IT Strategy - Building a Unique Competitive Position

  by Charles Rattray | 14 Aug 2008 | Permalink | IT Management

The desire to be different in strategy is what creates sustainable competitive advantage.

Borrowing Michael Porter’s thinking from ‘What is Strategy’, (1996), successful IT departments will be those that can capture a unique competitive position. Porter goes on to say that “A period of imitation may be inevitable in emerging industries, but that period reflects the level of uncertainty rather than a desired state of affairs. In high-tech industries this imitation phase often continues much longer than it should…” Unfortunately, for many IT departments, replication and imitation of the strategies and technologies used by competitor companies is the norm. In fact, while many CIOs and their strategic advisors focus on operating in step with industry standard performance metrics, this me-to approach to IT management steers them clear of ever reaching a unique competitive position within their own organisations.

I’m reminded of the impact of replication and imitation when changing employer. While I worked at Sun Microsystems (UK) as a technical project manager I was part of a group which made use of process, procedure, some technology, and the strengths of our relationships throughout the organisation. As a group, we were very successful. We got things done. However, when I changed employer, and began replicating the same tools, procedures and approaches in the new company I wasn’t able to imitate the success I had experienced previously. One principle cause of this may have been that in the new company, the relationships and knowledge I had to help me get things done – all part of my ‘system’ for the role – were all new to me. I was left replicating very well, but imitating very badly. Certainly within the UK banking IT industry, whole teams have been known to hop from one employer to the next. Each time a team hops, it may try to replicate what it knew to be a successful strategy elsewhere, but inevitably this approach relies on process, procedure and technology to be replicated alongside the team. At best this may succeed in introducing improved efficiency and effectiveness, but sadly, while both are very healthy attributes for an IT department to have, they are not strategy.

Everything in the IT department exists to support the provision of services to the business. This includes all the technology, the people, and the process and procedure that the department defines as valuable. For each business organisation, creating a unique and valuable position means creating a fit among all the activities of the organisation which sets that organisation apart from its competitors. Ditto for the IT department, and since the successful strategy of the IT department has a dependency on what it can achieve uniquely for the business, its value chain in the organisation should focus on activities which support the business’ chosen strategy, and not the other way round.

Competitive strategies for the business include: low-cost provider; broad differentiation; best-cost provider; niche focus based on low costs; and niche focus based on differentiation. How many IT departments can talk about their IT strategy with the business in these terms? How many IT departments can determine that the business services IT underpins facilitate corresponding offensive or defensive strategies in the market place? These are important questions for an IT department to ask since in turn they guide and help formulate the IT strategy in supporting the business. In other words, rather than simply apportioning IT effort to business services which generate the most revenue by volume, a better focus would be to review the generic strategy of the organisation and align IT behind it.

Having a focus on generic strategies which fit with the strategy the company is pursuing; inline with the mission and vision, requires a very different alignment of IT strategy than most IT departments are used to. Doing more with less and becoming more efficient are not enough, and is not really strategy anyway. Instead, truly understanding the organisation’s business, the business services which support the business model (how the company generates revenue – converting product/service to cash), the underlying technology and its relevance to those business services, is a clear starting point. By understanding the complete end-to-end value chain in the provision of IT to support each business service, IT departments can and will become better than competitors in measurable ways. Why, because few of their competitors can do this.

To build on strategic offensives, IT departments will need to base their approach on maximising the value of the organisation’s competitive IT assets and strengths, whatever these may be. These will not be well understood without a full view of the IT estate, the underlying components and all the dependencies in between. As an exception, in emerging industries and technologies, it may not always be easy to determine the chosen generic strategy, nor the supplementary or complementary strategy being adopted. This makes reciprocal offensive strategies ineffective since it becomes difficult to determine if they are truly impacting competitor’s weaknesses. Similarly, with a blue ocean strategy – where the market and industry are too new to characterise – the focus for the company may well be to simply create demand for their product. The IT strategy then has less need for being offensive, but still has a dependency on fully understanding the IT estate and the value to the business.

