IT Must Provide a Strategic Edge

By Lionel Carrasco

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By the beginning of this decade, corporate spending on IT consumed almost 50% of capital expenditures. And even with the subsequent seesaw of IT spending since then, the corporate world still bleeds cash for IT: more than $2 trillion dollars a year plowed into IT spending.

If the definition of a successful business is unlimited spending in the name of innovation and effectiveness, then IT is a howling success. It is IT that has gained the merit of the now common phrase: “IT shows up everywhere except in the bottom line.”

However, there is no successful business these days, large or small, that can exist without it. But, to serve as a strategic advantage, IT must transform itself from a necessary but costly evil to a true source of competitive advantage. IT must first and foremost give every business a strategic edge that its competitors cannot match.

With balance sheets displaying more than 50% of capital expenditures plowed into IT spending, turning IT into a source of strategic advantage sounds attractive to senior executives. As such, it is the talk of the executive suite. Furthermore, it is the most visited subject of the leading management gurus of the last 10 years. All well and good, but there is trouble in paradise.

While strategic advantage is still the high calling, cost reduction and dealing with an unwieldy backlog of IT projects is central to the CIO’s agenda today. Even when CIOs are sitting on the executive council playing the role of main advisers envisioning corporate strategy, back at their desk they remain ultimately responsible for all the less strategic components—IT projects correctly defined, costs contained, and projects being completed on time and on budget.

So, in spite of all the talk about strategic advantage, most CIOs feel forced to shove business innovation and competitive advantage to the back burner while they concentrate on day-to-day execution and cost reduction.

Practical Avoidance

The key to avoiding this situation is to embark on a journey to increase the value of IT. Whether a small, medium or large enterprise, this should be at the top of the agenda of CIOs. Here are a couple of steps to put companies on the right track.

Understanding the business: Starting with a good view of how the business works, CIOs need to devise how value is created, and how IT can support the engine that drives increased value.

In the capitalist world, increased value typically comes in the form of profitable growth. It is about understanding how IT capabilities help improve customer satisfaction and retention, and improve access to information for decision making and enhanced logistics. Given that understanding, IT leadership can assess whether the initiatives proposed or pursued are really aimed at creating value.

Establishing a clear direction and focus: Value is an abstract concept, but CIOs must have a clear direction. Large and complex enterprises require a sophisticated portfolio of initiatives and processes to support the value creation engine.

IT leadership must make sure that all of these tasks are anchored in a well thought out program that is aligned with corporate strategy and focused for a seamless execution.

Understanding how value is created: With a good understanding of how value is created and with a clear direction, the next step is having a clear view of the contribution of each IT initiatives.

At any given moment the IT portfolio includes a combination of long-term transformational initiatives and an array of shorter-term business continuity maintenance projects. It is important for IT leadership to assign each initiative to one of the two different classes: transformational or maintenance.

Transformational are the key initiatives in the portfolio. They involve innovation and efficiency. The most senior management in the organization participate in the definition, launch and life cycle management of these projects.

Maintenance initiatives protect current investment and capabilities, and typically are aimed at keeping the enterprise running. They range from infrastructure upgrade to selective outsourcing of IT components to tactical level efficiency improvements.

Ultimately, it is the way in which organizations apply and use technology that derives the competitive advantage.

Lionel Carrasco is CTO of Neoris, a global IT consultancy, systems integrator, custom application developer and leader in emergent technologies. Carrasco has more than 20 years experience in IT consulting in the banking, insurance, transportation, retail, manufacturing and oil industries.

Director Miguel Galván Espinosa also contributed to this article.