The Digital Competitive Advantage Of Organizations

Positioning strategically IT within the Enterprise is at the heart of many CIOs concerns. In these turbulent times, it is not uncommon to see  IT relegated to its sole cost element. Conversely strong signals exist to prepare companies for growth. Here is the opportunity for CIOs to reap the benefits of  the situation and identify the Digital Competitive Advantage for their organizations.

Making a board to acknowledge the value of IT has always been a difficult exercise for CIOs. Current economic pressures and global uncertainty makes it even harder. The current cash flow focus challenge any investment with a short term view, exposing potentially the company to future risks. Conversely we need to admit that this systematic questioning of where we spend has value and lead to the critical Quest of : “What are these Strategic/Core Resources we should be protecting?”

Time To Change

For many reasons, most of IT organizations elude this question and focus on the cost/quality of service ratio. It is now time to challenge our approach and offer our business different perspectives. “What are our core IT resources that will provide sustainable competitive advantage? ” – “What type of resources should we leverage: Organizational, Process, Technology” – “How do we define Core?” These questions should be fully integrated in the screening process of any IT related investment process and spend analysis.

Defining Core/Strategic Resources

It fits with the “Resource Based View of the Firm” introduced by Wernerfelt B. in 1984 and how Valuable, Rare, Inimitable and Organized (VRIO) a resource can be. A core resource should answer all of these criteria.

A resource is Valuable if it helps the organization meet an external threat or exploit an opportunity. Rare if it is not widely possessed by other competitors. Inimitable if it is difficult for another firm to acquire it or a substitute something else in its. place. Organized if the firm is able to actually use it.

What is it about IT?

Most IT organizations have articulated their strategy (see “Is There Such Thing as IT Strategy Anymore?“)around the value IT witch fulfill the first criteria of (V)RIO, but let the others on the side. Value is driven at the pace of economics, and objectives like efficiency, quality, customer responsiveness, and innovation are inevitably calibrate on the expected Return on Investment. However criteria like Rare & Inimitable required a focus on long term.

The Digital Competitive Advantage (DCA)

DCA is the ability of organization to grow and exploit the IT resources that fulfill the CRIO criteria. Think about your next strategic workshop and identify what part of your IT culture, leadership, solution portfolio, reputation, organizational expertise make you deliver this Digital Competitive Advantage and make your business outperform the competition.

Pattern Based Strategy: A new Hype?

Pattern Based Strategy is new framework launched by Gartner to pro actively seek, model and adapt to leading indicators that form patterns in the market place.

We must admit that Gartner has been very creative lately to create new hype: Cloud computing, Enterprise architecture, and now Pattern based strategy. Beyond the promotion itself, we can see an emerging demand to reassure the business community to anticipate what tomorrow could be.

Predictive Business Intelligence is one element in the equation, but a fundamental shift in the way organization are planning need to happen, and it could be done by integrating the necessary variability of risk whilst establishing a path for growth. An approach by scenario is suggested by Gartner to accommodate this uncertainty.

Will BI market be the sole winner of this trend or will we assist to the birth of a more fundamental change in the way organization are managed?

You can see a video here of Peter Sondergaard (SVP Research). If you are interested on the subject find below some additional resources on the subject:

- “Gartner Identifies Four Disciplines of Pattern-Based Strategy“

- “Gartner Says Companies Must Implement a Pattern-Based Strategy to Increase Competitive Advantage“

You can read a post that I wrote early this year that was suggesting a similar approach:

… Last but not least, reactivity has been pushed  as a strategic enabler for growth, and if the vendors are quickly adapting, internal IT might have issue to address this need. While being reactive is certainly a good thing, being proactive is even better. IT has focused for decade on monitoring system that support the business. Why not changing the concept and establish a Business monitoring. There is tone of information present in systems today that are not exploited and could be the basis for pro-active analysis. Developping this competency within the organization memory could create tremendous value for organizations.

Looking forward for your comments.

Enterprise Investment Portfolio (Part 1) – Improving Performance

Looking at  Internal Investments as a portfolio put in perspective the way Enterprises are internally investing in changes considering risk and opportunity at a global level rather than at project level.

The following classification of investment (introduced in  “How to fight “Business Urban Legends”) follows this approach: 1- Improving Performance 2- Sustaining the current Performance 3 – Survival & Adaptation to context

Improving Performance

THINK PORTFOLIO OF VALUES: Chris Potts, a well-known corporate strategist, suggested to approach the performance of portfolio as a set of values rather than the cumulative NPV (Net Present Value)generated by individual projects (I recommend his book “FruITion: Creating the Ultimate Corporate Strategy for Information Technology“) . Using this approach, arbitration of investments is appropriately Aligned With The Overall Company Strategy. Each organization can define its own strategic measurements dashboard and consider it as a validation point whilst investing in changes. Concepts such as “Balanced Scorecard” are perfectly adaptated to this.

