Tag: PMO

IT Strategy: In the absence of a Business strategy

Business strategy drives IT strategy. But, what drives IT strategy in the absence of clearly defined business strategy?

Identification of successful business strategy in a dynamically evolving consumer and financial markets is extremely challenging and sometimes, it is impossible. Look back in few years, take business strategies of top companies and their result today, and hence the evidence of extreme complexity and challenge exist in defining successful business strategy for an organization in a dynamic market.

IT strategy supports business strategy in spite of the out come of the business strategy. True. However, the point is, some times business strategy can not be defined clearly or it does not exist and in that case, how the IT strategy should be defined.

In the absence of business strategy, IT strategy is to increase the value of IT organization.  Now the questions are, what is IT valuation and how to measure it, and finally how to increase it?

I had the opportunity to work with a purchase accounting project for a well known demerger in the auto industry.  I noticed, there is a significant market opportunity for a IT valuation model in spite of 3 of  big 4 consulting and accounting companies were heavily involved in that project. So I developed a simple IT valuation model to determine the fair market value of an IT organization to readjust the book value of IT assets.

To simplify it, let me put a different spin to IT valuation. Purchase accounting occurs after a merger or demerger occurs. But, before a merger or acquisitions occurs, an organization is evaluated for its market value. That includes tangible and intangible assets. The tangible assets are mostly fixed assets and over the years, valuation process for the tangible assets is more matured. Most of the IT valuation comes from intangible assets.  For a pure technology companies like Microsoft, Intel, the intangible assets of the organization can be quantified by patents, copy rights, trade mark and etc. For an IT organization supports a business function in banking and finance, oil and gas and etc, the intangible asset valuation is challenging.

In those scenarios, the intangible assets are:

  • An organization ability to adapt to market change in terms of capacity & capabilities. ie scale up or down infrastructure based on future requirements
  • An organization ability to develop a rapid applications for future requirement – skill set, processes, knowledge
  • An organization’s efficient operating cost mode –  in terms of license, hardware depreciation
  • An organization’s IT general controls and management – IT risk management, Security Management, compliance management

The above intangible assets of an organization improves the value of IT organization. It will be reflected  in case of merger or an acquisition.  In the absence of clearly defined business strategy, take the above strategic objectives of  IT strategy and plan.

The above IT strategy will reduce the cost, improve the over all reliability, flexibility, security and adaptability  of an IT organization. It requires investment and the question is how a CIO can justify the ROI for the above initiative.Biggest advantage of the above approach is, the initiative does not require any additional incremental cost. Since it has very high ROI, it will sponsor the project from its saving and improves the value of IT organization. When there is no clearly defined business strategy then the IT strategy is to improve the value of IT organization.

If any one interested to understand the granular details of the above IT strategy, practical difficulties of framing the strategy, actual results and etc. More blog postings will follow to provide the details of the above steps. Mean time, if you’re impatience and you need immediate information,  please do not hesitate to contact me.