Articles Reviewed:
“Getting IT Right”; “Six Decisions Your IT People Shouldn’t Make”; “Putting Enterprise into the Enterprise System”; “IT Doesn’t Matter”; “Strategy and the Internet”; “The Real New Economy” from Harvard Business Review: On Point Collection. (Full reference citations are presented at the end.)
Overview:
With the leveling effects of globalization, the homogenization of business practices through widespread usage of enterprise systems, and the infiltration of IT into every facet of business, how does a business set itself apart from its competition, gain and retain strategic positioning?
Over the last 30 years, particularly the last 10 years, businesses have seen the impact of IT increase exponentially. Though the conventional wisdom would dictate that IT would improve and streamline businesses, nothing could be farther from the truth. Despite throwing billions of dollars annually worldwide, many businesses still struggle with the fundamental question of, “what strategic role does IT play in my business?”. Though the answer may seem obvious at first, the far reaching (and often detrimental) ramifications continue to plague many businesses, often leaving them at a severe disadvantage competitively, organizationally and financially.
Although the six articles (mentioned above) go into great detail about IT’s role in business, the focal and unifying point is strategic IT management.
Long Term Strategy:
In order for a business to gain and retain strategic positioning, IT initiatives must complement business initiatives. Obviously, IT initiatives cannot run counter to business processes and practices and/or initiatives; but, often, IT initiatives either run parallel to or dictate business processes and practices and/or initiatives. It is imperative to have a long term strategy that will not only align IT initiatives with business processes and practices and/or initiatives but will also have strong (competent) leadership to implement, maintain and continually seek optimal strategic positioning in spite of current market conditions (which are often quite distorted).
Before even considering any IT initiatives, it is imperative to analyze the business processes and practices, identify and prioritize issues to be addressed and incorporate this into overall business strategy. “Computer systems alone don’t change organizational behavior.” (“Putting Enterprise into the Enterprise System”, p. 26) IT initiatives are not (and should not be) the “silver bullet” to fix fragmented business processes due to poor management and organization, incompatible legacy systems and/or lack of any IT systems (i.e., manual processes) but a valuable tool to fix fragmented business processes in tandem with addressing the abovementioned issues, as appropriate. (“Putting Enterprise into the Enterprise System”, p. 26) When considering an enterprise system or substantial IT initiatives, it is important to understand that although the integration and streamlining of processes is certainly appealing, it can be counterproductive to gaining and maintaining strategic positioning if not correctly implemented and administered.
There is a delicate balance which will provide both the power of IT and regional business unit autonomy. (“Getting IT Right”, p. 6) Within this delicate balance is figuring out which business processes/units will benefit from IT initiatives, at what level these IT initiatives need to be at (i.e., business unit, regional, nationwide, international), but, most important of all, choosing a manageable set of IT initiatives and priorities. (“Six IT Decisions Your IT People Shouldn’t Make”, p. 17) Even when a business has the initial competitive advantage from being one of the first to implement IT initiatives, holding onto, capitalizing on, and building on these IT initiatives often proves to be a very expensive proposition, a pipe dream. (“IT Doesn’t Matter”, p. 7)
Another risk of IT initiatives is homogenization of processes and practices.
“Such convergences around a single software package should raise a sobering question in the minds of chief executives:
How similar can our information flows and our processes be to those of our competitors before we begin to undermine our own sources of differentiation in the markets?”
(“Putting
Enterprise into the
Enterprise System”, p. 29)
Carr points out a faulty assumption many business executives run under:
“that as IT’s potency and ubiquity have increased, so too has its strategic value.”
(“IT Doesn’t Matter”, p. 4); however, what makes it strategic is not ubiquity but scarcity.
Additionally,
Carr contends that IT infrastructure has become a commodity,
infrastructural technologies vs. proprietary technologies. (“IT Doesn’t Matter”, p. 4)
What separates the successes from the failures is not the IT initiative itself but the IT initiative being complementary to the business processes, practices and long term strategy, as well as, ingenuity and innovation to find new ways to gain and retain strategic position on an ongoing basis.
The IT Money Pit:
According to the articles, the money thrown at IT initiatives ranges from $500 billion to $2 trillion worldwide. Regardless of the actual amount, IT is no longer a luxury of the most elite companies but a necessity for any business to be competitive, particularly within the digital economy in the face of globalization.
How much should be spent on IT? “First they determine the strategic role that IT will play in the organization, and only then do they establish a companywide funding level that will enable technology to fulfill that objective…. Both (UPS and FedEx) are successful because they have matched their spending levels to those strategies—not to industry benchmarks.” (“Six IT Decisions Your IT People Shouldn’t Make”, p. 15) This decision should be made by managers or a core group of managers, who have an intimate understanding of the entire business, its processes, practices, goals, objectives and strategies, not by managers who are isolated by function and/or choice.
