This is the second installment in a series of observations about how an organization’s operational capability impacts business performance. In Part One (at this link) we explored the basic concept of strategy and suggested that operational capability is an absolutely essential component of business strategy.
Here in Part Two we expand on that idea and offer a history lesson showing how information technology exploded out of the “back room” to become a strategic resource in almost all commercial and public-sector organizations by the beginning of the 21st century.
[An “Oxymoron” (from the Greek ὀξύμωρον, "sharp dull") is of course a figure of speech that is self-contradictory. Common examples include “jumbo shrimp,” “living dead,” and “open secret.”]
Last month (at this link) we cited Professor Michael Porter of Harvard University, a widely recognized expert on business strategy, to highlight what makes a business activity or resource strategic. Based on his analysis we suggested that there are nine different ways that an operational activity can affect business performance. However, for now let’s just focus on the six most important factors:
(inspired by Porter’s seminal article in Harvard Business Review, “What is Strategy?”)
Strategic business success is measured in many different ways: market share; customer satisfaction; revenue and profit growth; employee attraction and retention; and public, or brand, reputation. Note that none of the six factors shown above is inherently strategic; it is only when a factor is central to a particular business strategy that achieving it makes a specific function strategic in its business impact.
To understand how these factors can affect a functional area, recall how the IT function (and technology itself) exploded out of the back room and landed in the board room between about 1975 and 2000. Let’s consider how IT impacted just three of these factors, and how those changes dragged senior IT executives into the executive suite.
Major impact on cost
Once upon a time information technology was essentially an accounting resource; its early use in business was to keep track of financial expenditures and, occasionally, to record product inventories and sales. Those were clearly “back office” bookkeeping activities. It wasn’t until technology was applied to core business processes like order entry, production scheduling, graphic design, and financial asset management that it began to have a truly significant impact on cost and capability.
Now, in 2012, technology is the primary interface between many businesses and their customers; the worldwide web has become the “storefront” and the brand, the checkout line, the cash register, and the customer service arm of most retail businesses. And the cost of those activities and processes is just a fraction of what it used to be.
But the impact of technology on operating costs isn’t just significant; it has been revolutionary. Just look at how companies like Amazon, Intuit, eBay, Visa International, Google, Facebook, Ford, and Apple have completely re-invented business models in industries as diverse as publishing, banking, music, home-based businesses, retail sales, and even manufacturing.
Attracting and Retaining Talent
Technology also has a deep and profound impact on talent attraction/retention. While basics like competitive salaries, benefits, and an organization’s “brand” do make a difference in recruiting, they have become little more than table stakes. What most job seekers are looking for today is a company that will equip them with modern, efficient mobile devices, hook them up the Internet and the internal corporate databases, and enable them to get their work done any time, any place.
Any executive team concerned about attracting and retaining the best talent (no matter where that talent is located) has to include its technology capabilities in its strategic thinking.
Enabling Creativity and Innovation
Certainly creativity and innovation have become strategic imperatives for any business competing on the global stage in 2012. Success today is driven by new products that are designed and produced more quickly than the competition, and marketed with distinctive global campaigns (think of Apple and Cisco Systems and Nike and Facebook and Google, among many other success stories).
Once again IT makes that possible. Technology tools give the workforce the power to find and create information—and to collaborate with peers all over the world—far more cheaply, more effectively, and more quickly than ever before.
As organizations have learned to apply technology to these (and other) strategic imperatives, IT organizations and their senior leaders (the CIO, or Chief Information Officer, and his/her staff) have become central to conversations about strategy in the C-Suite and at the Board of Directors level.
Did CIO’s have to push their way into the Board Room? Not really. In most instances they were invited in because senior business executives realized what a strategic resource technology was.
But it wasn’t just a matter of opening the Boardroom door and walking in. IT executives, and their vendors/service providers spent many years, and gobs of financial resources, educating business executives—not only about what IT could do for the business, but what kind of organizational resources and skills it takes to create reliable, high-quality technology platforms.
And remember that, while IT had been contributing to improved business performance all along, for many years the productivity gains were relatively minor and incremental. It wasn’t until Michael Hammer’s now-classic Harvard Business Review article “Reengineering Work: Don’t Automate, Obliterate” (July 1990) that organizations finally began using technology not just to improve the way they did things, but to revolutionize their business processes and actually to do completely different things.
For example, I once helped a life insurance company reinvent the way it sold policies and processed policy applications. When we started examining the steps in a policy application we uncovered a paper-intensive process that typically took about 34 days from application to approval. When the reengineering team was finished with its “obliteration” of current practice, the entire process took less than 48 hours. That kind of order-of-magnitude reinvention wasn’t simple performance improvement; it revolutionized the company’s standing in its industry.
I have witnessed some bloody budget battles and even seen some CIO’s lose their jobs over their failure to meet project plans or even simply to achieve competitive parity.
Without belaboring the point, IT did not become strategic by fiat, or by simply claiming that it could make a difference to the business. IT leaders earned their place at the table by developing high-quality enterprise systems, by innovating beyond their competitors, by understanding how to use IT to create strategic business advantage, and by ultimately making a difference in the business’s bottom-line performance and competitive positioning.
That, I submit, is the challenge facing other functional areas like HR and CRE/Facilities. It’s not enough to believe in your strategic value. You build credibility and influence by educating your peers and the C-Suite, and then by demonstrating how you can directly impact the activities, processes, and people in your organization to create new strategic value for your customers. Unfortunately, that is a much easier concept to describe than it is to implement.
It’s not easy being strategic. But is it worth it? Of course.
What do you think? Please send your comments directly to me or post a comment here. I look forward to learning from you.