IT Strategy 3.

0:
Making IT
Relevant to the
Business Again
 The Evolution
of IT Strategy

Just a decade ago, nine of the 10 largest companies in the world

(by market cap) were not tech companies. Microsoft was the sole
entrant, and even then it came in at seventh place. Energy giants
like ExxonMobil, PetroChina, and Shell dominated the list.

Today, seven of the top 10 are tech companies, with Apple,

Alphabet, Microsoft, Amazon, and Facebook in the lead.
Technology has disrupted many industries—retail, automotive,
banking, travel—with many more to come.

The line between IT strategy and business strategy is blurring and

it’s a matter of time before they become one and the same.
An IT strategy without a business strategy is useless, and a business
strategy that is not directly integrated with technology is doomed
to fail.

The age of the business-driven technology strategy is here—we

call it IT Strategy 3.0.

Join us as we take a look back at the evolution of the IT strategy,

explore a five-step approach to an effective IT strategy for the
digital age, and discuss the principles for success in the long run.

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 IT 1.0

In its early days, information technology (IT) was a key enabler

of business efficiency. The primary role of IT was to automate
back-office business processes to make them more consistent,
scalable, and less labor intensive. The initial benefactor of
automation was finance, but it was soon extended to human
resources, sales support, manufacturing and the supply chain.
This era of IT soon became dominated by a handful of systems
for enterprise resource planning (e.g., SAP and Oracle),
customer relationship management (e.g., Siebel), supply chain
management (e.g., i2), and human capital management
(e.g., Peoplesoft).

During this period, a secondary role for IT emerged—enhancing

workforce productivity. Companies deployed an army of
desktop (and eventually laptop) personal computers to all of
their “knowledge workers.” The computers were networked,
and email was the early killer application. Microsoft won the
battle to bundle word processing, spreadsheet, and presentation
software together and Microsoft Office was born. IT organizations
were handed the responsibility of managing and maintaining this
extensive array of hardware and software.

IT strategy in the IT 1.0 era focused largely on the implementation

of ERP platforms, as well as its CRM, SCM, and HCM cousins.
Strategies also considered the deployment of broad
communications networks (both LANs and WANs) and support of
the new IT “end user.”

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 IT 2.0

The second era of IT (and the current era for many traditional
companies) grew from these early successes in leveraging
information technology. However, the value associated with
automation and personal productivity began to be taken for
granted. Companies accepted that they needed an IT
organization to manage these expensive investments, but sought
to do so at the lowest cost.

Information technology, once thought to be so transformational,

was relegated to the back office once more. Reducing IT
spending as a percentage of revenue became the new
objective function. Very few people in either IT or the business
could articulate the value that information technology created
for a company, and the function began to be thought of as a
necessary evil. Scaling back IT spending became the goal.

IT strategy in this era focused on major cost-cutting initiatives that

often forced companies to adopt radical new organizational
constructs. Outsourcing and offshoring were often at the center of
these IT strategies. Simplification and rationalization were also the
rules of the day. Unfortunately, during this period, the innovation
muscles within IT organizations atrophied, especially with regard
to finding new ways to add business value. IT and “the business”
lost touch with each other, leading to this common way of talking
about IT as if it were not part of the business.

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 IT 3.0

More recently, IT has become more critical to the business than

ever before, but this time from a much different perspective.
Advances in information technology now offer companies the
opportunity to improve connections to their customers, better
understand these customers’ preferences and buying behaviors,
and differentiate their products and services accordingly. In short,
the third wave of IT is focused on helping companies drive
revenue growth as opposed to cost reduction (which remains
important to companies).

This third wave of IT is dominated by a number of highly

publicized technology trends including digital transformation,
cloud computing, big data, cognitive computing, artificial
intelligence, blockchain, and the Internet of Things. But as with
many disruptive technologies, the applicability of these
technologies to a company’s business strategy can be unclear
and the value of specific initiatives ambiguous.

Unfortunately, the role of the IT department has also become

somewhat uncertain in this new era of IT. IT bureaucracy
expanded during the IT 2.0 period, and long outsourcing
contracts and an outdated skills base have led to inflexibility
in the department’s ability to support new approaches to
technology. Business units have often worked around their own
IT organizations and gone directly to IT suppliers to implement
new technology. The term “shadow IT” has emerged to reflect
the growing trend of business units developing information
technology capabilities outside the purview of the formal IT
organization. However, as most CIOs will be quick to cite, this
trend towards shadow IT is not without risk and cost.

