Integrating Business and IT Strategy:
Reframing the Applications Development Portfolio
Professor Michael Earl
Centre for the Network Economy
CNE WP08/2002
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Integrating Business and IT Strategy
Reframing the Applications Development Portfolio
Michael Earl
London Business School
One obvious effect of e-commerce has been a reassessment of both the process and
content of respectively competitive strategy and IT strategy. In the e-commerce space,
especially in pure play Internet businesses, both these strategy domains seem to be
enacted as one, with an emphasis on strategy-making by teamwork and strategy
implementation through rolling plans (Earl and Khan).
More widely, it can be argued
that to have business strategy separate from an IT strategy is folly (Earl 2000). Not only
do we need to ensure we are developing IT applications and building IT infrastructures to
support the current business strategy; we also should be re-examining how the business
strategy should change because of the threats and opportunities presented by IT – either
in the way we do business or in the business positioning we choose. In other words (fig
1), IT both shapes and supports business strategy.
IT Supports
IT Shapes
Business Strategy
IT as Input
IT as Output
Fig.1: The IT-Business Strategy Connections
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Whether firms choose to integrate their formal business and IT strategies or not, they
certainly need to integrate their business and IT thinking. We know that there are several
methods, styles or processes that firms adopt in strategy-making (Mintzberg, Earl 1993,
Segars and Grover) and some are more likely to achieve such integration than others. So
one practical means of ensuring a degree of integration takes place is to devise and use a
tool for either assessing an application development portfolio ex ante or reassessing it ex
post – or both. In other words, the framework I will propose can be seen as a planning
tool or as an audit tool. I call it the T-Portfolio.
The underlying premise of the T-Portfolio is that at all times, firms are competing on two
time horizons. They are very much engaged in daily battles for, and current initiatives
in, the present. Indeed, several theories and models of competitive strategy, for example,
the work of Porter (1980), are principally oriented towards visible and tangible
timeframes.
Likewise, as IT has evolved to the point where infrastructure and
applications underpin business operations there has to be a focus on the present and nearterm in IT Strategy as well.
However, not just because of the promise of ever-emerging new technologies which pose
new business threats and opportunities, but because other exogenous and endogenous
factors change too – demographics, politics, economics, consumer attitudes and
behaviour, management and organisational philosophies, innovation and creativity –
businesses are competing for the future and longer term. Some more recent work on
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competitive strategy, for example, (Hamel and Prahalad, Hamel) has been oriented
towards the future and towards revolution rather than evolution. This has seemed
especially relevant in the context of new media, e-business and apparent indicators of a
“new economy”.
In other words, firms have to compete for both today and tomorrow (Abell) and it seems
likely that both the content and process of today strategies differ from those of tomorrow
strategies. Thus the T-Portfolio looks for a balance in investments that are competing for
today and competing for tomorrow – or put another way for evidence that IT is both
supporting business strategy and shaping it.
Competing for Today
In the “theory” and practice of IT strategy-making, there are different, or perhaps
complementary, views on how to align the applications development portfolio with
business strategy. The “top down” school usually has as its starting point explication of a
firm’s business strategy, followed by identifying applications to support the different
strategic thrusts. Alternatively, candidate application ideas may be validated against the
espoused business strategy. If, as argued earlier, most business strategies are framed in
the current dynamics of competition, the result is essentially an applications development
portfolio which meets today’s needs, even if it implies a three year or more timeframe for
implementation.
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The “bottom up” school usually has as its starting point solicitation of user suggestions
and ideas. The merit of this process is that such proposals are mostly grounded in the
needs of daily business and the experience of using and deploying existing systems. As
many managers learn by doing, or from experience, such a process can be a rich and
relevant source of application ideas. Once again, however, the time orientation is the
present.