THINK RISKS & OPPORTUNITIES : Back to the proposed classification, “Improving Performance” investments are specific in nature as they challenge the way an Enterprise is generating value. Processes, organizations and technologies will need to be overhauled to reach a better level of performance. These changes creates Risks, that need to be mitigated, & Opportunities, that need to be exploited in the future.

THINK UNCERTAINTY OF RETURN: Another uncertainty to consider is linked to reaching or not the level of performance expected by the investment at a specific time. This has to be managed according to the “risk profile” of the company. Two classes of variables are usually responsible for this situation: The Execution Alea (Initiative on time, on cost, performance expectation fullfilled etc…) and the Context Alea (Expected Market growth, variation of the competitive landscape, regulatory environment, Industry Economics etc…).

LET SEE HOW IT WORKS: Let’s have now a closer look at the footprint of this type of investment, and how other categories might be impacted. For example we could consider improving our market reach by investing in expanding international dealer/distributor agreements, restructuring a division by industry, implementing a Customer Analytic System, developing promotional materials in different languages. All of this make sense and priorities will have to be established.

Most of the time companies are looking at the amount to invest, when they can expect a return and what are the risk (Execution Risk) and make their decision. This is rather a limited view of economical decision as it push them to choose the shortest term return – hence minimizing the risk. In addition when designing the investment, it is common to only integrate the one time cost of the initiative and new recurring costs they might incurred.

By using the suggested approach, organizations should look at the Impact of such grow and :

- Understand the necessary adjustments to sustain, in the future, such level of performance. For instance, how our back-office is going to handle an increase level of orders, or talking with people that are not English native.

- Understand that new practice adjustment will need to take place; for instance doing business with dealer abroad might required specific regulatory and market expertise that an organization does not have today.

- Understand that implementing a quick IT package could generate redundancy of data which could further create inconsistency and negative productivity impact.

Conversely,

- understanding that dealers or industry associations might be interested by getting some analytics and paying for this could generate a future stream of revenues if we are investing in the right infrastructure.

- Understanding that investing in the comprehension of market network, and industry network work could lead to earlier leads and thrive the company branding.

SO WHAT? All of this is common sense, when a Disciplined Approach is used and we are looking the Value Created Globally not project by project; it becomes rather evident,  that analyzing investment thru the cumulative list of expected returns from individual initiatives could lead to an increased Risk and missed Opportunities.

I hope you enjoyed this first section.

Balanced Scorecard & Strategy Map – What’s next?

I personnaly found very useful the utilization of the Strategy Map framework (Norton & Kaplan). It provides a solid foundation to articulate and promote a unified strategy and establish a rodmap for its execution thru explicit & meaningful measurements.

One thing that I struggle with, is the efficency of the execution and its related byproduct: “the optimization of the Investment Portfolio in changes”. I intend to write an article on this subject, and I am interrested by your feedback on the utilization of Strategy Maps and Balanced Scorecard and how your organization dealt with return & prioritization of  investments.

Looking forward to receiving your comments.

Is there such thing as IT Strategy anymore.

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For decades now, companies have been trying to figure out what was the best IT strategy for their business. With the increasing demand of cost reduction, the large spread of service best practices (ITIL, CoBIT, CMMi, etc…), the development of strategic sourcing in IT, the consolidation of Enterprise Solution Vendors (Oracle, SAP, etc..) , we can argue that companies do not have much choice in term of strategic directions for Information Technology. So moving forward, will companies still need an IT strategy?

It could be useful, to come back for a moment, of what we mean by IT strategy. Leaders are today expecting from IT, the promise to deliver value thru a specific set of tactical guidelines such as:
•    IT must be aligned with the business strategic directions
•    Enterprises need to standardize technologies and solutions as much as possible to leverage economy of scale, and reduce cost.
•    IT departments need to develop continuous improvement program to deliver best in class services, enhance customer satisfaction, limit environmental impact, and better manage the return on assets and its cost.
•    IT departments must strive for simplification of system and technology footprint to limit the hidden cost of the company: Duplicated entries, redundancy of critical information and their related maintenance etc…
•    IT department must excel in the make or buy decision and the management of its vendors
•    IT department must offer a resilient security & risk framework, protecting Enterprise assets, its employees, partners and shareholders.
•    IT departments need to excel in delivering, on time, on cost (IT related) projects. See “Project Documentation – Value for money?“

Most of IT leaders will recognize that these statements are today part of a foundation which is necessary to develop any business in the world thru Information Technology. Although these management expectations seem relatively simple, IT departments are fully dedicated to create and sustain this capacity. Subsequently they are using dashboards to monitor their performance toward the achievement of these key principles. Making strong governance, project management discipline, supplier management, Enterprise architecture and risk management the cornerstones of a performing IT organization.

