The key question which a strategic approach to systems addresses is: ‘what role does IT strategy play in business strategy?’ The way in which it approaches that question is as relevant in a world dominated by the internet, the cloud and software as a service as it was when I first used it years ago.
The key principle in managing IT strategically is to recognise that different IT applications have a different role to play in supporting the business. This approach suggests we divide our applications into four main classes depending upon their role in the business and their contribution to competitive advantage.
Some applications are simply there to reduce the cost of doing something. Other than enabling a lower cost, they are pretty much invisible to the customer and of limited strategic importance – as long as they work reliably and efficiently. They simply do more efficiently what the business could (at least in theory) do manually. And this is where the first IT systems were developed (most probably still are). A classic example of this sort of system is the accounting systems. These systems are well managed by the Finance Director as we need them to be cheap, safe and secure.
By contrast, there are many businesses in today’s world where their whole strategy is built upon a competitive advantage achieved using IT. An extreme case is Amazon. They would not exist without their IT system and it and what it does is at the core of their business and their competitive advantage.
Factory systems sit somewhere between the two, probably closer to the support systems. Like the support systems, they enable the business to do what it does efficiently and reliably and contribute to business strategy through enabling cost to be reduced. Unlike support systems though, they don’t just do back office processing – they enable the business to deliver it’s core activity efficiently. As such, their security and reliability is absolutely critical. If these systems stop, the business stops immediately and will go out of business soon afterwards. They do therefore need very careful management. Classic examples are MRP and ERP systems. To demonstrate they don’t have to be in manufacturing, banking systems enable a bank to do it’s core activity and CV databases enable a recruitment company to find the right candidates in ways they could not do without systems.
These represent the future of the business. The systems are typically small and fast evolving. They may evolve into new factory or support systems, but most importantly could enable the business to change the market and gain market share. They are therefore really important strategically. However unlike other types of system they cannot be effectively managed if the safe and reliable approach is taken. Instead, such systems have to be managed in a way that allows for them to evolve quickly to meet market needs. Managing for reliability and safety will kill these systems at birth. Only once the concept is proven and the value demonstrated is it worth considering how to scale these systems up to operate reliably and safely.
This structure is well summarised by a table known as the McFarlan grid, see below:
Critical to sustaining future business advantage
May be important to future success
Critical to operation of business today
Needed for efficient back office operations
Key to strategic planning of information systems is understanding how each application a business uses fits into a balanced application portfolio and then managing each application in a way appropriate to that role. There should be a flow of development such that new turnaround applications give rise to strategic systems which, when mature, form new factory systems.
Because of it’s heritage, IT is often left to the Finance Director to manage. As a consequence, it is common to find that the core applications portfolio comprises mainly factory applications, with little in the way of strategic systems and no turnaround systems. Sometimes this is counterbalanced by a large number of other ‘unmanaged’ systems running on PCs and Smartphones. Sometimes those applications have evolved to become critical to the strategic success of the business. Great, but being unmanaged is a great risk too!
Finally, some questions for Managing Directors to ask about the applications portfolio in their business:
- Is the application portfolio balanced?
- Are there any quadrants which are under-represented?
- Why is there under-representation?
- What strategic applications are there?
- Are turnaround applications evolving within the organisation?
Written by Bob Bradley, founder of MD2MD.
At MD2MD we understand that our members and their businesses have varied needs. We have four different membership plans to choose from, each offering a unique blend of our numerous events and services.
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