An explicit road-mapping exercise can play a vital role in recasting your IT function. In this respect, it is very different from a conventional “big bang” technology plan, such as an enterprise resource planning (ERP) renewal effort. The road map forces you to put aside any current efforts to define IT projects or assess solutions packages, and to base your judgment instead on the way your company creates value, on the investment needed for your differentiating capabilities, and on the contribution that IT must make.
1. What Capabilities Matter?
In this foundational first stage of your journey, the leaders of your enterprise IT function come together with the business leaders of your corporation to reach a mutual understanding of business priorities. This starts with the articulation of your overall strategy: the ways that your company generates value for its customers now, and how it expects to do so in the future. As Paul Leinwand and Cesare Mainardi point out in The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010), a strategy like this can succeed only if it is supported by a system of well-developed, applicable capabilities that reinforce one another. (See “The Right to Win,” by Cesare Mainardi with Art Kleiner, s+b, Winter 2010.)
Corporate capabilities and information technology are intertwined in every company, but the relationship between them is often misunderstood. A capability is the ability to reliably and consistently deliver a specified outcome relevant to your business. This capability is ensured through a combination of processes, tools, knowledge, skills, and organization that are all focused on meeting the desired result.
Companies have hundreds of capabilities — all companies must, for example, maintain competent facilities management and legal staffs to remain in operation. But the capabilities that matter most are those that are distinctive. They are refined and proficient to the point that they differentiate your company; they give you the ability to approach the market in ways that few others can emulate. This requires so much investment and attention that even the largest, most powerful corporations can afford to keep up only three to six world-class capabilities. In the most successful companies, these capabilities are applied to all products and services in a coherent fashion. Fulfilling them becomes the top priority for all the major functions, especially those related to talent (such as human resources and learning and development) and processes (such as operations and IT). Although strong IT support is required for every corporate activity, the most important focus for IT investment and design should be the three to six capabilities that matter most.
One well-known example of the difference that distinctive IT-related capabilities can make is provided by Amazon, the world’s foremost online retailer. Amazon’s strategy has drawn heavily on IT and the involvement of highly skilled IT strategists. Its capabilities include very sophisticated interface design and customer relationship management, broadly integrated analytics, and the rapid deployment of new technologies such as cloud computing and printing on demand.
To be sure, as an Internet-based company, Amazon might seem atypical, but the same level of technological integration is a hallmark of leading companies in every industry. For example, consumer products companies increasingly distinguish themselves through IT-enabled customer relationships or value chain management. Engineering-oriented companies carve out their identity through their unique approach to innovation, which also needs in-depth IT support. And distinctive IT-enabled capabilities are beginning to play a similar role in the downstream oil and gas industry (that is, everything involved in taking raw fuel to market, including refining, processing, distribution, and retail).
Margins are razor-thin (usually pennies per gallon) in downstream oil and gas operations, which typically require coordination among a variety of businesses and franchises. Inaccurate or delayed information on fuel inventories and supply positions can destroy that margin very quickly. This can happen, for instance, when oil and gas companies contract to supply fuel at competitive prices, and then discover that their own supplies can’t cover those commitments; they must then go to third parties to buy the product at higher spot prices.