Strategy and IT: A Marriage of Necessity
By Cuitláhuac Osorio and José Moreno
In brief:
- Most Latin American businesses still think of IT as an expense, rather than as an investment. In this article, José Moreno and Cuitláhuac Osorio, senior managers at Chein Consultores, outline the design of an IT Strategy (ITS) in order to align the IT objectives with those of the organization.
- Moreno and Osorio revisit some of the ideas they set forth at ExpoManagement, where they stressed the importance of creating awareness among the Mexican business community regarding the importance of incorporating IT in the corporate strategy in a more intelligent fashion.
- The key step in an ITS is to differentiate yourself from your competitors. Doing that requires not only considering the organization’s core competencies but also the environment in which it operates.
José Moreno and Cuitláhuac Osorio are senior managers at Chein Consultores, a firm dedicated to the IT analysis and implementation in businesses. Moreno and Osorio are also authors of Expresión Crítica, a column about IT in Mexico published every two weeks at Intermanagers.com.mx
Here’s a true story: In the course of a business meeting, a prominent Mexican businessman in the telecommunications industry says: “How much do you want to spend on a technology project?... Because the difference is that you’ll be able to kill a fly with a flyswatter or a bazooka…”
This only goes to show that in Latin American business circles there is still a perception that acquiring IT is a matter of money. Now, the choice of a flyswatter or a bazooka is indeed a matter of how much a business is willing to spend. But uprooting the notion that it is only a matter “how much you want to spend” seems like a daunting task, because no executive or entrepreneur will openly admit his or her opposition to IT. But only a few have a true understanding of how to invest so that those resources have a true impact on the company’s business objectives.
As in so many other things in an organization, it is knowledge that establishes and clarifies the hierarchy of how to work, how to invest, how to lead… A strategy is not an adventure involving how much we are willing to spend. And an IT strategy is certainly not adventure; it is a learning process. A learning process that builds on the organization’s accumulated knowledge in order to define the best direction to accomplish the goals. At most companies, when it comes to defining a budget, the IT item is virtually non-existent, particularly in the case of small and medium-sized businesses. Ironically, it is the large corporations with their deep pockets that have learnt more quickly that IT is a clear differentiator between successful and unsuccessful organizations. A similar comparison could be drawn in the case of education spending in rich and poor countries. Whereas the former invest at least 10 percent of their GDP in education, poor nations, which generally invest less than 1 percent in education, still do not fully grasp how strategically important education really is. According to a Select survey, the IT market in Mexico represented US$27.108 million dollars in 2001. And, according to the World Economic Forum’s Global Information Report, based on a list of 75 countries, Mexico is ranked in 44 th place in terms of its ability to take advantage of the opportunities derived from the use of IT, and 42 nd in terms of global competitiveness. It is interesting to note that Mexico has 2.74 Internet users for every 100 inhabitants, a long, long way behind Sweden’s 60.8 or the US’s 40.5. Such a minority, of course, is concentrated in Mexico’s main urban population centers.
In this context, there are huge differences in the way companies take advantage of IT. In small and medium-sized organizations, the use of technology to support the core business objectives is still incipient. This is mainly due to insufficient funding, a narrow business vision, family-oriented and vertical organizational structures, little awareness of the potential IT can bring to the business, and a poor offering of IT products and services suited to their specific needs.
Most large corporations, on the other hand, are well past the business processes automation stage and are now undergoing a change in the perception of IT, from a mere process optimization instrument to a strategic component of business growth. Although Mexican corporations seem to be on the leading edge of IT usage, the reality is that a hefty investment does not necessarily mean large companies are approaching IT with a strategic focus.
As it turns out, 85% of Mexican businesses fall into the micro, small, and medium size category, and are thus more concerned about surviving than about plotting their future. For this type of organization, designing technology acquisition strategies seems a rather distant goal and, many times, something that lies well beyond the realm of their own culture. Ideas for discussion that have been set forth so far revolve around a core issue: business executives need to stop looking at IT as just a means to process improvement or better resource management. Instead, as Michael Porter says, they need to see IT as a strategic means for creating a unique value position and contributing to realize the organization’s future vision.