Another consideration in how much money should be allocated to IT is whether to lead or follow. Obviously, whoever leads may have the (initial) competitive edge; however, at the same time, they typically shoulder a larger expense than those who follow. There is a tradeoff and a risk calculation (i.e., betting) as to whether strategic advantage can be gained and/or maintained and whether the investment (expense) can be both justified and recouped within a reasonable amount of time (i.e., fiscal accountability). (“The Real New Economy”, p. 45) Also consider that today’s pricey technology is tomorrow’s basement bargain; not to mention, that “IT is outstripping the needs of the users, the price of essential IT functionality is affordable to all, supply has not only caught up to demand but outran it, IT vendors are positioning to become commodity suppliers” and “the investment bubble has bust….” (“IT Doesn’t Matter”, p. 8) Many businesses are falling prey to savvy software sales people. Many businesses are talked into software and peripheral applications that are not only unnecessary, but also may prove to be counterproductive, eclipsing the original IT initiatives in purpose and scope. Moreover, losing sight of the original goals and objectives may be detrimental, and ultimately destructive, to long-term strategies. (“IT Doesn’t Matter”, p. 9) Lastly, businesses will often overspend on hardware with far more computing power than is necessary for the applications used.
Often senior managers will succumb to throwing money at problems by implementing IT initiatives that do not address the problems directly (at the root). Yet, at the same time, ““The great paradox of the Internet is that its very benefits—making information widely available; reducing the difficulty of purchasing, marketing and distribution; allowing buyers and sellers to find and transact business more easily—make it more difficult for companies to capture those benefits as profits” (“Strategy and the Internet”, pp. 19-20) Additionally, senior managers need to take responsibility “for realizing business benefits of an IT initiative.” (Six IT Decisions Your IT People Shouldn’t Make”, p. 20) Many look for a return on their investment in a manner that is not compatible with their original goals and strategies.
For example, instead of looking for a “value chain” to build on operational effectiveness, senior managers focus almost exclusively on operational effectiveness, which in itself is a competitive advantage when properly leveraged, though it is certainly an extremely difficult proposition, particularly in the digital marketplace. (“Strategy and the Internet”, p. 25) Once the links in the “value chain” are weakened, broken, delivering a unique “value proposition” on a consistent basis becomes an elusive endeavour at best or a death knell at worst.
Without a clear long term strategy, businesses will continue to fritter away millions of dollars on IT initiatives without ever realizing the true potential and payoffs of IT initiatives, much less secure a strong strategic position.
IT Management:
Keep in mind, “Making IT work demands the same things that other parts of business do—inspired leadership, superb execution, motivated people, and the thoughtful attention and high expectations of senior management.” (“Getting IT Right”, p. 5), as well as, accountability. (“Getting IT Right”, p. 9) “…The long-term plan must be extremely well articulated” (“Getting IT Right”, p. 10) Having the right goal is absolutely critical to the success of an IT initiative.
Another consideration is organizational and management structure.
Frequently, rigid silo organization fosters isolationism and barriers to effective and efficient communications; whereas layered organization lends itself by structural virtue to sharing, free flowing, effective and efficient communications.
It is prudent to closely scrutinize current organizational and management structure and identify fragmentation and break downs in communications before even starting requirements gathering for IT initiatives.
Keep in mind that “An enterprise system, by its very nature, imposes its own logic on a company’s strategy, organization and culture.”
(Putting the Enterprise into the Enterprise System”, p 26)
and, “As a result, most companies installing enterprise systems will need to adapt or even completely rework their processes to fit the requirements of the system.”
(Putting the
Enterprise into the
Enterprise System”, p 27)
It is imperative to not only have clearly defined goals for the role an enterprise system will play but also to understand what an enterprise system can and cannot do for businesses.
Additionally, it is important to understand that enterprise systems are built in modules and not every module is critical much less necessary to the successful implementation of IT initiatives.
Also to consider is the following: “The IT department should be held responsible for delivering systems that are on time and on budget and that have the potential to be both useful and used. But only the business executives can be held responsible for making the organizational changes needed to generate business value from a new system.” (“Six Decisions Your IT People Shouldn’t Make”, p 21)
“Management teams in every company, whether centralized or decentralized, must constantly assess the balance between companywide and business-unit IT capabilities.” (“Six Decisions Your IT People Shouldn’t Make”, p 18)
In many businesses, the brain (IT) is severed from the body (physical operations) leading to inefficiencies and (internal and external) customer frustrations, among other things. (Delta example, “Getting IT Right”, p. 6)
Given the distorted digital marketplace, benchmarking against outside businesses is generally not very accurate (or appropriate) to determine what IT initiatives will benefit the business and what are appropriate spending levels, but, businesses benchmarking against themselves is an accurate measure and can be utilized to make corrections along the way as well as plan for future IT initiatives (i.e. pre and post implementation). (Frito Lay example, “Getting IT Right”, p. 6) Managing IT is not any different from managing any other business unit. (Delta example, “Getting IT Right”, p. 9) Nor is outsourcing IT always the best choice (“Six Decisions Your IT People Shouldn’t Make”, p 17)
Interesting to note is Carr’s statement: “When a resource becomes essential to competition but inconsequential to strategy, the risks it creates become more important than the advantages it provides.” (IT Doesn’t Matter”, p. 9) Assessing and mitigating risk are key in justifying the necessity and desire for IT initiatives. Understanding not only the power of an IT initiative but also understanding the limitations and risks (e.g., power failures, security and privacy issues, etc…) and incorporating this not only into IT initiatives but into overall corporate strategies will realize the greatest potentials, reap the greatest rewards, and free up resources to pursue more lucrative opportunities..
