The IT Unit of the Future: Creating Strategic Value from IT

In recent years, IT units have worked to decrease costs and increase speed to market. Their efforts have included defining IT services, developing service catalogs, calculating and monitoring unit costs, standardizing project methodologies, defining and implementing technology standards, and working with business partners to manage demand.[foot]A. Quaadgras and P. Weill, “Globalizing IT Operations at BMW: Transparency and People,” MIT CISR Research Briefing, Vol. IX, No. 11, November 2009, https://cisr-mit-edu.ezproxyberklee.flo.org/publication/2009_1101_BMW_QuaadgrasWeill[/foot] In a nutshell, they have professionalized their IT build and run activities. 

While improved IT build and run activities generate measurable business benefits, they are just a first step in generating sustained business success. The digital economy requires that firms build digitized platforms to provide a foundation for doing business.

Accordingly, for more than a decade, companies have been implementing large-scale integrated systems that serve as platforms for their core transactions, back office processes, and/or customer interactions. 

IT and business leaders have found that to effectively design, implement, and use digitized platforms, they need an expanded set of IT capabilities. In this briefing, we share findings from 58 interviews and a survey of 206 IT leaders that explored the nature of these capabilities and how companies are developing them. 

The IT Value Creation Cycle 

The digital economy has introduced urgency around the need to manage IT strategically. This means an enterprise function must commit to using IT strategically and exploit the digitized platforms it builds and runs. These four activities—Commit, Build, Run, and Exploit—constitute an IT value creation cycle (see figure 1). Companies driving strategic value from IT excel at all four activities AND implement seamless handoffs from one activity to the next. This has proved extremely hard to do! 

Figure 1: The IT Value Creation Cycle

Unlike Build and Run, which have long been the focus of IT units, Commit and Exploit responsibilities tend to be diffused across the enterprise and are generally less well understood. Companies that have achieved a reasonable level of maturity in their Build and Run activities can greatly enhance the strategic value of IT by developing more effective Commit and Exploit activities. 

Commit involves allocating business and IT resources to enact the company’s strategic priorities. This requires the firm to articulate its strategic priorities in terms of its operational requirements and to direct resources accordingly. At the enterprise level, Commit can be politically challenging, but even in the best of conditions, it is a difficult capability to develop for at least two reasons: 

• Most executives are not very good at articulating strategies in actionable or operational terms. They tend to focus on financial goals, which provide no guidance for how the company can best use its resources or apply technology. 
• Strategy is often translated into annual business plans. This leads to business change projects (and new systems) that address short-term goals rather than multi-year, strategic goals. 

Exploit involves driving additional benefits from existing business and technology capabilities. Effective Exploit leverages digitized platforms to continuously improve business performance. But Exploit has proved to be challenging for at least three reasons: 

• It is easier to assign accountability—and metrics—for delivering new systems than for delivering value from those systems, and the opportunities to use technology can be overwhelming, so leaders often turn their attention to building the next system rather than driving value from what’s in place. 
• Change is hard. Few companies have learned how to stage ongoing business changes that enhance business performance at a pace the organization can absorb. 
• Platforms are never really complete, so leaders often procrastinate rather than capitalize on the opportunities that exist. This is particularly true when leveraging data for business intelligence, analytics, or performance feedback, since, of course, the data will never be perfect. 

Effective Exploit activities will help a company identify new investment opportunities. These opportunities feed into Commit, thus completing the virtuous cycle of IT value creation.

MIT CISR research has identified a few firms that have implemented structures and roles to build and coordinate the four IT value creation activities. These structures and roles may or may not be located within the IT unit, but they all are part of a company’s overall IT responsibilities. 

Building Commit Capabilities 

Strategic Priorities. IT can become strategic only if business executives articulate strategic priorities against which project proposals can be evaluated. Southwest Airlines has identified seven strategic priorities, such as Low -Cost Carrier, Best Place to Work, Best Customer Experience, and Largest Domestic Carrier. A cross-functional team of senior executives is responsible for each strategy. Each team makes its strategy operational by defining key initiatives and important business and IT capabilities.[foot]J. Ross and C. Beath, “Building Business Agility at Southwest Airlines,” MIT CISR Working Paper No. 369, May 2007, https://cisr-mit-edu.ezproxyberklee.flo.org/publication/MIT_CISRwp369_Southwest_BldgBizAgility/[/foot]

