Strategic IT - An Emerging Reality

by Amitabh Biswas

What factors spin us into the life-cycle of ‘Strategic IT’ from the age of supportive and reactive information systems? In simple words, what forces are gradually transforming  Information Technology into a strategic driver for  an enterprise? Although, the IT Strategic Management pundits acknowledge it as an emerging reality, the topic is replete with overheated rhetoric as to how it is happening. The emergence of ‘Strategic IT’, which focuses on the power of information technology as a competitive arsenal, had already become a popular cliché with a plethora of multi-directional views. To appreciate the dynamics, let us start from ground zero, the core parental concept – the corporate strategy.

What is a strategy ?

The term ‘strategy’ has its historical origin in the ancient Greece and it always had a combative and competitive context. In the modern corporate world, the strategy defines the direction and scope of the corporate game plan in the long run. it shapes the competitive advantage of the organization  through configuration of resources within a challenging environment, primarily to meet market needs and to fulfill stakeholder expectations. Some essential attributes of a strategic planning may be noted. It has a long term temporal horizon with a futuristic direction, and it is target driven, justifying mandatory presence of some defined vision/mission and goal statements. What is also important in the definition is the contextual reference to market forces where ‘competitive advantage’ is exercised. The corporate strategy formulation also should consider the internal resource endowments, external factors or forces impacting the market parameters and it should align with the internal stake-holders’ expectations. The approach to strategic management is top-down one and it is more a holistic than being a segmented or componential exercise.

Strategic management theories –a historical perspective

Different innovative strategic management theories evolved over time since World War II. The Game theory techniques (Neumann & Morgenstern,1944), primarily an Operations Research framework, and the concept of ‘learning curve’ fired the thoughts of management planners in late 40s. Later, during the 60s strategic management studies focused heavily on Kenneth Andrew’s SWOT analysis that emphasized on matching organization’s distinctive competence, embodying strengths, weaknesses with the opportunities and threats(risks) faced in market. In 1960 Theodore Levitt in his thought-provoking article Marketing Myopia came up with a critical view on SWOT saying that it overemphasized the aspects of product delivery based on competence, rather than consciously serving the customer, or what the market needs. In other words, he placed the importance of customer preference over the SWOT driven competence. Igor Ansoff in his 1965 article contradicted that model by arguing that Levitt was asking companies to diversify or invest into attractive product lines that might not fit the distinctive advantage it has. By the early 70s, we saw the concepts on ‘experience curve’ flourishing into Boston Consulting Group’s portfolio analysis theory, also known as growth-share matrix – the famous four quadrant analytics on ‘star’, ‘question mark’, ‘dog’ and ‘cash cow' performers - thereby providing strategic directions on what lines to invest in and what to divest off. Also in the seventies the focus gradually shifted to the factors like ‘market structural forces’ and the ‘market entry barriers’ ( shaped by product differentiation, economies of scale and absolute cost advantage by an established firm).In 1980 Michael Porter released his landmark book Competitive Strategy containing his elaborate framework for the structural analysis of industry attractiveness. He enumerated five key competitive “forces” – (I) Entry Barriers (ii) Suppliers Bargaining Power (iii) Threat of substitutes,(iv) Bargaining Power of Buyers and(v) Factors affecting industry competition – that shape the competitive strategy and determine the competence to achieve a strong strategic position. Porter also propounded his ‘Value Chain’ analysis, emphasizing that competitive advantage stems from many discrete activities a firm performs in designing, producing, marketing, delivering the product and services, each one contributing to company’s relative cost position and how it can create a basis for differentiation. Alongside Porter’s outstanding framework, two streams of thoughts in the literature of strategic management had cast strong analytical impacts. One of them is the Critical Success Factor analysis, popularized by Rockmart & Daniel. As a definition, critical success factors refer to "the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization” and they can function as important strategy triggers.The other school of thought, lead by well known resource-based management gurus C K Prahlad and Gary Hamel emphasized the model of ‘core competencies’. According to them, in short run the company’s competitiveness derives from price/performance attributes of current products, whereas in long run competitiveness derives from the core competencies that spawn unanticipated new innovations and products.

