IT Strategy: Aligning Technology with Business Goals
Published: 05 July, 2023
Technology & Engineering
Table of Contents
The role and business value of IT has changed significantly in many respects in recent years. From the use of large data centers for specialized tasks in the 1960s to the introduction of the personal computer by Xerox in the 1970s, the invention of the internet in the late 1980s, the triumph of mobile devices, the introduction of cloud services, cryptography, and blockchain technologies and now a wave of innovation based on modern AI systems, IT offers a whole new wealth of new perspectives.
This journey has reshaped the way companies operate, and also the way they communicate with their customers. All of this has not only led to much more efficient and customer-focused business models but also created entirely new ones – and brought about the end for many old ones.
With this development, the position of IT has changed significantly for companies. Originally it was “only” a supporting function, but it has now become a core element of corporate development. We are currently experiencing a further change, that of technology becoming a driving force in the development of companies and their services.
All of this forces a new kind of collaboration between IT, the business, and operations units, on all levels, from strategy setting to implementation. We will explore this interplay in this article.
What is IT Strategy?
Whereas not so long ago IT was mainly responsible for providing the technical foundations for relatively static business processes – for which a simple, equally static typical IT strategy was sufficient – today a future-oriented IT strategy is much more complex and dynamic. It continues to ensure stable business operations – although this task has also become incomparably more complex – but it also opens up new development opportunities for the business based on constantly evolving technological developments through a well thought-out technology strategy.
The Vital Role of a farsighted IT Strategy in Modern Business
In today’s rapidly evolving business landscape, where technology plays a pivotal role, organizations need a well-defined IT strategy to leverage technology effectively and gain a competitive edge. Our IT Strategy consulting and Technology Strategy services provide organizations with a comprehensive approach to leveraging the importance of technology in today’s fast-paced and competitive business environment. By aligning technology initiatives with overall business goals, we enable organizations to make strategic technology decisions that drive success.
A far-sighted IT strategy has many goals that together not only ensure ongoing operations but also lay the foundation for the future development of a company (the list is not exhaustive):
- It offers the best possible tools, hardware as well as software, to the running operation
- It meets the requirements of each corporate unit as (cost-) efficiently as possible (e.g. security will have a lower priority in the market analysis department than in the customer department, and performance in front-end applications will have a higher priority than in the tools of the legal department).
- It allows each business unit to develop as independently as possible
- It allows to react quickly and cost-efficiently to new requirements and changed business objectives
- It takes into account where company-specific solutions should be built and where standard solutions make more sense
- Where appropriate, it relies on cooperation with external solution providers
- It is constantly looking for optimisation based on new technological options
- It chooses future-proof technologies, always paying attention to the balance between new development and reliability
- It ensures the security of the infrastructure, as well as the other basic requirements such as regulatory compliance or data privacy
- It lays the grounds for the attraction of talent
- Last but not least, it lays the foundations for future corporate development
Key Components of an Effective IT Strategy
To achieve the above, an effective IT strategy must be consistent with, and help shape, the corporate strategy. This requires alignment at all levels and especially with the business strategy development team. It also means taking into account the different time horizons in corporate development.
(1) Strategic IT goals – Understanding and shaping the Business Strategy
The starting point in defining the IT strategy is the business strategy, whereby both should be developed largely in parallel as they influence each other.
The IT strategy should find the best solutions for the company’s business models, but new technologies will also enable new business models. Thus, close cooperation and dialogue between business and IT must take place at the strategic level.
The further ahead one plan for future business development, the more new technological developments play a role – their business potential, risks, costs, and operational burden, but also the development of the corresponding labour markets of experts must be taken into account.
As this goes beyond the requirements of a classic role for the Chief Information Officer (CIO) – who is busy enough with the operation of the infrastructure – but also in order to give future development an appropriate priority, the future-oriented tasks are ideally assigned to the role of a Chief Technology Officer (CTO) and in some cases a Chief Digital Officer (CDO). Therefore, it is important to include these roles at the strategic level, otherwise, the exchange in the executive board suffers and short-term benefits are quickly prioritised over long-term development.
