by January 4, 2012 0 comments

Billions of dollars have been spent on IT by Indian enterprises in the last two decades, yet dissatisfaction with the returns is quite common. On one hand, the IT suppliers are investing a fortune into inventing new technology, products & paradigms; while on the other, enterprise users are struggling to put to good use what they have bought so far. The enterprises’ board & management are perplexed with the need to spend on IT, yet the business justifications remain inadequate.
The real question then is ‘where will the next wave of innovation happen? ‘In the market place or within the premise of an enterprise?’ My answer tilts in favor of the latter, ‘within the premise of an enterprise’ through the struggle to justify investments in IT & the growing need for creating technology led edge in the competitive domain. Let’s understand this argument.

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Two underlying business imperatives

There are two distinct yet related imperatives, which are fundamental to contemporary businesses. One, waves of technologies have come and vendors have exploited those opportunities. Some notable ones include the PC, Windows OS, LAN, ERP, Internet, Cloud, etc. However, the experience with many of these technologies has been lower than expected.

Two, the economic situation till 2008 was of initial phase of growth, despite its occasional ups & downs. But the situation since 2008 end is quite different. There is a global wave of economic recession given the structural anomalies created during a long cycle of growth and along with that uncertain and dismal growth scenario is the issue of rising prices. This double whammy makes the investments by enterprises a subject of intense scrutiny & justification. IT being seen as cost centers by many, does not always get a high priority under these circumstances.

Hence, given the broad base of IT footprint already created & a general scepticism with anything new becomes a deterrent for any new technology breakthrough to make inroads and create deep impact which inventions like PC, LAN and Windows did.

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Looking inward for value creation

IT’s value comes through creating business advantage over rivals & charging premium for what customers value. IT in itself does not create value as it is available to all and hence does not grant any special edge to any one business. Hence, new technology invention over a period of time loses its ability to grant an edge to its users.

Coeus Age’s conceptualization of the process of creating business value from IT emphasizes upon the importance of IT’s interaction with the formal business arrangements & the cultural or the psychological makeup of an organization. IT can do what it is expected to do and what it is allowed to do. Hence, the role of a CIO is not just creating an IT infrastructure but also managing relationships with business heads & simultaneously creating a higher vision for IT, in short work as a change agent.

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The process of value creation as depicted in figure 1, identifies three levers of business value –strategic vision for IT, business IT alignment & IT infrastructure maturity. These three levers determine what IT competencies are required by the business units, how are those IT competencies determined & how are they leveraged upon. In other words, the process depicts an enterprise’s performance on the three levers leading to impact of IT on the organizational processes, which creates business competencies. These business competencies can be strategically leveraged to create business capabilities and when these business capabilities are valuable (the customer values them), rare (competitors do not have them), imperfectly imitable (competitors cannot imitate them) & immobile (can’t be taken away), they allow an enterprise to charge higher rent and hence perform better.Hence, the ability to charge higher rent for capabilities is not just a function of IT, but how IT interacts with the structure & culture of an organization & produce business competencies & how those competencies are leveraged strategically by the business. Innovation, which creates business value, is a function of what the organization does with IT, not just IT.

IT is available to all and hence in itself cannot be a source of strategic advantage. Hence, the next paradigm of business value from IT is about innovative use of IT by enterprises and not just about technology inventions. Innovation around IT will happen within the premise of an enterprise in this new paradigm.

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