Sustained success in any activity, from running an information system (IS) organisation to playing sport, is about ‘doing the right things’ and ‘doing things right’. IS organisations are getting better and better at ‘doing things right’ – using enterprise architecture and process standards such as COBIT.
But the ability to consistently choose the right things to do determines the value that IS can deliver. This is strategy. Sun Tzu, in the 6th century BC, described strategy as: “The great work of the organisation. The way of survival or extinction. Not to be neglected.”
The vast majority of IT strategies focus too heavily on how IT services will be supplied, and are too light on how IT will contribute to business success. This often leads to IT strategies that ‘keep the lights on’, but don’t really make a difference. As an experiment, take your IT strategy, and count what percentage of the content could be lifted out and applied to any company. If the figure you arrive at is less than 80 per cent, you’re doing better than average.
Case studies: CVRD and Seven Eleven
CVRD, a mining company based in Brazil, has grown aggressively through four phases. First, outsourcing commodity activities, next industrialising processes such as project management, third strengthening demand management, and more recently by focusing on enterprise architecture to match the IT roadmap with increasingly global business process needs.
CVRD has sustained compound annual revenue growth (CAGR) of 45 per cent over the last five years, with market capitalisation growing from $9bn to $137bn as of September.
Seven Eleven Japan has aligned its information and supply chain capabilities to allow the products on the shelves of its stores to be rotated several times a day based on a deep understanding of customer needs at different times. This strategy maximises revenue per store, and also makes it hard for second-tier rivals to compete.
Seven Eleven grew every year from 1974 to 2004, from 15 to almost 11,000 stores, and from 0.7 billion yen to 2.4 trillion yen, a 30 year CAGR of over 30 per cent.
Strategy should focus as much as possible on ‘what will make us win as a company’. It sets the direction. A great IT strategy clearly lays out what will make the business win, how IT will contribute to that success, and the implications for the various components of ‘supply-side IT’, such as sourcing, infrastructure, architecture, applications and processes.
Four aspects of winning
There are four useful views of ‘winning’ that help connect the IT strategy to business success: focus, growth, capabilities and agility.
First, it is key to expose where the business will focus to win. Every business has to develop good products and services, keep the supply chain quick and lean, and build strong customer relationships and brand. But the best companies are ‘just good enough’ in most areas, and choose to excel in only one area.
Second is how the enterprise will grow – whether through horizontal or vertical mergers, targeting new customer groups, creating new product lines, or exploiting new channels. Third is the capabilities needed to succeed. Michael Porter’s definition of strategy points to this: “[Strategy is] deliberately choosing a different set of activities to deliver a unique mix of value.”
Fourth and final is agility. Flexibility is needed for any business to adapt to a changing demand, competitive and regulatory context. But flexibility is not free – it normally costs more to develop a more flexible solution, and is more complex to change. The best IT strategies recognise which business processes need to adapt.
Getting it right
Great IT strategies that connect IT direction to ‘how our business will win’ ultimately generate more value for their businesses. The IS organisation also typically plays a more value-adding role, is perceived as a greater contributor to business success, and is given more opportunities to contribute. This leads to a virtuous cycle of value creation and opportunity for the CIO and IS organisation. It seems that Sun Tzu got