18 August 2009

Five Strategic Opportunities/Risks that Will Define Success

Companies forgo any number of initiatives for a variety of reasons. Most companies are risk-averse. But what about the initiatives that fall through the cracks of the vetting and due diligence processes, the initiatives that never even result in a business case?

It may well be that what companies do not do creates the greatest risk. In other words, what about the risk of strategies that minimize risk by making the funding criteria so stringent that hardly any projects make it through the vetting process? What is the risk of a bad strategy? What is the risk of avoiding alternative technology delivery models? What's the risk of yielding to the inertia of "how we do things"?

While risk Nazis love to derail specific operational projects, what might they say about flawed business technology strategies?

Strategic risk should be measured differently from tactical risk. Strategic risk should be forward-thinking, active, and opportunity-driven. In fact, the cost of not doing something should be measured creatively and -- as counterintuitive as it may seem -- quantitatively.

So what are the strategic opportunities that are simultaneously risks? Consider the following five segments of the equation.

1. The Business Technology Relationship

First and foremost is the management of the overall business technology relationship. While the debate about "alignment" has persisted for decades, the realities of the agile organization have passed the debate by a country mile. No one needs to argue about the importance of IT any longer. No one needs to think about reporting relationships that will encourage communication among business and technology professionals. We're way past all that. The question now focuses on how wide and deep the relationship should be -- and the consequences of defining the relationship poorly.

Business technology relationship management (BTRM) is an opportunity and a risk. When done right, it can increase the payoff of technology investments. When done poorly or not at all, it can cost a company money, time, and employee productivity. The risk of avoiding BTRM is very high.

2. Sourcing

The next strategic risk is sourcing. Only someone who's lived on another planet for the past few years would be unaware of the impact of alternative models to deliver technology. While core competency assessments are something we've all done from time to time, the need for them now is at an all-time high. Competition can be found down the road or across the globe. If a company is making or servicing the wrong things, with the wrong processes and cost structures, it will die from the blow of a competitor who might just as well be invisible as in its face. Such is the result of the e-business bandwagon we all so eagerly jumped on in the late 1990s. Understanding what business works and what doesn't is paramount to 21st-century companies. Is the acquisition, deployment, and support of technology part of the expertise a company wants -- or needs -- to have? Should companies continue to home-grow and customize technology? Or has it become fully commoditized? The strategic risk of getting sourcing wrong is huge.

3. BPM and New Business Models

What about business process modeling (BPM) and new business models? Not establishing a center of excellence in BPM is risky. How can a business remain competitive and efficient without understanding, at a detailed level, the processes that together define its business model? How can a company invest in manual BPM when there are countless software tools that enable even the most complicated modeling? (Yes, there are still many companies that keep their business processes modeled on paper and, maybe, in a spreadsheet.) The risk of not doing BPM is similar to the risk of never going to the doctor or getting a blood test. You don't know what you don't know, which makes many managers happier than knowing about problems they have to fix (or processes they have to improve).

4. New Technology

Investments in new technology present opportunities and risks. What is the risk of avoiding advanced technologies? Or coming so late to the party that the lights are already off? Three cases in point: virtualization, VoIP, and software as a service (SaaS). Virtualization saves money. Sometimes lots of money. VoIP is also cost-effective. SaaS relieves all kinds of pressure from already strapped internal technology staffs. A few years ago, all of these technologies, while doing fine, were not what most analysts would have called "mainstream." But two years ago, they were, and today they are tried, true, and fully exploitable. While jumping in now makes sense, jumping in a couple of years ago made much better sense. We are not talking about early adoption of bleeding-edge technologies here. We're talking about the monitoring of technologies likely to pay large dividends to those who adopt them at the right time and place in their evolution. The ability to do this is a strategic capability. Existing without this capability is risky -- and expensive.

5. People

What about investments in people? How many corporate strategies talk about the importance of "talent management?" How many actually mean it? Words are easy and cheap. Investments are the indicators of strategic value. At the end of the day, without the right people, all organizations suffer. What's the risk of losing your best people? What's the risk of having your best people recruited away? What's the risk of keeping your people well-steeped in old technology?

One simple drill: ask why these five strategic initiatives have not been pursued in your organization. Assess the response. Is the answer, "We don't have enough money to fund things like this"? Is it, "These kinds of things generate only soft ROI"? Or, is it, "We've tried these kinds of things in the past, and they didn't work out"? These are the answers of managers and executives who are not willing to accept the risks associated with the failure to make the right strategic decisions. The trick is to develop a list short enough to attract the no-brainer crowd. Put another way, it's always effective to argue with "when did you stop beating your wife" logic: who can oppose strategic decisions that reduce risk? Try finding someone willing to say that she doesn't believe in investing in her people, or that all new technologies are all hype, or that insight into the company's business processes is unnecessary? Ask about improving the relationship between the business and technology professionals at the company? Or how everyone feels about optimizing the company's relationships with its vendors?

Discussions about strategic risk are especially important today because of the nature, location, and speed of competitors. The days of "owning" a market are long gone. Companies struggle daily to survive, let alone grow profitably. The irony is that when times are tough, we focus on the operational and tactical, squeezing as much money from these areas as we can. But the real money lies in strategic initiatives with longer tails. It's a pity that so many managers see crises as green lights to cut costs (and people and processes) rather than launch the right long-term strategic initiatives. Is your company tactically tight but strategically weak? Maybe it's time to reassign the risk Nazis to more important duties.

I welcome your comments on this issue of the Cutter Edge and encourage you to send your insights on the market in general to comments@cutter.com.

-- Steve Andriole, Fellow, Cutter Consortium

Five Strategic Opportunities/Risks that Will Define Success

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