■ Investing in TUFS ■ IT Planning at ModMeters

14 Jun ■ Investing in TUFS ■ IT Planning at ModMeters

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C h a p t e r

1 the it Value Proposition1

1 This chapter is based on the authors’ previously published article, Smith, H. A., and J. D. McKeen. “Developing and Delivering on the IT Value Proposition.” Communications of the Association for Information Systems 11 (April 2003): 438–50. Reproduced by permission of the Association for Information Systems.

It’s déjà vu all over again. For at least twenty years, business leaders have been trying to figure out exactly how and where IT can be of value in their organizations. And IT managers have been trying to learn how to deliver this value. When IT was used mainly as a productivity improvement tool in small areas of a business, this was a relatively straightforward process. Value was measured by reduced head counts— usually in clerical areas—and/or the ability to process more transactions per person. However, as systems grew in scope and complexity, unfortunately so did the risks. Very few companies escaped this period without making at least a few disastrous invest- ments in systems that didn’t work or didn’t deliver the bottom-line benefits executives thought they would. Naturally, fingers were pointed at IT.

With the advent of the strategic use of IT in business, it became even more difficult to isolate and deliver on the IT value proposition. It was often hard to tell if an invest- ment had paid off. Who could say how many competitors had been deterred or how many customers had been attracted by a particular IT initiative? Many companies can tell horror stories of how they have been left with a substantial investment in new forms of technology with little to show for it. Although over the years there have been many improvements in where and how IT investments are made and good controls have been established to limit time and cost overruns, we are still not able to accurately articulate and deliver on a value proposition for IT when it comes to anything other than simple productivity improvements or cost savings.

Problems in delivering IT value can lie with how a value proposition is conceived or in what is done to actually implement an idea—that is, selecting the right project and doing the project right (Cooper et al. 2000; McKeen and Smith 2003; Peslak 2012). In addition, although most firms attempt to calculate the expected payback of an IT invest- ment before making it, few actually follow up to ensure that value has been achieved or to question what needs to be done to make sure that value will be delivered.

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Chapter 1 • The IT Value Proposition 25

This chapter first looks at the nature of IT value and “peels the onion” into its different layers. Then it examines the three components of delivering IT value: value identification, conversion, and value realization. Finally, it identifies five general principles for ensuring IT value will be achieved.

Peeling the OniOn: Understanding it ValUe

Thirty years ago the IT value proposition was seen as a simple equation: Deliver the right technology to the organization, and financial benefits will follow (Cronk and Fitzgerald 1999; Marchand et al. 2000). In the early days of IT, when computers were most often used as direct substitutes for people, this equation was understandable, even if it rarely worked this simply. It was easy to compute a bottom-line benefit where “technology” dollars replaced “salary” dollars.

Problems with this simplistic view quickly arose when technology came to be used as a productivity support tool and as a strategic tool. Under these conditions, managers had to decide if an IT investment was worth making if it saved people time, helped them make better decisions, or improved service. Thus, other factors, such as how well technology was used by people or how IT and business processes worked together, became important considerations in how much value was realized from an IT investment. These issues have long confounded our understanding of the IT value prop- osition, leading to a plethora of opinions (many negative) about how and where technol- ogy has actually contributed to business value. Stephen Roach (1989) made headlines with his macroeconomic analysis showing that IT had had absolutely no impact on pro- ductivity in the services sector. More recently, research shows that companies still have a mixed record in linking IT to organizational performance, user satisfaction, productivity, customer experience, and agility (Peslak 2012).

These perceptions, plus ever-increasing IT expenditures, have meant business managers are taking a closer look at how and where IT delivers value to an organization (Ginzberg 2001; Luftman and Zadeh 2011). As they do this, they are beginning to change their understanding of the IT value proposition. Although, unfortunately, “silver bullet thinking” (i.e., plug in technology and deliver bottom-line impact) still predomi- nates, IT value is increasingly seen as a multilayered concept, far more complex than it first appeared. This suggests that before an IT value proposition can be identified and delivered, it is essential that managers first “peel the onion” and understand more about the nature of IT value itself (see Figure 1.1).

