Senior executives make few choices more critical than deciding which IT investments will be needed for future strategic agility. As it has become increasingly clear that those choices can significantly enable or impede business initiatives, managers must anticipate future strategic moves and make often-complex assessments about how the IT infrastructure must adapt to support the enterprise. Although the goal is to create a unified IT infrastructure that supports long-term, enterprisewide strategies while being responsive to the demands of business-unit strategies, investments by different business units are often made independently. These independent investments are often of a short-term, catch-up or bleeding-edge in nature, and the resulting technologies are often incompatible. Overinvesting in infrastructure leads to wasted resources that weigh heavily on the bottom line. Underinvesting (or worse, implementing the wrong infrastructure) translates into delays, rushed implementations, islands of automation and limited sharing of resources, information and expertise by business units.
Infrastructure investments (say, an enterprisewide customer database or communications network) are often shared across many applications, business initiatives and business units. But sharing requires negotiation about how much infrastructure is needed, who pays for it and who should be responsible for it. To what extent should the IT infrastructure be standard, shared and available enterprisewide? To what extent should infrastructure be customized for individual business units? In what areas should infrastructure capabilities be industry leading? New research indicates that getting the IT-infrastructure balance right requires collaboration by the heads of business lines and IT professionals. And the payoffs can be considerable — despite lower short-term profitability, enterprises building appropriate infrastructures have faster times to market, higher growth rates and more sales from new products.1
Executives need a framework for making informed decisions about IT infrastructure. To that end, we examined 180 electronically based business initiatives in enterprises that were among the top three in their industries and studied their IT-infrastructure choices. We were able to identify, first, the specific infrastructure capabilities needed for different types of strategy-related business initiatives and, second, whether they were within individual business units or within a central group and made available across the enterprise. (See “About the Research.”) The key finding: In leading enterprises, each type of strategic agility requires distinct patterns of IT-infrastructure capability. And any company that can determine the type of agility it will need for specific business initiatives is more likely to make sensible infrastructure investments.
1. P. Weill and M. Broadbent, “Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology” (Boston: Harvard Business School Press, 1998), 58–62.
2. The figure of 4.2% includes both the IT budget and hidden IT spending outside the IT budget. See B. Gormoloski, T. Grigg and K. Potter, “2001 IT Spending and Staffing Survey Results,” white paper, Gartner, Stamford, Connecticut, Sept. 19, 2001.
3. “Worldwide IT Trends & Benchmark Report” (Stamford, Connecticut: Rubin Systems META Group, 2001), www.metagroup.com; Weill, “Leveraging the New Infrastructure,” 38; and J. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management 17 (winter 1991): 99–120.
4. See R. Woodham and P. Weill, “State Street Corporation: Evolving IT Governance,” working paper 327, MIT Sloan School of Management Center for Information Systems Research, Cambridge, Massachusetts, April 2002.
5. J.W. Ross, “E-Business at Delta Air Lines: Extracting Value From a Multi-faceted Approach,” working paper 317, MIT Sloan School of Management Center for Information Systems Research, Cambridge, Massachusetts, August 2001, http://web.mit.edu/cisr/www.
6. P.G.W. Keen, “Shaping the Future: Business Design Through Information Technology” (Boston: Harvard Business School Press, 1991); and D.T. McKay and D.W. Brockway, “Building IT Infrastructure for the 1990s,” Stage by Stage 9 (1989): 1–11.
7. The starting point was a list of 25 infrastructure services and a cluster of eight infrastructure services as well as the services described in M. Broadbent and P. Weill, “Management by Maxim: How Business and IT Managers Can Create IT Infrastructures,” Sloan Management Review 38 (spring 1997): 77–92. Channel management was added to include the ability of the enterprise to support a direct electronic connection to the customer via a variety of channels. The set of 70 services was validated in interviews with more than 50 businesses over a period of five years.
8. For two excellent discussions of information technology architecture, see P.G.W. Keen, “Every Manager’s Guide to Information Technology,” 2d ed. (Boston: Harvard Business School Press, 1995); and M.J. Earl, “Management Strategies for Information Technology” (London: Prentice-Hall, 1989). In addition, see J. Ross and P. Weill, briefing, “Stages of IT Architecture: Pursuing Alignment and Agility,” MIT Sloan School of Management Center for Information Systems Research, Cambridge, Massachusetts, July 2002.
9. J.W. Ross, “United Parcel Service: Delivering Packages and E-Commerce Solutions,” working paper 318, MIT Sloan School of Management Center for Information Systems Research, August 2001, http://web.mit.edu/cisr/www.
10. To reach this description of information-technology architecture, we have drawn on the written work of, and discussions with, a number of people, including Peter Keen, Margrethe Olson, Michael Earl, Stewart Neimann and B. Robertson-Dunn.
11. P. Weill, M. Broadbent and A. Goh, “Client Infrastructure Services: A Study of the Management and Value of PC and LAN Infrastructure,” research report, Center for Management of IT, University of Melbourne Business School, Melbourne, Australia, October 1997.
12. E.W.K. Tsang, “Transaction Cost and Resource-Bases Explanation of Joint Ventures: A Comparison and Synthesis,” Organizational Studies 21 (2000): 215–242.
13. J.B. Quinn and F.G. Hilmer, “Strategic Outsourcing,” Sloan Management Review 35 (summer 1994): 43–55.
14. We focused on what IT infrastructure was needed to implement the set of strategic initiatives the company desired to implement. We did not assess the success of those initiatives but rather whether the enterprise could implement the initiatives given the infrastructure.
15. Broadbent, “Management by Maxim,” 77–92.
16. A.M. Brandenberger and B.J. Nalebuff, “Co-opetition” (New York: Doubleday, 1997), 28–35; and T.W. Malone, J. Yates and R.I. Benjamin, “Electronic Markets and Electronic Hierarchies: Effects of Information Technologies on Market Structures and Corporate Strategies,” Communications of the American Computer Machinery Society 30 (June 1987): 484–497.
17. M. Rappa, “Business Models on the Web,” http://digitalenterprise.org/models/models.html; P. Timmers, “Business Models for Electronic Markets,” EM-Electronic Markets 8 (April 1998): 3–8; P. Weill and M. Vitale, “Place to Space: Migrating to E-Business Models” (Boston: Harvard Business School Press, 2001).
18. To identify the infrastructure capability required we correlated the ability for the enterprise to implement a set of IT enabled initiatives with their pattern of infrastructure capability. Statistically significant positive correlations (i.e., 5% or less likelihood to be caused by chance) indicate the above industry average IT infrastructure capabilities that were present in enterprises that led in their ability to implement a particular type of IT enabled initiative (see “Infrastructure Competencies for Types of Business Initiatives”).
19. A word of caution: We based our analysis on ten years of research on top-performing companies and offer probably the best available data, but using the past to predict the future always has risks. One risk is that newer technologies will radically change the dynamics. Nevertheless, we think people often overestimate the speed of introduction and impact of new technologies (look at e-business, wireless, EDI, ERPs, CRM) in large enterprises. Large enterprises usually introduce new technologies in small amounts each year rather than make radical changes. There are at least three reasons: They can’t absorb change any faster; the new technologies are risky and often fail to have the desired impact; the enterprise has to link the new technology with each tentacle of its legacy systems.
20. M. Amram and N. Kulatilaka, “Real Options” (New York: Oxford University Press, 1998).