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What is IT Strategy?

July 7th, 2014 by
What is Business and IT Strategy?

Business & IT Strategy

We hear it almost every day, IT Strategy, Business Strategy, strategic customer accounts, strategic widgets, etc. Strategy is applied to so many areas and so many things that the word has almost become meaningless.  The term “strategy” has become trite because it is used so much with so little understanding.

I decided to build my own research based model around strategy because of all of the buzz and the lack of clarity or simplicity.  In other words, how do you really determine if you are being strategic or just using tactics you are calling a strategy?

 

Making IT and ERP Investments Strategic and Business Aligned

What I discovered is almost universal confusion of what is tactical and strategic. The reason is simple, strategy is hard–, really, really hard. Also, strategy depends on your position and direction.  You can take a more limited and more focused approach to produce tactical advantages, and in turn many refer to a tactical advantage as a strategy. Here is an oversimplification:

  • Tactics – execution steps which provide short term wins (short term competitive advantage)
  • Strategy – methods, which includes tactics, to prevent opponents from winning (mid-long term barriers to competition)

Tactics are often related to operational effectiveness, or, how well you execute in a given area or context.  You gain an advantage for a period of time but your improvements (tactics) can be reproduced by competitors.  Strategy is more directly related to market strength. How well you engage, penetrate, and hold markets compared to your competitors.

For an illustration of tactics vs. strategy, hockey player Wayne Gretzky said: “I skate to where the puck is gonna be, not where it has been.” Most hockey players ran to the puck where it was in play, just in time to see it passed to another player. Gretzky would go to where the puck was going to be and was prepared for the puck when it arrived.

A Simple Sports Illustration of Strategy Layers

To understand the strategic perspective, consider a football team.  The Quarterback’s strategy is how do I win this game?  To the coach, the quarterback’s strategy is a tactic, because his strategy is how do I get my team to win the season.  To the owner, winning the season is a tactic because the owner’s strategy is how do I fill the seats, sell advertising, and create a long term winning team that brings in revenue.

The key to successful strategy is in understanding where you are in relation to the broader organization and goals.  Then determine YOUR unique strategy.

Do You Have an IT Strategy?

At the risk of offending my CIO and CTO friends at some pretty large companies, I’m not sure there is a genuine “IT Strategy.” Unless you are in a Technology business, I don’t think the term applies.

There IS however an IT Enabled Business Strategy. By ensuring IT is focused on Business Strategy, the IT organization becomes a strategic business asset. By focusing on how IT can help a business to become more competitive now (tactical), by gaining market share, demonstrates IT value. By focusing efforts at creating barriers to competition (holding market share), IT becomes strategic. A business example would be,

Customer acquisition is more like a tactic (an event) while customer retention and selling into your customer base is strategic.

What Does an IT Strategy Look Like?

If your IT organization is able to engage, penetrate, and hold the “internal IT market” within your enterprise, you might have an “IT Strategy.” Like any marketspace, if you are doing this through monopoly power, then you are not strategic but relying on enterprise enforcement to ensure your monopoly position. It is only a matter of time, or changing leadership, that this monopoly will be broken up. Business units across various enterprises are taking their own budgets and bypassing the “IT monopoly” through BYOD (Bring Your Own Device), Cloud, etc.

If you are not operating in a monopoly environment, the way to engage, penetrate, and hold the IT organization’s “market” is to deliver lasting, and hard to duplicate value, to the greater enterprise.

Conclusion on Building a Strategy

This short post only scratches the surface of strategy development. However, if you really want to become strategic you must learn your enterprise’s competitive landscape. If you can’t identify your enterprise’s marketspace competitive pressures, and understand your place in those areas, then real strategy will be elusive if not impossible. In fact, even genuine tactical advantage will be extremely difficult. After all, what are you trying to gain competitive advantage against?

So, if you want to make an SAP, ERP, or other IT project strategic it is important to understand how to design for business value and competitive advantage.

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SAP & IT Outsourcing – RESULTS MATTER!

June 24th, 2014 by
In House vs. Outsource

In House vs. Outsource

Business today is looking for a way to provide shareholder value.  Outsourcing has become one of the latest “crazes” to boost stock values because shareholders believe it will reduce costs.  While your share price may increase in the short term, you may not see the cost savings and your share price will suffer later as your cost basis increases.

It is sad that the cost saving “dream” presented during all those sales pitches often become a “nightmare” of spiraling costs and management headaches.  If you go into your outsourcing arrangement with eyes wide open you are much more likely to get better results and you just might see some cost savings.

INTRODUCTION to OUTSOURCING RESULTS

In the spirit of full disclosure I’ll provide some insight on why I am doing these outsourcing posts.  The reality is I don’t like outsourcing, NOT because I’m threatened by it, and not because of any particular sense of betrayal by companies who take this path; my reason is simple, too often the outsourcing benefit claims are at best misleading and at worst blatant lies.

If you know what to look for and how to structure these arrangements you just might get apples to apples comparisons on real outsourcing costs.  If you know what you are getting into, and how to manage your outsourcing arrangement, you might benefit.  But that is up to you to construct your contracts, management structure, monitoring mechanisms, and QA processes to ensure those results.

