“The fact is the most IT strategic frameworks are based on the hypothesis of a stable business environment where the technical innovation is slow and with predictable and rational customer behavior. This might have been the case 10-20 years ago but is certainly not the case today. A new agile approach is needed to IT Strategy!”
A couple of years ago, I was responsible for developing an IT strategy for a company positioned at the pinnacle of digital transformation. An IT intensive company struggling for survival due to a changed competitive environment they could not adjust to. Rapid change in technological innovation combined with a changed customer behavior creating a new competitive environment threatening the foundation of their business model. The fact was that no strategic alignment existed between IT and business. When business requested digital tools to create customer engagement, IT responded by discussing platforms, outsourcing and a new ITIL framework. It was clear that the current IT strategy did not support business success but rather a tool to make IT successful from an IT perspective. A new approach was needed! Quickly!
Digitalization: Digitalization: Integration of digital technologies into everyday life by the digitization of everything that can be digitized (technical evolution and customer behavior). (businessdictionary.com, HBR.com – 2014)
The question was how the IT strategy could support business in mastering the new digital environment full of unpredictability; disruptive trends and customers need for experience and engagement. It is important to understand an IT strategy is not the same as a digital strategy. The two artifacts have completely different purposes and scope. IT strategy is about how IT can support business success and competitiveness, while the digital strategy take a more holistic approach (cross-functional) and describe how the company as a whole can create customer experience and engagement.
But how is the industry changing? Is it possible to use a traditional IT strategy methodology in this situation? How does digitalization change the business demand on IT collaboration? The changing landscape (customer behavior) can be summarized in five principles where the changing behavior of customers is transferred to the business demand on IT.
Customer and Business requirements in New Normal:
- Business/Customers have no patience for irrelevant information
- Business/Customers demand and requirements will change continuously (unpredictability)
- Business/Customers want to be approached in different ways depending on situation
- Business/Customers want services that make they successful
- Business/Customers want there services delivered at once without any trouble
(New Digital Behavior – Gillior, Hinssen 2014)
The fact is the most IT strategic frameworks are based on the hypothesis of a stable business environment where the technical innovation is slow and with predictable and slow customer behavior changes. This might have been the case 10-20 years ago but is certainly not truth today. The case is that we see more technical patents being filled today than ever before and an escalation in new customer patterns due to social media and mobility. The number of start-up companies is exploding at an unprecedented rate (Harvard Business Review, 2014) re-writing the business environment. My conclusion was as simple as brutal, if we want to compete in the new digital era; we need a new agile approach to IT strategy based on the hypothesis of high unpredictability (adjusted to speed of change in industry) and fast change in technical innovation and customer behavior.
Key issues with current IT strategy frameworks (based on stable IT Strategy hypothesis):
- Time to implementation (12-18 months)
- Unfocused and difficult to implement
- Based on a “command and control” culture
- “One-time implementation” approach
- IT strategy life-cycle (often 3-5 years)
A reoccurring theme in the conclusion of the analysis was related to the time perspective. In an industry with 9-12 months predictability, it is devastating to use an IT strategy methodology that takes 12 months to develop and implement, and being valid for 3-5 years. By the time it is implemented, it is out of date and is no longer valid. It can no longer be trusted! It is impossible to foresee how the business environment will look like in 5 years – so why trying to make a strategy for it?
“An IT strategy is built to optimize business value in the current business environment (outside in approach) and not based on what IT can do in the future (inside out approach)”. Hans Gillior – The Goodwind Company (2014)
It is important to understand that an IT strategy is designed to optimize business value based on the characteristics of the business environment (right IT Strategy hypothesis). Looking at the business environment, it is possible to conclude that clear shift towards more IT intensive market offerings, higher digital competition and increased unpredictability. In my case, the traditional market position was over mature not generate any revenue growth, with customers demanding a more digital product and services mix. The company was forced into a new dynamic market segment – but did not adjust its governance structure enough to manage the new situation. It is fair to say that the company could not compete in the new order with traditional governance tools.
The IT Maturity Matrix (see below) was developed to link the dynamics of the industry to the needed dynamics in IT governance. The more dynamic the industry, the more dynamic the governance model needed to perform. There are generally four speeds in the market depending on IT intensity, technological innovation and changing customer behavior.
