Information Technology

I have been reading a lot of articles on IT off-late. Here is a summary of those articles. None of the stuff here in my research. It is all the knowledge that I borrowed by reading different articles.

In any company IT has three distinct uses:

1. Reduce operating costs by automation, reducing manpower requirement or increasing efficiency (called as "Lets you stay in the race" by some specialists). You have to do it because others have done it, and if you don't you will lose.

2. Give a strategic advantage over competition by doing something first. Also called as "Lets you win the race" by specialists. This is similar to first point, except you always pre-empt the competition and get advantage over them by capturing market share or increasing margins by improving efficiency.

3. The third and most important use of IT is to come out with innovative products, reduce time to market for those products and create such an activity system such that the competition can not find a unique factor for your success.

Most companies today spend in point 1, while some in point 2 and rare companies in point 3. The classic examples of companies spending in point 3 are Dell, WalMart etc.

An important point to note here is that companies can not choose to spend just in 1, 2 or 3. To be successful, they need to spend in all 3 categories. The experts say that companies should create a portfolio of IT spending and should manage it just like a financial portfolio. In this case, the companies should distribute their budget across the three categories, just as you would in stocks and bonds in a financial portfolio. You need some budget to maintain your usual systems like email, messaging etc, some budget to pre-empt competition and stay ahead in a game and some into innovation.

While the portfolio model sounds very simple and logical, the problem comes in the implementation part. Imagine a large conglomerate with different companies. The obvious way to maximize operational efficiency will be to have a centralized IT department, like a shared service. The problem with this model is that distance it creates between the business units and the IT staff. It also tries to commoditize IT. The workaround is to have innovation staff work closely with the business units.

On the innovation front, there are various ways in which CIOs can get new innovative ideas.

1) Work closely with venture capital firms and invest in companies where you see potential for use of technology in future.

2) Work closely with researchers, academia to get to know about the latest and cutting edge technology.

3) Form a innovation cell within the company and encourage Research and Development.

4) Pilot new technology is a small business unit and then extend it to the entire company if there is huge potential.