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STRATEGY AND IT

It used to be that managers could delegate IT decisions to the organization’s resident computer experts and they would simply go away and decide how to design and build a solution. But now, the decisions being made can affect the whole business in terms of service and product possibilities, smooth running of day-to-day operations and opportunities for sharing information. Is it sensible to leave these decisions up to technical experts who do not always have a full understanding of the organization’s vision and purpose? Companies can and frequently do end up with a range of incompatible systems that may never achieve an optimum configuration. This can take years to sort out. Or even worse , a significant component system may be unable to fulfil management’s long- term plans for organizational change, which may necessitate being able to segment data in different ways.

But there is a problem with senior management getting closer to the IT decision-making process. Davenport (1994) says, ‘General managers … usually don’t know much about computers. They may like the idea of using information technology strategically. … But they seldom know how to translate their wishes into specific IT investments.’ How can this situation be managed?

IT strategic grid

First, it is important to decide what sort of contribution IT makes to the organization’s strategy. This enables the senior management team to gauge how much and what sort of attention the development and running of IT systems should be given by themselves and by others.

To make this decision it is necessary to look at two factors: strategic impact of application development and strategic impact of existing systems. For some organizations, the development of new innovative IT systems has a significant strategic impact; for others, they are more focused on installing off the shelf packages to enhance some aspect of internal performance. Similarly, some organizations are 100 per cent dependent on IT to maintain operational performance, such as manufacturing organizations. For others, it might take quite a period of time before a disruption in IT services would create a significant performance dip.

The grid in Figure 8.1 is useful for assessing the organization’s current IT strategic position and thus deciding how much senior management attention needs to be spent on IT issues, and how IT should be managed. It is worth noting that the organization may change its position on the grid over a number of years.

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Figure 8.1: IT strategic grid
Source: adapted from Cash et al (1992)

‘Support’ organizations may spend a lot of money on IT, but they are not totally dependent on IT systems for operational success day to day, minute to minute. Neither do they gain strategic advantage from innovative application developments. A doctor’s surgery would qualify here. In this case, senior management can be quite distant from the IT planning process.

‘Factory’ organizations are completely dependent on the smooth running of their IT systems. For instance, a manufacturing unit might grind to a halt if the IT systems were to fail. However, with this type of organization, innovative applications developments, although important, are not crucial to the organization’s ability to be competitive, except when its performance starts to lag behind competitors , and a move to the ‘strategic’ quadrant occurs.

‘Turnaround’ organizations are those in which innovative applications developments are crucial to the firm’s strategic success, but the day-to-day running of IT systems is not so critical. This might for example be an organization developing e-learning packages. The other classic examples are DHL, UPS and Fedex, who all offered customers the ability to go online and check the status of packages that were being dispatched. This gave them tremendous strategic advantage. In this case IT planning needs substantial effort, and needs to be linked closely to organizational strategy.

‘Strategic’ organizations such as banks and insurance companies are those in which innovative applications development brings significant competitive advantage and day-to-day processes are highly dependent on the smooth running of IT systems. In these types of organization, there is a very tight link between business strategy and IT strategy, and the head of IT normally sits on the board of directors.

Developing guiding principles

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How do senior managers ensure that IT investment decisions are in line with the organization’s long-term strategy? The answer may be to develop a set of guiding principles which govern IT investment decisions.

The ‘principles’ approach to IT is advocated by Davenport. He recommends that a task force is set up comprising from 5 to 10 senior managers, including a senior information systems person, together with a small group of IS managers. This group should begin to devise a set of guiding principles that link strategy to IT investment decisions. The senior managers act as sponsors later in the process, endorsing the principles devised by the group.

The IS managers create the initial set of principles which convey the basic attitudes of the company towards technology, the overall direction the business is taking and the use to be made of existing technologies. These principles should be good for two or three years, or until there is a major shift in strategy. They should cover infrastructure, applications, data and organization. Examples of such principles are given by Davenport:

On infrastructure: We are committed to a single vendor environment.

On applications: IS will provide applications that support cross-functional integration of business processes.

On data: Data created or obtained within the company belongs to the corporation – not to any particular function, unit, or individual. It is available to any user in the company who can demonstrate a need for it.

On organization: The user-sponsor of a systems project will be responsible for the business success of the system.

Once this amount of time and effort is spent aligning the thinking between senior business managers and IT managers, the strategic course for IT progress is set, and decision making becomes much easier.