Beyond Cost Containment - The Strategic Enterprise

The era of traditional information technology systems based on the legacy of mainframe data processing is over. In its place is a dynamic, enabling infrastructure that becomes the engine of organizational innovation. When IT processes rather than business processes define the organization and create artificial limits and inertia, the investment in technology assets ceases to provide business value and become just another cost of doing business. The relentless effort to drive costs out of IT in the new millennium has created an efficient ecosystem optimized to the current state. But in the coming era, organizations must go beyond cost containment to achieve operational agility or face functional obsolescence. In his book “Information Productivity”, author Paul Strassmann documents the lack of correlation between information management investments and profitability or shareholder value.[1] In other words, investments in technology alone (and their associated infrastructure and supporting personnel) do not provide direct strategic value. It is the manner in which these investments are made that add real economic value to the enterprise.

The challenge moving forward is to transform the IT asset into a strategic tool to drive innovation, leverage human capital and create competitive advantage. It is no longer acceptable to adopt a “do more with less” strategy and expect the organization to flourish. A cost control mind-set will doom the organization to the ash heap of corporate also-rans. Investments will need to be made in developing a strategic enterprise that not only functions adequately but becomes the primary strategic asset to boost returned value to shareholders.

The Internet is a primary factor driving the need to adapt and innovate. Access to customers is unprecedented and web browsers are agnostic when it comes to traditional marketing and brand messaging. The evolution of social networks and the reliance on third party reviews and endorsements has created an environment where organizational agility is essential to capitalizing on new trends and shifts in both consumer and business spending. Mobile Internet devices (MIDs) are now projected to become a major product category in the coming years as both capability and connectivity increase while prices decline. The ubiquitous access to information and entertainment will provide new opportunities for those positioned to capitalize. The convergence of fun with function, voice with video and audio in the welter of the wireless spectrum will fundamentally change human culture on a global basis. The coming years will see a veritable tsunami of technology emerge into the mainstream enabling new products and services never before possible.

The Strategic Enterprise is a new way of describing the information technology engine of tomorrow based on the new paradigm of competitive advantage. Just as the internal combustion engine enabled new transportation paradigms and shrunk the planet, the Strategic Enterprise will drive innovation, leverage human capital and create competitive advantage. Rather than simply provide a service to the employees of an organization as a cost of doing business, the Strategic Enterprise fosters, motivates and encourages a relentless pursuit of new ideas.

Innovation: The inertia of the old paradigm that kills innovation - because the amount of effort to birth a new idea is greater than the perceived reward - ultimately kills the sources of innovation. On the other hand the Strategic Enterprise anticipates a fruitful flow of new ventures and fosters innovation by removing road blocks and encouraging a “what-if” mind-set. Operational excellence is maintained in the core production ecosystems, but new development labs that provide access to information assets and allow proof-of-concept testing to take place with a minimum of procedural resistance are required. Organizationally, a staff of system architects and business analysts are tasked with continuously interacting with application consumers – both internal and external – to evolve the ecosystems in innovative ways that drive up returned value to investors. Finally, IT assets and infrastructure resources are designed from the ground up for agility, allowing rapid provisioning of new platforms, better manageability and enabling an efficient tiered support structure.

Leveraging Human Capital: One of the most important things a Strategic Enterprise does is to improve the productivity of the human capital within an organization. Technology can provide key tools to allow collaboration and communication across geographies that reduces travel time and costs, and brings the institutional knowledge and human capital closer to the customer. Knowledge management systems can democratize intellectual property and enable rapid deployment of best known methods across departmental boundaries. As communication and collaboration tools mature, support for mobility in the workplace will free up time and creative energy that will result in better customer experiences, increased value of each knowledge worker and ultimately higher margins and profits.

Competitive Advantage: Perhaps the least understood and most controversial aspect of the Strategic Enterprise is the notion that information technology assets (equipment, applications, infrastructure and people) can be deployed in ways that create above average pricing, profits and shareholder value. Competitive advantage can be created by leveraging technology to do more than your competitors do and thereby reduce unit costs relative to the market; create unique services or products not available to your competition; or command higher prices than the market would otherwise indicate at a given supply/demand point. Going one step further, the Strategic Enterprise gives high priority to innovations resulting in sustainable competitive advantage. This occurs when the advantage is gained over the long term through a regular cycle of reinvention. A common characteristic of companies with sustainable competitive advantage is that more money is spent on growing new capabilities than is spent on sustaining the current state capability.

The ability to evolve into a Strategic Enterprise is dependent on the corporate mission and vision and on the ability of the firm’s top technical architects and system engineers to think strategically, providing an environment where the best ideas can flourish without worrying about who gets the credit. It is not so much a matter of specific technical expertise, but the visionary leadership combined with innovation and operational excellence that propel the enterprise to become an enabling driver of increased shareholder value.

In coming posts, I'll talk about specific examples and tactics to in each of these three areas to help you on your own journey to the Strategic Enterprise.

[1] Information Productivity: Assessing the Information Management Costs of US Industrial Corporations”

1999 Paul A. Strassmann Published by Information Economics Press; pgs 15-18. Updated rankings of US public corporations’ information productivity can be found at www.baselinemag.com.