By: Lisa Jasper Issue: Vision Section: Business In the “old days” or even as recently as the last decade, large companies had a scale advantage in the area of technology that helped them compete. We call the large, old, slow organizations “Goliath” companies and their young, nimble competitors “David” companies. Goliath companies are often constrained by their own scale with aging, rigid technology infrastructures, whereas the David organizations are enabled by a combination of readily available technologies that help them move faster and compete more effectively than the big firms.
Goliath companies have struggled with strategic technology challenges for years, and the challenges are only increasing as the technologies that enable their David competitors are becoming more threatening. Most Goliath organizations spawned a second head to try to think about and work on this problem. They have “the IT (information technology) head” and “the business head.” These two heads have been so focused on trying to work with each other that they are losing sight of their real competitor.
The “IT head” has focused over the last couple of decades on vague statements like “aligning business and IT,” “serving the internal customer,” “running IT like a business,” or “being a trusted advisor.” These were all well-intentioned messages, but they are distractions from real IT strategy—strategy that can make or break a business. We propose a simpler way to build vision around technology.
Focus Strategies Externally
When organizations think about IT strategy, they often focus first on cost optimization within the department. New leaders—CIOs, CEOs and CFOs—often identify opportunities to save money by making improvements in the IT organization, which ultimately boil down to a mission statement similar to, “We will deliver high quality, cost-effective solutions to meet business needs.” Yes, there are real opportunities to cut costs or improve quality within many IT organizations using process improvements, organizational improvements, and technology consolidations. However, an IT strategy that centers primarily on optimization of IT itself is leaving real opportunity on the table.
The strategy must establish a vision that expands beyond the boundaries of the organization—one focused on what the business can really DO with technology. Take a for-profit company, which by its definition, is in business to make money. Profit is a derivative of revenues and costs. A technology strategy for a for-profit company needs to clearly articulate a vision for how technology will reduce costs and/or increase revenues.
But wait! Didn’t we just say that focusing on cost optimization is not sufficient? Yes, but the IT strategies we spoke of before focused primarily on reducing IT costs, which are often insignificant compared to the costs of other business processes around the company. The further IT can push its strategies beyond the boundaries of its organization, the higher its impact will be. In fact, many companies have found ways to reduce costs through the application of technology, but few have pushed cost reduction as externally as they can. Walmart, on the other hand, has. They have applied technology innovatively to reduce costs of integration with their vendors and suppliers.
Still, the biggest opportunities to apply technology often relate to increasing revenue and this is where many technology strategies fall short. These investments often require a leap of faith and more experimentation, and are often harder to measure. But as we’ve seen with start-ups and big companies alike, technology can be a game changer in attracting and retaining customers and getting the right products to them.
Amazon, for example, has locked me in. Their mobile app is so easy to use; the majority of my purchases are done through my iPhone. To crystalize this concept, let’s take a few strategic goals that could be employed at a large online retail provider like Amazon. First, decrease IT costs by 10 percent through virtualization, while reducing HR headcount by half using self-service features. Another goal, move 90 percent of vendors to automated ordering and payment by 2013, while growing average order value over the next two years by 20 percent through website personalization. All of these goals are fine, and they might be employed in some combination. Note, though, that as they grow more externally focused, they also grow in their impact to profitability.
Externally-focused strategy thinking is intuitive. It may even seem so obvious that you wonder why more organizations haven’t figured it out. While many companies do have objectives like this, they are buried. And as we mentioned in the introduction, the focus on “aligning” the two heads of Goliath has really complicated things within most large companies. As we will discuss in the next section, the simplicity of this kind of externally facing technology strategy is what helps the whole organization really get aligned.
Rally Around the Common Goals
Most large companies think about business strategy and IT strategy as separate endeavors, and many actually have two distinct processes for developing these strategies. IT often waits for the larger organization to hand over its business strategy and then develops a strategy to support it.
Instead, companies need to develop and agree to strategies cohesively. Everyone in the IT organization needs to understand how technology is going to help achieve the overall business’s objectives. And, business leadership must understand how technology will drive business results. This joint focus has several distinct benefits to the organization as a whole. First, it gets teams collaborating on common objectives. No longer are IT people trying to serve the needs of business people. By honing the focus to business outcomes that can be achieved through technology, teams can work together to make good decisions.
Second, this focus helps develop IT managers into business leaders. One of the biggest development needs for most IT managers is for them to understand and focus on the business as a whole. The most successful IT leaders are those who drive business outcomes through technology innovations. CIOs sometimes get it, but they haven’t trained their team to do the same. Spreading this focus through the IT leadership team will help get those leaders in the right conversation, while training them about what is really important to the entire business.
Finally, this focus helps inspire the IT organization as a whole. Technology workers are a unique breed. Most knowledge workers want to feel like their work has a purpose, but IT workers in particular are really motivated by the meaningfulness of their work. The number of IT organizations who have low morale because projects aren’t valued by the business as a whole is disheartening. Communicating a strategy about how technology changes the business as a whole, and tying individual work to it, will increase employee engagement.
Keep Score Based on Business Outcomes
A typical IT scorecard, whether explicit or implicit, tends to have measures that say, deliver 90 percent of projects on-time and on-budget; follow technology standards and use approved vendor lists; and gain a high rating on (internal) customer satisfaction surveys.
Does this sound familiar?
Take the on-time, on-budget delivery measure—one that exists in practically every organization, whether on a scorecard or as part of other reporting. It is good to be on-time and on-budget, but achieving that objective alone does not mean technology will positively impact the company. People could be working on the wrong projects or delivering the wrong outcome, causing inevitable failure. So an elevated focus on this measure is risky.
What if we took a different view? What if we measured our technology strategy on its more direct impact to business objectives? This is where the objections often really get strong. We often hear, “I don’t have the ability to influence those measures!” or “My business leadership doesn’t really care about that!”
It is a mind-shift, for sure. But if the technology strategy and the scorecard that measures its success doesn’t expand its view, there is no way to expand its impact. Take the externally focused strategy above: “Grow average order value by 20 percent over the next two years through website personalization.” We all know objectives need to be SMART (specific, measurable, actionable, realistic, time-bound) and externally focused. When goals are constructed this way, it is something professionals really could rally around. It is a strategy that could help drive decisions.
When executive teams are focused together on making decisions and implementing changes that drive business results, it shifts the whole energy of the company to one that works together versus one that points fingers. That’s when IT and the business are aligned and when the CIO is seen as the trusted advisor.
Internally focused measures around costs, quality, or timeliness may still be necessary to ensure the IT organization is optimized, but they are not sufficient as a technology strategy alone. To summarize, thinking strategically in the technology world requires a joint push to an external perspective. It requires starting with what technology can really do for an organization, knowing that the specifics may change based on the type of organization you have. But, external-based thinking is the way to start.