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 At a minimum, shadow IT initiatives are decentralized and fail
to capture economies of scale across the enterprise. These
initiatives tend to be poorly integrated both across business units
IT 3.0 and with central IT data repositories and systems, which can often
lead to redundant and inconsistent information. Shadow IT
initiatives can also expose vulnerabilities in data security and lead
to increased business risk. Finally, shadow IT initiatives tend to be
vendor-driven and can be designed in ways that are financially
advantageous to those vendors and result in high switching costs
and significant vendor lock-in. In fact, most business leaders would
welcome a knowledgeable and efficient IT organization taking over
responsibility for IT 3.0 initiatives but doubt their ability to support.

This potential of IT 3.0 is driving a renewed interest in IT strategy.

Enlightened companies realize that the promise of these new,
technology-enabled approaches is significant, but also that the
value associated with these expensive initiatives can be elusive.
Meaningful IT strategies need to address this potential within the
context of the current business strategy. However, given the current
divide between the IT organization and the business, IT strategy
development will require a different, more collaborative approach.

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 A New Approach
to IT Strategy
To capitalize on the potential of IT 3.0, WGroup recommends
the following five-step approach to IT strategy development:

1 Re-engage the business

Target technology-driven business

2 differentiation

Identify necessary IT organizational

3 competencies

4 Price, prioritize, and plan

5 Validate the IT strategy with the business

What should emerge from this process is a contract between

the IT organization and the business on how IT will participate
in the business strategy and what resources are required to
support this contribution.

Done correctly, the IT strategy should demonstrate how IT will

add value and quantify the magnitude of this value contribution.
The business should believe in this contribution and support the
corresponding resource investments because they played a
fundamental role in defining its nature and validating the
strategy.

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 Re-engage
the Business

IT strategy should be driven by business strategy. So the first priority

for any IT organization should be to understand the business.
Without knowing what the business is trying to accomplish, you risk
creating a strategy that is focused on technology rather than the
business outcomes that technology can enable.

Start by reaching out to business leaders across the organization.

Find out what they want to achieve and how IT can help. What’s
working and what isn’t? Which functions require more IT support?
What is the explicit and implicit business strategy? Pay attention
to what’s said, as well as not said.

To boost the credibility of the new IT strategy, consider bringing

in an external advisor. It would be a lot easier to collect honest
feedback, and there will be less risk of the results being viewed
as biased. What’s more, an advisor could bring invaluable
experience from other clients and can relate what business
leaders are asking for to what it has seen in similar businesses.

Take the time and effort to understand the business strategy

and it will be clear where IT can make a difference.

Checklist

• Understand the explicit, as well as the implicit,

business strategy
• Reach out to business leaders and re-establish IT’s
role as a strategic advisor
• Consider bringing in an external advisor to assist
with feedback collection and analysis

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 Target
Technology-
driven Business
Differentiation

Consider the business capabilities necessary to successfully

execute a business strategy. An online retailer’s strategy may
entail shipping a product within 24 hours of receiving an order;
a clinic may need a convenient way for patients to make
appointments and view health records; an airline may need
an efficient way to process checked-in and lost baggage.

What the business wants to achieve should frame what the IT

organization does. And knowing the desired business outcomes
is key.

Begin by mapping out the business capabilities that provide

differentiation within the context of the business strategy and
take stock of any initiatives that may be supporting these
capabilities across the company. You may discover technology
initiatives led by IT as well as others led by the business, but
resist being too critical of any initiatives without a proper review.
There’s a chance a business unit may not have received the
support they needed in the past and was forced to make do
with an external vendor.

The key to this part of the strategy process is to understand how

implementation of technology solutions might help the business
achieve its business objectives. The secondary objective of this
step is to demonstrate that IT can act as a partner to the business
in solving problems and advancing the business strategy.

IT Strategy 3.0: Making IT Relevant to the Business Again i COPYRIGHT © 2018 WGroup thinkwgroup.com 9
Target
Technology-
Checklist
driven
Business
• Identify the business capabilities necessary to
Differentiation execute the business strategy
• Evaluate whether current IT initiatives are supporting
said business capabilities
• Identify where new technology and applications
can support those business capabilities

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 Identify
Necessary IT
Organizational
Competencies

If the business capabilities are the tip of an iceberg, then the IT

competencies that support it would be the bulk of the iceberg
that lies underwater.

How should the IT organization be structured to support the

business strategy? How will it add capabilities quickly and
efficiently? How will the team obtain the new skills it needs?
Figuring out the processes, skills, and organizational changes
is your next step.

When it comes to processes, it’s not uncommon to hear IT

leaders talk about adopting an approach like DevOps or agile.
But stop and ask yourself: what are we trying to accomplish? If
you’re implementing large coordinated software packages like
SAP, DevOps may not be the way to go because you need to
be more disciplined and linear in your thinking. But if you’re
implementing software that is designed as microservices, then
agile would make sense.

Next, think about the organization itself. Consider reorganizing

the teams to support your chosen approach. Look for
opportunities to reduce costs in areas where there is no
differentiation by outsourcing capabilities. Consider
decentralizing IT capabilities that touch the customer and
centralizing IT capabilities that the customer doesn’t see.

