IT’s Role in Driving Business Strategy

By Michael Wilkinson, CMF
Managing Director, Leadership Strategies, Inc.

Do you know of any sizeable information technology organization that has people sitting on their hands wondering what to do next? How about one that has been able to work through its entire backlog and is just waiting for something to be added? Or one whose people spend most of their time asking their user community what new needs they have, since all past needs have been met?

Do you know of one? I don’t either. The plates of most IT organizations are overflowing with work. And this was the case, long before Y2K issues came to the forefront. Yes, for most IT organizations, there is more than enough work to do. However, are we working on the most important activities? Are we focusing IT resources on the areas that will yield the greatest benefit to the overall organization?

Certainly we have prioritized the backlog and are working down the list. And of course we reprioritize the backlog as new needs become known. But does the backlog list contain the most critical areas that will drive the success of the business? Does the IT team understand the key business drivers and are we focused on those initiatives that will sustain the drivers?

Are our IT resources directed to the most important strategic priorities, or are they simply doing the most important activity among the priorities identified?

You might respond, “Wait a minute, Michael. It’s not our job to tell users what their priority needs are. We can only prioritize what they give us. If they don’t identify the most important strategic needs, that’s their problem.”

Wrong answer. An organization that is not addressing strategic needs is at risk of losing what competitive position it has gained. If strategic needs go wanting for extended periods, the entire organization could be at risk.

How does an IT organization ensure that we are driving business strategy? For over a decade now, IT organizations have been attempting to get closer to our users:

We have directed IT analysts to learn the business.
In some cases, the “business liaison” role has appeared within IT with responsibility for understanding the various business operations and how IT can help.
In other cases, we have placed IT people on site under the direction of the business units, with hopes that this would lead to better understanding of the business and stronger customer service.

Yet, understanding how the business operates is NOT the same as understanding the business strategy. Knowledge of the processes within an organization is not a substitution for comprehending the drivers of future success. For example, a business systems analyst for a retail chain might understand store operations, distribution and merchandising, yet be clueless regarding the industry trends that will determine the long-term winners and losers.

To ensure we are driving success, IT must fully understand the business strategy. IT management must be well-versed in how to develop business strategy and how to link IT resources to the business drivers. Rather than just respond to the requests from the business organization, IT management must take its understanding of the business strategy and seek out IT solutions that will drive business success.

Leadership Strategies has developed the Drivers Model, a method for taking a strategic approach to addressing a business situation. The model provides a simple communication tool for helping organizations construct a business strategy. The model is fully scalable and applies to Fortune 500 companies, non-profit organizations, a field office, an individual department, a work team, etc. There are four major steps in our standard Drivers Model. Along with reviewing the four steps, we introduce in this article a fifth step which focuses on IT’s role in driving the business strategy.

Step 1: Where are we now? (Situation Assessment)

Understanding the current situation is vital to identifying the approaches needed to drive success. A full understanding of the current situation includes an analysis of several areas. The list below shows a sample list of assessment areas and one or two of the key questions to be answered for each.

Customers – What are their current and future needs? What are their perceptions of our performance?
Competitors – How do we compare against our competitors? What are their recent and anticipated initiatives?
Industry trends – What have been recent shifts in the industry? What shifts are anticipated for the future?
Performance trends – How are we performing by product, by market, by channel?
Recent goals and initiatives – How are we achieving against our plan? How successful have we been with recent initiatives?
Employees – What are their perceptions of our organization and how we can improve? How can we make them more effective in their roles?
Organization profile – What are our strengths and areas for improvement with regard to our organization structure, processes, technology, culture, etc.?

Often, planning teams summarize the current situation information into a SWOT: a summary of the organizations key strengths, weaknesses, opportunities and threats.

Step 2. Where do we want to be? (Strategic Direction)

The heart of strategic direction setting is this second step. In our Drivers Model, the information from the situation assessment is combined with the understanding of future trends to formulate a series of trend and positioning statements. These statements, which outline the overall future direction of the organization, are structured as: “We believe (trend)…Therefore we must (positioning)…”

To demonstrate the power of positioning statements, suppose your organization was an American manufacturer of lighting products (i.e., chandeliers, lamps, fixtures, etc.) Along with selling products through hardware and other retail stores, your company also owns a small number of stores in factory outlet strip centers. Based on the situation assessment the business identified the following critical trends and positioning statements:

We believe increases in the quality of manufacturing in third-world countries will increase the acceptability of these products in the minds of consumers, resulting in an acceleration in the downward pressure on retail prices for lighting products. Therefore we must (a) in the short term, seek off-shore opportunities for sourcing products and (b) in the longer term, establish our own international manufacturing capability.

We believe advances in the use of technology in manufacturing lighting products offer opportunities for dramatic increases in efficiency. Therefore we must be aggressive in implementing proven technology that can provide meaningful competitive advantage.

We believe consumer confidence in the security of Internet-based purchases offers opportunities for higher margin, direct-to-consumer sales. Therefore we must provide customers access to all of our products through a user-friendly, secure, web-based interface.

We believe increased competition requires greater efficiencies and yields from marketing expenditures. Therefore we must develop an integrated customer database across our multiple product lines to provide the foundation for quickly implementing campaigns targeted at the specific needs of each customer.

