value insights

Strategic IT based Agility- Valutrics

Companies need to build IT infrastructure for strategic agility. Strategic agility is defined by the set of business initiatives an enterprise can readily implement. Many elements contribute to agility, including customer base, brand, core competence, infrastructure and employees’ ability to change. Organizing and coordinating those elements into an integrated group of resources results in an enterprise capability, which, if superior to that of competitors, becomes a distinctive competence. Research demonstrated a significant correlation between strategic agility and IT infrastructure capability. This suggests that if managers can describe their desired strategic agility, they then can identify the IT infrastructure service clusters that need to be above the industry average — and thus can create a distinctive competence.

Strategic agility is the ability of a firm to continually sense and explore customer and marketplace enrichment opportunities and respond with the appropriate con figurations of capabilities and capacities to exploit these opportunities with speed, surprise, and competitive success.
Enriching customers, leveraging capabilities and capacities, nurturing inter-organizational cooperation, and mastering change and uncertainty are the four building blocks of strategic agility.
Enriching customers can include the following activities:
• Solution-centricity: deliver total solutions for current and anticipated customer needs. Solutions are customizable bundles of products and services.
• Customer-centricity: heighten customer convenience, including space, time, speed, and personalized convenience.
• Accelerate solution and product innovation to continually refresh customer offerings: portfolio of incremental, architectural, and radical innovation projects.
• Co-opt customers in the innovation process: Customers are sources of ideas for product and solution offerings. Customers are co-creators of innovative ideas.

Leveraging capabilities and capacities is the next building block. First, an ecosystem of capabilities has to be built. The ecosystem might consist of customer relationship management, selling chain management, supply-demand synchronization, manufacturing management, financial engineering, brand management, human capital management, and information technology management. Next, world-class excellence has to be nurtured. This implies focus on a balanced set of metrics, such as adaptiveness, responsiveness, speed, cost, effectiveness, and quality. This also implies applying continuous improvement methods for capability enhancement and investing in and developing enabling information infrastructures and services platforms.

Nurturing inter-organizational cooperation is concerned with value net concept, value net posture, and value net integration. In the context of strategic agility, value nets are configurations of sourcing and partnership structures for building the extended enterprise. This definition is different from our main definition of value network as a value configuration in this book. In the context of strategic agility, value nets are architected to leverage other firms’ capabilities and assets that complement core capabilities and assets within a firm. Value net posture is concerned with the governance of the value net, which can be either prescriptive or collaborative.

Value net integration requires focus on the value net and expertise replication or expertise integration. In addition, the following actions are important in nurturing inter-organizational cooperation:
• Identify and certify potential partners with regard to desired competencies (assets, capabilities) and their financial solvency.
• Develop and continually assess working relationships with partners.
• Develop abilities to work with partners through a variety of contractual mechanisms.
• Develop competencies to quickly establish (and remove) the technology, process, and managerial interfaces needed when initiating business arrangements with new partners.

Mastering change and uncertainty is the fourth and final building block of strategic agility. It requires strategic foresight, strategic insight, and organizational learning. The following actions are important in mastering change and uncertainty:
• Sense, anticipate, and exploit trends, opportunities, and threats.
• Quickly and seamlessly marshal the combinations of capabilities necessary in shaping innovative moves.
• Quickly reconfigure capabilities necessary in shaping innovative moves.
• Execute and learn from strategic experiments and from strategic actions.
The evidence from leading enterprises indicates that implementing different types of electronic business initiatives based on atomic e-business models requires different high-capability IT infrastructures. Strategic agility requires time, money, leadership, and focus — an understanding of which distinct patterns of high-capability infrastructures are needed where. Investing in IT infrastructure is like buying an option. If used successfully, infrastructure enables faster time to market; if not, it will prove an unnecessary cost. To ensure that investments in IT infrastructure support the organization’s strategic goals and business initiatives, it is critical for the enterprise’s most senior executives to understand which specific IT infrastructure capabilities are needed for which kinds of initiatives. That way, they can have some assurance that the investments they make today will serve the strategies of tomorrow.

One approach to improving strategic agility is utility computing. Utility computing proposes to allow clients to buy computing capacity as they do electricity — just by plugging in. For clients, the cost is variable and based on the actual capacity they demand, rather than a fixed cost for a capacity they only use during peak periods. They can get the capacity they need whenever they need it, without expending resources and effort to regularly monitor and upgrade capacity.

The vision of utility computing goes beyond traditional outsourcing of IT services. It includes all potential combinations of sourcing options, as we shall see in the second part of this book. Vendors are promising to offer applications and business processes, including computing, applications, and expert staff, in an on-demand format, just as many firms now buy call center and payroll processes. Utility computing relies on several important technical capabilities to deliver these promised services. First, grid computing enables a network of processors to provide shared processing capacity by seamlessly accessing unused capacity elsewhere.
Second, autonomic computing technology enables a network to be self-healing, and thus provides higher reliability across a system than is currently available. Third, Web services provide technical standards that facilitate integration across systems.

In combining these three capabilities in a one-to-many business model, vendors expect to offer on-demand computing capacity and a wide range of plug-and-play technology and process components.

