Jul 2, 2013 ... IT is no longer just a tactical function, but rather a strategic objective. IT strategy
need not be a daunting task - it can be as simple as ABC: align ...
Africa Advisory Services Strategic Direction July 2013
The A, B, Cs of information technology (IT) strategy Scope of work The Strategic Direction team at EY offers its perspective on IT strategy and what it means, particularly in the banking industry. The team provides insight and a point of view on the increasing importance of having an IT strategy in the digital age. The report attempts to demystify the differences between an IT strategy and the overall business strategy, how an IT strategy is formulated and the common technologyrelated challenges that managers face today. Contributors: •
Michelle Mfuni Senior Manager
[email protected]
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Nyain Swe Senior Associate
[email protected]
Technology is pervasive and, in today’s world, every organisation is in some way affected by it, regardless of market, industry, size or maturity. The digital revolution has torn down barriers to entry and has leveled the playing field. Large companies now face competitive pressure from smaller start-ups that are able to take advantage of cost efficiencies and new business opportunities that technology has enabled. CIOs today, therefore, have a greater role to play and have a say in boardroom decisions. IT is no longer just a tactical function, but rather a strategic objective. IT strategy need not be a daunting task - it can be as simple as ABC: align IT strategy with business strategy, build the IT strategy framework and continuously improve the IT strategy and infrastructure.
1. Align the IT strategy to the organisation’s strategy In the early 19th century, the industrial revolution enabled mass production of products and improved efficiencies through the use of machines. Today, machines are yet again at the focal point of providing organisations with cost advantages and improved productivity. The real added value this time is their ability to gather, process and transform data into meaningful information. More importantly, it is their ability to provide connectivity across the globe and in real time that has helped organisations expand geographically and tap into new markets over the last few decades. It would be remiss of organisations today to ignore the growing importance of IT and the need for an IT strategy within the firm.
Demystifying IT strategy Simply put, an IT strategy relates to the decisions around IT infrastructure and the corresponding IT investment choices for the firm. A successful IT strategy is one that supports and complements the business’s overall vision, mission, goals and objectives. The IT strategy must, therefore, be closely linked and aligned to the overall strategy of the organisation. It is safe to say that while the overall strategy guides and informs the formulation of an IT strategy, it is also a collaborative effort between the business and IT executives. CIOs are taking a more active role in the boardroom, and management is acknowledging the benefits of making IT investment decisions that will ultimately yield long-term value for the business.
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Organisation strategy Two-way communication
IT strategy
IT infrastructure investment decisions Figure 1: IT strategy and business strategy are closely linked, and one informs the other
External forces
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Internal forces
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Customers: demand more customisation, faster response times, seamless transactions and convenience at their fingertips (e.g., banking apps)
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Mobile workforce: employees can be connected to clients and co-workers at all times without physical location being a constraint (e.g., wireless connectivity and in real time)
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Technological trends: new technologies open up business opportunities and distribution channels that were previously unavailable (e.g., telephone, internet and mobile banking)
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Cost efficiencies: data processing is improved considerably and automated processes reduce costs (e.g., desktop loan approvals and virtual offices)
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Competitors: IT has created equality and has brought down the cost barriers, paving the way for new entrants into the market (e.g., micro-lenders)
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Geographical expansion: an integrated IT platform enables banks to connect their offices seamlessly across countries (e.g., collaboration platforms and shared services)
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Regulation: the banking industry today is highly regulated and has stringent guidelines for compliance and data privacy, with flexible IT systems helping banks to respond to changes in regulations timeously (e.g., checks and controls in the system)
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Risk and compliance: safeguarding of IT assets, implementing a strategy for disaster recovery and having systems in place for data privacy (e.g., data encryption and security firewalls)
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2. Build the IT strategy framework Addressing these external and internal forces requires organisations to formulate their own IT strategies. Although there are no hard-fast rules to this process, five basic steps have been identified. Throughout this process, all affected departments and stakeholders need to be involved, providing input on resource allocation, availability and attainability of goals.
Transformations of this nature are never an easy task, and management needs to be aware that careful planning and coordination is required. Potential risks need to be identified and anticipated, along with measures for mitigation. The five steps serve as a guide and should not be viewed in isolation. In-depth analysis of the organisation and its objectives needs to be made, as well as the costs and benefits.
Steps
management must take in order to develop and implement an effective IT strategy
1
Formulate the overall strategy
The most important thing here is to remember that both business and IT executives need to be involved in formulating the overall business strategy. The IT strategy must be aligned to the overall business strategy. It is, therefore, of utmost importance that, throughout the IT strategy formulation process, the vision, mission, objectives and long-term goals of the organisation are considered.
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Understand needs and capabilities
As with any transformation, the status quo and the desired end state need to be clarified and understood by all stakeholders. It is also important to bear in mind the capabilities of the organisation, and assess whether the goals are attainable and realistic within the set time frames.
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Identify stakeholders
Affected units or areas must be identified and all stakeholders (internal and external) consulted in order to get them on board the transformation process. Communication is one of the key activities during this process, as it garners support and cooperation and ensures alignment among all stakeholders.
