The Four Generations of Corporate Strategy for IT

05/10/2011 | a cura di Redazione Data Manager Online

If you know your strategy’s end game, you’ll lead it differently in the Boardroom

By Chris Potts

The main reason for having a CIO and IT department is to lead the corporation in its strategy for Information Technologies (IT). At a detailed level, those strategies are constantly changing but, overall, there are four generations of strategy. Each generation reflects a major shift in the worldwide IT market, with the latest being the consumerization of IT. CIOs and their teams need to know the end game - the final generation of strategy - to be the most valued and influential leaders in the Boardroom and around the business. This article summarizes the four generations of corporate strategy for IT, and the ultimate destiny of IT leadership.

We know where corporate strategies for IT began, and how they will end. The end game looks nothing like the beginning, but we shouldn’t be surprised. This is a long-term strategic journey, with much evolution along the way. From time-to-time, at intervals of about a decade, that evolution includes a major inflection. The central focus of the strategy changes, a new generation of strategic conversations begin, and executives look at the value of their IT leaders in a whole new light. When that happens, it does not mean simply a change in direction or running faster along the same road. It means taking a different position in the strategic landscape, and continuing to lead the journey from there.

Major developments in the worldwide IT market drive new generations of strategy. As participants in that market, we’re all on the same journey together. For a CIO or IT professional, to sustain and grow your value means keeping pace with the market, and having a clear sense of where it is evidently heading. Right now, the market is demanding third-generation corporate strategies for IT, focused on the value that consumers and others create from technology. The previous generation of strategy was focused on efficient IT delivery, so it’s a game-changing inflection. It is also the opening to the fourth and final generation. To establish where we currently are, and why, and explore how the journey ends, let’s start with how it all began.

Generation One: Technology

There was a time when corporate strategies for IT were about technology. Back then, IT departments designed and created all the applications the enterprise used, and operated hands-on all the IT hardware. The only users of a company’s IT were its employees. Customers interacted with the enterprise in person, by mail and telephone. There were little, if any, IT-based interactions between companies. An enterprise could think about, plan, and invest in IT in isolation of anybody else except its IT suppliers.

That was the era of the first-generation strategy for IT – the ‘IT Strategy’. It was typically expressed as a ‘roadmap’ – usually with only one road – of the company’s plans for changing IT. We often took weeks or months to formulate the strategy, then documented it in a detailed report. That kind of timescale and level of detail were feasible then, since IT was yet to become deeply integral to fast-changing markets and communities, and to customers’ own lives and experiences.

And, although it now seems hard to believe, company executives weren’t yet concerned about how much IT was costing.

Generation Two: Efficient IT Delivery

The emergence of packaged software and outsourcing changed the Boardroom perception of IT. It became licenses and services bought from other companies, represented by costs on spreadsheets and diagrams in presentations. Executives had to increasingly take it on trust that the IT the company paid for actually existed, and was worth what they were being asked to spend.

IT departments also added to the perception that IT was now about managing costs. The growing popularity of IT meant they were faced with more work than the time available. To help prioritise their time, they started ‘pricing’ their work as services, much like an external supplier, a tactic that other hard-pressed business departments have rarely copied. This had two unhelpful by-products: companies started treating their IT managers as if they were suppliers, rather than business leaders; and IT people became seen as the bottleneck for changes that other people wanted to invest in.

The ‘IT-as-cost’ perception in the Boardroom was further underlined by the combination, in quick succession, of Y2K and the initial e-Business ‘bubble’. All-in-all, executives became concerned about how much they were now spending on IT, with no credible evidence of the value they were getting in return. The reaction of Boards was to constrain IT costs, press for efficiencies, and ask for evidence of the value that IT produced. That behaviour became, de facto, the second generation of corporate strategy for IT. Usually, it was not formulated and documented with the same level of rigour as first-generation strategies – or consciously formulated at all.

As people have tried to relate IT spending to the value Boards are looking for, a fundamental truth has emerged. IT costs and IT people cannot, on their own, deliver that value. It comes from business operations and business changes. Driving efficiencies in IT spending can ensure the enterprise destroys less value, but produces no new value. To achieve the latter means focusing on what people do, productively, with the assets and services that the spending on IT delivers.

Generation Three: Creating Value by Productively Exploiting Technologies

A strategy to produce value from IT must inevitably focus on the behaviour of people that use technology, and what they decide to do with it. In first-generation strategies for IT, employees were the only users of a company’s IT. E-Business rapidly changed that, and the consumerization of IT has changed it even further. To grow the value your enterprise creates from people using IT, your strategic focus must now begin with your company’s customers and other external stakeholders. If the central focus of your strategy is still on the IT your employees use, and what they do with it, you’re at least a generation behind the market.