The shifting competitive landscape is creating a larger gap between strategists and technologists. Executives are busy creating and refining visions and have little time to focus on technology. Technologists are busy keeping the platform current and have little time to understand the business in depth. Without a mechanism to force communication, each group retreats into its specialty.
Among companies that were successfully aligning business and technology in e- business, there are a series of bridging activities that amounted to the creation of what they call organizational architect. An organizational architect is someone who is neither all strategist nor all technologist, who guides the translation of a strategic vision to a flexible, integrated platform. Organizational architects sustain a dialogue between visionaries and technologists as they define and design the right combination of structures, processes, capabilities, and technologies. This combination has a greater chance of improving strategic agility by being responsive to shifting organizational goals.

A survey of chief executive officers and chief information officers at 97 companies in the United States, Europe, and Australia that had moved to e-business shows that most were responding to an increasingly volatile business environment by shrinking their development and planning cycles. Half of the companies did not extend their plans beyond one year, and half of those with infrastructure plans updated them quarterly.

Lacking some mechanism to bridge the interests of strategists and technologists, information technology cannot prepare for change, and senior business executives end up guiding and funding short-term technology initiatives. Organizational architects work with both strategists and technologists to identify and grow the organizational and technical capabilities needed to see a vision through to its supporting platform. The architect sees the vision through three main translation phases :
• Phase.1 From vision to organization: The organizational architect sets design parameters for the organizational structures, processes, and capabilities that make the vision possible.
• Phase.2 From organization to technology.requirements: The architect now works to map the organizational needs to platform characteristics.
• Phase.3 From technology requirements to actual platform: The architect is now ready to get a fix on reality by talking with technology experts about what they can actually do.
An organizational architect is a significant investment for a business, so it will be important to underwrite the position even though it is essentially a staff function with no immediately visible commercial benefits.
The evolution toward strategic agility may be defined in terms of four generations. The first generation was total quality management, while the second was lean management and mass customization,then, followed organizational adaptiveness before strategic agility emerged. Each generation of corporate transformation has emphasized specific types of capabilities and performance enhancement. Path dependent progression through each of these waves is essential as the learning that occurs within each wave produces necessary changes in orientation and capacity.
Total quality management had efficiency as its competitive base, while lean management and mass customization had customer centricity and product variety as its base.

Organizational adaptiveness was characterized by flexibility and partnerships, while strategic agility has entrepreneurial sense-making and improvisation as its competitive base. Furthermore, strategic agility has the design objective of innovation and disruption and the decision architecture of external-internal collaboration.
The evolution toward agility in terms of information architecture started with data and metrics rationalization (total quality management), moved on to process rationalization and data integration (lean management and mass customization), then to meta process rationalization and meta data integration (organizational adaptiveness), and finally to information visibility and information probing (strategic agility).

Information technologies can enable agility in several ways. First, the strategic role of IT can shift to fluid decision, authority, and collaboration structures. Second, the IT architecture can shift to modular form. Next, key technologies will be Web services, objects, intelligent agents, and distributed collaboration technologies. Fourth, key IT partnerships will include partners’ market experts. Finally, IT investment focus will no longer be cost reduction, productivity improvement, time-to-market, or product life cycle refreshment. Rather, IT investment will focus on real options, market prototyping,
time-to-solution, and relationship capital.

Of critical importance is IT investment in IT infrastructure. Strategic agility requires a distinct pattern of high-capability infrastructures. Getting the right balance is difficult. Under-investing reduces strategic agility and slows time-to-market. Also, infrastructure investments must be made before investments in business applications because doing both at the same time results in infrastructure fragmentation. But if the infrastructure is not used or is the wrong kind, a company is over-investing and wasting resources.

The managerial guidelines for strategic agility include:
• Adaptiveness enables competitive success in the digital economy.
• Strategic agility enables competitive leadership.
• Adaptiveness requires the co-integration of customer- and solution-centricity, capabilities built around information, process, and information technology infrastructures, and value net architectures.
• Additionally, strategic agility requires the mastery of change and uncertainty through entrepreneurial orientation and sensing capabilities.
• Strategic agility is nurtured at multiple levels: competitive agility, innovation agility, and functional agility.
• The evolution toward strategic agility occurs through the learning gained by prior investments in total quality management, lean management, and value net integration.
• Information technology management facilitates strategic agility as a digital options generator by representing a platform for process innovation, for value net integration, and for innovation and strategic experimentation.
• Attention must be focused on significant transformations of the IT function, such as IT architecture, IT investment, IT partnerships, and organizing logic.

Strategic agility is an emerging concept that needs research concerning both organizational and technology issues. Organizational issues include competency development and organizational architecture as demonstrated by the need for organizational architects. Technology issues include distributed intelligence, interfacing intelligent agents and humans, knowledge discovery technologies and processes, rapid start-up and integration initiatives, meta data and process architectures, and end-to-end value chain information visibility.
One approach to organizational actions for strategic agility is organization capital readiness. Kaplan and Norton define organization capital as the ability of the organization to mobilize and sustain the process of change required to execute strategy. Organization capital provides the capability for integration so that individual intangible human and information capital assets, as well as tangible physical and financial assets, are not only aligned to the strategy, but are all integrated and working together to achieve the organization’s strategic objectives. An enterprise with high organization capital has a shared understanding of vision, mission, values and strategy, is strongly led, has created a performance culture around the strategy, and shares knowledge across the organization.

If managers can describe their desired strategic agility, they then can identify the IT infrastructure services that need to be above the industry average — and thus can create a distinctive competence.
Important drivers of strategic agility are strategy, sourcing and governance. Strategy describes paths to the desired future, sourcing describes access to resources for the desired future, while governance describes management mechanisms to lead into the desired future.