Investment, business technology and strategyBy BTM Institute Staff Writer | Posted 2008-07-09 Print
A conversation with V. Sambamurthy, Eli Broad Professor of IT and executive director, Center for Leadership of the Digital Economy, Eli Broad Graduate School of Management, Michigan State University.
Q. To what extent do investment levels across operating units reflect the role that business technology actually serves in enabling strategic positions?
First of all, investments in business technology in firms must be allocated across three different categories: enterprise investments, investments through the office of the CIO, and investments made through operating and business units. Though the relative proportion of funding from these sources might differ, firms should ensure that at least 40 percent of the total annual IT spend originates from the operating units. The enterprise spending is focused on large-scale initiatives that facilitate interoperability across the enterprise and build strategic enterprise-level information and process capabilities. However, business units are expected to use their sources of funding in specific business technology initiatives that will enhance their operating performance, e.g., enhance sales, reduce costs or improve regulatory compliance.
Though the roles of business technology in enabling strategic positions might vary, it is not clear that their business technology investment levels will vary significantly across the enterprise without creating resentment and governance problems.
What is more likely is their business technology priorities might be different and their access to ‘own’ funding [their own funding versus an organization’s overall funding] would enable them to pursue unique initiatives. Of course, the allocation of funding across the different categories would have to still be coordinated through an enterprise IT capital and operating expenditures approval committee, consisting of representatives from the corporate IT group as well as the operating units.
Q. Is strategic experimentation necessary as a means to better understand the roles served by business technology in acquiring and sustaining favorable market positions, and as a result, competitive advantage?
Strategic experimentation is one of the ways in which managers can better understand the roles served by business technology in acquiring and sustaining favorable market positions. Other ways include managerial intuition and foresight, vigilance about actions by competitors, and frequent dialogs with vendors to learn about emerging opportunities through technology.
Of course, strategic experimentation helps develop unique knowledge that the firm can leverage to greater competitive advantage. The downside is that experiments take time and money. Therefore, firms should evaluate when it makes sense to develop unique knowledge through experiments vs. leveraging external knowledge through vendor partnerships or observations of competitive actions.
Not all firms need to be lean or agile. Based on different levels of product/market competitiveness and stability, what are some of the risks associated within an organization that strives to be either lean or agile, when neither is required or applicable?
Significant emphasis on leanness locks in managers to a mindset obsessed with productivity, speed and continuous improvement. In doing so, they might blind themselves to new opportunities, or worse, ignore any ideas that might require the implementation of a new process or relationship. An excessive emphasis on leanness could cause firms to narrow their external focus and lose sight of fundamental shifts in business or technological environments. Over time, their cash flows could deteriorate.
On the contrary, significant obsession with agility could prove expensive and even cost a firm its competitive positions. Agility is expensive because of the magnitude of change and risk. Not all ideas are likely to be successful, and too much agility could drain the firm of money. More importantly, a perpetually agile firm could exhaust its managers. Externally, customers, vendors and suppliers could find the relationships with the firm to be expensive and difficult to uphold because of the frequent changes in products, services or relationships. Agile firms are more likely to become bankrupt because they are not able to establish and hold a position long enough to generate the needed cash flows.
The BTM Institute (www.btminstitute.org) brings together the academic, corporate, government and thought-leadership communities as a multidisciplinary research think tank to address the need to integrate business and technology.
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