As was asserted in a previous post, the first principle of aligning IT with enterprise strategy states that strategy execution cannot be accomplished without information technology. This principle has powerful implications for the way IT is managed inside most enterprises.
Business unit (BU) managers(*) understand that their success depends on information technology, both in terms of day-to-day operations (keeping the business running) and long-term success (changing the business to achieve strategy, as described in Principle I). They know that if IT fails, the business fails. Thanks to the steady drumbeat of technology innovation, members of the IT vendor community are delighted to describe how an investment in new this technology will undoubtedly improve performance in a variety of ways: operational reliability and efficiency, improved customer service, access to new customers and markets, etc. Hardware improvements quickly obsolete past investments; try to imagine convincing an executive in your firm to use a five year old laptop. The promise of new technology, as small as a new PDA or as big as a new enterprise-wide software solution is always high on their lists of needs.
Of course in every enterprise, technology is a finite resource. Senior-level executives generally understand the crucial role played by IT, but they also have to consider overall spending. And what they see is IT spending increasing faster than other key indicators of growth (such as revenue). But the role of IT has evolved over the decades, from simply increasing productivity to connecting people with information inside the firm, to connecting the firm with its customers, to leveraging the value of information itself; many IT expenditures are no longer an option. Organizations simply must have e-mail to communicate, they must have Web sites to reach their customers, they must play by the rules of their partners in order to survive. It is inevitable that IT increases as a share of expense as businesses use IT more intensively. But these pragmatic executives feel they must establish limits on overall technology spending in the enterprise. The tension between those who want technology and those who manage the investment is at the core of our second principle:
Principle II: The demand for technology in the enterprise always exceeds the capacity of the enterprise to deliver.
The constraint sets off a downward spiral for the organization:
- Fierce competition among BUs for scarce IT resources, which leads to
- dissatisfaction with the IT organization when constrained resources result in project delays, which leads to
- blame placed on the IT organization for lackluster BU performance, which ostensibly justifies
- deliberate or unauthorized IT spending and the decentralization of IT
- which results in higher technology costs from lost economies of scale and uncoordinated efforts.
Managing this tension is a challenge for every enterprise. How this is accomplished has far-reaching implications for strategic management of the enterprise, and will be the subject of the next post in this series.
(read the previous and next articles in the SFITO series)
(note: This is part of a series of posts on the topic of the Strategy-Focused IT Organization. Its subject is the second of three principles of aligning IT with business strategy that were outlined in an article in CIO Insight Magazine in 2003, and later elaborated in an article in Harvard Business School Press’ Balanced Scorecard Report in 2004.)
(*) Despite my use of the word “business,” these ideas apply across all types of organizations; for-profit, non-profit, government. I beg your indulgence when using such terms as ‘business’ and ‘business unit’ and generically, even though the terms may not be strictly appropriate or preferred usage in your organization.