What is it Value?

Value is defined as the worth or desirability of a thing (Cronk and Fitzgerald 1999). It is a subjective assessment. Although many believe this is not so, the value of IT depends very much on how a business and its individual managers choose to view it. Different companies and even different executives will define it quite differently. Strategic posi- tioning, increased productivity, improved decision making, cost savings, or improved service are all ways value could be defined. Today most businesses define value broadly and loosely, not simply as a financial concept (Chakravarty et al. 2013). Ideally, it is tied to the organization’s business model because adding value with IT should enable a firm to do its business better. In the focus group (see the Preface), one company sees value

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26 Section I • Delivering Value with IT

resulting from all parts of the organization having the same processes; another defines value by return on investment (ROI); still another measures it by a composite of key performance indicators. In short, there is no single agreed-on measure of IT value. As a result, misunderstandings about the definition of value either between IT and the busi- ness or among business managers themselves can lead to feelings that value has not been delivered. Therefore, a prerequisite of any IT value proposition is that everyone involved in an IT initiative agree on what value they are trying to deliver and how they will recognize it.

Where is it Value?

Value may also vary according to where one looks for it (Davern and Kauffman 2000; Oliveira and Martins 2011). For example, value to an enterprise may not be perceived as value in a work group or by an individual. In fact, delivering value at one level in an orga- nization may actually conflict with optimizing value at another level. Decisions about IT value are often made to optimize firm or business process value, even if they cause difficulties for business units or individuals. As one manager explained, “At the senior levels, our bottom-line drivers of value are cost savings, cash flow, customer satisfaction, and revenue. These are not always visible at the lower levels of the organization.” Failure to consider value implications at all levels can lead to a value proposition that is coun- terproductive and may not deliver the value that is anticipated. Many executives take a hard line with these value conflicts. However, it is far more desirable to aim for a value

What Value will be Delivered?

Where will Value be Delivered?

Who will Deliver Value?

When will Value be Delivered?

How will Value be Delivered?

FigUre 1.1 IT Value Is a Many-Layered Concept

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Chapter 1 • The IT Value Proposition 27

that is not a win–lose proposition but is a win–win at all levels. This can leverage overall value many times over (Chan 2000; Grant and Royle 2011).

Who delivers it Value?

Increasingly, managers are realizing that it is the interaction of people, information, and technology that delivers value, not IT alone.2 Studies have confirmed that strong IT practices alone do not deliver superior performance. It is only the combination of these IT practices with an organization’s skills at managing information and people’s behav- iors and beliefs that leads to real value (Birdsall 2011; Ginzberg 2001; Marchand et al. 2000). In the past, IT has borne most of the responsibility for delivering IT value. Today, however, business managers exhibit a growing willingness to share responsibility with IT to ensure value is realized from the organization’s investments in technology. Most companies now expect to have an executive sponsor for any IT initiative and some busi- ness participation in the development team. However, many IT projects still do not have the degree of support or commitment from the business that IT managers feel is necessary to deliver fully on a value proposition (Peslak 2012).

When is it Value realized?

Value also has a time dimension. It has long been known that the benefits of technol- ogy take time to be realized (Chan 2000; Segars and Chatterjee 2010). People must be trained, organizations and processes must adapt to new ways of working, information must be compiled, and customers must realize what new products and services are being offered. Companies are often unprepared for the time it takes an investment to pay off. Typically, full payback can take between three and five years and can have at least two spikes as a business adapts to the deployment of technology. Figure 1.2 shows this “W” effect, named for the way the chart looks, for a single IT project.

Initially, companies spend a considerable amount in deploying a new technology. During this twelve-to-sixteen-month period, no benefits occur. Following implementa- tion, some value is realized as companies achieve initial efficiencies. This period lasts for about six months. However, as use increases, complexities also grow. Information overload can occur and costs increase. At this stage, many can lose faith in the initia- tive. This is a dangerous period. The final set of benefits can occur only by making the business simpler and applying technology, information, and people more effectively. If a business can manage to do this, it can achieve sustainable, long-term value from its IT investment (Segars and Chatterjee 2010). If it can’t, value from technology can be offset by increased complexity.