An important responsibility of such a CTO or CDO is then to keep up to date with the latest technology trends, to maintain contacts with relevant experts and suppliers and to bring this know-how to the executive board.
Thus, a CTO or CDO plays an important role in defining both the business- and the IT strategy.
(2) Pain points & weaknesses – Analysing Current IT Infrastructure
At the beginning of an IT strategy, there is usually an existing infrastructure that has been tried and tested over many years. It would be a risky undertaking to try to replace it all at once. To some extent, the existing infrastructure will satisfy many new requirements – and let’s not forget that the employees are used to it and have often adapted it with a lot of effort to their own needs.
An IT strategy should therefore be as careful as possible with the existing infrastructure. Changes always bring new risks – even just those of a transformation project – so it is wise to implement them in a controlled manner and over a certain period of time. This also makes it easier to secure the necessary resources.
However, certain components of the IT strategy might have an impact on a wide area, if not on the entire infrastructure. Here, implementation must be planned particularly well and carefully, and implementation will typically require several phases. Examples of this could be:
- Redesigning the business architecture, for example, to create business areas that are largely independent of each other to allow independent, optimal development – being careful, not to introduce new silos. Here, the IT architecture should be aligned with the business architecture.
- Introduction of a new security or data strategy that is to apply to the entire company
- Introduction of a new technology strategy or technological platform on which existing and future developments will be based
- New business requirements such as the provision of new customer channels, often impose far higher demands on performance and availability
(3) Target functionality map – Identifying Gaps & Areas of Improvement
Based on the analysis of the existing infrastructure, the next step in the definition of a new IT strategy typically is the identification of existing problems and the collection of suggestions for improvement from the users. This provides a first opportunity to involve many employees in the activities and prepare them for the change, which increases acceptance – lack of acceptance in the company is an often underestimated risk factor in implementation.
This exploration phase should not only include IT topics, but at best the whole organisation, and at least operational and business processes. In principle, all affected parties should be included as early as possible in the change activities.
Early consultation with stakeholders has another major advantage: it allows the knowledge and innovative power of the employees to be mobilised, and it helps to avoid silos between roles and areas.
In a similar way, the next step is to take the future strategic business goals as a guideline and to define the corresponding additional requirements for the infrastructure. This step is typically performed by the business leaders whose responsibility it is to challenge the results with their teams.
Don’t forget that the business strategy should be created in collaboration with the CTO or CDO so that this step already takes into account the potential of new technologies that may come into question.
(4) Target IT architecture, technologies & solutions, 3rd party solution strategy – Analysing your Strategic Options
The list of identified requirements, based on current and future needs, is a good starting point to define options for their technological implementation. This should happen on several levels: The IT strategy should form a basis for company-wide technological approaches, but also allow the individual business areas to search for the best possible solutions for them. With a well-structured business architecture, the areas will have as much independence as possible to do so.
In the process, fundamental questions must be clarified (the list is not exhaustive and will depend on the specific case):
- Which functions should be cross-divisional, and which can be limited to certain areas?
- Which areas will change how much, and develop how quickly – based on the business strategy?
- In which areas is it mainly a question of becoming more efficient (non-core and core areas), and which should contribute to a competitive advantage over the competition (differentiating areas)?
- Are there larger, complex systems that are to be replaced?
- Can third-party solutions be used to meet the main requirements?
- And of course, whether there are fundamentally new strategic options to be considered, such as migrating from on-premises systems to cloud solutions – more on that in the next sections
Based on these requirements, technological options are elaborated, on the one hand on a company-wide level, typically by the Enterprise Architecture team, as well as in the business areas themselves, there in the responsibility of the area managers, but still in cooperation with Enterprise Architecture.
Part of this process is the definition of a technology strategy:
- Which functions are best implemented on-premise, with which should be moved to the cloud?