Strategic decisions around whether to partner or form a strategic alliance, or whether to outsource an element or portion of the value chain, will also impact how successful IT departments become. For example, if a decision is made to outsource elements of IT because the department is weak in managing or supporting that area, while competitors are building strength into theirs, they need to choose their outsourcer carefully. The also need to now exactly what it is that they are outsourcing. Again the starting point is having a complete map of the IT environment, and then knowing the strengths and weaknesses apparent across the IT estate.

One observation we might make about businesses today, especially in the technology sector, and in those industries dependent on IT, is that the only strategy in the beginning is to find new customers and visionaries to promote the product among their industry peers. With a new technology product, or a market ready for a new technology, there needs to be knowledge flow between the market and the company to share information on customer requirements and product function. The same is true of the IT department. New technology is introduced because it can be, seems cool, and keeps IT interested, but without that complete 360-degree view of the IT estate, IT can’t share the intent behind its strategy, if indeed it has one.

Many IT departments have an unfailing belief in how successful they are going to be and how valuable they are to the organisation just because they provide technology. In some cases, these same IT departments exist despite not having a real strategy to support the business. An expectation exists that simply introducing new technology leads to business success whether there is strategy behind the technology drive or not. It may be that this drives IT departments to focus on two things: how to win favour among the lines-of-business heads, and therefore gain budget; and how to support lines-of business heads who shout loudest for new technology. Trading an IT strategy on the back of early praise fro technology simply means that sustainable competitive advantage becomes the next CIOs problem.

For many CIOs and IT managers, it may be easier to focus on technology product features, and become lost in decision making issues relating to price battles and industry consolidation as and when strategic convergence occurs. In such circumstances, thinking about IT strategy may not be immediately convenient, and these IT departments, especially for those with entrepreneurial characteristics rather than managerial skills, it may seem easier to jump between generic competitive strategies in the hunt for technology success, rather than focussing on one generic strategy and benefiting from longer term rigour in pursuing business alignment with a suitable fit of activities tuned for competitive advantage. In this scenario of focussing on implementing technology via any strategy, benchmarking and continuous comparison between products and emerging suppliers may just lead to all IT departments doing the same activities and missing opportunities to create unique value for their business.

If we take Google as an example of a company which built a unique competitive position, the company’s approach to the technology it used – it built is own – demonstrates a willingness to be different. As a company, Google had followed a broadly differentiated competitive strategy with its alternative technology for web page ranking. At the same time Google picked off its competitors with complementary offensive strategies, targeting its competitor’s weaknesses by attacking the market leaders using its company resources – great brains behind the product, and a new approach to using cheap computing power to do its search engine number crunching. In other words, how Google used IT was different to its competitors – different enough, and sufficiently aligned to the business strategy to be useful and effective.

The difference between Google and the majority of IT departments is that Google was starting from scratch. Most IT departments have already made technology investments; are already stepping through the life-cycle of technology upgrades; are already services providers to their respective businesses; and are already bound by service levels to differing degrees. To be different, strategic and successful in their use of IT they need to first understand their starting point; what technology do they have; where is it used; who uses it; how is it used; what dependencies exist; and what areas of the business benefit from which technology components.

The 5 generic competitive strategies and supplementary strategic actions which can be taken seem both broad and extensive – certainly enough to cover most competitive strategy combinations. The danger for most IT departments is that their IT strategy is limited to determining how they can imitate and replicate technology, drive efficiency and effectiveness, and ultimately fail to appreciate how what they have aligns to business services. Instead, for IT departments to contribute in creating a unique competitive position for their organisations they might focus on being different. They might focus on gaining a deep understanding of the technology they already use; understanding how this technology supports the business processes, relationships between key components and dependencies between software, hardware and the underlying infrastructure technology; and of course aligning what they have in support of the organisation’s chosen strategy.