Time also changes perceptions of value. Many IT managers can tell stories of how an initiative is vilified as having little or no value when first implemented, only to have people say they couldn’t imagine running the business without it a few years later. Similarly, most managers can identify projects where time has led to a clearer

2 These interactions in a structured form are known as processes. Processes are often the focus of much orga- nizational effort in the belief that streamlining and reengineering them will deliver value. In fact, research shows that without attention to information and people, very little value is delivered (Segars and Chatterjee 2010). In addition, attention to processes in organizations often ignores the informal processes that contribute to value.

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28 Section I • Delivering Value with IT

understanding of the potential value of a project. Unfortunately, in cases where antici- pated value declines or disappears, projects don’t always get killed (Cooper et al. 2000).

Clarifying and agreeing on these different layers of IT value is the first step involved in developing and delivering on the IT value proposition. All too often, this work is for- gotten or given short shrift in the organization’s haste to answer this question: How will IT value be delivered? (See next section.) As a result, misunderstandings arise and tech- nology projects do not fulfill their expected promises. It will be next to impossible to do a good job developing and delivering IT value unless and until the concepts involved in IT value are clearly understood and agreed on by both business and IT managers.

the three COmPOnents OF the it ValUe PrOPOsitiOn

Developing and delivering an IT value proposition involves addressing three compo- nents. First, potential opportunities for adding value must be identified. Second, these opportunities must be converted into effective applications of technology. Finally, value

12–16 Months

EVA

Time

Get the House in Order

Harvest Low- Hanging Fruit

Make the Business Complex

Make Business Simpler

16–22 Months 22–38 Months 3–5 Years

FigUre 1.2 The ‘W’ Effect in Delivering IT Value (Segars & Chatterjee, 2010)

Best Practices in Understanding IT Value

• Link IT value directly to your business model. • Recognize value is subjective, and manage perceptions accordingly. • Aim for a value “win–win” across processes, work units, and individuals. • Seek business commitment to all IT projects. • Manage value over time.

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Chapter 1 • The IT Value Proposition 29

must be realized by the organization. Together, these components comprise the funda- mentals of any value proposition (see Figure 1.3).

identification of Potential Value

Identifying opportunities for making IT investments has typically been a fairly informal activity in most organizations. Very few companies have a well-organized means of doing research into new technologies or strategizing about where these tech- nologies can be used (McKeen and Smith 2010). More companies have mechanisms for identifying opportunities within business units. Sometimes a senior IT manager will be designated as a “relationship manager” for a particular unit with responsi- bility for working with business management to identify opportunities where IT could add value (Agarwal and Sambamurthy 2002; Peslak 2012). Many other com- panies, however, still leave it up to business managers to identify where they want to use IT. There is growing evidence that relegating the IT organization to a passive role in developing systems according to business instructions is unlikely to lead to high IT value. Research shows that involving IT in business planning can have a direct and positive influence on the development of successful business strategies using IT (Ginzberg 2001; Marchand et al. 2000). This suggests that organizations should estab- lish joint business–IT mechanisms to identify and evaluate both business and technical opportunities where IT can add value.

Once opportunities have been identified, companies must then make decisions about where they want to focus their dollars to achieve optimal value. Selecting the right projects for an organization always involves balancing three fundamental factors: cash, timing, and risk (Luehrman 1997). In principle, every company wants to under- take only high-return projects. In reality, project selection is based on many different factors. For example, pet or political projects or those mandated by the government or competitors are often part of a company’s IT portfolio (Carte et al. 2001). Disagreement at senior levels about which projects to undertake can arise because of a lack of a coher- ent and consistent mechanism for assessing project value. All organizations need some formal mechanism for prioritizing projects. Without one, it is very likely that project selection will become highly politicized and, hence, ineffective at delivering value. There are a variety of means to do this, ranging from using strictly bottom-line metrics, to comparing balanced scorecards, to adopting a formal value-assessment methodology. However, although these methods help to weed out higher cost–lower return projects, they do not constitute a foolproof means of selecting the right projects for an organiza- tion. Using strict financial selection criteria, for example, can exclude potentially high- value strategic projects that have less well-defined returns, longer payback periods, and more risk (Cooper et al. 2000; DeSouza 2011). Similarly, it can be difficult getting

