IT is eating corporate strategy

IT has never been a bigger part of what a company does to compete. That doesn’t necessarily mean the IT department…but your information technology, no matter how it gets delivered and by whom. Driven by social, mobile, big data, and whatever comes next, IT is more core than ever.

Will that continue? In order to see the future more clearly, it’s almost always helpful to look back — and this certainly goes for IT and its ever-increasing impact on operations, and ultimately on competitive advantage.

“Information Technology Changes the Way You Compete” was a trailblazing HBR article by Warren McFarlan back in the early 1980s. It told how American Airlines and others had introduced systems to help their customers choose their products and services. These “channel” systems helped steer business to American Airlines. Their strategic use of information technology (IT) presaged the dot.com boom of the 1990s when the Internet made this kind of online ordering commonplace. IT went from being a potential source of competitive advantage to being a necessity for competitive parity.

Similar waves of innovative applications of technology (e.g., ERP systems, RFID, knowledge management, business intelligence) have washed over organizations. As with American Airlines, each competitive advantage with IT is temporary. Competitors copy or suppliers commoditize to erase these advantages. The only competitive advantage comes though agility, keeping ahead of the competition, moving on to the next technology wave.

Yet with each wave, the criticality of IT to basic operations and delivery of service to customers continues to escalate. And the new waves of technology keep on coming: social, mobile, cloud, and Big Data promise to raise organizations’ competitive capabilities and dependency on IT further. Every organization in every industry is becoming digital, and IT management is core to these organizations’ delivery of services: bringing new functions and services to market faster; taking advantage of information, increasing transparency; reducing costs and increasing consistency and reliability by making processes faster, cheaper or less error-prone through automation; and increasing collaboration within the organization and with the entire value chain of partners, both forward to customers and backward to suppliers.

This trend toward ever more critical reliance on IT is not only transforming the idea and practice of corporate IT, but has disruptive operational implications for every manager. In a previous post, I described the shift in roles as ING, the Netherlands bank, moves from a traditional method of developing new systems in major steps — with design documents and functional specifications thrown over the wall — to making quick, small changes to systems (using “Agile Scrum”). Managers can no longer take months to develop requirements, then wait for IT, then tell IT that wasn’t what they wanted. Now, instead, at ING they say, “Here’s your team. You need to be in every daily or weekly Scrum cycle or sprint to decide if the work is meeting your needs.” ING’s change is less a paradigm shift in development (many companies have tried similar approaches such as prototyping in the 1980s and rapid application development in the 1990s), and more of a shift in responsibility for IT — from the IT organization to the core business.

Of course, the trend toward mission-critical reliance on IT is indeed shifting the actual role of the IT organization. In the old days (the 1980s and 1990s), the IT organization was all about managing the technology itself: choosing which vendor’s product to buy, then cobbling the products together. In this earlier mode, the IT organization was opaque, inside its silo, taking orders, and controlling costs and risks. But the reality for most organizations today is much different: they are using IT to enable differentiated customer value, so the IT organization must be transparent, collaborative, and accountable for business results and service, with a higher tolerance for risk. And in most organizations, IT commodity services have been placed out of the company, so that the IT organization has been transformed from owning IT resources to procuring IT services and managing IT vendors.

So, where is managing IT for competitive advantage going next?

I believe that IT will become a more integrated operational component of delivering business results, as at ING. Instead of thinking about driving value from the perspective of IT, or HR, finance, sales, or operations, leadership teams will think about a problem they want to solve or a process they want to change, and then align the full breadth of services (IT, HR, operations) needed to accomplish it. Paul Dachsteiner, the Vice President of IS at ice hockey equipment maker Bauer Performance Sports, told me, “Instead of being called IT, I’d rather be lumped into a pool of resources called Business Support or Operations and not differentiate between departments. Just consume resources that help you drive to the desired business value.” The IT organization’s role will be to manage the delivery and servicing processes, and to assure that the jigsaw pieces that the local fiefdoms in the business develop can fit together.

This will mean that business executives will need to continue to build their comfort with managing IT more directly, instead of relegating it to a “black box” or separate organizational silo, and throwing requirements over the wall. My friend Craig Bickel, Principal at IT strategy consultancy WGroup told me that: “While functional responsibilities will remain specialized, innovation, implementation, and value realization must be shared between the business and IT.” And IT will need to continuously reduce its spending on “keeping the lights on” to free up resources and mindshare for innovation and problem solving.

To sum up, how “IT Changes the Way You Compete” is the same in many ways today as it was 30 years ago, as new waves of innovative technology wash over organizations. What’s different today is that these successive waves of tech applications have left every organization with a critical core of digital capabilities. Now that IT is essential to the execution of nearly every job, as we move into the future, managing IT will be an even bigger part of your job.

This post first appeared on the Harvard Business Review and has been lightly edited.