A more emergent school of IT strategy-making, sometimes called “middle out” or “inside
out”, rests on local experimentation and innovation, the use of informal, ad hoc or formal
teams to generate ideas, unplanned accidents and surprises, and evolutionary
developments from existing systems. The results can be as much oriented towards the
future as the present, possibly providing a mechanism of continuity which links the two.
However, the “middle out” school is not explicitly focused on the future.
In other words, most IT strategy-making tends to be grounded in the present rather than
the future – or more graphically today rather than tomorrow. This is partly a function of
executive and organisational mindsets and the focus on short-term performance as much
as the orientation of most schools of IT strategy-making. However, if it were different, it
would suggest misalignment rather than alignment with business strategy because, to
repeat, competitive strategy is rightly at least as much concerned with the daily battles of
the market-place and the current strengths of internal resources as it is with carving out a
different or new future. Short-term survival is a precondition of longer-term renewal.
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Indeed, when shocks arrive – business mistakes, economic recessions, political surprises,
much as being experienced as I write this article in the fall of 2001 – the need is to focus
on the present, to ensure survival. So there are periods when a viable application
development portfolio is dominated by today, not tomorrow. The left hand side of Fig.2,
the T-Portfolio, therefore will have more content, where the emphasis is on IT supporting
the business or competing for today.
Low
IT
SHAPING
BUSINESS
High
High
IT
SUPPORTING
BUSINESS
Low
TODAY
TOMORROW
Fig. 2: T-Portfolio Template
Today Investments
At any time, most business executives would have more confidence in an application
development portfolio which had some short-term deliverables or quick wins.
Most
CIOs would want the same, because they know that their credibility – a key to survival
(Earl and Feeny) – is improved by having a stream of deliverables. So ideas that generate
rapid payback, help make life easier, or are a basic necessity, should be present in every
portfolio. They may be generated by any of the three “schools” outlined above, but are
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particularly likely to be outcomes of “bottom up” processes.
These quick wins or
essentials we can call the basics (fig. 3) – or more colloquially “low hanging fruit”. They
are not “Killer applications”, but they are useful basic systems.
Low
IT
SHAPING
BUSINESS
High
High
Competitiveness
IT
SUPPORTING
BUSINESS
Basics
Low
TODAY
TOMORROW
Fig. 3: The Today Portfolio
However, the crux of strategic alignment thinking is to ensure there are IT applications
which support the thrusts of competitive strategy. These are the killer applications. Here
“top down” processes do help in identifying and selecting them.
Perhaps the critical
success factors method (Rockart) is the obvious logic to employ because, in short, we
seek a set of IT investments which enable achievement of operational goals critical to
business success or superior performance.
And if such seemingly strategic ideas are
generated by more “bottom up” or “middle out” processes, we can assess and rank them
against a rubric of critical success factors.
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Thus the today side of the T-portfolio also should have a set of IT projects which are seen
as pillars of competitiveness. Earl’s (1993) study of IS Strategic Planning suggested that
successful IS/IT strategies comprised just there or four themes pursued over several years
and we might expect most of these themes to be ones of current competitiveness.
In allocating capital expenditure, the competitiveness cell should far outweigh the basics
cell. This is where applications should be classified as either “competitive necessity”
systems or “competitive advantage” systems (Clemons and Row ).
Competing for Tomorrow
The argument that IT can shape business strategy as well as support it has become more
potent with the arrival of the Internet and e-commerce. Two claims are often made. First,
potentially these ‘new technologies’ can lead to firms repositioning themselves as
industry boundaries change and value systems are reconfigured; and they can enable new
ways of doing business by exploiting network structures and information richness.
Second, because this is new territory, all the options are not yet known or understood;
therefore elements of both imagination and learning by doing are required.
The first claim suggests that any application development portfolio which claims to be
strategic, or is also concerned with tomorrow, should comprise some investments which
are carving out new positions and new ways of doing business. Otherwise, a firm may be
blindsided by more perceptive and nimble players. The second claim suggests that
necessarily some projects will have to be seen as “soft”, either rather creative and
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speculative (options if you will), or more experimental where the goal is as much about
discovery and learning as about pursuit of a definitive commercial payoff.