Identification Conversion Realization IT

Value

FigUre 1.3 The Three Components of the IT Value Proposition

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30 Section I • Delivering Value with IT

important infrastructure initiatives funded even though these may be fundamental to improving organizational capabilities (Byrd 2001).

Therefore, organizations are increasingly taking a portfolio approach to project selection. This approach allocates resources and funding to different types of projects, enabling each type of opportunity to be evaluated according to different criteria (McKeen and Smith 2003; Smith and McKeen 2010). One company has identified three different classes of IT—infrastructure, common systems, and business unit applications—and funds them in different proportions. In other companies, funding for strategic initia- tives is allocated in stages so their potential value can be reassessed as more information about them becomes known. Almost all companies have found it necessary to justify infrastructure initiatives differently than more business-oriented projects. In fact, some remove these types of projects from the selection process altogether and fund them with a “tax” on all other development (McKeen and Smith 2003). Other companies allocate a fixed percentage of their IT budgets to a technology renewal fund.

Organizations have come a long way in formalizing where and how they choose to invest their IT dollars. Nevertheless, there is still considerable room for judgment based on solid business and technical knowledge. It is, therefore, essential that all executives involved have the ability to think strategically and systematically as well as financially about project identification and selection.

effective Conversion

“Conversion” from idea/opportunity to reality has been what IT organizations have been all about since their inception. A huge amount of effort has gone into this central component of the IT value proposition. As a result, many IT organizations have become very good at developing and delivering projects on time and on budget. Excellent project management, effective execution, and reliable operations are a critical part of IT value. However, they are not, in and of themselves, sufficient to convert a good idea into value or to deliver value to an organization.

Today managers and researchers are both recognizing that more is involved in effective conversion than good IT practices. Organizations can set themselves up for failure by not providing adequate and qualified resources. Many companies start more projects than they can effectively deliver with the resources they have available. Not having enough time or resources to do the job means that people are spread too thin and end up taking shortcuts that are potentially damaging to value (Cooper et al. 2000). Resource limitations on the business side of a project team can be as damaging to con- version as a lack of technical resources. “[Value is about] far more than just sophisticated managerial visions. . . . Training and other efforts . . . to obtain value from IT investments

Best Practices in Identifying Potential Value

• Joint business–IT structures to recognize and evaluate opportunities • A means of comparing value across projects • A portfolio approach to project selection • A funding mechanism for infrastructure

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Chapter 1 • The IT Value Proposition 31

are often hamstrung by insufficient resources” (Chircu and Kauffman 2000). Inadequate business resources can lead to poor communication and ineffective problem solving on a project (Ginzberg 2001). Companies are beginning to recognize that the number and quality of the staff assigned to an IT project can make a difference to its eventual out- come. They are insisting that the organization’s best IT and businesspeople be assigned to critical projects.

Other significant barriers to conversion that are becoming more apparent now that IT has improved its own internal practices include the following:

• Organizational barriers. The effective implementation of IT frequently requires the extensive redesign of current business processes (Chircu and Kauffman 2000). However, organizations are often reluctant to make the difficult complementary business changes and investments that are required (Carte et al. 2001). “When new IT is implemented, everyone expects to see costs come down,” explained one manager. “However, most projects involve both business and IT deliverables. We, therefore, need to take a multifunctional approach to driving business value.” In recognition of this fact, some companies are beginning to put formal change man- agement programs in place to help businesses prepare for the changes involved with IT projects and to adapt and simplify as they learn how to take advantage of new technology.

