Everyone is different… aren’t they?
Just read a post by Nicholas Carr about the diminishing role of CIOs. Not sure whether I am ready to believe that CIOs are not necessary yet but I certainly believe that they need to get their asses out of the dead end of operations and management of IT and much more into the role of trusted adviser to the board around innovation and access to the right services at the right cost. Slightly tangentially, though, one comment really caught my attention. Buried amongst a load of stuff about how CIOs were effectively being left marginalised by increasing technology maturity and commoditisation was the following comment answering a number of points from the post (original post content being commented on underlined):
“Hopper, who predicted that IT would come to be thought of more like electricity or the telephone network than as a decisive source of organizational advantage.”
From a software perspective, I have my doubts that it will ever happen. The goal of IT is business process automation. But businesses processes are inherently different across businesses. For example, no two business does finance the same way. No two real estate company processes loans or property inspections the same way. Therefore, they each need their own specialized applications.”
Umm… why? Why do no two businesses do finance in the same way? I accept that this may be the current state but I see no reason why this should be accepted as the right way? What competitive differentiation does doing 80% of non-differentiating things in different ways provide to the organisations concerned? Given the fact that I tend to believe strongly in capability driven organisations I can see a case for co-sourcing these functions with specialised providers – in that context no two finance providers will necessarily have the same processes but all other kinds of companies will increasingly just integrate these standardised offerings from third parties and will therefore absolutely share the same services – why wouldn’t they? In this context the IT becomes just a component part of the shared capability being offered and thus the need for consuming organisations to each have their own applications in non-differentiating areas is gradually reduced over time. This will increasingly occur across all capabilities that organisations have – they will outsource, co-source or share non-differentiating capabilities in order to concentrate on those that are truly differentiating, leveraging these outstanding capabilities into wider value networks to maximise their value whilst simultaneously multiplying their value by combining them with others best in class capabilities. As I’ve discussed before, the capabilities around which an individual company wishes to differentiate itself may still need IT support to realise effectively but this will increasingly not require the ownership of that IT.
The bald truth
I’m getting fairly tired of having these conversations with people so let’s put it down in bullet form:
- You are not special – 80% of what you do is not special and you’re just wasting money and attention competing with other people who are equally dumb. Understand your capabilities, understand where you are special and unbundle the rest for pities sake – find specialised providers, talk to IT service companies about offloading the stuff or work with your competitors to pool resources. In no circumstances be tempted to customise packages or implement applications or processes in non-differentiating capabilities – either deploy or (better still) gain access to standard offerings;
- IT is not differentiating – Owning and operating IT gives you no competitive advantage; in fact it drains your resources, locks you into processes that are simultaneously uncompetitive and non-differentiating, is ridiculously expensive to scale or right-size and gives you your own islands of function that stagnate outside the rapid learning possible for IT service providers. What you do with IT – in terms of process enablement for differentiating capabilities – may be important depending on your industry but you don’t need to own and operate the IT platforms required to do it any more than you need to own electricity infrastructure to work the photocopier – it’s increasingly going to become a utility and should be treated as such.
Different types of value
If we look at the types of value chains that organisations typically bundle together – and which we fully expect to be broken up over the next few years to recognise the differences in economics and culture needed to be successful in their provision – these points can perhaps we made a little clearer:
- Physical value chain: In this context certain capabilities require the ownership and leverage of physical assets. The economics of these capabilities respond strongly to economies of scale and therefore tend towards shared usage rather than differentiation for each organisation. IT platforms are increasingly tending towards economies of scale and are therefore likely to be increasingly consolidated over the coming years – essentially building service platforms that enable services to be created, deployed and delivered scalably are capital intensive activities that drive them towards being shared. In this context anyone who aims to own and operate their own bespoke IT platforms and operations in the longer term is probably not concentrating effectively.
- Transactional value chain: In this value chain we have information resources and business processes that implement capabilities. These capabilities again tend towards economies of scale as 80% of capabilities are non-differentiating to individual organisations – as a result we would expect to see the emergence of specialised providers who leverage economies of scale by offering their capabilities for integration into the wider value web of their customers and partners. In that context, again, trying to build and operate applications that you customise to allow you to execute non-differentiating capabilities – such as the finance example given originally – in ways which are different to others is a waste of time, money and focus. For your own specialisation, however, you would absolutely want to create bespoke applications and services to support you in your endeavors but given the previous discussion on physical value chains you would want to ensure that you don’t have to take on the ownership and management of the platforms needed to do this – rather you would want to reduce risk and capital exposure by leveraging partners that can offer such service platforms to you on demand.
- Knowledge value chain: Knowledge value chains absolutely represent differentiation for your organisation as by definition you are dealing in capabilities that have knowledge and IPR not available to others. Perversely, however, this does not mean that you necessarily need any particularly differentiating IT as software that enables you to capture, develop and leverage knowledge will be available in the transactional value chain. Again in this context IT is not a differentiator and you need to focus on using standard applications and services to support you in your IP creation and leverage.
So just stop
In breaking down the typical organisation we can see that IT provides very little differentiation in the majority of the work that gets done. Platforms will increasingly be consolidated and shared, removing a large part of the IT related work that most organisations currently spend time and energy getting stressed about. There will be some applications and services that represent your differentiation but in this context you will increasingly be using shared platforms to compose and deliver these services in ways that are different from the IT delivery of the past. The challenge for CIOs is to understand how they remove themselves from daily battles trying to keep their heads above water in the physical value chain and concentrate more on helping their business colleagues to unbundle non-differentiating capabilities from the transactional value chain to improve focus and performance and on finding the best platform partner to rapidly compose differentiating capabilities that represent valuable IPR for their company.