Introduction to Information Technology (IT) Strategy
Introduction: What is IT Strategy and Why it is Important
As the joke goes, A person who is sitting in front of a computer and not knowing what to do has been described as Intel Inside and Idiot Outside. Similarly, organizations that do not have an IT strategy in place are akin to clueless organizations adrift in the sea of the 21st century marketplace, rudderless, and directionless.
Moreover, with technology becoming the norm rather than the exception, organizations cannot afford to simply have a basic IT strategy and instead, must actualize a comprehensive IT strategy that is aligned to their business and corporate strategies.
With the rapid spread of IT (Information Technology) and the increasing interconnection and connectivity in the contemporary world, having an IT strategy is no longer a luxury for organizations and indeed, it has become the very necessity for survival. This means that for organizations to harness the power of IT, leverage the synergies between their business processes, and capitalize on the efficiencies of the economies of scale, they need a robust, coherent, and proactive IT strategy.
Further, with IT become ubiquitous, it is no longer the case that business strategy alone is enough and the alignment of the business strategy with that of the IT strategy has become paramount.
An IT strategy has been defined as the actualization of the plans, which consist of tactics, principles, and objectives concerning the use of IT within organizations. If we break down the elements of an IT strategy, the why, how, what, when, where aspects are the important components of an IT strategy.
First, the organization needs to identify why it needs to use IT and then formalize a nuts and bolts plan on how it need to leverage IT. For instance, most business processes can be automated and those that cannot or need not be automated along with the practical implementation of the automation forms the what of the IT strategy.
Next, the organization has to decide where it needs to deploy IT along with when the automation and the use of IT have to be rolled out.
After these elements are identified and codified in a written document that describes the operational details of an organizations IT strategy, care must be taken to ensure that this IT strategy is consonant with the overall objectives as well as based on scientific principles of technology.
These objectives are related to what the organization wants from its IT strategy and dependent on the application of sound technology practices. Moreover, the organizations IT strategy must complement and supplement its corporate and business strategies and these cannot exist in isolation but instead must work in tandem.
To take some examples, if a bank wants to actualize an IT strategy, it must first define the objectives behind such a strategy. This can take the form of automation of 1000 branches in a year, the rollout of a core banking solution, which would be the foundation for the integration of the corporate, retail, and investment banking functions and their automaton, and then must identify the returns that it expects from such an IT strategy.
The ROI or the Return on Investment of an IT strategy is very important, as the bank needs to have a clear plan, articulate, and justify the spending on IT, which would generate a return on its investment.
In this case, the ROI can be expected to be a 10% rise in customer accounts, 20% rise in revenues because of handling higher volumes and processing more transactions, and a 15% cost savings because of lesser human effort as well as more rationalization of operations. All these figures should then translate into the percentage increase in profit that the bank expects from its IT strategy.
Finally, it is also common for organizations to calculate ROI based on each dollar spent on IT and this can be the case with the example here of the bank which can actually note down all these figures and come up with a comprehensive IT strategy.
Typical Structure of IT Strategy
A typical IT strategy just like a corporate strategy must first perform an internal and external analysis, which would provide it with a guideline on the alignment between its strengths and opportunities and weaknesses and threats.
Taking the example of the bank, it must identify the processes that can be automated and ensure that its strengths in the form of whether the bank derives its profits from retail, corporate, or investment banking arms justify the IT spend. This means that if it has say $10 Million to invest in automation, it must allocate this budget wisely so that it generates the needed return.
Next, it must also introspect and find out whether automation and rolling out of IT systems would be consistent with its capability and capacity to raise the needed resources. The bank in this case cannot simply go in for an IT strategy if it is unable to come up with the desired amount for such an exercise.
Having said that, it must be noted that the primary reason why organizations go in for an IT strategy is to reduce the operational bottlenecks, actualize economies of scale, and derive value from technology. The bank should note these business drivers and rigorously apply them to the areas where IT can significantly add value.
For instance, if the bank wants to expand its operations in Tier II and Tier III cities and towns and wants to automate its operations to enable real time systems that would benefit its customers, a good IT strategy can ensure the successful outcome for all these objectives. Thus, it would be able to meet the external challenges such as increased competition in these markets successfully.
Whereas the first paragraph in this section was about matching strengths with opportunities, the second paragraph dealt with reducing its weaknesses and dealing with threats. To complete the actualization of the IT strategy, the bank would then need to have a implementation plan in place and a time bound implementation replete with governance, milestones, and the roles of the CIO (Chief Information Officer) along with the assignment of responsibilities and fixing accountability have to be incorporated into the IT strategy.
Alignment of IT Strategy to Corporate and Business Strategies
It is often the case that organizations embark on an IT strategy without defining the benefits, the ROI, and without being clear of which business and which corporate function has to be automated.
In other words, many organizations roll out an IT strategy without it being consonant with the overall business objectives. This results in a situation where the organizations IT strategy is clueless and directionless as an absence of an alignment with the corporate goals and objectives and a disconnect between business drivers and the IT strategy can lead the organization nowhere.
For instance, turning to the example of the bank, if it decides to extend its ATM network and expand it into all areas where it operates, the bank first needs to identify whether the business objective is clear and whether its corporate strategy of raking in more profits is in alignment with the IT strategy.
In other words, just because the CEO or the Chairperson of the bank wants to be seen inaugurating ATMs and Bank Branches without a thought as to whether these would be profitable spells disaster.
Though you might think that this does not happen in practice, there are many instances where the CEO wants one thing, the CIO wants another thing, and the CFO wants something totally different.
The point here is that just like the organization prepares a financial and operational budget that is aligned with its capabilities and capacities and is forward looking as well, the IT strategy must not be pursued in isolation but must be in tune with the business and corporate strategies. This is the reason why the IT strategy in most organizations has become part of the corporate planning department so that all the three strategies complement and supplement each other.
We have introduced the bare bones elements of an IT strategy. To wrap up our discussion, it would be pertinent to note that the CIO in recent times has become as important as the CEO because of the fact that a good strategy can significantly add value to an organizations bottom line as well as its competitiveness. A well thought out IT strategy can be a source of sustainable advantage as well.
- Information System for Effectiveness
- IT as Driving Force for Innovation
- Elements of Information System Model
- Value Chain and E-Strategy
- Components of Commercial Value Chain
Authorship/Referencing - About the Author(s)
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