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Identify Consider strengthening the part of your IT organization responsible
for maintaining your relationship with the business (we sometimes
Necessary IT refer to this as the “business enablement” function). It is often
Organizational useful to dedicate a senior IT leader with strong business acumen
to serve as the liaison or business relationship manager between
Competencies IT and each major business unit or function. This will ensure the
sustainability of your IT Strategy 3.0 approach.

Checklist

• Identify the IT capabilities required to support the

business strategy
• Review the processes and approaches within the IT
organization in the context of the business strategy
• Identify any organizational model changes required
to support the business strategy

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 Price,
Prioritize
and Plan

You’ve talked to the business, identified the capabilities that

IT should cover, and identified the necessary process and
organizational changes. Now, it’s time to prioritize and develop
an IT strategic plan that you can take back to the business.

Your strategy should accomplish three things. One, rebalance

spending as necessary to support any new, technology-enabled
capabilities. Two, prioritize and rationalize new and existing
initiatives and investments based on alignment with the business
strategy and its potential to create value. And three, detail plans
and budgets to implement the strategy.

It would also help if you could implement some innovative

cost-saving technologies. Scoring quick wins will provide some
much-needed momentum to the strategy early on.

Putting everything into an integrated, executable plan is perhaps

the hardest part of the IT strategy creation process. It’s a lot of
detailed work but remember that you’re not just coming up with
high-level ideas and passing it to someone else to figure out.
You’re in the driver’s seat now.

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Price, The key here is to focus and prioritize. And that includes
Prioritize identifying what not to do. After all, strategy is about focusing
your resources. You can’t do everything, even if you have
and Plan seemingly unlimited funding. And you don’t want to set yourself
up for failure with a plan so aggressive that you find yourself off
track in three months.

Checklist

• Shift spending to fund new, technology-enabled

capabilities
• Prioritize and rationalize initiatives and investments
based on alignment to strategy and value-creation
potential
• Detail plans and budgets to implement the IT strategy

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 Validate the
IT Strategy with
the Business

Once you have your IT strategy, seek out the sponsors and
business leaders that you engaged at the beginning. Show them
what you’re doing and get their support.

You want to go to the board or CEO seeking approval not just as

a CIO, but as a representative of the business. Having them back
you up and say “this is an IT strategy that we’ve all participated
in and we want it” will be a far easier sell.

Getting buy-in can be the biggest hurdle to an IT strategy. But

it doesn’t have to be. One of the main reasons why so many
IT strategies don’t get support is because the business doesn’t
know what it’s getting. They don’t see the benefits. However,
if you have an IT strategy that revolves around the business
strategy, that supports business capabilities that in turn produce
the desired outcomes, you’re going to get a much warmer
reception. They’ll start to understand where IT is spending its
money and why.

The relationship between IT and the business will be much

stronger because you’ve closed the loop. You’ve listened to
them, created an IT strategy, shared it with them, and now
they see how it reflects what they need.

Checklist

• Establish buy-in from sponsors and business leaders

• Help the business see and understand the value of IT
• Build a foundation from which to prioritize new
business requests

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 Keeping the IT
Strategy Relevant
in the Long Term

The development of a business-focused

IT strategy is just the beginning of the value
creation process. Execution is still
fundamental to value creation and will
need to be monitored constantly to ensure
that the IT organization and the company
are on the right track.

Periodically the organization should ask:

Where have we performed well? Where
have we met our strategic goals and where
did we miss? How should we correct our
course?

The IT strategy itself will need to be reviewed

and adjusted regularly, usually on an annual
basis. The organization should ask: what has
changed in the market since the IT strategy
was developed and how does that influence
the IT Strategy? How should we change
our IT strategy to factor in our actual
performance? Are there areas we need to
invest more heavily in? Are there areas we
want to back away from because they’re
not really leading to anything?

It’s also not uncommon to have to redefine

the IT strategy altogether after five or six
years because things have changed
dramatically. But if these refinements and
revisions are done in partnership with the
business, the resulting IT strategy and IT
organization should remain relevant for
many years to come.

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Make IT Strategy
Your Competitive
Advantage

Visit us at thinkwgroup.com
or give us a call at (610) 854-2700
to speak with one of our IT strategy
experts.

About WGroup
WGroup is a management consulting
firm witha peer-to-peer approach to IT
optimizationand transformation. The team
is composed of consultants with over two
decades’ experience as former C-suite
executives and IT leaders. The firm boasts
a clientele that includes many Fortune
1000 companies across a wide range
of industries. WGroup is known for an
outcome-driven, service provider-agnostic
approach that optimizes IT operations and
minimizes costs.
OPTIMIZE IT

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TEL: (610) 854-2700