• Knowledge barriers. Most often new technology and processes require employ- ees to work differently, learn new skills, and have new understanding of how and where information, people, and technologies fit together (Chircu and Kauffman 2000; Perez-Lopez and Alegre 2012). Although training has long been part of new IT implementations, more recently businesses are recognizing that delivering value from technology requires a broader and more coordinated learning effort (Smith and McKeen 2002). Lasting value comes from people and technology working together as a system rather than as discrete entities. Research confirms that high- performing organizations not only have strong IT practices but also have people who have good information management practices and who are able to effectively use the information they receive (Beath et al. 2012; Marchand et al. 2000).

realizing Value

The final component of the IT value proposition has been the most frequently ignored. This is the work involved in actually realizing value after technology has been imple- mented. Value realization is a proactive and long-term process for any major initiative. All too often, after an intense implementation period, a development team is disbanded to work on other projects, and the business areas affected by new technology are left to

Best Practices in Conversion

• Availability of adequate and qualified IT and business resources • Training in business goals and processes • Multifunctional change management • Emphasis on higher-level learning and knowledge management

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32 Section I • Delivering Value with IT

sink or swim. As a result, a project’s benefits can be imperfectly realized. Technology must be used extensively if it is to deliver value. Poorly designed technology can lead to high levels of frustration, resistance to change, and low levels of use (Chircu and Kauffman 2000; Sun et al., 2012).

Resistance to change can have its root cause in an assumption or an action that doesn’t make sense in the everyday work people do. Sometimes this means challeng- ing workers’ understanding of work expectations or information flows. At other times it means doing better analysis of where and how a new process is causing bottlenecks, overwork, or overload. As one manager put it, “If value is not being delivered, we need to understand the root causes and do something about it.” His company takes the unusual position that it is important to keep a team working on a project until the expected benefits have been realized. This approach is ideal but can also be very costly and, therefore, must be carefully managed. Some companies try to short-circuit the value management process by simply taking anticipated cost savings out of a business unit’s budget once technology has been implemented, thereby forcing it to do more with less whether or not the technology has been as beneficial as anticipated. However, most often organizations do little or no follow-up to determine whether or not benefits have been achieved.

Measurement is a key component of value realization (Thorp 1999). After imple- mentation, it is essential that all stakeholders systematically compare outcomes against expected value and take appropriate actions to achieve benefits. In addition to monitor- ing metrics, a thorough and ongoing assessment of value and information flows must also be undertaken at all levels of analysis: individual, team, work unit, and enterprise. Efforts must be taken to understand and improve aspects of process, information, and technology that are acting as barriers to achieving value.

A significant problem with not paying attention to value recognition is that areas of unexpected value or opportunity are also ignored. This is unfortunate because it is only after technology has been installed that many businesspeople can see how it could be leveraged in other parts of their work. Realizing value should, therefore, also include provisions to evaluate new opportunities arising through serendipity.

FiVe PrinCiPles FOr deliVering ValUe

In addition to clearly understanding what value means in a particular organization and ensuring that the three components of the IT value proposition are addressed by every project, five principles have been identified that are central to developing and deliver- ing value in every organization.

Best Practices in Realizing Value

• Plan a value-realization phase for all IT projects. • Measure outcomes against expected results. • Look for and eliminate root causes of problems. • Assess value realization at all levels in the organization. • Have provisions for acting on new opportunities to leverage value.

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Chapter 1 • The IT Value Proposition 33

Principle 1. have a Clearly defined Portfolio Value management Process

Every organization should have a common process for managing the overall value being delivered to the organization from its IT portfolio. This would begin as a means of identifying and prioritizing IT opportunities by potential value relative to each other. It would also include mechanisms to optimize enterprise value (e.g., through tactical, stra- tegic, and infrastructure projects) according to a rubric of how the organization wants to allocate its resources.