Most IT strategy-making and the resultant strategies do not score highly on either
creativity or experimentation. The same could be said for business strategies, although
recently more attention has been paid to these issues – at least in the literature
(Mintzberg and Lampel).
In the case of IT strategy-making, there are often calls for visions and visioning, but
examples still tend to be grounded more in the present than in the future. If the intent is
shaping business, this is where imagination, scenarios, brainstorming and storyboards
take over from analysis, success factors, continuous improvement suggestions and
feasibility studies. Of course, the scenarios or storyboards have to make business sense,
but you are not likely to hit upon novel and different ideas by starting with business
analysis. As one French designer1 puts it “virtuality can influence reality”. To imagine
futures may lead IT strategists, and business strategists, to discovering an exciting yet
realistic strategic vision.
Sometimes such imagination may even be mediated by
technology and new media – as the above quotation suggests.
One rationale for an experimental approach as well is that the future, and thus viable
strategies, are uncertain and unknowable and therefore may need to be discovered by
doing. A related argument is that in rapidly changing times – for example in the ecommerce boom – strategy is a race to learn.
1
Therefore learning devices such as
I am grateful to Chafik Gasmi, Artistic Director of Sephora, for this insight.
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experiments make sense.
Indeed, experimentation is not entirely unknown in the
information systems domain; prototyping is one obvious example. However, here we are
concerned with prototyping the future. The tomorrow spirit is “let’s see if we can change
the paradigm and if it makes sense”, rather than the more usual today spirit of
prototyping, namely “let’s see if this application will work and discover how to make it
work”.
So a balanced T-Portfolio will have some content on the right hand side of Fig. 2, where
IT is being deployed to shape the business, ensuring today and the present do not
background or drive out tomorrow and the future. One would not expect as many or even
as large IT investments targeting tomorrow as those targeting today. After all, the future
is more uncertain and portfolio approaches to strategic decisions are usually to do with
managing risk. Nevertheless in periods of excitement about the future, where directions
seem to be unfolding rapidly, one would hope to see some IT investments being made on
the right hand side of the T-Portfolio.
Tomorrow Investments
Experiments (Fig. 4) are those projects which make some sense in today’s context and
may turn out to be really innovative and with further investment might shape the business
of tomorrow. Therefore, they are low in both supporting today’s business and, initially at
least, in shaping tomorrow’s business. They are not “bankers” in r.o.i. terms; nor are they
“killer apps” because their impact or success is far from certain. They are experiments
which may turn out to be winners, may suggest another experiment or incremental
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investment in due course, may turn out to be just mildly useful for a time at least, or may
be short-lived and “written off to the learning budget”. Accordingly, two or three true
experiments may be the maximum any one business unit should tolerate, even in the best
of times.
Low
IT SHAPING
THE
BUSINESS
High
High
Competitiveness
Visions
IT SUPPORTING
THE BUSINESS
Basics
Experiments
TODAY
TOMORROW
Low
Fig. 4: The Today and Tomorrow Portfolio
Visions are those projects which are bold moves to create new strategic positioning or
some new source of competitive advantage. They are thus high in potential for shaping
the business of tomorrow. Unless there is no thread back to the current business or
business context – and most strategic thrusts or visions ex post are seen to be connected
to the present or past – they also will make increasing sense in terms of supporting today.
At the least there is a good story to tell now. However, because these are “big bets” or
“strategic investments”, any T-Portfolio would not contain more that one or two such
visions.
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Retrofitting a Case Study
British Airways has been pioneering ideas of e-business for some years2. In early 2001,
the e-business division of British Airways (BA) was assessing its portfolio of projects,
both completed and under development, looking for focus and seeing what it had learnt
so far. It can be imagined that with the severe shock faced by airlines in the fall of 2001
that BA may have wanted to assess the e-business portfolio once more as all investments
and costs came under scrutiny. One way of doing this could be to use the T-Portfolio as
an audit tool, no doubt emphasising today and survival over tomorrow and industry
leadership. Indeed in teaching the BA case study3, this exercise can be done vicariously.