IT - from a derivative function to a strategic contributor

Having traced the historical path how the theories of strategic management evolved over time, now let us raise some important questions: how does corporate strategy relate to Strategic IT planning? In the backdrop of the over-arching corporate strategy, what is the position of the IT division or department as a strategic contributor? According to the popular belief of the past century, IT is a passive enabler or supporter to the overall strategic management schema with least direction-enforcing capabilities. But it is not true any more. Now, it is not a subsidiary or supportive appendage to the key business functions like manufacturing, logistics and finance. The corporate analysts who once viewed IT as one playing subservient or adpative role, gradually started talking about IT’s alignment and collaboration with business. With IT experiencing massive evolutionary and revolutionary change over the past few decades, that too at an unprecedented speed, the environmental and structural dynamics have undergone a sea change. From just playing a mere passive and supportive role, IT as a discipline has been, at a fast pace, emerging as a strategic collaborator or partner in  managing strategies for many corporations. The fact is that IT is now playing proactive and dominant roles in shaping organizational strategies and defining competitive advantage.

The factors that make IT strategic

Let us try to enumerate the factors that contribute in making IT’s role as strategic, by turning it into a driver of competitive forces.

Enabler of business process efficiency – With the unprecedented growth and development of IT - in the spheres of hardware, software, operating system, ERP , ITIL /ITSM, project management methodologies – it has become the enabler and enhancer of business processes that drive the critical success factors and define the competitive advantage.
Cooperative Information systems – Competitive strategies for exploiting synergies with customers and suppliers generally concentrate upon the integrative effectiveness of the business processes. IT made this Inter-organizational and intra-enterprise integration possible. For example, the ERP system seamlessly integrates vital key processes like manufacturing, logistics, finance, supply-chain,CRM and others. On the other hand, the advanced middleware architectures and web services make integration and collaboration between disparate business systems and applications a reality, unleashing a synergic force.
IT‘s progression in the CMM path - The CMM maturity model, which is based on CobiT Framework, discusses five evolutionary stages of progression of information technology. The maturity level ranges from Initial or Ad hoc (1) – Repeatable(2) – Defined(3)- Managed/Measured(4)- Optimized (5), in terms of software development capability. Higher the maturity level of IT as a division or department, higher is the strategic planning capability of the IT organization, higher they are likely to leverage IT for strengthening their competitive advantage.
Identity of IT as one being service oriented – Unlike in mid eighties when IT was merely considered as infrastructure provider or repository of data, now information technology has evolved into a service provider. Any outcome of IT is recognized as a‘service’, an entity that can be standardized, commoditized, transacted, evaluated and professionally managed. The evolution of ITIL and the ISTM system had strengthened the aspects of service orientation of the discipline.
IT’s power to add unique value and create bargaining advantage – IT has been capable of sharpening corporate bargaining advantage by encapsulating unique ‘knowledge-driven’ value within the products and services, which make switching to another competitor costly for a customer. In other words, this value addition amounts to a kind of product differentiation; so that for a customer it increases the switching cost to another competitor. IT is no more meant for ‘data’ storage, nor even for providing discrete ‘information’ systems, but it has matured into providing an aggregative ‘knowledge system’. It has been a journey from mastering ‘data’ to harnessing ‘information’, and then to rendering a solution packaged with ‘knowledge’. Now, IT applications are packaged with advanced help system, training manuals, workflow guide and elaborate intelligence and support framework. This capability adds a qualitative layer and a distinct value addition, there by providing the organizations the opportunity to differentiate in production and services offering and define a unique scheme of competitive advantage.
Internet, IT’s own power-dome – It is IT’s own landscape, the internet, where corporate battles are increasingly launched. More and more organizations are choosing the cyberspace as their competitive platform. More an organization uses internet in its business process,  the IT - as the department or a division – inescapably plays more strategic role, which  makes 'Strategic IT' a pulsating reality.