IT Strategy: Syncing IT, Red Queen, & IT Portfolios

• Syncing IT and Strategy is from IT Strategy for Non-IT Managers by Amrit Tiwana.
• This study note is by Michael L. Flores

Agenda

• The study notes cover The Red Queen problem
• The study notes cover IT-as-a-commodity and IT portfolios
• The study notes cover The Trifecta
• IT Syncing is covered from: Handicap → Weapon

The Four Modules

• Strategy is one of four modules along with architecture, payoffs and governance in a visual of puzzle pieces

Jargon Decoder

• Archrivals: Top three industry competitors of your firm today
• Red queen race: Vicious cycle of tit-for-tat IT spending by archrivals
• Trifecta: Industries are fractured by digitization, software infusion, and ubiquity
• Strategic aspiration: Combo of who your firm targets and how it targets them
• Competitive advantage: Widening gap between your costs and what your customers pay, relative to archrivals
• IT strategy: How your firm will use IT to outperform its archrivals
• Digitization cube: A framework to analyze physical-to-digital shifts
• IT portfolio: Your firm's collection of IT apps, infrastructure, and data.
• IT epochs: The four big waves of corporate IT since the 1970s, each with a different thrust and the Internet epoch in the mid-1990s marked a switch from information scarcity to abundance.
• IT App: A business software program used to perform a business activity can be operational or strategic and can be purchased or custom built.

IT Does Not Matter

• 'IT Doesn't Matter' is an article by Nicholas Carr
• Companies spend 50% of all capital into IT as an investment.
• In the U.S., companies invested $4 trillion in IT in 2018.
• Scarcity-not pervasiveness-makes any asset valuable
• IT is so pervasive that its strategic importance has diminished
• Innovation today is immediately copied by competitors tomorrow.
• Recommends: Spend less, to follow not lead, and to curb risks
• Replace "IT" with Post-IT notes, a pencil, a widget
• False premise (by Aristophanes) = correct argument but with the wrong premise
• Carr misunderstands what IT is
• Should be economical yet be strategically forceful
• All strategic value comes from how it's used with your other assets.
• Importance is in HOW it is used together with your firm's other assets that strategic value comes out.
• Importance is in how IT connects to your firm's business strategy
• Derived through only one way: Contributions to IT strategy
• Insights into using IT to rethink what is possible comes from deep business knowledge, not technical knowledge of IT.

Mother of All Rat Races?

• IT spending is 50% of all new capital
• Firms keep raising table stakes to survive in their industry
• Often handicaps firms
• Doomed if you spend, doomed if you don't
• Firms can escape this cycle by using IT together with the firm's other assets.
• By becoming an engaged contributor to corporate IT decisions, you can add firepower that your IT colleagues cannot.
• IT is just a tool but how it is used matters
• Begins by appreciating that “IT” is...

An IT Portfolio

• There are three "classes" of IT assets.
• The classes are apps, Infrastructure and Data

Metaphor: IT Portfolio as Pizza

• Economize since infrastructure does not strategically matter and must be good enough
• Separate them so that you can invest more in apps that strategically matters

IT Infrastructure

• This is the Firmwide technology foundation common to entire firm
• It is the substrate that knits together various apps
• Digital plumbing that moves data and stores data
• The most visible parts (hardware and networks) = commodities
• Demands technical skills and holistic knowledge of firmwide IT
• Must be: (1) economical (rarely differentiates) and (b) reliable (apps can't function without it)
• Carr's argument focuses solely on this class of IT assets
• Only a fraction of corporate IT and idea is to be frugal with it because good enough suffices

IT Apps

• Software programs that various line functions use to do their work, either purchased, or custom-developed
• 20% of corporate IT budget but ~ 100% of strategic oomph if it is uniquely tailored to individual line functions priorities
• Need knowhow of line functions' activities, business processes, and problems
• Strategic oomph can come only from non-IT managers
• Two types: Operational and Strategic

Operational

• Supports core business processes and transactions
• Automate mundane, repetitive transactional activities
• Must perform efficiently and reliably just to remain in business and is inward or outward facing
• Considered competitive necessities and a liability if messed up

Strategic

• Creates a competitive advantage by doing something valuable that your archrivals cannot do
• Data comes from operational apps

Pizza Analogy II

• The following is an analogy comparing pizza and IT
• Crust is analogous to IT infrastructure that is the foundation shared by all apps
• The crust must be cheap and reliable and needed is technical knowhow to have a competitive necessity
• Toppings are analogous to IT apps and are programs used by line functions
• Needed is to enable line functions work with business knowhow to create potential advantage

Data

• This is IT's raison-d'être
• Infrastructure is its conduit
• Apps are what scrub it into business insight
• Collected by transaction processing systems or "enterprise" systems
• Increasingly collected and consumed by connected machines
• Proprietary data collected yourself are most potent for constructing competitive barriers
• Proprietary apps ~ competitive barbed-wire fence
• Proprietary data is like a moat and their combination makes it like Kevlar

Analogy: Humans versus a Firm's IT

• Skeleton = Hardware infrastructure
• Blood vessels = Networks
• Major organs = Business apps
• Blood = Data

The Four Epochs of Corporate IT

• Data processing epoch from 1970s
• Efficiency and PC from 1980s onwards
• Collaboration and Internet epoch from 1990s onwards
• Capability amplification and Cyborg epoch in 2010s onwards

The "Trifecta"

• The trifecta consist of digitization, infusion and ubiquity
• Digitization: Physical → digital and atoms → bits, erases geography
• A "Packet" travels in 1/8th second
• Infusion is baking in software and growing SW content
• Ubiquity enables light speed communication for $0 and Products → services

