13 April 2010

Strategic Alignment of Information Technologies – Part 1

The Changing Role of Information Technologies
Fewer than 50 years ago (in 1965), U.S. firms were investing less than five percent (5%) of their capital budgets in information technologies (IT). By the early 1980s, about 15% of capital expenditures in U.S. companies were going toward IT. A decade later (the 1990s), U.S. firms had doubled that number and were making capital investments in information technologies at a rate of about 30%. By 1999, in fear of significant failures due to the feared “Y2K problem,” U.S. firms were investing in IT at a rate approaching 50% of all capital expenditures. Even today, due to the challenges of competing in an unmistakably global economy, U.S. companies continue to invest huge dollars (about $2 trillion every year) in new information technologies.

By the mid-1980s, the increasing power of the (then) new Personal Computer (PC) was putting computing power within the reach of the pocketbook of even the smallest “mom-and-pop” operations. There seemed to be a growing consensus amongst managers of every ilk and in every trade and industry that, “If I could just get my computer systems to collect enough data about what my business is doing and how it’s doing it, I could manage flawlessly.” Some companies have been investing in information technologies, sometimes without much more thought about the investment than the underlying fear that if they did not invest in technology, they would somehow be left behind entirely.
Underlying Assumption
As the power and pervasive presence of information technologies have increased, many executives and managers have simply made the assumption that the strategic value of IT has increased right along with it. Some have made this assumption based more on what they see everyone else doing than upon any actual analysis within their own organization or upon any actual effort to align IT spending with strategic or tactical gains.

This willy-nilly approach to IT investment has been somewhat underwritten by the fact that many small businesses have no actual strategic planning mechanism in place anyway. The organization’s planning about the future or thoughts about how to attain certain future goals may still be contained wholly or in substantial part solely in the head of the owner (and maybe a handful of key managers).
Making the Leap from Entrepreneurial to Enterprise
One of the things that occurred in the late 1980s and through the 1990s was a relatively sustained period of economic growth in the United States. Fed directly or indirectly by the rapid opening of both domestic and global markets accessible via the Internet, there were thousands of new start-ups. Many of these new entrepreneurial organizations found rapid acceptance and grew at startling rates from miniscule one or two person operations to firms that employed hundreds or even thousands.

One of the challenges faced by owners and managers in organizations that find themselves forced to transition from entrepreneurial to enterprise is the discovery that what worked effectively when managing an organization with 15 or 20 employees in a single office may not be effective in an enterprise with 1,500 employees scattered geographically. Entrepreneurial managers were finding themselves forced to somehow capture the “tribal knowledge” resident in key personnel who still carried the vision that had led the organization to its initial success. Many times, the “tribal knowledge” was most easily captured and codified into “business rule” within new IT systems.

This series is intended to help executives and managers – whether or not your organization presently has a standard method for setting strategic goals – to establish some effective operational goals; to quantify the expected results as forecasts based on the goals; and in the final step, to offer some ideas about how budgets might be established and new technologies engaged to help achieve the firm’s goals.

[To be continued]

©2010 Richard D. Cushing

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