Technology has never been so fundamental, so strategic and so important as it is in the digital age. It is being used to create new business models, products and services, enhance existing offerings and create deeper, more rewarding customer experiences - and as such businesses need to develop the right technology and IT strategy for success. [See also: Rethinking IT strategy - A new approach to IT strategy fit for purpose in 2016]
To compete in the new world of dynamic and disrupted digital markets organisations need to be able to operate at the speed of digital; they need to be able to respond quickly and easily to changing market conditions, customer preferences or competitor activity.
This places new demands on the organisation's technology platform and on its IT function to not only exploit technology to create value, but to do it as quickly as possible. CIOs are responding to this challenge by adopting approaches such as design thinking, Agile and DevOps to change the way applications are designed, developed, tested, launched and supported.
So how does this translate to the organisation's technology strategy? With technology transforming the way organisations work, the speed of business increasing and the way in which IT functions deliver solutions changing, should there also be a change in the way the organisation sets the overall direction for technology? Do we need a new approach to technology strategy that is better suited to the demands of digital markets?
The classic approach to IT strategy
The classic approach to developing a new technology strategy involves a fairly structured, sequential process that produces a long-term view of the organisation's technology requirements together with a plan for meeting these needs. The main steps of the classic approach are:
1. Identify the business capabilities that will be needed over the next 3-5 years to support the organisation's strategy and realise its vision.
2. Assess the gap between the organisation's current maturity against each capability and the level required to realise the vision.
3. Identify how technology can be used to address any gaps between the current and required maturity level of each business capability.
4. Design the target technology architecture that will support the required business capabilities.
5. Assess the gap between the organisation's current and target technology architecture.
6. Develop a prioritised roadmap for building the target technology architecture.
The degree to which the CIO and the IT function are involved in the first two steps of the classic approach will vary by organisation and will largely depend on how the role of IT is perceived across the business. However, given the growing importance of technology it is becoming essential for IT personnel to be involved at every step, as technology can play a role in both shaping and building the required capabilities.
Typically, technology strategies developed using the classic approach have a three- to five-year time horizon in line with organisation's vision and business strategy. However, as digital markets move more quickly than traditional markets, it is becoming increasingly difficult for organisations to create a three- to five-year vision and strategy. In fact, it could be argued that focusing purely on long-term goals and plans could actually limit the organisation's ability to respond to the inevitable changes in its markets that will happen over much shorter timescales.
Furthermore, with the rate of change in technology also increasing, three- to five-year roadmaps - while offering visibility of priorities, investment needs, etc - can also be limiting if they are adhered to rigidly. In addition, long-term technology plans run the risk of diverging from the actual business needs, which inevitably change and evolve over time. This can lead to the growth of shadow IT as other functions try to fill the gap between what the technology strategy is delivering and what the organisation actually needs.
Notwithstanding these potential limitations, however, the classic approach to technology strategy has many strengths, and it has served many organisations very well and will continue to do so if used in the right circumstances.
An agile IT strategy
Speed and agility are becoming key factors in determining whether an organisation can survive in the fast-moving and dynamic markets that are the hallmark of the digital world. Business strategies need to be flexible and organisations need to be able to change direction, reprioritise and create new capabilities more quickly and more often than they have done in the past.
It follows then that, in such organisations, the technology strategy also needs to be flexible and be able to support regular changes in the organisation's strategy and technology needs.
The agile approach to technology strategy is based on many of the same activities as the classic approach but with some key differences that take into account the need for speed and flexibility.
Typical steps include:
1. Identify the business capabilities that will be needed over the period covered by the organisation's current strategy and vision.
2. Develop a high-level technology vision that describes the key features or characteristics that the organisation's technology platform will need in order to support the organisation's strategy.
3. Agree the planning horizon to be covered by the technology strategy (organisations faced with fast changing markets may need to work on a 6-12 month horizon whereas companies in more stable markets may select a 12-24 month planning period).
4. Determine the business capabilities that will take priority during the agreed planning horizon and assess the gaps between the current and required level of each business capability.
5. Identify and prioritise the technology initiatives required to address any gaps between the current and required level of the priority business capabilities.
6. Develop a roadmap showing those initiatives that will be delivered during the agreed planning period.
7. Repeat steps 3-6 towards the end of the current planning horizon. Repeat steps 1-6 whenever the organisation's vision and strategy is updated.
The agile technology strategy requires a collaborative and interactive approach with IT personnel working alongside staff from other areas of the business during every step of the process. Architecture has a key role to play in this approach, as it is assumed that the organisation's current architecture is already documented and maintained as changes are made, and that architectural principles and standards are established and are used to guide decisions made about technology initiatives. It is also recommended that, as a background activity, the IT function develops and maintains a number of potential target architectural models or scenarios that are consistent with the organisation's strategy and the technology vision but which also recognise that business needs and priorities may change.
