SBA

Is IT Strategic?

I am on record as saying that there should be no such thing as IT Strategy. It might be seen as an odd position for an IT leader to take, especially as many IT leaders are expected to provide their organisations’ IT Strategies, but it is in the context that IT provision should only be determined by Business Strategy. Some IT leaders formulate IT rules that dictate “We will use XXXX brand servers and PCs, we will use Microsoft SQL Server databases and Microsoft .Net development tools” etc., and believe they are dictating the IT Strategies for their organisations. Any IT diktat which locks the organisation into using System X or excludes the possibility of System Y may help the IT department be more efficient and reduce the cost of IT to the organisation, but obviously reduces IT’s flexibility to accommodate business needs. There is no “one size fits all” in IT, and anything which restricts the flexibility of IT to serve the organisation is to be deprecated. Having an IT Strategy risks binding the IT department to a technology direction which is not in harmony with the business direction or strategy - especially in dynamic organisations which may change direction quickly in order to respond to market needs and opportunities.

Many organisations task their IT leaders with producing an “IT Strategy” in order to get forward commitment on IT costs - “what will we need to spend, and when, for new PCs, servers, software etc.?”. Some IT leaders produce IT Strategies because they think it’s the right thing to do. The problem is that these “strategies” soon get down into detail and, having been approved by executive colleagues or the board (who probably don’t really know what they’re looking at), become immutable. This is daft because whilst the exploitation of IT is a strategic matter for the business, the actual nitty-gritty of technologies used is strictly tactical; technologies don’t last very long and newer, better technologies are constantly emerging so binding the organisation to using what may soon be yesterday’s tools is as sensible as using flint axes to construct a modern boat.

The IT leader does need strategies to guide him and the IT team, in fact he needs two. One is the Business Strategy, handed down by the board, so that he knows where the organisation currently thinks it is going, and the other (which might be called an IT Strategy), is the current definition of how the IT department will be equipped to fulfil the organisation’s needs - in-house or bought or outsourced software, in-house or external or cloud datacentre, high level skills needs etc. The IT Strategy should be so abstract that it is difficult to predict forward costs or technologies because it retains the flexibility to serve the business as direction changes, and should generally avoid long-term technology investments because today’s decision may be quite inappropriate three years from now.

Which brings me to where I was going.  Organisations, particularly Finance leaders, want a forward view of IT commitments, they want to understand and limit, and if possible reduce, the bottomless pit that is the IT Budget. IT is expensive, especially “enterprise systems” (the core business systems of Financials, Enterprise Resource Planning, Customer Relationship Management etc.). Having “Strategy” requires forward planning which can be challenged to minimise requirements, and commitment to a financial path from which deviation can be discouraged in order to enhance the financial predictability of what is commonly the biggest cost in business after the staff payroll. More often than not IT Strategies are little more than a basis for predicting the change in the IT budget.

These financial planning needs come right to the fore when selecting new systems. For example a new CRM system might cost a larger Isle of Man organisation anything between a hundred thousand pounds and half a million, and at a superficial level the diversity of options may seem functionally similar. Given the choice, and without a strong understanding or knowledge of such systems to aid discrimination in the selection process, the MD and FD are likely to plump for the lower end of the price range - who wouldn’t. The problem arises when we start considering the possible needs of next year and five years hence - the biggest differentiation in the cost of enterprise systems is flexibility. The more flexible a system is, the more features it has (which you may not want now but might in the future), the more costly it will be to create and maintain, and therefore the bigger the price tag both in purchasing it and in configuring it to suit your specific business.

Foreseeing future IT systems needs is difficult; every leader wishes they had a crystal ball but IT leaders are amongst the most in need. Strategy is all about the future, and compensating for the lack of a crystal ball, because strategy is the art of how we create the future. This is why the IT leader must be closely engaged in the Business Strategy; it’s his best guide to what the organisation might need further down the road.

The Business Strategy must be the basis for the IT roadmap and all IT planning assumptions, but it’s still only a guide, so the IT leader needs to ensure that all plans include flexibility, which whacks up the price of IT systems big time. Therein lies the contradiction inherent in IT planning and budgeting, the continual pressure to minimise and reduce the cost of IT systems directly conflicts with the need to achieve real durability in order to amortise systems costs and flexibility to enable the changes in direction that every organisation must make as the environment in which it operates evolves.

Selecting systems then is as much about the compromise between cost and flexibility as it is about functionality. The system which provides a good match for today’s needs may be at the cheaper end of purchase options, but need replacing in a couple of years when the business changes, whereas a more expensive system may appear to have lots of extra bells and whistles which are unnecessary today but become really useful in five years time. The IT leader must be persuasive in arguing the case for affording that flexibility when investing in a new core system; but trying to defeat the desire of the Finance Director to reduce cost and win the case for long term agility is, without a robust business strategy, an exercise in futile speculation.

In many cases it is better to defer procurement of major systems until the business strategy is agreed, but that too is often difficult; many organisations trundle along for years repeating the same (hopefully) successful formula without much thought to the future, and IT systems changes won’t wait forever. Only a minority of organisations actually have and regularly maintain a clearly documented, understood and agreed business strategy.  

So what are the consequences of failing to take business strategy into account in IT decision making? The most obvious is that any system bought today will not be a good fit for the future - it may simply make the organisation less efficient because it fails to accommodate business process improvements or regulatory changes which emerge in the future and thereby create a need for more manual work-arounds. Worse, it will inhibit the organisation from changing business direction when it needs to, because enacting the change first requires the replacement of IT systems - which is almost always slow and expensive. Lack of IT system flexibility result in higher operating costs and reduced ability to react to environmental changes or exploit market opportunities - and notably has been the direct attributed cause of the demise of several major businesses, in some cases globally recognised brands, over the past couple of decades. Short-sighted and penny-pinching IT systems decisions, or sustained under-investment in IT systems, is a proven way to kill companies.

None of us wants to spend a few hundred thousand pounds on new IT simply to have to replace it in a few years because our needs have changed - new regulations, new (post Brexit?) markets, new online competitors and disruptors, etc. Therefore decisions about IT are very strategic, but they need to be a direct output of the Business Strategy rather than some “IT Strategy” cooked up by the IT leader to satisfy the financial planning needs of the Finance Director and the board. This, the most common sort of IT Strategy, is a usually a waste of effort in the first place and will probably achieve little except to lull the organisation into the belief that the future, of IT at least, is predictable when nothing could be further from the truth.