If you don’t know where you are going, you will wind up somewhere else.
– Yogi Berra
IT strategy is not a topic reserved for lofty white papers. It is something you see in action (or not in action) every day and every time you have a decision to make about your company’s enterprise software.
Why would a non-IT executive care about IT strategy? Because whatever your function as an executive, your success will depend on having the right technology tools for your company’s strategy, customers, profit goals, and future aspirations. And you or your department might be responsible for launching a big new system that could really hurt your business if it isn’t done right.
The most important thing about your IT strategy in the 21st century is not how impressive or savvy it is, but whether it fits who you are and what you want to be as a company.
Here are some choices:
The complete outsourcing strategy
Your company outsources all IT and software needs. It does not own any applications; it just uses them as a service. It pays these service providers to upgrade or further customize the applications it uses on an as-needed basis.
The strategy fits you because you want to devote your internal resources to the core business. Your firm is too small to afford a large in-house group of people watching over servers and networks and applications.
The pure ROI-based strategy
You evaluate and select software and IT investments according to strict financial hurdles. Every investment has to pay back within 24 months, and you include all external and internal costs in that ROI model. All projects are reviewed post-implementation to confirm the expected ROI was actually achieved. In-house vs. external solutions are selected according to the best ROI.
This strategy fits your firm because its culture is bottom-line oriented, and has many other attractive investment choices available. Investments in IT have to compete with other promising ventures.
The anticipated growth strategy
Your organization heavily weighs anticipated future needs in decisions about new systems. It looks ahead three to five years to anticipate what customers, suppliers and competitors might be doing. It might end up making a new application investment for purely strategic reasons.
This strategy fits your firm because its success hinges on having the most up to date information systems possible. A large portion of your revenue and profits are dependent on technology that enables you to create new revenues and control costs.
The complete in-house strategy
Your company’s business model is so unique, and its processes and competitive advantage so specialized, that it never finds what it needs in commercially available software packages, other than software for basic support functions like HR, payroll and accounting. It uses software programming languages that are well-known and well-established in the industry so that it has a large pool of talent available for its growing needs.
This strategy fits you because for your company the right software is a strategic necessity and an area in which it invests heavily. You need software solutions that are tightly aligned with your specialized business processes.
A stable, 30-employee company with no significant growth plans can do just fine with many off-the-shelf applications or one of the many SaaS providers now coming onto the market.
A vertically integrated auto parts maker with 3,500 SKUs and contracts with large auto companies probably needs top-of-the-line supply chain and distribution applications capable of strong integration with supplier and customer systems.
A credit card company with 4 million customers needs very secure applications with redundant backup capabilities and rich data mining software to analyze customer transactions.
Invest in applications that help you do excellently those things that are critical to your business. Go light on or buy generic applications for functions that you consider support, and not central to your business strengths, unless you see a clear, hard ROI for one of those areas. But get or develop the best possible applications for those functions that make or break the success of your business.
There is no general rule of thumb for these decisions, just common sense. A company with $10 million in revenue simply won’t be able to afford an application that will cost $2 million to launch and another $500,000 a year to support. The logic of aligning your software tools with who you are as an enterprise is just one more ingredient in staying out of the software money pit.