No IT strategy
In cases where technology is used as the starting point for a new business model or to create completely new products or services, the business strategy will itself be based on technology. There is an argument that, in such instances, there is no need for a separate technology strategy, as the technology initiatives, investments and priorities are an integral part of the business strategy. And the CIO and the IT function will be key players in the definition of that strategy.
As with the agile approach, the no strategy case is also dependent on the IT function developing and maintaining key architectural artefacts to support the business strategy and to shape and guide technology decisions.
The right IT strategy
The three approaches are not mutually exclusive and it could be that a combination of one or more is required to meet the needs of the organisation. For example, the classic approach will be suitable for functions or business units that have more stable needs while others areas of the organisation that are operating in a more dynamic environment may need a more agile strategy.
The key for CIOs is to choose the right approach to technology strategy for their organisation based on the role that technology plays within the business and the level of agility the organisation requires to compete in the markets in which it operates.
And the right approach may change over time as the organisation faces new challenges. So to ensure success, IT leaders need to regularly review both the content of the technology strategy and the way in which it is created.
4 steps in developing a business technology strategy
By Nigel Fenwick, vice president and principal analyst, Forrester Research. First published January 2011.
Without technology companies cannot compete. According to Forrester, CIOs have a vital role to play in defining the technology direction for the organisation in future years to achieve that competitive advantage.
Forrester defines business technology (BT) as a slow but relentless revolution in which traditional technology management, historically delivered only by an IT organisation, is changing into pervasive technology use, managed increasingly outside of IT's direct control and measured in terms of business results.
Many alternative strategies are possible to achieve business goals, but the effectiveness of any single business strategy is increasingly dependent on technology. Pervasive technology use measured by business results requires the development of business strategy that fully integrates technology capabilities and innovations; Forrester calls this BT strategy.
Developing a BT strategy requires CIOs and CEOs to fuse IT strategy and business strategy in the development stage.
By adopting a fused approach to BT strategy development, CIOs can move beyond alignment to an environment where IT is viewed as a business enabler. And by developing IT strategy in conjunction with the business, IT has a greater opportunity to influence the business agenda through technology innovation.
BT Strategy Must Start With Business And End With Business
CIOs must adopt a business-first approach to developing BT strategy. Because BT strategy is developed in conjunction with business strategy, a traditional waterfall approach to strategy development does not work — instead, CIOs and IT strategists must adopt an iterative approach to BT strategy that begins and ends with business.
- Model business differentiators using high-level business capability maps. Start strategy development by focusing on the long-term vision for the business and its goals. Business goals inevitably break down into a number of interim objectives such as annual growth targets. Use a high-level business capability map to identify the core business competencies that differentiate the organisation from competitors — these are the basic business building blocks your leadership team believes will sustain your competitive advantage over the long term.
- Develop BT strategy scenarios. Developing alternative scenarios is at the heart of BT strategic planning. Do this as a joint IT and business project: Bring the expertise of technologists into the conversation to identify how emerging technology can enable a strategy, and bring in business expertise to determine the potential value of the strategy enabled by the technology.
- Develop a technology roadmap. After agreeing on the best high-level strategies, begin the detailed work of building the IT road map with a technology gap analysis. Enterprise architects are important members of the strategy planning team, helping map the existing architecture to the future-state architecture. The gap analysis aims to identify the major architectural changes requires in order to implement the BT strategy.
- Plan the business of IT. The IT business plan is the final stage in the BT strategic planning process, where the CIO determines how IT will function as a services operation — supporting and enabling the business technology strategy.
CIOs Must Establish IT's Credentials As Strategic Thinkers
The development of BT strategy is perhaps the most valuable responsibility of the CIO. Too often, CIOs delegate the development of strategy to team members, taking little or no involvement in developing the strategy themselves.
Highly effective CIOs lead the strategic planning process and take an active part in shaping business strategy. It's not enough to get involved in the business planning once a year; CIOs must engage in business discussions about all aspects of the business year-round in order for them to be seen by their peers as having value to bring to the table when it comes time to plan business strategy.
Also, CIOs should seek out experienced business strategists from other parts of the organisation to join the IT leadership team. When recruiting to the leadership team from outside the enterprise, CIOs should look for business expertise and MBA credentials as well as evidence of strategic thinking.
Finally, flexibility is needed to cope with changing environments and market forces — revisit the strategy on a regular basis to verify it is still appropriate for prevailing business conditions.
Nigel Fenwick is vice president and principal analyst at Forrester Research serving CIOs, focusing on the role of CIO as a business leader influencing business strategy and performance.