Underlying all the risks is the even more worrisome negative and detrimental consequences of the digital age (i.e., from the vantage point of the businesses consequences that range from destructive pricing to homogeneous operations amongst competitors). Even the positive advantage of having direct contact with the customers, becomes a double edge sword because the information, both business and customer, is out there for anyone to use to their advantage, even the customers! The customer is no longer brand loyal but buck loyal as the switching costs become less and less , to the point of being negligible (e.g., PayPal). The rules for business have not changed but the market conditions and consumer behaviour, expectations, tolerances and thresholds have.
Lastly, yet another consideration are the tradeoffs.
What are businesses willing to give up, forego, in the name of strategic positioning?
Innovation?
Scale?
Unique products/services?
Distinctiveness?
Physical locations and sales people?
Business unit autonomy? The list goes on and on but these are very real considerations that directly impact decision making and, ultimately, results.
Conclusion:
In review, the six principles of strategic positioning are as follows: Right Goal (long-term return on investment); Value Proposition; Value Chain; Tradeoffs; The “Fit”; Continuity of Direction. (“Strategy and the Internet”, p. 26) These six principles are (and should be) within the control of senior management. However, although the following forces are outside senior management’s direct and immediate control, they are, nonetheless, factors they can influence and/or mitigate through prudent and timely decision making: Bargaining power of suppliers; Bargaining power of buyers (both power of channels and end users); Threat of substitute products and/or services; Barriers to entry; Rivalry among existing competitors. (“Strategy and the Internet”, p. 20)
In the digital age, it is no longer enough to have a “working” knowledge of IT; but, now an intimate knowledge of IT (as it pertains to the business) is critical to gain and maintain strategic positioning. This does not necessarily need to lie within an individual but within a competent and accountable core group of senior managers . These senior managers should be able to communicate effectively and efficiently amongst themselves and, at the same time, provide a unified face (front) to make decisions, clearly communicate expectations, and provide guidance and feedback as well as be performance oriented.
Gone are (should be) the days of unique knowledge (by a person or exclusive group of people). It is imperative that senior managers (and/or senior management groups) ensure that unique knowledge does not become a business liability from an operational standpoint and vulnerability from a strategic standpoint. Now are the days of being exposed, both strengths and weaknesses for all to see.
The advances of IT have not eliminated or minimized the need for, the importance of, the impact of strategic positioning but brought it to the forefront.
As the threshold for entry into the digital marketplace has been significantly lowered; so the threshold for survival in the digital market place has been significantly raised.
Whether or not a business survives and thrives will not be a function of its IT initiatives but of a highly functioning management structure utilizing its IT and business initiatives in tandem to derive optimal potential and profitability.
There is truth to the saying “data in, data out”. The system is only as good as businesses make it, use it. When managers abdicate control to software (e.g., ERP, CRM, SCM, etc….), they are, in essence giving up the fight for strategic positioning, giving up long-term strategy for short-term convenience.
As a parting thought (and somewhat disjointed at that) perhaps, it may be as simple as how senior managers view IT within the scope of business in the context ofthe digital marketplace with due consideration to globalization.
Selected References:
Carr, Nicholas G. “IT Doesn’t Matter” Harvard Business Review Product 3566, (May 1, 2003).
Davenport, Thomas, H. “Putting Enterprise into the Enterprise System” Harvard Business Review Product 3574, (May 1, 2003).
Farrell, Diana “The Real New Economy” Harvard Business Review Product 5127, (October 1, 2003).
Feld, Charles S. and Stoddard, Donna B. “Getting IT Right” Harvard Business Review Product 5905, (February 1, 2004).
Porter, Michael E. “Strategy and the Internet” Harvard Business Review Product R0103D, (March 1, 2001).
Ross, Jeanne W. and Weill, Peter “Six IT Decisions Your IT People Shouldn’t Make” Harvard Business Review Product 2160, (November 1, 2002).
Selected Reading:
The World Is Flat: A Brief History of the Twenty-First Century provides many wonderful examples of how businesses adapted to globalization and the digital economy. This book reads much like his columns back to back, so it’s best read in “chunks” because it is so much information to digest. At the same, it is easy to browse through and find the information (examples) you want because of the way it is written. This book is definitely a worthy resource for any business executive.
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York, New York: Farrar, Straus, Giroux, 2005. (ISBN 0-374-29288-4)