Nowadays, it is common to say that there are three levels of position with regard to technology. There are those who do not have access to it, excluded from joining today’s global business world (i.e., those who do not know they are supposed to kill the fly). There are also those who are saturated with information and usually lose direction, overwhelmed by the flood of information (i.e., those that do not know how to kill the fly). And then there are those that analyze and choose the information that technology provides (i.e., those that question the reasons for killing the fly). The latter are the ones that take the most advantage of their business context.
But what can companies do in order not to become lost in the sea of information that characterizes today’s environment? The first step is define a strategy that really differentiates them from their competitors and translates into a competitive advantage. Such a strategy should not only consider the organization’s core competencies, but also the environment in which it operates. Ultimately, all this involves being different. It entails, in particular, knowing that you have to be selective when it comes to the products and services that you offer, while being fully aware of what you are not willing to offer to your customers and focusing instead on that which your abilities allow you to deliver while differentiating yourself from the competition.
Implementing an ITS
It is ironic that the companies that have suffered the most disappointment with technology are the same ones that are still reluctant to invest time and resources to design an Information Technology Strategy (ITS). Disappointment does not seem to have been enough for them to understand that knowledge carries a cost. Below is a seven-step guide for the correct implementation of an ITS:
1. Objective alignment
The design of an ITS starts by aligning objectives in such a way that it enables the adequate and timely application of IT according to the business strategies, goals and needs. The first step is to create a level one (CEO, VPs, Managers) inter-functional group that includes the person in charge of IT. This group needs to outline the business objectives and its distinctive competencies. Even before considering any technology tool, the mission of this team will be to decide where to go from a business standpoint: What will we do that none of our competitors will be able to do? To the extent that these strategic actions are established, IT will be in a position to set truly strategic differentiators. Outlining general objectives is not good enough. Operationally measurable objectives need to be defined, as well as the time frames to attain them.
2. Value Added Delivery Systems analysis
The organization needs to identify those processes that have to do with achieving each objective. To do that, it needs to locate the value-added delivery systems involved (seen as a chain of processes) and, for each one, conduct a change analysis in order to ascertain what is going on. This procedure allows management to look at the impact of changes, what they cost the company, and who benefits from them.
3. New Operating Model design
Existing information flows must be represented in a diagram, and a new operating model created in such a way that it allows the organization to meet each and every objective. Design must be done free-hand style. It is an exercise in creativity that should not be hindered by reality; later, the model will be adjusted based on the company’s actual possibilities. The exercise must clearly highlight the advantages of the new model and identify the technology components it will need at a conceptual level. Typically, these three steps take up 70 percent of the time needed to develop a ITS.
4. Technology Positioning analysis
Simultaneously with the first three steps, the organization needs to conduct a technology positioning analysis. This analysis is aimed at ascertaining the extent to which the company’s technology infrastructure (equipment, solutions, telecommunications, and data), procedures, as well as the skills of the people in charge of providing technology products and services meet the organization’s requirements.
5. First level systems architecture design
The next step is to build an ideal model of the systems architecture. To do that, it is necessary to isolate each architectural component in terms of features, storage (records) and processing (transactions) capability, communication requirements, and level of information breakdown.
6. Second level systems architecture design
For this second level of abstraction, it is necessary to consider both the technology positioning analysis as well as the first level of abstraction. This stage is where “what’s ideal” comes into contact with “what is practical”. The aim is to build the best solution for the suggested architecture, always considering the company’s investment capacity. At the same time, a projection exercise must be carried out in order to anticipate how the proposed solution will age and what it will look like up to five years down the road.
7. Technology project identification and conceptualization
This level defines the technology projects that will allow the implementation of the whole strategy. The technology project strategy includes identifying roles and responsibilities of those involved, as well as an explanation of the criteria that will be used to measure ROI.
At each stage, the CEO needs to convey to the members of the organization that these projects are part of the company’s global strategy, and therefore require everyone’s commitment and effort. Following this methodology involves a major effort. Ultimately, it is not just about finding the best way to “kill the fly” but, more importantly, to answer why and how to do it. |
