Elements and pitfalls of IT strategy under digital transformation

Generally speaking, strategy plays a crucial role in the development of a company. It is like a beacon on the other side of the ocean, guiding the direction of the company's giant ship. From the highest perspective, corporate strategy can be roughly divided into three levels: corporate strategy, business strategy, and functional strategy.

Referring to the above three-level strategies, the business strategy should undertake the corporate strategy, and the functional strategy should support the business strategy. Business strategy plays an important role and is in the center position of the company's various strategies. Therefore, in the process of digital transformation, the IT strategy must work in close liaison with business strategy.

When a company formulates a strategy, it often involves strategy decoding. The purpose is to interpret the strategy, such as the company's effective growth, market expansion, revenue, etc., and decompose it into sales indicators, R&D indicators, and production indicators through interpretation. Correspondingly, these indicators will definitely imply various demands for IT empowerment. Identifying these indicators in the process of strategy decoding and finally implementing them into the IT strategy. Based on the company's business model and stage of development, IT strategy can be used as a functional strategy or as a stand-alone business strategy.

In the process of IT strategy formulation, the first step is to formulate a 3-5 year Strategic Plan (SP), and the SP needs to be reviewed and updated annually. At the same time, SP will be decomposed into strategic measures and strategic priorities, which need to be undertaken by the annual work plan -- Business Plan (BP). BP is further broken down into the KPI of the corresponding department and the PPC (Personal Performance Commitment). The entire strategy forms a closed-loop from formulation to execution in this way.

Source: Freepik

Objectively speaking, the scope and format of each company's IT strategic plan are different, but there is one same thing: The IT strategic plan must align with and support the company's overall business vision. IT departments cannot work in isolation, and every action, every penny spent, must support the company's goals and mission. Secondly, qualitative and quantitative measurable goals are also needed to measure the success of the strategy.

1. Elements and pitfalls of IT strategy

IT strategy activities need to provide business benefits and should also be a weapon that both the business and IT can use to aid decision making (ensure there is a clear understanding of the direction and principles of how IT operates). Therefore, a good IT strategic plan should have the following elements:

• Align with business strategy and goals.
• A good IT strategy should include a long-term plan (defined as a plan that needs to be implemented over three to five years).
• Develop a technology roadmap and describe the best technology direction to support the business, a development plan to get there from the current state. Sometimes it's difficult to forecast which new technologies will benefit a particular business. Therefore, IT strategies often contain a set of principles that control the risk of new technology trends for different business goals.
• A key component of an IT organization's ability to support the business is the ability to implement best practices to solve problems in the best possible way.
• Related to IT best practices is IT governance, which is the policies and processes that define how an IT organization accepts, evaluates, initiates, and controls new programs, quality, and budgets.
• Establish a communication plan with multiple parties.
• What are the guiding principles of IT? How does an IT organization measure its success? Which key performance indicators will guide the organization for continuous improvement? What is the budget model for capital investment, operating expenses and cost allocation? All these answers need to be aligned with the rest of the business and applied to the company's overall financial model.

When enterprises formulate IT strategies, they should not deliberately create strategies and blindly distinguish between strategies and tactics, making strategies abstract and functions tactical, which will eventually lead to a politicized corporate culture. Moreover, the IT roles of different industries and enterprises determine their IT positioning, so pay attention to the following strategic pitfalls:

• Humble enough to talk about strategy, the situation is stronger than people. Not to mention the strategy is also one of the strategies. However, efforts still need to be made to change the thinking mode.
• Make strategies for strategies. The politicized corporate culture caused by making strategies for strategies is not always beneficial to the companies.
• Follow your competitors blindly. Generally speaking, following competitors is a fast and effective growth method, but there are limitations of the big environment and pattern, which makes this method not always effective.

2. Can IT strategies be copied?

There are many people in the IT circle who would like to ask: Do you have any IT strategies to share? I am making an IT strategy for my boss and I need to refer to it. So can IT strategies be copied?

Let's look at a specific example. Zara, H&M and Uniqlo are all companies in the fast fashion industry. They are highly homogeneous in theory so their strategies are supposed to be shared.