- To what extent should the front-, middle- and back-office functionalities be decoupled (modularity)?
- Are you planning a broader digital transformation, e.g. do you want to offer customers one consistent gateway to all services, or do you separate them according to business areas (service segmentation)?
- If relevant, how independent should geographical units be? Which functions and services should be provided centrally, and which locally?
- Where, if at all, do we want to build strategic partnerships with third-party providers?
- Down to technical decisions like which programming languages should be used in which areas. As is often the case, each has its weaknesses and strengths, and even on these matters, complex decisions have to be made, such as on the availability of the relevant experts or on the compatibility of the different components.
Based on this, the Enterprise Architecture team, together with IT, makes proposals for concrete solutions.
This is an iterative process in which all sides, business, IT, operations and supporting functions should learn from each other and together arrive at solutions that work for everyone. It is the task of the Executive Board, in close cooperation with the Enterprise Architecture Team, to choose a consistent whole from the options.
This forms the core of the IT strategy.
(5) Target IT organisation structure – IT Environment Assessment
While we have focused on functionality in the last chapters, we also have to take into account the existing structures of IT, whether the organisation, existing collaborations with third-party providers, existing technologies but also the nature of cooperation with the other areas that have been in place until now.
A comprehensive redesign of the IT strategy can be a good time to rethink and redesign those aspects as well. For example, one goal can be to orient IT towards agile methods. Specialised teams could also be formed that are more aligned with the business units, which simplifies the exchange between business and IT – a good way to break down silos. In addition, adjustments to existing collaborations with external providers, whether they deliver solutions or resources, must also be planned. Such tasks can often be the most time-consuming in a major transformation and should be very thoroughly planned.
(6) IT resources plan – Identifying Resources Required
The existing management should be mainly responsible for the strategy development. Of course, external help can be called upon, since unfamiliar paths are to be taken. Ultimately, the know-how, whether in terms of organisation, technology or processes, should be anchored in the company itself.
A comprehensive transformation will tie up significant internal resources, which requires early resource planning. External experts can not only help meet this additional demand, they will also provide much-needed know-how. Moreover, it is often helpful to bring in an external perspective to challenge established practices.
Here, too, a strategic approach should be taken – the outlines of which will also be part of the IT strategy. The questions to be answered could be:
- Where have we already built up know-how and resources? The answer to this can influence the technology strategy.
- What is our technology strategy, and what know-how will we need in the long term?
- Which tasks are part of our core competencies – where we will need our own resources – and which are not – where we can increasingly work with external providers?
This will give rough guidelines on staffing that will help to make decisions on parts of the IT strategy. Once the IT strategy has been finalised and a first implementation plan has been developed, a detailed, time-phased resource plan will be developed in cooperation with HR.
(7) Target IT governance & mgmt – Establishing an IT Governance Structure and management approach
Before talking about IT governance, it should be decided whether it makes sense to organise all areas affected by the IT strategy in the same way. For example, if strengthening innovation is part of the strategic goals, it might make sense to create an innovation unit that is largely independent of the existing corporate structure. Such a unit would ideally report directly to the Executive Board and have a management and governance structure adapted to its specific needs.
There are several standard frameworks that help define an IT governance structure. The two best known are COBIT (Control Objectives for Information and Related Technologies) and ITIL (Information Technology Infrastructure Library). Going into these in more detail is beyond the scope of this article, but they help to consider the most essential elements of an IT governance:
- Structure: Who makes the decisions ? What structural organisations will be created, who will take part in these organisations, and what responsibilities will they assume ?
- Process: How are IT investment decisions made ? What are the decision-making processes for proposing, reviewing, approving and prioritising investments ?
- Communication: How will the results of these processes and decisions be monitored, measured, and communicated ? What mechanisms will be used to communicate IT investment decisions to the board of directors, executive management, business management, IT management, employees, and shareholders ?
