IT, up to now, has been used to do what we did before but hopefully quicker. We need to understand IT and use it to change what we do. IT managers cannot do this as they only understand the technical side of IT. Managers cannot do it because they (deliberately?) do not understand IT's capabilities. So who can do it?


The problem

"The IT Area of this company does not work. Our investment in new equipment, maintenance and our costs of computer personnel - our own and subcontracted - do not seem to give the desired results. We rack our brains. We are advised by external consultants ... but the service that IT department provides continues to be inadequate, judging by the opinions of those who use it. Requests to the IT department are solved badly and late, the costs are excessive and the dissatisfaction is widespread."

The previous paragraph is taken from the first page of the book "Strategy and Systems of Information" by Andreu et al. This text summarizes the main approaches of the most renowned authors in the business management field and particularly of business strategy (Porter, Hax, Majluf, Hammer, Davenport, among others).

Basically these experts maintain the problems that the companies attribute to the information technologies (IT) department are typically problems of strategic administration. In the following paragraphs, there is an attempt to summarize the arguments that the experts in business strategy use in this diagnosis.


IT and strategy

The technology and especially the IT are of great relevance to the managerial strategy for several reasons.

• First, the suitable management of the IT department is one of the key factors to obtain advantages over the competition.
• Second, many of the companies considered leaders have had success in having exploited technological advantages.
• Finally, computing and IT are omnipresent. It is not possible to conceive a company that works efficiently and effectively, in the current context, if its IT department is deficient or is badly managed.

All this bring us to the fundamental fact that, today, management or administration of organizations is principally a task of management or administration of their informational resources. It is possible to say - in the context of the so-called “new economy”– that to run a company is to manage its IT.


IT is poorly managed

In IT, too often "cheap solutions end up, being expensive ones." A computer system can be working for years or decades without its obsolescence or progressive deterioration becoming apparent, since the technical diagnosis of the state of a computer system is a difficult job and the symptoms of a serious problem often are not evident. This brings us to the adoption of a policy of little or no-investment at all in IT, due to the lack of a perception of the need to do so.

Lamentably, the overall result can be an abrupt and sudden fault of the system, with a very high cost, that could have been avoided, if it had been performed opportune diagnosis and repairs.
Often the IT tools (hardware and software) are used in a very limited way, without their real potential being achieved.

The lack of comprehension of the potentials of a computer tool leads to its under-utilization and restrains its use, preventing it from reaching its best performance. Maybe the best form to picture it, it is by a counter-example: some companies, using very elementary and common computer tools, have managed to radically optimize their processes.

What we need is the ability to use IT as a tool within strategy. IT itself is probably irrelevant. The latter point is the most important, and deserves a more thoroughly examination.


The role of strategy

The role that IT should play in a company is to assist the firm frame its strategic position, and to help it to gain advantages. The problem is that the way to obtain competitive advantage depends completely on the strategic orientation of the business. This is, first and foremost, derived from the goals and objectives of the company.

Now the goals and or objectives of a differentiated company seeking real differentiation are opposed to the goals and or objectives of a company seeking to be a cost leader. It is obvious that where there is no clear strategic definition, the goals and or objectives of the business are likely to be contradictory among themselves, and all this will redound to a false perception that the IT department is failing, in spite of the fact that the fault does not originate there.
Particularly, in a company seeking real differentiation, IT must seek to exploit technological advantages. Many successful companies have based their achievements on the use of IT to construct entry barriers, develop of change costs (exit barriers) or even to change drastically the competitive basis of the whole industrial sector. On the other hand, in a company orientated to cost leadership, the function of IT is to help to minimize the operational costs by decreasing the internal bureaucracy, clerical staff, operational mistakes - and, consequently financial saving.

This implies that it is not possible to make suggestions and diagnoses for the computer department "out of thin air". The diagnoses and suggestions will depend completely on the goals and defined objectives that the company adopts as its own.


A case

During the year 2002, I was retained by a South American health insurance company to devise the structure of its IT department. My first surprise was to notice that the company - a very successful one, with a solid position in the local market - did not have any completely developed strategy. Of course they thought they had one. Nevertheless it wasn’t internalized enough, so that, in the end, its strategy was no more than “dead paper”.

As a result, it was necessary for the company to formalize its strategy in order to be able to do a diagnosis and some suggestion related to the IT department. This implied undertaking a complete strategic management planning exercise - so I told them to do it.

Again to my surprise, they contracted a consulting company, delegating the formulation of the strategy completely to the external consultants. This was a major mistake, since the strategic management consists of the process of structuring the fundamental directives of the company’s goals and objectives. The formulation of the strategy can be supervised or guided by external “experts”, but its most essential nature obligates the persons who actually will give life to the strategy to participate in its formulation. In other words, the external advisor can “advise” on the process, but they cannot take the decisions that the strategy requires.


Final Words

The international experience accumulated by innumerable companies reveals the fact that typically the problems attributed to IT are problems of strategic administration.

• It originates in the context of the "new economy" (which involves e-business and e-commerce - omnipresent and unavoidable phenomena). As a result the very activity of management or administration of organizations is principally a task of management or administration of its informational resources (data, information, and knowledge.)
• It is possible to say that - in the context of the new economy - that to manage a company is fundamentally to administer its information resources.
• This task of strategic management can be done with advisers' support, but it must not be delegated completely to them. The structure and functions of the IT department must be coherent with the company’s strategy.
• As a result, it is not a good idea to delegate to "the experts in computer science" the task of planning or designing the IT structure and policies.
• The IT department should have a structure and design to fit the strategy of the company. Generally speaking, that means a more modest computer infrastructure for schemes of cost leadership and more sophisticated ones for strategies of differentiation.
• The planning and design of the computer department has to be managed from a perspective as general as possible, which demands the active involvement of the owner of that perspective, that is to say, the top management.

All this points towards the same fundamental point that: we need to understand IT and use it to change what we do. IT managers cannot do this if they only understand the technical side of IT. Managers cannot do it if they do not understand IT's capabilities. So who can do it? Andreu suggests the following answer:

“(we need) ... to raise the IT area to the category of area of responsibility of the top management of the company. Does it mean that the technical topics are also of its responsibility? The response is a definitive ‘yes.’" (...) “to evade this is to give us no right to complain about how badly (IT) works.”


References and Further Reading

• Andreu, Ricart y Valor, La Organización en la era de la Información, McGraw Hill, 1997
• Andreu, Ricart y Valor, Estrategia y Sistemas de Información, McGraw Hill, 1996
• Barros, Oscar, Reingeniería de Procesos de Negocios, Ediciones Dolmen, 1995
• Cornella, Alfons, Los recursos de Información, McGraw Hill, 1994
• Hax y Majluf, Gestión de empresa con una visión estratégica, Ediciones Dolmen, 1996

Copyright © 2007 by Luis E. Bastias.
Copyright © 2007 by The Working Manager, Ltd.
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