But is the fact like that? Let's take a look at the positioning and characteristics of these three companies. 

Source: Freepik

For Zara, its core concept is that the design is modeled after famous-brands, there can be 15 to 20 series a year, local production, long-distance transportation is by air, all clothes stay no more than three days, inventory turnover rate is 3~4 times higher than other brands. Zara focuses on delivery. Its production is as close as possible to the place of consumption as it requires delivery as soon as possible. Relatively speaking, Zara does not pay much attention to cost.

H&M takes into account delivery time and product cost, provides more choices on size, quality is less important, and is mainly used for daily wear and use. In other words, H&M is not particularly concerned about quality, but it will provide as many options as possible for your daily life. Therefore, in a sense, it is more inclined to cost control.

Uniqlo focuses on selecting high-quality fabrics, providing high-quality service, paying attention to details, and emphasizing craftsmanship, which is rarely seen on the other two brands. One product in Uniqlo is often sold for several years. Because of the exquisite craftsmanship, it is conceivable that the cost of Uniqlo will not be cheap. It is a brand that values quality.

From the comparison of these three companies, it can be concluded that the same fast fashion brands have very different priorities. Zara values delivery, H&M values cost, and Uniqlo values quality. Assuming that H&M plans an IT strategy to deliver all the latest designs of the Paris fashion show in the first place with large bandwidth, and all fabrics are shipped by air, it is conceivable that a cost-oriented company would approve such a choice? In the same way, if Uniqlo needs to optimize its plans, reduce inventory, and ensure that there is no backlog of inventory each season, it's definitely that Uniqlo will not value such a strategy.

Through the comparison of these three companies, we can conclude that all IT strategies revolve around corporate strategy, and IT strategy is to make corporate strategy stronger. Therefore, the IT strategy derived from the company's strategy is unsatisfactory. Other's tonic pills may be our poison.

Source: Freepik

3. IT Strategy and IT Department Assessment

How to judge whether the IT strategy is effectively implemented? CIOs should not only evaluate the progress and execution of IT strategies but also conduct IT department performance appraisals. In other words, the CIO confirms the achievement and execution status of the company's IT strategy through regular evaluation, and can solve problems together with the management and business departments when problems come out or major changes in the business environment occur.

3.1 Assess the progress and execution of the IT strategy

In terms of IT strategy, it is important to fully explain to relevant personnel the degree of achievement of business objectives corresponding to systematization projects, or the degree of resolution of corresponding issues.

In this case, we can analyze the relationship between management and business issues, IT investment projects, and various IT measures according to the four perspectives of the balanced score card, which are ① finance, ② customer, ③ business process, ④ learning and education. The balanced score card is a method of business management, which analyzes business objectives and business strategies according to the above four perspectives. Considering the necessary measures from various perspectives, setting assessment indicators for the achievement of each measure and managing its progress under the premise of taking into account the relevance of each measure.

Source: Freepik

3.2 Performance appraisal of the IT department

Many enterprises will conduct regular assessments on the contribution of the IT department to operations and business. The corresponding assessment is usually carried out in order to grasp the IT department reform When the CIO is handed over. The performance evaluation of the IT department is usually divided into two aspects: the evaluation of the results of the IT department's activities, which is "IT asset evaluation". Another one is the evaluation of the IT department's activities, which is "business process evaluation".

IT asset evaluation

The evaluation of IT assets is not carried out at the technical level, but at the business level to assess the contribution of the system.

For example, through the operation of the system, the achievement of business objectives such as "whether customer satisfaction has been improved" and "whether the delivery period or time to respond to customers has been shortened" is evaluated. On the basis of that, the functional level of each system and the usage status of the system are evaluated to identify future improvement points.

Business process evaluation

Assess the maturity and standardization of the IT department's business processes, or evaluate the quality, efficiency, and cost of system development and application in the IT department's business processes.

Through a comprehensive analysis of the assessment results of IT assets and IT department business processes, it is possible to identify priorities for improvement in the achievement of IT strategies.