IT Strategy - When to invest in IT (and when NOT to)

Insurance companies, banks, retailers - the common theme among all these sectors is the rapid scale of changes in the competitive landscape. If you own a small business fulfilling the grocery needs of the consumers in a lovely neighborhood of Hoffman Estates in Illinois, your business is disrupted. Online retailers can deliver groceries to your customers within a day or two and possibly at a lower price than you. Traditional banks serving local consumers can no longer limit their competitive research to their local areas. Insurance companies have to deal with never ending regulatory requirements. The competition has gone global and can come from all corners. These disruptions mean companies have to continually update their target market segment, understand the evolving needs of the consumer, translate his/her needs into desired features, develop products and services, modify/build new core competencies, assess their global competition, keep their costs down, develop the value proposition and identify their positioning. That’s a tall order. When the change is of such high magnitude, how should the enterprise prepare internally to face this change?
“Going digital” or building IT capabilities can certainly help the organization to improve its productivity and build agility to deal with changes. But what type of investments are worth their money? IT investments should be assessed based on the answers to the following questions –

1) Which Value Streams are affected?

Which are the key value streams that are most affected by changes. Is my competing bank planning to on-board customers faster than me? Is my rival online retailer cutting costs based on an efficient distribution channel? Are my rival insurance companies offering customized insurance plans? Based on the answers, the underlying values streams (client on boarding, product delivery channel, benefits management, etc.,) need to be identified.

2) What are my capabilities in the affected Value Streams?

Are my existing capabilities in those affected value streams falling short in meeting the new demands? Is it a business capability that needs strengthening or is it the support capabilities such as IT, HR, Suppliers? This is a key phase, since answers to these questions will drive the investment decisions.

3) What IT capability gaps need to be closed?

How will building an IT capability help us bridge the gap in the Value Streams. At a high level, the primary objective of an IT application(s) is to improve productivity and enforce data integrity. The best talent(employees) within an organization are better off applying their discretion while solving business problems than searching for information, exchanging emails for approval, coordinating activities, performing repeated data entry etc. Repeatable, coordinated activities and those activities that do not require employee discretion should be automated and data entries eliminated using IT applications. This will help to achieve true productivity improvements. The objective of an IT application(s) is to free up human resources for performing business critical activities and effectively deal with changes. When the IT application portfolio is decided based this criteria, there will be a true ROI for the all IT investments. When all the repeatable tasks are automated and data integrity maintained via digital applications, the senior management of an organization can be rest assured that its best employees are better equipped to deal with changes. The actual technology that needs to be adopted for building IT applications could depend on various factors - cost of developments, features offered by the software, in house build vs. outsourcing app development, time to market, post production support, life cycle of an application etc. The IT decisions by competitors should also be taken into account, since IT systems adopted early by competitors could give first mover advantage to them.

4) When NOT to invest in an IT application?

When the cost of investing in an IT application(s) far outweighs the business problems solved by the IT application, it’s NOT prudent to go with the investment. Also, if the technological changes offers a chance to leapfrog the competition, it’s worthwhile to wait for the subsequent year when the latest IT technology is available. Investing in IT just for the sake of it will not serve primary purpose of any organization – to develop and serve the products and services which will be purchased by the consumer.
Closing Comments: When the IT application portfolio is decided and measured based on the business objectives, the organization will have a better bang for its buck. Your thoughts?
P.S: This post was originally posted by me on LinkedIn on 07/08/14

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