How to Align Technology with Business Strategy

How to Align Technology with Business Strategy

A Summary for Educational Purposes

Ninte (Tey) Dangana's photo
Ninte (Tey) Dangana
·May 29, 2022·

10 min read

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Ninte Dangana (nullthefirst.com)


In today's world, little can be done in business without technology. Yet, many leaders in corporate and entrepreneurial environments still lack an in-depth understanding of how best to utilise this valuable resource. Drawing largely from insights shared in the Harvard Business Review (HBR) on Aligning Technology with Strategy, I try to present essential truths condensed for the busy professional.

How does a business derive value from installed technologies?

IT managers should be left to make decisions on elements related to technical expertise and astuteness. Yet, senior business managers should decide on a handful of crucial IT components that have a direct impact on business strategy.

HBR proposes six key decisions that non-IT executives should handle in order to ensure the delivery of business strategy. Three of these focus on execution and the other three on strategy.

Strategy

1] How much should we spend on IT?

  • Define well laid out IT goals, then set funding to achieve these.

2] Which business process should receive IT funding?

  • Decide which IT initiative will further your strategy, and only fund those.

3] Which IT capabilities should be firm-wide?

  • Weigh the trade-offs between centralising IT capabilities (which saves costs) and excess flexibility (which is expensive).

Execution

4] How well do our IT services need to be?

  • Determine how much reliability, responsiveness, and data accessibility you must have – and do not waste money on the rest.

5] What security and privacy risks will we accept?

  • Weigh trade-offs between privacy versus convenience.

6] Whom do we blame if an IT initiative fails?

  • Designate "sponsors" to assign resources to IT initiatives, establish success metrics, and oversee implementation.

How does a business best understand information technology?

Most businesses start off with a blind appreciation for technology. However, this often turns sour after a series of bad investments (sometimes even a singular occurrence).

These IT-related losses are often a result of poor communication between IT units and senior management teams.

Making IT work requires inspired leadership, excellent execution, motivated personnel, as well as attention and high expectations from senior management.

HBR proposes that a systematic approach to understanding and executing IT should be organised along the lines of three interconnected principles:

1] A long-term IT renewal plan linked to corporate strategy

  • This helps the IT group focus on the company's overarching goals during a multi-year period. It makes appropriate investments directed towards cutting costs in the near term and generates a blueprint for long-term rejuvenation of systems and value creation.

2] A simplified, unifying corporate technology platform

  • Instead of relying on vertically connected data silos that serve individual corporate units (HR, accounting, and so on), companies should adopt a clean, horizontally-oriented architecture designed to serve the whole organisation.

3] A highly functional, performance-oriented IT organisation

  • Instead of functioning as if it were different from the rest of the firm or as a loose confederation of tribes, the IT department works as a team and operates according to corporate performance standards.

It is a known truth that we now require much more professional and sophisticated IT leadership than ever before.

Once organisations get IT right, they will get much more for far less.

How does an entity best work with the business of technology?

As with many broadly adopted innovations, IT has become a commodity. By being affordable and accessible to everyone, it no longer offers equivalent strategic value.

Scarcity, and not ubiquity, makes a business resource truly strategic. Companies gain an edge by doing or having something others cannot have or do.

In the early days of IT, forward-looking firms outperformed competitors through innovative deployments. As IT has now normalised in capacities, it is important that businesses focus on inherent risks more than feasible strategic advantages.

In today's world, an IT disruption can prove paralysing to a company's ability to make products, deliver services and satisfy customers.

However, the greatest IT risk is overspending; as this puts a company at a cost disadvantage.

Instead of aggressively seeking an edge through IT, a business should manage IT's costs and risks with a frugal hand and a pragmatic eye.

This is a core lesson to learn and should be followed in spite of any renewed hype about potential strategic value.

How might a business avoid overspending on information technology?

1] Spend Less

  • Rigorously evaluate expected returns from IT investments. Separate essential investments from discretionary, unnecessary, or counterproductive ones. Explore simpler and cheaper alternatives and eliminate waste.

2] Follow, Do not Lead

  • Delay IT investments to significantly cut costs and decrease your risk of buying flawed or soon-to-be obsolete equipment or applications. Make purchasing decisions only after standards and best practices solidify – and thus, outperform more impatient rivals by paying less while getting more.

3] Focus on Risks, Not Opportunities

  • Many operations are ceding control over their IT applications and networks to vendors and other parties. This presents increased threats in the form of technical glitches, service outages and security breaches. IT resources are best focused on preparing for such disruptions and not deployments in radical new ways.

How does a business respond to new and threatening superior technology?

In the face of the above, both an attempt to a seamless transition as well as an effort to fight and defeat it can prove to be losing strategies.

A third and frequently superior option is that of the bold retreat.

This involves ceding most of the established market to the new, dominant technology.

It differs by pursuing less vulnerable positions as a proactive and strategic alternative to the head-on competition.

There are two types of bold retreats:

1] Retrenchment to a niche of the traditional market, where the old technology has an advantage over the new one in addressing customer needs.

2] Relocation to a new market, where the old technology is the inherently superior option.

It is important to note that both moves can be incorporated into a single effective strategy.

Just as with a transition to new technology, a bold retreat requires significant organisational change.