While deeper knowledge of BA and/or the case study would help in understanding and
evaluating the contents of Fig. 5, we can see how the exercise might work.
Low
IT SHAPING
THE
BUSINESS
High
High
•Online sales
•Opodo.com
•E-procurement
•YourTravelManager
.com
•Airnewco
IT SUPPORTING
THE BUSINESS
•eCargo
•E working
•E-tickets
•erecruitment
•Queuebuster
•IdTV promotion
Low
TODAY
TOMORROW
Fig. 5: The T-Portfolio Applied to British Airways
2
See: Earl MJ, J Anderson and T Perks. British Airways: Transitioning to e-business. London Business
School Case Study, LBS-CS-01-005.
3
Ibid.
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The underscored projects or applications are those I select to justify the classification. Eworking, in the basics cell, is about use of the internet and BA’s intranet to convey
company information to employees, to provide answers to frequently asked questions, to
automate training and so on. It should reduce administrative costs, simplify daily work
activities and improve information flow across the corporation.
It is thus a basic
investment, useful – probably valued over time – but probably will not make or break
BA’s competitiveness.
E-procurement, in the competitiveness cell, may promise more than it achieves, as others
have found, but with potential to reduce costs in an industry where profits are not easily
made, to reduce spares and consumables replenishment time, and to improve coordination in the aircraft supply chain, it can be seen as an important defensive action in
the daily battle for competitiveness.
“Queue Buster”, in the experiments cell, is a new technology experiment where a
cybernaut-like check-in agent uses around the body keyboard, display unit and battery to
complete on the spot check-ins.
Sort of “wacky”, it represents an experiment to re-
engineer a core sub-process with advanced technology and learn what might be possible,
including user and customer reactions.
Opodo.com, in the visions cell, is an important joint venture across European airlines to
create an online travel portal. I classify it in the vision cell because it attacks other nonairline portals in the internet space, it is explicitly designed to exploit network structures
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to sell air travel related services as well as seats on planes, and it is one move, among
others, to disintermediate travel agents.
BA might conclude from Fig.5 that the portfolio has a good balance between today and
tomorrow. Today-focused projects outnumber tomorrow-focused ones, which makes
sense when the company is seeking to restore profitability in a highly competitive
market-place.
However, as BA recognises that e-commerce and the Internet represent
threats as much as opportunities in the next few years, they could be expected to maintain
investment in some low risk experiments and in one or two visions for changing their
position in the marketplace. If capital becomes heavily rationed and today’s performance
and cash flow dominate the agenda, then a second hard look might be taken at the
experiments and business performance targets set for the vision projects as well as the
competitiveness ones.
Conclusion
It is conventional wisdom and practice to think of the information systems plan as an
applications development portfolio. Suggestions have been made over the year about the
structure of these portfolios, for example looking at project risks (McFarlan) or
application types (Earl, 1989). As the theory and practice of strategy-making, in both the
business and IT domains, have evolved it is perhaps useful to revisit these ideas.
One perspective is time. In bad times we worry that the short-term drives out the long
term. In heady times, the emphasis seems often to be the reverse. The T-Portfolio
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attempts to explicitly and formally examine how a firm is competing for today and for
tomorrow. It seeks both to ensure that each timeframe is not subjugated by the other and
to provide a tool to engage in executive discussion about the appropriate balance at
different times.
It also recognises that IT can both support and shape business strategy.
Often it is the
support aspect which dominates executive-thinking in both business and IT strategymaking. As a planning tool or an audit tool, the T-Portfolio may help ensure these twin
enabling contributions of IT are properly examined. It would seem able to accompany
any style or process of strategy-making.
References
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