Does it constitute an IT strategy? If this is the case, we have to admit that all businesses should follow essentially the same approach, and therefore the uniqueness of the strategy does not define a competitive advantage anymore, but rather the simple fact to address a barrier to entry. (See “CIOs – Create your Blue Ocean Strategy“).

We could see in IT strategy other aspects more focused on the selection and prioritization of appropriate technologies, and delivery models for the Enterprise. For instance the selection of a standard ERP solution, the off shoring of developments, the use of open source technology etc… We can conceive that this critical competency could be integrated in the Supply Chain function with a specific expertise in Information Technology. It could then challenge again the specificity of an IT strategy.

Another fundamental of IT covers the ability to address new customer requirement and develop unique competitive advantage by revamping the business model that the company operates under. This characteristic encompasses the capability to innovate in the marketplace, and required the full engagement and dedication of different functions and competencies. We see here that it can not be the sole responsibility of IT, but rather the commitment of senior management to develop such capacity as the whole for their business. Therefore having a pure IT strategy on innovation could fail to deliver on its promises.

Understanding what we mean by IT strategy and the necessity for this function to be fully integrated within the business, lead to challenge its own existence, and subsequently the very nature of the CIO position in the future.

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There is no question here about the utility of IT in organizations as running a business without it, is nowadays merely impossible. But the positioning of IT in the Enterprise is and will continue to be the subject of a lot of discussions in the future. We can see already today that more and more CIOs are reporting to Supply Chain, Finance or Operations functions. Does that constitute really a trend?  Whatever the answer to this question is, CIOs should be ready to discuss their positioning and forge their own mind. That could constitute the true nature of IT strategy in the next decade.

CIOs – Create your “Blue Ocean Strategy”

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The reason why IT departments might be perceived as cost, could be rooted in the way they act like suppliers: using internal SLAs, launching customer survey, reallocating shared services expenses etc… The market trend shows the irreversible success of outsourcing model versus internal support. CIOs should reconsider their positionning within the Enterprise, and stop competing in the red ocean (see “Blue Ocean Strategy” – Chan Kim and Renee Mauborgne).

Technology vendors have learned how to approach senior management and refined their business model to make it more and more attractive in a very competitive economy. The “On Demand Services” model (with SaaS (Software as Service)) could be the internal service killer, by making variable the cost of IT services. How in this context should management react, if internal IT department persists on playing on the same vendors’ attributes? It is a lost battle.

As a first step, let consider the generic value proposition of IT services for an organization. We could articulate it thru the following attributes: Attractivenes of the price, technology expertise, quality of services, methods, knowledge of the organization, ability of implementing changes. Depending on your industry you might revise some of them. The idea here is to demonstrate how the process works.

If we try to establish a relative positioning of intenal IT services versus external vendors services, it is definitively in the favour of the last one, to the potential exception of the company knowledge (see chart 1). It is important at this stage to understand that internal IT department can not fight purely on these attributes. Vendors have much more resources than internal department will never have. This context defines the red ocean.

CIOs need to switch their mindset and structure a new value proposition for their company. Kim & Mauborgne suggest to look at attributes that can either be reduced, eliminated, raised or created. There is an obvious attribute to address; trying to have the complete depth of technology expertise that a vendor could provide, will be merely impossible. Organization’s knowledge however, is certainly one that can be raised, and we need to look at possible dimensions to explore. Most of the time, vendors compensate their lack of knowledge of a specific company by their knowledge of industries and their past professional experiences. I believe that internal IT has here not exploited fully the potential of this criteria.

One thing that vendors will have difficulty to provide,  is to embrace the IT investment as the whole. Usually focusing on individual technology projects or services, they are unable to balance the risk on investing in change as a portfolio. This constitues a change in the value curve by looking accross strategic groups. Chris Potts in his book “FruITion” develops this idea, and I recommend the reading to fully understand the true potential of this proposition.

Another possibility is to consider the value curve across time & trend. A common flaw in organization nowaday is to lost memory. It comes with shorter assignment cycle, rapid return, which lead to making mistake without learning from it. IT departments could offer this service for the entire organization keeping track of past investments in changes and improved networking capacity. Making the true foundation of a “Learning Organization”.

Last but not least, reactivity has been pushed  as a strategic enabler for growth, and if the vendors are quickly adapting, internal IT might have issue to address this need. While being reactive is certainly a good thing, being proactive is even better. IT has focused for decade on monitoring system that support the business. Why not changing the concept and establish a Business monitoring. There is tone of information present in systems today that are not exploited and could be the basis for pro-active analysis. Developping this competency within the organization memory could create tremendous value for organizations.

As a summary, the proposal here is to add 3 new attributes in the value curve: Investment in change as a portfolio, Organization memory, monitoring the business. This constitues your blue ocean. Chart 2, highlights these changes.

