At a time when Information Technology projects must withstand stringent cost benefit analysis, the tenets that have governed IT strategic planning no longer apply. More sophisticated organizations are demanding a new generation of strategic thinking about IT. Such thinking must be built into the best practices arsenal of IT, in order to accommodate an increasing focus on value, greater standardization of services, solutions, and strategies, and the measurement of IT benefits.
Traditionally, IT has been about leveraging core systems and infrastructure to reduce costs. This has involved large investments, comprehensive planning, and the building of core competencies. It required strong governance for success.
Organizations that successfully employed this approach by understanding and mastering the linkage between business and IT priorities became winners in the marketplace. IT investments redefined industries, and enabled breakthrough business performances. As a result, IT soon found a place in the executive suite.
Today, however, that secure guide to IT success is no longer sufficient to guarantee future success. Against the old rules of investing big to achieve sustainable competitive advantage, have emerged three new trends have emerged that are redefining the IT landscape:
- The CEO’s fascination with valueStandardization of solutionsAn abundance of alternative resources
Studies by Andersen Consulting leave no doubt that senior executives are increasingly obsessed with value, and that they apply both financial and non-financial measurements in determining the value of IT investments.
Standard solutions are moving up the value pipeline, with off-the-shelf support increasingly meeting specific user needs. Such solutions include standard hardware, system software and tools, and packaged financial and enterprise applications.
At the same time, the era of IT resource abundance has arrived. Tremendous capacity has been built up by outsource providers, with the U.S. market alone supporting some $60 billion of outsourced work annually, expected to grow to $120 billion by the year 2000. Fundamental to this growth is the acceptance that the new focus on IT best practices is on aligning business priorities with IT capabilities in a manner that leverages virtual resources to deliver value to the organization.
In this new environment, organizational IT best practices should reflect the following seven new rules for IT success:
1. Turn IT loose on top-line growth. Formerly, IT was focused on reducing costs; today it is focused on increasing revenues. To seize new revenues while competitors are reducing costs, companies need to examine how much of their IT investment is focused on exploring new revenue opportunities, what can be learned from IT successes in other industries, and what their competitors are trying.
2. Embrace “givens” and “truths”. IT has moved beyond the pioneer and trailblazing days. Companies can now use many established strategies and reusable solutions. A company needs to identify cross-industry truths and industry-specific givens, reuse solutions where appropriate, and focus its remaining resources on IT’s few truly unique opportunities.
3. Compete on IT arbitrage opportunities. Innovative IT solutions once provided strong competitive barriers and took years to emulate. To achieve success with IT, companies today need to create a string of short-term wins either by getting a fast start on their competition by emulating innovative solutions, or by developing quick-hit solutions that provide short-term big wins. In order to seize short-lived opportunities, companies need to first identify arbitrage opportunities. As part of this process, company leadership might look at the last ten new IT ideas for their industry. They might ask themselves how often the company got there first or second, and how long it took the industry to catch the leader. The competitive advantage in IT comes from a process for repeated short-term wins, not from any single IT investment.
4. Reinvent planning to foster innovation. The traditional five-year IT plan is dead. While long-range IT planning used to be the norm, now a company needs both long-term and short-term plans. Companies need to develop ways to distinguish between strategies for long-term operations and those for quick wins, as well as methods for focusing on the latter when appropriate. As part of their efforts to foster innovation, leadership must develop ways to find and sustain winning strategies for core IT needs. It is essential to ensure that big efforts to emulate industry givens do not drown smaller efforts to innovate. The objective should be to evolve the right portfolio of long-term “sure things” and short-term “bets.”
5. Let supply follow demand. Companies typically prioritize IT needs based on their internal IT capacity. However, external resources are plentiful, and companies need to take advantage of that. In evaluating whether they are fully exploiting the multi-sourced marketplace, companies must question whether they have a supply/demand mismatch, whether they are leaving business value unaddressed, and how much of their IT budget is focused on getting the right supply for critical demand.
6. Make fixed investments variable and variable returns fixed. Far too often, companies make fixed investments in uncertain environments with variable returns. When the future is unclear, IT investments must be liquid, with potential to be stopped or redirected. When the future seems clear, fixed investments may work, but the results must be fixed and predictable as well.
7. Manage relationships, not just people. Companies must focus on the strength of their relationships, networks, partnerships, and alliances. Management needs to examine whether it has the right skills to lead IT in a networked world and whether its business and IT culture is ready to embrace this notion. This involves developing a strategy for finding the right partners and for building trust and a shared vision.
Jim Politoski is a Partner in Andersen Consulting’s Information Technology Strategy Practice, based in San Francisco.