A portfolio value management process should continue to track projects as they are being developed. It should ensure not only that projects are meeting schedule and budget milestones but also that other elements of conversion effectiveness are being addressed (e.g., business process redesign, training, change management, informa- tion management, and usability). A key barrier to achieving value can be an organiza- tion’s unwillingness to revisit the decisions made about its portfolio (Carte et al. 2001). Yet this is critically important for strategic and infrastructure initiatives in particular. Companies may have to approve investments in these types of projects based on imper- fect information in an uncertain environment. As they develop, improved information can lead to better decision making about an investment. In some cases this might lead to a decision to kill a project; in others, to speed it up or to reshape it as a value proposition becomes clearer.

Finally, a portfolio value management process should include an ongoing means of ensuring that value is realized from an investment. Management must monitor expected outcomes at appropriate times following implementation and hold someone in the organization accountable for delivering benefits (Smith and McKeen 2010).

Principle 2. aim for Chunks of Value

Much value can be frittered away by dissipating IT investments on too many projects (Cho et al. 2013; Marchand et al. 2000). Focusing on a few key areas and designing a set of complementary projects that will really make a difference is one way companies are trying to address this concern. Many companies are undertaking larger and larger tech- nology initiatives that will have a significant transformational and/or strategic impact on the organization. However, unlike earlier efforts, which often took years to complete and ended up having questionable value, these initiatives are aiming to deliver major value through a series of small, focused projects that, linked together, will result in both immediate short-term impact and long-term strategic value. For example, one company has about three hundred to four hundred projects underway linked to one of a dozen major initiatives.

Principle 3. adopt a holistic Orientation to technology Value

Because value comes from the effective interaction of people, information, and tech- nology, it is critical that organizations aim to optimize their ability to manage and use them together (Marchand et al. 2000). Adopting a systemic approach to value, where technology is not viewed in isolation and interactions and impacts are anticipated and planned, has been demonstrated to contribute to perceived business value (Ginzberg 2001). Managers should aim to incorporate technology as an integral part of an overall

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34 Section I • Delivering Value with IT

program of business change rather than dealing with people and information manage- ment as afterthoughts to technology (Beath et al. 2012). One company has done this by taking a single business objective (e.g., “increase market penetration by 15 percent over five years”) and designing a program around it that includes a number of bundled tech- nology projects.

Principle 4. aim for Joint Ownership of technology initiatives

This principle covers a lot of territory. It includes the necessity for strong executive sponsorship of all IT projects. “Without an executive sponsor for a project, we simply won’t start it,” explained one manager. It also emphasizes that all people involved in a project must feel they are responsible for the results. Said another manager, “These days it is very hard to isolate the impact of technology, therefore there must be a ‘we’ mentality.” This perspective is reinforced by research that has found that the quality of the IT–business relationship is central to the delivery of IT value. Mutual trust, visible business support for IT and its staff, and IT staff who consider themselves to be part of a business problem-solving team all make a significant difference in how much value technology is perceived to deliver (Ginzberg 2001).

Principle 5. experiment more Often

The growing complexity of technology, the range of options available, and the uncertainty of the business environment have each made it considerably more difficult to determine where and how technology investments can most effectively be made. Executives naturally object to the risks involved in investing heavily in possible business scenarios or technical gambles that may or may not realize value. As a result, many companies are looking for ways to firm up their understanding of the value proposition for a particular opportunity without incurring too much risk. Undertaking pilot studies is one way of doing this (DeSouza 2011). Such experiments can prove the value of an idea, uncover new opportunities, and identify more about what will be needed to make an idea successful. They provide senior managers with a greater number of options in managing a project and an overall technology portfolio. They also enable poten- tial value to be reassessed and investments in a particular project to be reevaluated and rebalanced against other opportunities more frequently. In short, experimentation enables technology investments to be made in chunks and makes “go/no go” decisions at key milestones much easier to make.

