Are your IT investments being influenced by the executive who shouts the loudest? Are you unable to finish a single implementation project because of changing company priorities? When funds are limited, is your company unable to decide between replacing obsolete systems or enabling industry best practice capabilities via new technologies?
If so, it’s likely that you need to better align your IT strategy with your overall corporate strategy. As Gartner puts it, “when enterprise strategy is unclear, or not clearly reflected in initiatives involving IT, the perceived value of IT is generally low, regardless of how well initiatives involving IT are executed.”1
What is your corporate strategy for the next 3-5 years?
If your strategy is growth through new customer acquisition, IT investments should be focused on providing new capabilities to current and potential customers. Or your strategy could be to increase margin and the ability to compete in a slow-growth industry, so you need to focus on cost reduction and will likely implement IT capabilities to optimize key internal processes.
Or is your foremost need to protect current profit margin in a highly regulated or high-risk industry? Your focus would then be on projects that minimize risk for the company – financial reporting, royalties, copyright, intellectual property protection, etc. Or maybe you urgently need to increase cash flow and need to focus your investments on decreasing your Accounts Payable cycle time or better managing Treasury operations.
In any case, it’s unlikely that you will invest in only one type of project. The idea is to balance the portfolio of investments and outcomes.
The big picture: How are your investments split?
The first thing to do then is to determine the categories of your investments. Whether you use Gartner’s categorization of Run/Grow/Transform or something a little different like Standardization/Optimization/Innovation or a more complex model like the GE-McKinsey Portfolio Matrix, you’ll also need to set targets for each categories as well as expected outcomes of each category.
Once you have prioritized and selected your potential projects (see our previous post on leveraging a prioritization methodology), you’ll want to assign each one to a category and look at the total dollar value per category.
Is your overall spending per category what you expected? Are you spending too much or too little on projects that are purely to “run the business” (such as replacing failing legacy systems)? Are you protecting your margin or competitive position sufficiently by investing in risk-reduction initiatives? Have you allowed enough investment in innovative ideas? How do you compare to other companies in your industry?
In terms of maturity, showing this picture to upper management is already a big step. You’ll be in a position to ask them if the investments reflect their desired position with respect to the industry and their competitors. It’s interesting to note that that “the most effective enterprises [spend approx. 50% more on growth and transformation projects] as a percentage of overall IT spending as the least effective” 1.
Now you’re ready for the final step of comparing the desired outcomes within each category with the outcomes that each project will deliver to ensure alignment. This analysis may even lead you to eliminate some projects from the list, especially when funds are limited, as is often the case.
1 Hunter, R., Handler, R.A., Andonian, M.H., “Strategic Benefits Realization: IT as an Engine for Coherent Execution of Strategy” (Gartner, 2014)