define the role of IT within your customer’s organizations, and how they determine strategic significance? “Leveraging the New Infrastructure”, a book from Peter Weill and Marianne Broadbent, has some very interesting models depicting IT Investment to IT Impact.
Do you have models or re-purpose models such as Balanced Score Cards to focus on IT value and strategic significance?
Are there specific metrics that you or your customers find useful in defining strategic signifcance?