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Explore options and plan the IT strategy
During this stage of the process, management needs to decide on the level of integration required for the new IT infrastructure. Options need to be explored, and the benefits must be weighed against the costs. An effective IT strategy that cannot be easily replicated by others provides the organisation with a competitive advantage. Decisions also need to be made around a phased approach versus a “big bang” approach.
Implement IT strategy and review
Once the appropriate option is selected, resources need to be allocated along with the prioritisation of projects. During the implementation phase, it is important that the transformation is made as smoothly as possible, without major disruptions to the normal operations of the business. Throughout this process, performance must be tracked and measured to ensure that the IT strategy is aligned to the organisation’s strategy. Upon completion of the transformation, management must ensure that it is continuously improved and reviewed as technology changes.
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Three IT strategy options
Figure 2: Proposed options for a suitable IT strategy
Depending on the level of sophistication of the organisation’s existing IT infrastructure and the extent of the transformation that is desired, three possible options are identified.
The size of the bubble is indicative of the level of complexity and the effort required for implementation Fully integrated
Option 1: basic customisation This option is at the simplest level and the least complex of the three, but It may not qualify as an effective approach for long-term IT strategy. In this situation, the IT functions are either outsourced to vendors or the platforms merely integrated onto the existing IT architecture with minimal customisation. Option 2: gradual development Here, the process is more complex, and it requires extensive customisation of software and platforms that are integrated with the business’ processes. The IT infrastructure is also developed over time, and is seen as a continuous process that evolves and aligns with the overall objective of the firm. Option 3: fully integrated ecosystem The fully integrated option is the most complex and most difficult to replicate by others. This option requires the most effort and resources, as it not only involves the internal processes of the firm, but also integrates the wider, external ecosystem, such as the supply and distribution chains.
3 2
Gradual development
1 Basic customisation Low
Level of IT infrastructure required
High
The benefits must outweigh the costs and challenges of implementation
Managers are likely to encounter challenges during this process
Regardless of the option adopted, there are three main criteria for management to judge whether the IT strategy has benefited the organisation, or will do so:
As with any project, there is always the question of resource availability. One of the challenges in this respect is obtaining the financial means to execute the investment decisions in the IT strategy. Another constraint managers may face in terms of resources is getting the right people with the appropriate skills for the job. Decisions around doing this in-house or through a third-party service provider must also be made.
1. Customer: by implementing this change, how has the end customer benefited? Did the new IT strategy address customer needs, and is the organisation better equipped to deal with changes in customer preferences in a timely manner? 2. Business processes: how has the IT strategy added value to existing business processes? Are the business processes more efficient and are they user friendly for employees? Is productivity increased because of the new IT strategy and is it flexible enough to support long-term growth of the organisation? 3. Financial: does the new IT strategy help realise cost efficiencies through lower transaction costs and automation? Is the infrastructure built so that improvements can be made with minimal additional costs and disruption in the future? The chosen IT strategy is well worth implementing if value is created in each of these areas.
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Closely linked to the scarcity of resources is the prioritisation of projects. A reliable and unbiased mechanism for identifying priority projects needs to be established, along with the indicators on which the outcomes are assessed. A formalised and transparent process needs to be developed for project prioritisation along with the key performance indicators. There is also the question of accountability and responsibility for the IT strategy and implementation once projects have been identified. Change leaders need to be identified and incentives provided to this effect. There must be clear communication of roles and responsibilities and, ultimately, the CEO must sponsor this process in order for it to be effective. Lastly, there may be challenges around the alignment of the business and IT strategy planning cycles, if they have not been developed concurrently. These cycles need to be brought closer together in a combined planning effort between business and IT executives.
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3. Continuous improvement of IT strategy Once the organisation has successfully implemented the IT strategy it intends to follow, it must review it regularly and make the appropriate changes where needed to ensure that it remains aligned to the overall strategy of the firm. This is particularly important in the IT context, as technology changes at a rapid pace and, in order to stay competitive, organisations need to be at the forefront of developing technological trends.
Adopting new technologies and incorporating them into the long-term IT strategy of the organisation help it to remain current and relevant. The responsibility of continuously improving the IT infrastructure should not solely be placed on the CIO. It has to be a joint effort among all the decisionmakers within the organisation and, most of all, the initiative has to be sponsored from the top. Each and every individual in the organisation should be encouraged to provide feedback and suggestions on innovative ideas to help improve the existing IT strategy.
Conclusion An IT strategy need not be something that is only understood and acted upon by IT executives. A well-developed IT strategy should be understood by all and incorporate the inputs from various stakeholders within the organisation. Although an IT strategy is guided by the overall organisational strategy, it should still be a collaborative effort between business and IT executives. The process requires careful planning and clear lines of communication to ensure understanding and alignment. All key stakeholders need to be brought in to the process early on, and roles and responsibilities must be identified to prevent confusion and to ensure projects are executed according to plan. A cost and benefit analysis must be made to decide on the action to be taken, while keeping in mind the possible challenges that could arise. Rapid changes in technology require organisations to make continuous improvements to their IT infrastructure. Organisations that fail to do so run the risk of being left behind and their IT strategies becoming obsolete.
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