These positioning statements outline specific directions. However, the full business strategy must take a comprehensive approach to addressing goals (broad aims) and objectives (specific, measurable targets). Therefore, the second step in the strategy development process includes several other activities as well:

Vision statement
Mission statement
Goals
Objectives
Positioning statements

Step 3 – How do we plan to get there? (Implementation Planning)

Once the strategic direction is established, the next step is to develop the road map for achieving the direction. For the road map to be viable, however, it must focus on three areas in particular.

The barriers to achieving the vision indicate those challenges which the organization must overcome to achieve its strategic direction. Barriers answer the following questions: “Why haven’t we achieved our vision already? What is standing in our way?”

While barriers address the challenges, the critical success factors identify those key conditions that must be met to achieve the vision. Critical success factors, typically no fewer than two and no more than seven, serve as a guide for determining the strategies to be developed.

The strategies that are undertaken (i.e., the road map) must drive achievement of the strategic direction by controlling the critical success factors and overcoming the barriers.

Going back to the lighting products example, critical success factors (CSFs), barriers and strategies related to one objective in the strategic direction might include the following:

Example

Objective: Reduce the average labor costs related to product manufacturing by 15% over the next three years through implementation of advanced technology.

CSFs: Reliable information on the track record and prospects of technology options
Skilled resources to focus on acquisition and implementing technology

Barrier: Inadequate capital budget to invest in proven technology

Strategy: Assign a project manager (half-time) to:

– Compile the research on manufacturing technology options
– Develop the business case for technology implementation
– Gain executive sponsorship and Board acceptance for the capital investment
– Assemble the implementation team
– Oversee the implementation

A detailed action plan is developed for each priority strategy which details steps, responsibilities, costs and timetables.

Step 4 – How will we monitor progress? (Monitoring)

Many organizations benefit simply from going through the process of creating a strategy. At this point, everyone is clear on where we are going and how we plan to get there. However, the key value to strategy development comes in the implementation of the plan. Unfortunately, much too often, strategic plans become space fillers on an executive’s bookshelf. To prevent this occurrence, we recommend a structured monitoring process every three-to-six months. The structured review involves assessing progress on strategies and grading the current and projected performance against the quantified objectives. While often a sobering process, this detailed level of monitoring provides a method for ensuring that long-term strategy stays on the front burners, despite the pressures of the day-to-day business operation.

Step 5 – How does IT drive the strategy? (IT Integration)

Now that we have reviewed a strategy process, let’s answer the question, “How does IT ensure that it is driving the strategy?” There are three particular roles for IT in driving strategy.

Seek opportunities for advantage through the innovative application of technology

As technology continues to advance at a more rapid rate, opportunities for utilizing technology for competitive advantage abound. From American Airlines, to Wal-Mart to Amazon.com, the IT literature is full of success stories based on applying technology in innovative ways. But keep in mind, it is the application of the technology, not the technology itself, that is typically the innovative component. For example, the technology to track the buying patterns of customers is not particular innovative. However, applying this technology to implementing a frequent-flyer program to influence buying habits was very innovative when first introduced.

IT executives can be uniquely positioned in an organization to combine their awareness of technology possibilities with their knowledge of the drivers of the core business. This requires, however, that IT leaders fully comprehend the drivers of success for the various business units.

Challenge the business strategy by identifying technology threats

Just as IT executives can identify possibilities for technology innovation, we can also be the leaders in recognizing potential threats to our success. We must be the ones making the organization aware of how technology could erode the business we know today.

As an example, suppose three years ago you recognized that more and more retail purchases would be made over the Internet, with some projections indicating that within 10 years there would be a 10-20% purchase shift away from retail stores. What would this mean to your organization if you were a developer of retail shopping malls?

By recognizing the threat, IT executives might have influenced this organization to be the early creators of on-line versions of each of their shopping malls. Or perhaps, with IT support, the organization might choose to focus on combining retail malls with leisure, entertainment or other vehicles that would continue to attract traffic.

Drive the strategy by focusing resources for highest returns

How do you ensure that the IT resources are driving the business strategy? Based on the Drivers Model, IT resources should be tied to one of the following (in order of priority):

Implementing a priority business strategy
Controlling a critical success factor
Overcoming a key barrier
Monitoring the performance of an objective

When focused in these areas, IT resources are sure to be driving the success of the business. (Note that sometimes key barriers are associated with problems within the IT infrastructure. It is therefore appropriate, then, to focus IT resources on addressing internal IT issues.)

Our Recommendations

To be effective partners with their business units, IT executives must be at the table during strategy development. In addition, to maintain an appropriate strategic focus, we recommend that IT executives meet two-to-three times a year with each business unit. This is not a meeting to discuss IT performance. It is an opportunity to understand:

How does this business unit define success over the next five years?
What have been the drivers of success in the past?
What is changing in the industry that might cause the drivers to change?
What barriers have hindered success in the past?
What are the indirect outcomes which, if we could influence them, would directly lead to increase revenues, increase margins, greater customer satisfaction, etc.?
How might IT be used to address these indirect outcomes, barriers and drivers?

More and more organizations are learning the value of IT’s involvement in strategy. One of our clients used to outsource their IT services until they realized they were using IT as a utility and not as a strategic resource. This organization now deems information technology as so critical to their success, their newly appointed CIO sits on the Board of Directors.

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