Strategy Coaches. Both Southwest Airlines and USAA have teams in their business strategy organizations that work with business executives to help them align their business strategies with the firm’s strategic vision. In effect, they coach executives on how to articulate strategy in operational terms. They then help formulate proposals for change projects and strategic initiatives that build valuable business products, services, and capabilities. Strategy coaches help establish IT project priorities, thus feeding the Build activity management think differently about strategy.[foot]J. Ross and C. Beath, “USAA: Organizing for Innovation and Superior Customer Service,” MIT CISR Working Paper No. 382, December 2010, https://cisr-mit-edu.ezproxyberklee.flo.org/publication/MIT_CISRwp382_USAA_RossBeath[/foot]

Process Owners. Tetra Pak’s seven business processes define the company’s critical capabilities. The owners of these processes are focused on building and extending digitized platforms that enhance processes and data. Tetra Pak’s global process owners in its Business Transformation unit are the only people in the company who can propose projects. By relying on process owners for this purpose, Tetra Pak avoids the short-term focus of projects that address annual plans. 

Strategy-defined Project Portfolios. A growing number of companies assign every large Build project to one of a small set of programs or portfolios that align with the company’s strategic priorities and operational objectives. Portfolio teams can identify synergies among projects, shift resources between them, and stage implementations according to resource availability and business needs. At USAA, the task of creating portfolios of strategically related projects is vested in a Business Solutions team within the enterprise strategy unit. At Southwest, this responsibility resides in the IT unit. 

Staged Release Dates. To address the need to stage business changes so that the organization can consistently learn and adapt, Southwest Airlines has divided its application development and support staff into suite teams, each of which has responsibility for a related set of applications (e.g., one suite team is responsible for the crew systems, including planning, training, and scheduling). Each suite team has multiple release teams. Release teams scope deliverables to meet predetermined release dates, which are staggered throughout the year. This arrangement allows a constant stream of releases, each of which introduces manageable change while building and exploiting capabilities within a portfolio. 

Building Exploit Capabilities 

Our research identified three major categories of exploit opportunities: enterprise process digitization, leveraging of enterprise data, and business innovation. These opportunities can lead to a variety of business and IT initiatives, of which we cite five examples: 

Process Optimization and Master Data Management. Tetra Pak’s global process owners exploit the firm’s digitized platform by enabling its globally standardized business processes. Data owners report to process owners and define data elements that are consistent with process needs. These data owners ensure that data management integrates seamlessly with process execution. 

Enterprise-level Business Services. Procter & Gamble has a global business services (GBS) organization, under the CIO, that provides standard business services to all of its more than 300 brands. Service owners within GBS are accountable for the cost and quality of technology-enabled business services. They drive added value from P&G’s digitized platform by continuously improving services.[foot]P. Weill, C. Soh, and S. Siew Kien, “Governance of Global Shared Solutions at Procter & Gamble,” MIT CISR Research Briefing, Vol. VII, No. 3A, December 2007,https://cisr-mit-edu.ezproxyberklee.flo.org/publication/2007_12_3A-GovatPG-WeillSohSia[/foot]

Business Intelligence and Analytics. Allstate’s claims processing platform captures data on transactions that can be analyzed to better understand the company’s risks and assess the impacts of specific business rules. The results of these analyses are used to improve processes, business rules, and applications.[foot]J. Ross and A. Quaadgras, “Working Smarter: The Next Change Management Challenge,” MIT CISR Research Briefing, Vol. XI, No.1, January 2011, https://cisr-mit-edu.ezproxyberklee.flo.org/publication/2011_0101_WorkingSmarter_RossQuaadgras[/foot]

Business Process Innovation. UPS’s package delivery platform allows the company to introduce innovations in routing drivers to save fuel and increase safety. The company relies on sophisticated analytics and experiments to identify the most valuable opportunities, then leverages its standard systems and data to quickly roll out business process changes across the enterprise.[foot]Watson, Boudreau, Lee, and Levis, “Telematics at UPS: En Route to Energy Informatics,” MIS Quarterly Executive, January 2010. [/foot]

Product Innovation. USAA exploits its significant enterprise customer service operation, integrated customer data, and Internet platform to create and roll out new offerings that combine products from all its business units and external partners. 

Locating IT Value Creation Capabilities 

As IT becomes ubiquitous and business becomes increasingly digital, responsibility for IT value becomes enterprise-wide. As with budgeting and human resource development, everyone shares accountability. Just as HR leaders facilitate enterprise-wide HR activities, IT leaders should ensure that individuals throughout the firm are able to fulfill their IT responsibilities. The IT unit of the future will not own all Commit, Build, Run, and Exploit activities, but IT leaders will need to coordinate all four activities to ensure that the company generates strategic business value from IT. 

Every company can decide which accountabilities belong inside the IT unit and which can best be enacted outside IT. Maturing the four IT value creation activities in your company will demand development and coordination of new capabilities, not only in IT but throughout the enterprise. Those capabilities should yield huge dividends.