This chapter has explored the concepts and activities involved in developing and delivering IT value to an organization. In their efforts to use technology to deliver business value, IT managers should keep clearly in mind the maxim “Value is in the eye of the beholder.” Because there is no

single agreed-on notion of business value, it is important to make sure that both business and IT managers are working to a common goal. This could be traditional cost reduction, process efficiencies, new business capabili- ties, improved communication, or a host of other objectives. Although each organization

Conclusion

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Chapter 1 • The IT Value Proposition 35

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C h a p t e r

2 Delivering Business Value through IT Strategy1

1 This chapter is based on the authors’ previously published article, Smith, H. A., J. D. McKeen, and S. Singh. “Developing IT Strategy for Business Value.” Journal of Information Technology Management XVIII, no. 1 (June 2007): 49–58. Reproduced by permission of the Association of Management.

Suddenly, it seems, executives are “getting” the strategic potential of IT. Instead of being relegated to the back rooms of the enterprise, IT is now being invited to the boardrooms and is being expected to play a leading role in delivering top- line value and business transformation (Korsten 2011; Luftman and Zadeh 2011; Peslak 2012). Thus, it can no longer be assumed that business strategy will naturally drive IT strategy, as has traditionally been the case. Instead, different approaches to strategy development are now possible and sometimes desirable. For example, the capabilities of new technologies could shape the strategic direction of a firm (e.g., mobile, social media, big data). IT could enable new competencies that would then make new busi- ness strategies possible (e.g., location-based advertising). New options for governance using IT could also change how a company works with other firms (think Wal-Mart or Netflix). Today new technologies coevolve with new business strategies and new behaviors and structures (see Figure 2.1). However, whichever way it is developed, if IT is to deliver business value, IT strategy must always be closely linked with sound business strategy.

Ideally, therefore, business and IT strategies should complement and support each other relative to the business environment. Strategy development should be a two-way process between the business and IT. Yet unfortunately, poor alignment between them remains a perennial problem (Frohman 1982; Luftman and Zadeh 2011; McKeen and Smith 1996; Rivard et al. 2004). Research has already identified many organizational challenges to effective strategic alignment. For example, if their strategy-development processes are not compatible (e.g., if they take place at different times or involve differ- ent levels of the business), it is unlikely that the business and IT will be working toward the same goals at the same time (Frohman 1982). Aligning with individual business units can lead to initiatives that suboptimize the effectiveness of corporate strategies (McKeen and Smith 1996). Strategy implementation must also be carefully aligned to

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38 Section I • Delivering Value with IT

ensure the integration of business and IT efforts (Smith and McKeen 2010). Finally, com- panies often try to address too many priorities, leading to an inadequate focus on key strategic goals (Weiss and Thorogood 2011).

However, strategic alignment is only one problem facing IT managers when they develop IT strategy. With IT becoming so much more central to the development and delivery of business strategy, much more attention is now being paid to strategy devel- opment than in the past. What businesses want to accomplish with their IT and how IT shapes its own delivery strategy are increasingly vital to the success of an enterprise. This chapter explores how organizations are working to improve IT strategy develop- ment and its relationship with business strategy. It looks first at how our understanding of business and IT strategies has changed over time and at the forces that will drive even further changes in the future. Then it discusses some critical success factors for IT strategy development about which there is general consensus. Next it looks at the dif- ferent dimensions of the strategic use of IT that IT management must address. Finally, it examines how some organizations are beginning to evolve a more formal IT strategy- development process and some of the challenges they are facing in doing so.

Business and iT sTraTegies: PasT, PresenT, and FuTure

At the highest level, a strategy is an approach to doing business (Gebauer 1997). Traditionally, a competitive business strategy has involved performing different activi- ties from competitors or performing similar activities in different ways (Porter 1996). Ideally, these activities were difficult or expensive for others to copy and, therefore, resulted in a long-term competitive advantage (Gebauer 1997). They enabled firms to charge a premium for their products and services.

Until recently, the job of an IT function was to understand the business’s strategy and figure out a plan to support it. However, all too often IT’s strategic contribution was inhibited by IT managers’ limited understanding of business strategy and by busi- ness managers’ poor understanding of IT’s potential. Therefore, most formal IT plans were focused on the more tactical and tangible line of business needs or opportunities

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