System development with added value in mind

This blog is a small excerpt from the second chapter of the book I’m writing on Business IT convergence. One of the topics this chapter discusses, is the need to identify and unlock the value which is embedded within the context of the demand of the business for a new IT solution.

When designing and building new IT solutions, all questions from IT (and its external suppliers) for the business were traditionally focused on the functionalities. The business rules, the business process, the interface and data that have to be translated into a working IT system. The context of the demand (e.g. relative importance of time-to-market versus efficiency) is typically considered to be of little importance. This was and is indeed the case for situations where IT is used to automate business processes; the traditional sweet spot for IT. With IT increasingly used by the business to compete in market space and technology changing complete business models, the context of the business demand becomes suddenly very relevant. These days, the importance of and mutual tradeoffs between topics like speed-to-market, agility, efficiency, risk profile et cetera have to be included in the business case for a new initiative in order to make an informed decision. Examples:

• Incorporating the newest social media technology quickly is crucial when the product targets young customers. For older customer groups, short time-to-market of the newest technologies and trends is far less important.
• The ability to increase production volume quickly is of secondary importance for a business product which is at the end of its life cycle. For a product at the start of its lifecycle, volume flexibility is however crucial.
• An American banker will have a very low risk appetite regarding regulatory compliance while Asian bankers will have a slightly higher appetite due to another regulatory culture and more principle-based laws.

Identifying these contextual or secondary sources of IT value are often overlooked as demand management typically focuses on collecting the business and user requirements, ignoring a substantial source of IT value. The illustration depicts the four sources of IT value which I believe can be identified. The primary source is the business and user requirements which are translated into code and a proper user interface. It also includes the value embedded in the technology used, like adaptability, adherence to open standards and IT efficiency. The second layer of the onion reflects the tangible and intangible sources of value which reflect the context of the demand. If the business has identified an potential market opportunity of 100 million for the first company to offer a product, speed-to-market and not efficiency is key. Proposing to start with a three month design study followed by sixteen months of building and testing may be the best approach from an IT perspective as it allows for very efficient resource use. Potentially missing 100 million in revenue for a 10% IT efficiency gain is the contextual value of a business demand which relationship management has to identify and address when shaping with value proposition. To realize this source of value, is one of the reasons Foundation IT and Entrepreneurial IT are introduced. Differentiation allows for capturing the value of the second and third layers of the onion.

The third source is the value created by combining Business and IT value propositions and accompanying competencies into a offering which offers a strategic advantage. It is the 1+1=3 synergy and subsequent strategic advantage IT by itself cannot provide due to its lack of scarcity. Strategic advantage can in terms of lower cost than the competition or product differentiation.

With technology itself being available to everybody at ever lower cost levels, become the two outer layers of the onion more important if IT is considered by the company to be more than a facility service. Everybody has access to programmers, servers and development tools, but companies demonstrating effective convergence of Business, agility and an entrepreneurial mindset within IT, are still scarce.

 

The last layer is represents the trend that an increasing number of companies use ‘social technologies’ to enhance growth and profitability. The customer is no longer a passive receiver of a product or service, but is slowly integrated within the business processes and IT ecosystem of the company. According to a survey by McKinsey (2011) are companies increasingly using social technologies to increase their agility and to manage organizational complexity. Many of the 4200 global executives interviewed believe that with the diminish of organizational barriers new business processes rise, potentially radically improving performance. Like with the third layer will also this type of IT contribution only be applicable to part of the IT portfolio as bookkeeping can hardly contribute from social technologies (unless bookkeeping is sourced to external freelancers).

 

All four layers of the onion have to be reflected in the value proposition with the third and fourth layer be more relevant for Enabling IT than Factory IT (see blogs 1 and 2). The value propositions have a special role as they are the linking pin between the customer facing part of the IT Business model and the ‘back end’. It is a (bundle of) products and/or services that create value to a specific customer segment and consolidates both the tangible and intangible value delivered to the internal and/or external customers and the cost incurred to create and deliver the value proposition.

 

Source: (2011) How social technologies are extending the organization, Jacques Bughin, Angela Hung Byers, and Michael Chui, november 2011, McKinsey Global Institute.