(Hyper-competitive digital environment – media, music, games, social)
|Less than 6 months
(IT intensive industries – bank, insurance,
|Between 6 – 12 months
(Producing and moving physical goods – manufacturing)
|Between 12 – 24 months
(Slow moving industry – forestry or mining)
|More than 24 months
Table 1: Industrial speeds (Gillior 2014)
What is interesting studying these four industries is that company companies move from “long-wave” industries towards “digital fields” industries. The main reason is that customer are demanding more IT intensive services (see Customer and Business requirements in New Normal above). Also that the level of predictability is decreasing rapidly in each industry segment. These to trends push companies right in the matrix and demand a push upwards in the governance dynamics to compete. (Further reading: Future of IT blog post)
It is also possible to identify five levels of IT governance to match the different industrial speeds – ranging from IT Stability to Digital Innovation. It is important to notice that an IT organization needs to secure one level of steering (for example IT Stability) before being allowed to move up the scale to the next level. Also, that it is impossible to deploy an IT strategy combining different focus areas from different Levels of IT governance (for example, stability and innovation). What is interesting when examining these governance levels is how they create value from system availability to customer experience.
||IT Governance Style
||Cross-functional collaboration (Customer Experience)
||IT Business Agility
||Collaboration in time (Time-to-market, Revenue Growth)
||IT Business Steering
||Creation Business Value (Exceed expectations)
||IT Operational Excellence
||Providing Cost efficient IT operations (Cost/Risk)
||IT Operational Stability
||Stable applications (Green SLAs)
Table 2: Levels of IT Governance (Gillior 2014)
These two dimensions create a matrix that helps IT organizations to understand its strategic position and the needed direction. What we generally see is IT organization positioned in Operational Stability or Operational Excellence within an industry of Moving Atoms or Digital Fields. That creates an unbearable situation that ultimately will result in market failure. The governance structure is not agile enough to manage the dynamic market. Also, those IT organizations that invest heavy in Operational Excellence (IT for IT) and when requested to move upscale, is unable to do so because of wrong kind of competence, leadership, and culture.
Diagram 1: IT Maturity Matrix (Gillior, 2014)
In my case, I concluded that the company I was worked with, was positioned in a “Moving Bits” industry (6-12 months predictability) and utilizing a Operational Excellence strategy with stability problems. A continuation of this behavior would have devastating affects on the business ability to defend market shares and compete with more agile companies. The way the company address the changing business environment was with further Operational Excellence – decreasing cost/price levels – not creating customer experience and engagement. A vicious circle had been created pulling the company down in the market – evident in industry surveys. The necessary step forward was to increase the dynamics of the IT governance structure.
Based on a short but intensive investigation, it was quite clear that the level of unpredictability (9 months) affected the IT organization and a new Agile IT Strategy approach was needed. The ultimate goal of the new approach was to optimize business value in the digital landscape with high unpredictability, changed customer behavior and rapid technical evolution.
The Goodwind Company developed a number of principles for Agile IT Strategy to optimize business value in industries affected by digitalization and increased unpredictability. In fact all companies or organization positioned in “Moving atoms”, “Moving bits” and “Digital Fields” need to apply an Agile IT Strategy to ensure that the IT organization responds correctly to the new digital environment.
Principles for Agile IT Strategy:
- The IT Strategy needed to be iterated (revised) every 6 months to ensure that optimal business value was created.
- The development (and revision) of the IT strategy should take maximum 4 weeks!
- The IT strategy need to be described, in a focused and simple way, the role of IT, clear strategic direction and principles to support optimal investments, communication, and business value.
- Success is based on an agile culture with high degree of learning, self-governance, and trust.
- High level of engagement from leaders and employees to drive continuous transformation.
The guiding principles for Agile IT Strategy were defined as basis for the Agile IT Strategy framework. A framework designed to optimize business value by a strategic alignment to business digital challenges. This allowed IT to share the digital challenges and cooperate with business to meet new technological innovation and customer behavior. But how to do this in practice? The set-up of the Agile IT Strategy is the topic of the next blog post.
If you are interested in hearing more about Agile IT Strategy – please do not hesitate to contact me at The Goodwind Company!
– Hans Gillior