IT executives constantly face the challenge of delivering a high level of service and value to their customers while managing a tight IT budget. In most organizations, the cost of IT has increased more (as a percent of sales) over the past ten years than any other administrative cost. Our research has shown, in many organizations, it takes five revenue dollars to cover every dollar spent on IT.
Among business leaders, the IT function remains the most misunderstood component of a corporation’s cost structure. Most executives struggle with the CIO’s suggestions to spend millions on enigmatic items. Providing a framework for the CIO to manage and communicate technology directions, costs, benefits, and standards to the business is a necessary step for improving the organization’s ability to execute business strategies using IT.
To address the IT delivery model for a business, virtually all major corporations and institutions have developed some level of an IT strategic plan. These strategic plans are intended to guide the IT organization’s allocation of resources and align IT with the strategies of the business. But if most major enterprises have developed IT strategies, then why do these companies continue to struggle with managing and understanding IT costs? Why are the IT strategic plans sitting on a shelf collecting dust in the CIO’s office next to a few other consulting studies on the benefits of SOA or upgrading to Windows Vista?
Strategies That Fail
The following strategies fail to meet expectations because ERP systems are not all things to all people. The resulting environments do not provide reporting and analytics or the business process improvement capabilities promised. Because of this, the legacy IT strategy is thrown out the window along with millions of wasted dollars.
ERP-centric – Our experience has shown that most legacy IT strategies are not sustainable, and they don’t address the real business issues. Instead they focus on addressing point-in-time business needs. It is common for a company to suppose a new, multi-million dollar ERP system will solve technology issues. These ERP-centric strategies are developed because it is easy to see how an ERP platform could become the rallying cry for IT to improve business results. The problem lies in the assumption that the current application environment cannot support the business strategies.
Implement ERP – ERP rarely touches specialized applications that are critical and unique to the business operations. This focus in implementing ERP often immediately eliminates alternate ways to meet strategic business needs from a technical perspective.
Jumping to ERP – Other options such as ease of use, business intelligence, upgrading current applications, or improving application integration capabilities get lost in the shuffle and are not always addressed in legacy IT strategy. Jumping to ERP forces an answer and sometimes allows other viable options to fall through the cracks. In addition, large projects usually move forward without any particular agreement on implementation principles, change management, quantifiable success measurement, or joint buy-in from operations, sales, human resources, and finance.
Strategies That Work
How can today’s corporations and institutions develop an IT strategy that is sustainable, comprehensive, realistic, and part of the everyday job of the IT organization? Virtually every IT strategy begins with understanding the company’s overall business strategies, processes, and priorities. Determining the IT implications of these business strategies then becomes the foundation. Whether corporate strategies lead to administrative cost reductions, the need for scalability, or the need for faster IT response, the strategies need to be linked to actionable technology principles and standards.
An IT strategy focused on technology principles and standards is the key. IT principles and standards can become longer-lasting strategies for an organization. Technology initiatives alone (whether strategic or not) are not lasting and can be quickly rejected once the business case is exposed or the business changes direction.
Avoid wasted effort by establishing guiding principles that define how the IT organization should execute key processes like planning, standards management, technology deployment, support, maintenance, and operations.
Once guiding principles are defined, the IT strategy becomes clear. The IT strategy can be reviewed regularly as a critical part of the planning process to provide unified direction for IT and enable a realistic budget. Each year prior to budgeting, the IT leadership team should spend time with the business, formally reviewing IT strategies, making recommendations for improvement, and updating action plans and principles as required. If certain initiatives are not approved in the budget, then IT strategy adjustments may be necessary. This process should drive the IT budget for the coming year and provide a balance of costs and service levels expected by the business.
Remember: Whichever IT principles, strategies, and initiatives an organization decides to accept, an optimal balance between managing costs and improving value will rarely be achieved without a resilient IT strategic planning process in place.