#1: Digitization Cube's Three Dimensions

• Dimension 1: Offering and Changes how and where produced
• Dimension 2: How it's purchased and removes geographic constraints
• Dimension 3: How it's delivered

Casualties of Digitization of One Facet

• Old news were digitization of: Books, movies, music
• Now digitized is Manufacturing, services, finance, medicine, insurance, advertising, & education

#2: Infusion

• Consists of growing software content and in how they are produced and delivered
• Watches, locks, toilets, thermostats, sneakers, refrigerators, coffeemakers, bulbs are being infused
• IOT is accelerating this trend through Data streams of context, previously missing
• The challenge becomes: What to do with the trends?
• Consequently, Non-IT industries are getting the DNA of software businesses
• Products are turning into services
• Non-coercive lock-in opportunities are opening (e.g., Netflix)

Infusion into Non-IT Products

• Modern product infusion numbers are:
  • Space Shuttle 0.4 million lines of software code
  • 25 copies of Ulysses 1 million lines of software code
  • Hubble telescope 2 million lines of software code
  • US Army drone 3.5 million lines of software code
  • Google Chrome 7 million lines of software code
  • Boeing 787 Dreamliner 14 million lines of software code
  • Android OS 15 million lines of software code
  • F-35 fighter jet 24 million lines of software code
  • Windows 50 million lines of software code
  • Facebook 62 million lines of software code
  • Mac OS 86 million lines of software code
  • Typical new car, 2016 100 million lines of software code

Infusion is Unconstrained

• Economics: IoT sensors tiny and cheap enough to embed in everything
• Technology: The Internet protocol has 100 "addresses" for every atom on earth

Ubiquity

• Cheap (~0), fast Internet connectivity everywhere
• Last year's average speed: Transfers the Bible twice a second
• Freed up TV spectrum accelerating it
• Broadband now a constitutional right in Finland

Confluence of the Trifecta

• Creating possibilities terrifying and exhilarating across industries through radically-new business models
• Creating entirely new classes of competitors
• Rookies are simply changing the game
• Reimagining the "firm" by using Disaggregation and re-aggregation across places
• Division of labor is between man and machines
• Perpetuating deep professional specialization
• Must learn to race with the machine, not against it

Corporate IT as Glue

• Operations, marketing, customer service, finance and accounting are entities within a firm.

Edge Strategy – 3x Unexploited Areas

• Pragmatic, underexploited adjacent areas, not disruptive breaks
• Examples are Complements (Apple + iCloud) and Services (Ikea + assembly videos)
• Services ~ Ikea + assembly videos
• Examples of Underproductive assets are Ford in-car services, Caterpillar's bulldozer monitoring services, Cargill's agricultural informatics

IT Strategy as a Conversation

• IT strategy = human activity ≠ technical and Conversation requires shared language, empathy
• IT unit must first understand your goals to help accomplish them
• There is No substitute for what either brings to the table and you need Just enough of their language matters
• #1 reason IT disappoiNts: Absence of this conversation, or understanding how each other speak(Business vs Technical).

Conversation Leads to...

• Vision and Capability.

Strategic Aspiration

• Requires a strategic aspiration, meaning that One size IT does not fit all
• Have a Competitive advantage which Delivering more value than archrivals in chosen cell
• Examples are in Apparel chains, requires one to know their firm and is your positioning in the 2x2 (who and how)

Strategic Aspiration is Sticky

• You firm cannot Be indecisive and Waver (ala Banana Republic) and Try straddling both
• One will fail to be as efficient or as effective as a more focused archrival
• The trifecta can redefine “mass market" and "niche market"
• Your IT portfolio must obsess your chosen cell because being cheaper or different
• Either is hard to sustain because customers are the only arbiters

Syncing, not Alignment

• Choices for how you'll use IT to beat archrivals should drive Strategic aspiration
• Operational strategy implements the Tactical implementation of business strategy

Syncing Increases Overlaps

• Syncing: What line functions want matches what IT thinks they need
• Lessens risk of throwing monies at the wrong problems
• Viable technology must be feasible

Firepower from Non-IT Managers

• IT is strategically too important to delegate to IT folks and managers help give IT strategy its substance
• Do not underestimate the non-IT manager contribution to IT strategy
• Spend smarter so, you do the right things for your firm and this Breaks Red Queen arms race
• Focus on what you can’t copy what others are doing and make sure your competitive priorities drive IT investments
• Have right and smart avoids IT decisions that handicap tomorrow's strategy and doesn’t just go for IOS, Skype, Netflix, and Facebook's challenges

Non-IT Managers' Contributions

• Competitively exploiting data analytics
• Strategy-driven "architecture"
• Avoiding Goldilocks and wrestling uncertainty
• Governing IT to strategic and frugal
• Ensuring business payoff and sensible sourcing
• Securing IT and ensuring resilience
• Trend-spotting new opportunities

Summary

• Red Queen competition: A vicious rat race of escalating IT spending
• The trifecta fracturing industries: Digitization-infusion-ubiquity
• Four epochs of IT: Today's cyborg epoch interweaves humans with machines
• An IT portfolio is 3x pieces: infrastructure, apps, and data.
• Often handicaps strategy but it need not: IT Underpins most work and glues business processes
• Strategic aspiration is your positioning in the 2x2 (who and how)
• Syncing interweaves IT with tactical strategy to create an edge

Annual Car Recalls (2015) Due to Software Glitches

• Chrysler had 1,400,000
• Toyota had 625,000
• Ford had 433,000
• GM had 250,000
• Range Rover had 65,000
• Jaguar had 17,500