EFFECTIVE MANAGEMENT OF IT OUTSOURCING VENDORS

It may seem obvious that you do NOT, NOT, NOT want to give up control of your business processes to an outsourced vendor but you would be surprised how often this happens.  And when it does you are the outsourcing vendor’s cash cow.  Someone will control the processes and if it isn’t you they will be controlled to favor the outsourcing vendor at your cost.

One of the first areas to contractually ensure some measure of control is in oversight.  You, as the client, must insist that you will have final say and control over all processes, standards, templates, and resources.  This should include but not be limited to:

  • QA reviews and internal audits
  • All Deliverables
  • Scope development and scope management
  • Change processes (or you WILL be change ordered to death!)
  • All code reviews
  • Adjustment and approval of all standards
  • Adjustment and approval of all processes
  • Adjustment and approval of escalation procedures
  • Project Management activities
  • How OCM (Organizational Change Management) will be handled
  • Data standards and processes
  • Testing requirements
  • Required documentation
  • Control of all resources the vendor might provide
  • Etc.

You get the picture.  The minute you give up management of any of these key areas you are headed for unanticipated consequences, change order costs, less than optimal results, etc.

CONCLUSION on IT OUTSOURCING

When you outsource your management requirements increase rather than decrease.  Because of the outsourcer’s profit motive you must be more diligent than ever to ensure you are getting results and getting what you pay for.  If you are not aggressive in managing these areas you will likely experience some nasty financial surprises.

My opinion is to do an honest assessment of your internal capabilities for more aggressive management of outside resources.  Strong management must be a key competence of any company wanting a successful outsourcing arrangement.

This is the wrap up to the series on Outsourcing:

 




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SAP and IT Outsourcing – Vendor Management Considerations

May 7th, 2014 by
IT Outsourcing

Outsourcing Motives

One of the hot trends in IT is outsourcing.  The allure of smooth sailing, fewer headaches, and lower cost generally capture senior leadership’s attention.  The sales pitches about all of the success stories are often compelling.  But just like calm (but murky) waters on a mild day hide the rocks under the surface so do many of the outsourcing vendor claims.

With some background understanding (and a lot of due diligence) you can avoid most of those rocks and navigate these waters.

It does take work, work that your outsourcing vendor will never tell you.

Any thoughts of getting the “best and the brightest” are misplaced–, you may get competent resources but you will not get the “A Team”

Outsourcing Vendor Incentives and Motivation

First of all, let’s dispense with the biggest myth there is about outsourcing–, it will save you lots of money!  Don’t get me wrong, it CAN, but while that is the sales pitch from the outsourcing vendor, and a key motivator, it is NOT how outsourcing vendors operate.

An outsourcing vendor’s goals are not to save you money; their goal is to grow their footprint, increase their billings, provide additional resources, and find ways to ensure you are locked into their services.

Outsourcing Vendor SAP Resource Skills

An outsourcing vendor has a motivation to grow revenue and margins just like you do in your business.  So what does that mean for you?  They will find the cheapest resources they can and charge you the best rate they can get for them (think profit margin).  Nothing wrong with that, it is the standard practice in any profitable business.  What it means for you as a client is that any thoughts of getting the “best and the brightest” are misplaced–, you may get competent resources but you will not get the “A Team”.  For commodity IT functions this works, however for the higher level delivery which involves business solutions I will say “buyer beware” or caveat emptor.

What Happened to the Outsourcing Savings?

Revenue growth and profit margins are the growth engine for any business.  Many outsourcing firms provide financial incentives for their employees to grow revenue, to raise their utilization and increase their footprint.  Just like many other organizations an SAP outsourcing vendor provides bonuses and other financial incentives as well as growth opportunities to those employees who help them grow their revenue.  What starts out as a contract arrangement which costs “x” can quickly become 1.5, 2, or even 3 times “x” without aggressive vendor management.  An outsourcing vendor’s goals are not to save you money; their goal is to grow their footprint, increase their billings, provide additional resources, and find ways to ensure you are locked into their services.

Seeking Vendor Lock-In (or, Locking You Up!)

ERP outsourcing vendors, or system integrators, may say all the right things in meetings or in sales presentations but at the end of the day their actions tell you their motivation.  Customized solutions, complexity, and difficult ongoing maintenance helps to ensure they are the incumbent insider who you “need” and can’t replace.  These types of “solutions” also lead to additional staffing and support needs which in turn generates more revenue.  It creates a vicious cycle of “more, more, more” cost for the host organization and a virtuous cycle of revenue growth for the ERP outsourcing provider.  The vendor gets more deeply entrenched and more knowledgeable on how to fence out any competitors.

Managing Your Outsourced SAP Vendor

Outsourcing can provide cost reductions, efficiency benefits, and many of the other things the outsourcing vendor used during the sales pitch.  Don’t expect these things to be easy.

If you think outsourcing is going to reduce or eliminate your people management burdens you are headed for significant trouble.  The underlying idea here is the vendor will handle the people management, and to some extent they will.  If you leave key management functions primarily to the vendor you are setting yourself up for serious cost surprises.  The vendor will ultimately do what is in the vendor’s interest, and what is in the vendor’s interest is revenue and YOU are the source of that revenue.

The moment you outsource, your management must be more aggressive, not less, than before outsourcing.  Otherwise you will face the vicious cycle of “more, more, more” cost for your organization and provide the virtuous cycle of revenue growth for the outsourcing provider.

Next we will look at specific tactics and strategies for successfully managing outsourced vendors. 

 

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