Why your IT strategy may not help translate business strategy

“I’ve done some work with a few large corporates in which I compared the corporate strategy with their IT function’s strategy – and the match was woeful.” – CXO advisor Terry White

The silo effect

We tend to break a task into smaller tasks, which can be done by the specially trained. This is why we take an organization’s overall business strategy and cascade it down the organization, that is, create custom strategies for different divisions and departments. In fact, strategy experts such as Willie Pietersen (former CEO of multibillion-dollar firms) emphasize that “strategy is everyone’s job,” which is why we sometimes cascade all the way down to the individual level. While there’s value in cascading down the organization, there’s a potential down-side as well: we may fall into the silo trap.

Gillian Tett, author of The Silo Effect, says silos crop up “in almost every corner of modern life … we continue to behave and think in tiny silos.” Sure, silos have advantages such as specialization. But, silos can be disastrous. For example, Tett’s studies have shown that silos within banks contributed to the 2008 financial crisis.

Is your IT strategy ready for strategy translation?

Customized department-level strategies (at least parts of them) may not be in the best interest of the overall organization. Where each department creates and updates its own strategy, we cannot be sure how the custom strategy aligns with the top-level business strategy. And IT strategy is no exception to this uncertainty.

In software practice, strategy translation is the discovery and design of a specific combination of software and business change that has the potential to generate targeted outcomes. Is your IT strategy an authentic input for such a critical activity? The answer might be “No” for the following reasons:

1. IT strategy may be outdated: Your IT strategy may not accurately reflect the organization’s current business strategy. This is highly likely today. Many organizations today use “transient strategy” as shown by Columbia Business School professor Rita McGrath in her book The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business.
2. IT strategy may not offer the right options: Through their Strategy Maps, Kaplan and Norton have helped us to elegantly capture how our organization wants to use assets to execute business processes that deliver customer value that produces targeted strategic outcomes. Their ideas are generally very practical and I use them and recommend them all the time. There is one idea though that may not be helpful from a strategy translation perspective: “information capital portfolio” or strategic IT portfolio, which is often a part of IT strategy. Defining this portfolio sounds like an efficient thing to do, but this portfolio is a predetermined list of software applications or technologies. A software you pick from such a predetermined list could be the wrong one to invest in.
3. IT strategy may not offer directions for business-centric design: The design task must integrate software and business change. Strategy coming from a tech-focused and typically isolated IT department is unlikely to have the expertise to recommend business innovation/change. This is a phenomenon that happens frequently. Forrester Research founder George Colony calls the resulting output “naked technology,” that is, technology with no business innovation.
4. IT strategy may be self-serving: “Self-serving” need not always be bad as it could deliver department-level benefits. However, such benefits are standard rather than strategic. They come from the category to which the software belongs and from automation.

The real thing is the best thing

Warehouse club Costco’s revenue jumped from $76 billion to $114 billion in just 6 years. Costco accomplished this by executing three initiatives: 1. Build a fan base. 2. Pioneer a minimum-wage trend. 3. Ditch American Express for Visa. It’s easy to imagine that these initiatives must have been derived not from three different “siloed” departments, but directly from business strategy. Taking our imagination further, ideas for software or technology must have been derived from one or more of these initiatives. Compare this approach with the conventional “IT strategy” approach. The former directly aligns with business strategy, while the latter injects uncertainty.

Strategy translation is clearly the most important activity in software practice. And it therefore requires the most authentic inputs – your organization’s overall business strategy.