My intention, with this post was to demonstrate how simple the process is when accepting to change the mindset. Obviously the attributes suggested here could or not fit your organization, but they give food for thought. I will be very interrested to receive your comments, and experiences.

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I’m convinced that if CIOs start thinking differently, don’t compete where they can’t and use constraints as opportunities, Organization as the whole will get extraordinary value by using Information Technology. So CIOs, listen your Inner Voice…

CIOs, what’s your next job?

I have been wondering for a while, about the future profile of a CIO. If most of the feedback, I received, points out the importance of developing the business sensitivity of  IT leaders there are other areas of growing interest. Amongst them we find social skills and strategic planning.

Social skills improvement could represent an opportunity to better embrace the emmergence of web 2.0 technology in the company. Mastering the user experience while enabling productivity of white collar seems to be a reasonable assumption. CIO could become the dedicated anthroplogist of the enterprise.

Strategic planning, with a disciplined approach toward IT investment, might be a true competency that business leaders can expect. Especially in the current economic situation which pushes for additional productivity and challenges the return of any sizeable  spending. Are CIO becoming more financial managers?

Looking back, IT leaders went from incredible changes and proved extraordinary adaptation, from being the technical star to a master of process and organization, to a sourcing expert and progressively becoming business fluent. Nobody can predict what tomorow will be, but we can expect again for CIO to absorb additional knowledge. All this evolution went with the necessity of greater leadership, and vision and moving from being an expert to a business generalist.

So to the question “CIOs what’s your next job?”, keep in mind there is only one letter separating CIO to CEO.

The Standardization imperative

This is a common belief within corporations that standardization is limiting the potential for innovation. Being true or not, companies need to recognize this, and integrate it in their effort to implement standardization. Here is an interesting paradox, more we standardize, and more the people are claiming their differences. What creates this perception from people that are most of the time feeling apart of the game, or does not want to be part of it. Standardization often means in the mind of people, not be recognized as individual contributor, being part of a broader community that they did not choose. Is standardization really the problem or is it more related to the initiative itself that challenges the true identity of a person, a group of person or an organization as the whole.

What is driving standardization effort?

• Analyze global performance
• Unique service to our customer (one face)
• Acceleration of changes – Enterprise agility – implementing changes
• Foster global innovation by increasing collaboration & developing a common language.
• Transfer of competencies across the organization
• Improve compliance efficiency
• Optimize cost and provide opportunity for economy of scale
• Reduce cost of enterprise project that required important consultant assessment
• Reduce risk of company memory loss and of employee replacement or transfer
• Ease back office consolidation
• Improve decision-making process by better understanding the impact of changes on organization.

Typical arguments against standardization
Senior management

• It takes too long
• Leadership turnover

Line of business management

• We are different, our market is different
• We have specific statutory requirements
• Feel a loss of control on driving their business
• Feel they are watched

What does it takes to implement process standardization?

• Strong & continuous senior management leadership & adhesion of line of Business management
• A strong communication management program
• A proper supporting structure to develop
• A proper supporting structure to maintain in the long run
• Accept that it will take time and a phased approach is probably the most reasonable. Start small… & use continuous process improvement.
• Forget about “one size fits all”
• Approach the standardization with a cross enterprise process modeling – avoid the silos effect of functional department and have a focus on which process is delivering value.

How to manage maverick developments?

It is not uncommon today in corporation with centralized IT services, to see flourish individual business unit initiatives integrating themselves software development. Most of the time, IT is put aside of these developments and detect them whilst the company is audited or when a change in IT policies hinder or disable the access to these applications.

Invoking slowness in answering their needs, management feels empowered by the business imperative to address alone their unfulfilled demands. The fact is that technology-based improvements are implemented without involving IT. It demonstrates an important flaw in the relationship and the perception of the IT function.

Leaders need to recognize the threats as well as the opportunities created by this common practice. Threats are multiple and mostly focus on security and life cycle management of business applications. Conversely opportunities are rarely properly identified, as IT tends to be reluctant to sustain solutions from which they were not engaged originally.

Although these developments are often not the state of the art in term of design, compliance, sizing & sustainability, they truly deliver the expected value in the eye of the business. Quickly developed and customizable they are up and running in a month.

We should see these initiatives as genuine opportunities to enable rapid improvements. IT department could design & promote a secure framework (infrastructure, sourcing, standard practices) for such developments, and will benefits from new practices enforced by the management. For instance we all acknowledge the true disruption that specific technologies are creating over an organization such. We could leverage the changes (process, culture) implemented with these Marwick initiatives to enable large-scale development of standard technologies.

Facilitating, whilst insuring the full compliance of the solutions developed, this approach could better promote the voice of the customer within an organization.