The IT your external stakeholders use does not mainly come from your company’s IT spending. They buy it themselves, it comes from their own company’s IT spending, or they get it free of charge. The focus of second-generation strategies for IT – your company’s IT spending – is becoming less and less strategically relevant as the market continues to evolve.

Any IT department whose main focus is the efficient management of IT spending is at risk of becoming ever-more marginal, strategically, in the creation of value from IT. And, as IT suppliers continue to develop cloud-inspired delivery models, a scenario has appeared in which having an IT department is portrayed as more of a constraint than an advantage. Whether or not that scenario is valid, the thinking behind it is something that every IT leader is now wise to consider.

The question of why companies still have IT departments reflects a paradox at the very heart of corporate IT. Since the first commercially-used computer, Leo 1, was switched on in 1951, IT has become increasingly integral to being a business, and to doing business. Now, we habitually refer to IT as ‘all-pervasive’. Paradoxically, many enterprises are still trying to make IT decisions separately from the business decisions in which IT must be, all-pervasively, an integral part.

Since IT is all pervasive, the only way to be sure we are making the best IT decisions is to integrate them into other business decisions. In today’s consumerized IT market, the first priority is those decisions that concern the company’s customers, and what they are doing with technology. This is the strategy that IT departments now need to be leading, in collaboration with the company’s specialists in Brand, Marketing, Sales, Customer Service, and so on. The changes that they and others invest in need to have IT deeply integral to them, and must focus on what customers are doing with IT that produces the value the company wants.

The days of thinking about IT separately are over. The third-generation strategy is about integrating IT with mainstream business management, so that it disappears as a separate subject. This opens the way for the fourth and final generation of strategy, and the ultimate fruition of IT leadership.

Generation Four: IT becomes Investment in Change

Fortunately for all of us, some enterprises have explored the final generation of corporate strategies for IT long before the market as a whole arrives there. They have found what the strategy needs to focus on, and the benefits and challenges that come with it. Thanks to them, we know how the journey ends. With this knowledge to hand we can best guide the business leaders who are our fellow travellers, whatever generation of strategy we and they are currently in.

The question that a third-generation strategy prompts is why we are so concerned about what people do with IT in particular, rather than with any asset or service they use. Are we and our customers worse at exploiting IT than anything else? Most executives do not know the answer, nor the appetite to find out, nor will find the evidence if they wanted to.

What, in truth, matters most to executives is not how well people are exploiting IT, but how well the enterprise is achieving its goals from all the investments it makes. These investments are in two distinct but inter-related capabilities, operations, and investing in change, and IT is deeply integral to both of them. Each demands a different leadership mindset, skills, and measures of success. There are creative tensions between them that cause a tough conflict of interests for anyone who is equally responsible for both.

Now take a look at the Boardroom. You’ll often find that the company’s investments in business operations are much better represented than its investments in change, yet both are vital and value-creating. Maybe that’s because the company already excels at creating value from the changes it invests in, and Board-level leadership isn’t needed. Or, if you’re a CIO, perhaps the other executives think that this is what “IT” and your role are really all about. Except that you might currently seem more focused on delivering IT efficiently than how people create value from IT in particular, or change in general.

The consumerization of IT demands that CIOs and senior IT leaders move to a different part of the strategy landscape and continue to lead the journey from there. As consumers and businesses becoming ever-better at exploiting IT in ways that they value, the strategy that was once focused on technology will then be able to reach its end game. With IT deeply-integral to every business decision, your boardroom leadership strategy will be about the value and costs of investing in change.

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Chris Potts è un Corporate Strategist specializzato nell’investimento sul cambiamento e lo sfruttamento dell’IT e un CIO futurist. Lavora con CIOs e altri executives in molte aziende leader in giro per il mondo, aiutandoli a formulare e implementare la nuova generazione della Strategia Aziendale per l’IT. E’ stato chiamato “World-Leading Specialist in IT Strategies” e “the World’s Leading Thinker on IT Investments”. Ha più di 20 anni di esperienza in Strategie Aziendali, di Business e IT, investimenti nel cambiamento, Enterprise Architecture, hands-on Business Management e IT delivery. Ha pubblicato numerosi articoli sulle Strategie Aziendali per l’IT, il destino del CIO, Investment Management, Enterprise Architecture e Business Value. E’ anche autore del libro “FruITion: Creating the Ultimate Corporate Strategy for Information Technology”.

Presenterà a Roma per Technology Transfer il seminario “La strategia aziendale per l’IT” il 17 e 18 Novembre 2011

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