Aligning Technology with Business Objectives For Greater Competitive Advantage — Joe Santana

In today’s business environment, technology investments can be a huge source of competitive advantage for you or they can drain your capital and other valuable resources.

In 1987, MIT Professor Robert Solow, a winner of the Nobel Memorial Prize in economics, noting a low-to zero productivity-impact in many companies making large technology investments made the following statement, which came to be known as The Solow Paradox: "You can see the computer age everywhere but in the productivity statistics."

A close examination of the details reveals that the big culprit behind this lack of productive benefit from IT in these companies is the lack of IT alignment. In other words, it is the result of these companies spending a large portion of their dollars on IT products and services that do not support their business objectives.

Morgan Stanley recently reported that in the two years between 2000 and 2002, U.S. companies spent 130 billion dollars in software and hardware that they ultimately found they did not need to support their businesses. According to figures by Gartner, this number jumps to 540 billion dollars on a global scale. Meanwhile, these same companies that were spending billions on technology they did not need, failed to gear up on technology they needed to capture new business. A survey by META Group, a well recognized member of the IT analyst community, tells us that two out of three business deals have had to be passed over by companies because their IT functions were not geared up to handle the business.

With these facts in mind, it’s not surprising that alignment has been a long time top concern of the CIO community as well as other C-level executives. How can you ensure that your IT investments are made in a manner that will increase your competitive advantage instead of wasting your scarce and valuable resources?

Addressing the challenge

Here are three simple steps you can take to attain alignment so that your IT investments are focused on providing you with optimum competitive advantages, while minimizing waste:

1. Clearly identify your three to five business objectives. Be specific and concise. For example one of your objectives might be to grow your revenue this fiscal year by 15% with your existing clients. Another might be to increase your market share over the next two years 10% by developing a stronger selling proposition relative to your closest competitor. The key is to make these very crisp and clear business-focused objectives.
2. Allocate your IT investments across one of three portfolios or investment buckets using a financial portfolio management metaphor. In essence the goal of using a portfolio management metaphor is to enable you to allocate dollars and manage investments in a manner that supports your company's overall business strategy. Here is a brief overview of each of the three key portfolios components of an effective IT portfolio strategy developed by Dr. Howard Rubin, EVP and Board Member of Meta Group: The Run-the-Business Portfolio. This is where you should put all IT investments you need to operate your business that do not differentiate your business in the marketplace or help your business evolve into new markets or competitive arenas. Examples of IT investments that generally go into this portfolio include email and repair services. What these services generally have in common is that while you need them to be in business, they do not give you a competitive advantage relative to meeting your business objectives. (Investments that fall into the Run-the-Business portfolio are generally prime candidates for outsourcing. For more on how to make the outsourcing decision got to http://www.joesantana.com/small%20business.pdf and read the article, “Lose Control, Gain Sanity.”

   The Grow-the-Business Portfolio. IT investments that enable you to grow your current business through such things as gaining more market share, selling other products and/or services to your existing clients or increasing your profitability and revenue from current operations belong in this portfolio. Client Relationship Management tools and Point of Sale tools may be candidates for this portfolio in many businesses.

   The Transform-the-Business Portfolio. Any IT investments you make or plan to make that are focused on helping evolve your company toward a future strategy go into this portfolio. For example, this is where many companies using this model, place future strategy mCommerce investments. Generally investments in this portfolio are aligned with longer-term business strategies, such as creating new markets or moving the entire company into a new industry.

3. Manage your IT investments based on how they support your business objectives. Once you’ve categorized all your investments, you are in a position to start aligning them more closely with your business objectives. My advice is that you outsource everything that falls into the Run-the-business portfolio to the supplier that can provide you with an acceptable quality of service at the lowest cost. By doing this, you will save money on these non-differentiating services which you can re-invest in the portfolio that best supports your business objectives. For example, if your business objectives call for growth, place the largest portion of your IT investments, including savings resulting from outsourcing your Run-the-Business services, into the Grow-the-Business portfolio and manage these investments for top returns. On the other hand, if your focus is on transformation, place the larger share of your budget into the Transform-the-Business portfolio and manage these as long-term strategic investments.

   Technology today is tightly interwoven into the fabric of your businesses. It plays a huge role in the success or failure of your organization. By starting with a clear alignment plan and following through with a well crafted strategy that leverages all of your people, process, technology and outsourcing supplier relationships, you will position your IT investment toward giving you the maximum competitive advantage you need to succeed!

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