It involves not only persuading internal stakeholders as to the merits of a retreat but also revamping a business' cost structure and talent base.

All things being equal, a bold retreat that is carried out with foresight, can be both a survival strategy and a successful strategy.

Bold retreats must be considered during a strategic review. These must be carried out before the technology fight is lost and a business' resources are drained. These should also be carried out proactively to avert catastrophic defeats.

How does a business implement effective corporate governance on information technology practices?

Since the 1990s and early 2000s, boards have grown increasingly hesitant about corporate dependence on information technology.

This fear has been further exacerbated by computer crashes, denial-of-service attacks, competitive pressures, and the need to automate compliance with government regulations.

The authors in this particular section of the book shared the sentiment that "a lack of board oversight for IT activities is dangerous" – it places firms at the same level of risk that failing to audit books would.

By establishing board-level IT governance, companies are better able to control IT project costs and carve out a competitive advantage.

There is no one-size-fits-all model for board supervision of a company's IT operations. The correct approach depends on whether a company's operations are extremely dependent on IT and whether it relies on keeping up with the latest technologies.

How to conduct IT oversight:

1] Keep an inventory of IT assets. 2] Assure security and reliability.
3] Avoid surprises.
4] Watch out for legal problems.
5] Keep an eye out for fresh threats and opportunities.

Appropriate board governance can go a long way in helping a company avoid unnecessary risks and improve its competitive position.

How does a business compete successfully on analytic components?

Nowadays, it is virtually impossible to differentiate a business from competitors on products alone.

Becoming an analytics competitor is a way to pull ahead of the pack.

This can be done by using sophisticated data collection technology and analysis to extract every feasible element of value from all of a business' processes.

Analytics enables a business to understand what customers want, how much they are willing to pay for it, and what keeps them loyal.

Operationally, analytics can help a business determine its workforce's direct contribution to the bottom line. Companies that compete in analytics seize the lead in their fields. As such, this should be part of a company's overarching competitive strategy.

By providing analytics to decision-makers at every level, a business arms employees with the best evidence and quantitative tools for making business decisions – regardless of size or scope.

In practice, the following are techniques to become an analytics competitor:

1] Champion analytics from the top.
2] Create a single analytics initiative.
3] Focus your analytics effort.
4] Establish an analytics culture.
5] Hire the right people.
6] Use the right technology.

Think of data as seeds of value – beyond the mere tables and charts, are actionable insights waiting to be extracted and planted for strategic business harvests.

How does a business best invest in information technology that makes a competitive difference?

It has been observed that a central catalyst in the unprecedented rise in global competition over the past few decades was the massive increase in the power of IT investments.

As a result of powerful tools like ERP and CRM, backed by cheap networks, companies are swiftly replicating business-process innovations throughout their organisations.

The firm with the best processes wins, but not for long. Rivals will typically strike back with their own IT-based process innovations.

To gain – and keep – a competitive edge in this environment, the following three-step strategy is recommended:

1] Deploy – a consistent technology platform, rather than stitching together a jumble of legacy systems.

2] Innovate – better ways of working.

3] Propagate – those process innovations widely throughout one's company.

By taking these steps, a business can realise dramatically shorter sales-cycle times and higher revenues and operating profit.

Processes that aid with utilising innovation to establish a competitive edge are those that:

1] Apply across a large swatch of a business;

2] Produce results as soon as a new IT system goes live;

3] Require precise instructions;

4] Can be executed the same way everywhere and every time in an organisation; and

5] Can be tracked in real-time, so one can immediately spot and address any backsliding to older versions of the process.

It is important to note that the arrival of powerful new information technologies does not render obsolete all previous assumptions and insights about how to do business.

However, it does open up new opportunities for business executives.

It is not easy for most companies to deploy enterprise IT successfully. Even those executives who are prepared will not necessarily survive the inevitable turbulence.

Yet, business executives who survive the impact of IT disruption can still expect enormous rewards – at least until another player comes along and uses IT to propagate an even better business innovation.

How does a business manage stakeholder engagement in an increasingly digital world?

The very technologies that empower customers can also empower employees.

Companies can build a strategy around letting employees freely experiment with new technologies, make high-profile decisions at will, and effectively speak for the organisation in public.

In giving their employees such capacity, companies can utilise the HERO Compact.

With the HERO Compact, management, IT, and HEROes (for "highly empowered and resourceful operatives") agree to work together to manage technological innovations: management establishes contracts to encourage innovation and manage risk; IT supports and scales employee projects; and thus, HEROes are able to innovate within a safe framework.

However, it takes a while for corporate cultures to embrace this sort of innovation.

As an interim solution, managers can move forward on their own and do the following:

1] Build internal communities.
2] Look outside the company for operative strategies.
3] Review their hiring practices.
4] Reach out to customer-facing departments.

Technology innovation can come from anywhere in a company. The key to making this a success factor is organising employees so that they can become HEROes.

Conclusion

Effectively aligning technology and business strategy requires a thorough understanding of the fundamentals expressed above.

These can make the difference between a successful tech-enabled venture and one that performs otherwise.

While it is understandable to expect these very factors to grow and evolve over time, it remains beneficial that they are kept top of mind until such a change occurs.


Republished on LinkedIn

Background Photo by Felix Mittermeier on Unsplash

 
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