As far as management is concerned, we have already talked about the sense of a CTO or CDO role to relieve the CIO, who is busy with day-to-day operations, and to put more focus on future developments.
Otherwise, in the spirit of an open corporate culture, the management structure should have open, two-way communication channels, assign clear responsibilities and, as far as possible, delegate them. This could be supported by the creation of largely independent teams that are closely aligned with the business areas, for example.
In a larger transformation, there will also be a need for a transformation programme organisation, again with its own management and governance structure, under the operational responsibility of a programme manager. Note, however, that there especially close cooperation between business and IT is required, and both sides should be included in governance and management.
(8) Communication strategy – Getting all employees on board
Without effective communication, any change initiative is doomed to fail. An employee cannot work effectively if he or she does not know the goals or the meaning of his or her tasks. In addition, we all have a natural resistance to change because it always brings uncertainty and risk.
The most effective way to communicate is by involvement in the decision-making processes. This should happen at all levels – from involving IT management in strategy making as described above, to discussing technological decisions with the IT team. This will not only ensure buy-in from staff, but will help to realise the full potential of their knowledge.
In addition, communication should be as early and transparent as possible. In particular, business leaders should clearly communicate their business strategy and IT management should explain the implications for the IT strategy. These statements are then broken down to the needs of the individual areas and discussed by those responsible there with their teams.
The communication strategy should also always create channels from staff to management to give space to questions, concerns but also ideas.
Finally, it should be noted that fundamental topics such as strategic goals, related technical approaches or the target organisational structure should be discussed repeatedly so that every single employee has understood and internalised them. In this context, too much communication is better than too little!
(9) 1st high-level implementation approach – Detail out IT Strategy Roadmap
Once the topics above have been worked out, the options weighed up, decisions made and an initial plan drawn up, the IT strategy is complete.
This now needs to be translated into an executable roadmap.
This is another topic that could be elaborated on at length. Priorities have to be set, available resources taken into account, trade-offs made between risk, speed of implementation and requirements from the business departments, and an execution plan defined over several phases. Here, too, close cooperation with all areas is important, not least because they all have their own priorities.
In order to reduce conflicts and avoid surprises – for example, that certain functions or services will be available later than expected – it is helpful to use quantitative roadmapping approaches that transparently consider both technical and business requirements and prioritisation.
Common Challenges in Creating an Effective IT Strategy
The complexity of the task of creating an IT strategy is often underestimated. As IT is still often seen “only” as a supporting unit, this task is left entirely to the IT department. This results in challenges that at best lead to an IT strategy that does little more than optimise the existing infrastructure, and at worst fails altogether. Here are often observed sources of failure:
(1) Lack of Alignment with Overall Business Goals
An IT department that is not closely aligned with business strategic goals can very well keep itself busy optimising technical tools, implementing ever larger parts of the infrastructure in-house and managing its own ever-growing organisation. In the process, meeting the needs of business departments is becoming increasingly complex, and fraught with ever greater risks, and strategic development becomes nearly impossible.
(2) Insuffuicient Resources
The best IT strategy and the most sophisticated implementation plan are meaningless without the resources to execute them. Especially in today’s tight market environment for IT professionals, early, robust resource planning will determine success and failure.
(3) Resistance to Change
As already mentioned, any change triggers uncertainty and fear among employees. Not least, change also means adjusting priorities and responsibilities, which not everyone supports. Without buy-in from all affected employees, many of them will not work in favour of change but against it.
(4) Lack of Leadership Support
A (comprehensive) IT transformation must be anchored in top management. Otherwise, it is limited to selective technical measures with little impact and will fail due to the particular interests of the business areas. Without leadership support, it will be the first to fall victim to cost-cutting efforts anyway.
Potential Solutions to Overcome IT Strategy Challenges
We have described many approaches to the development of a successful IT strategy in the article. Here are a few more that will contribute to success:
Involving stakeholders in the Strategic planning process
Although already described in the article, this is so important that it is listed again: All parties affected, including business, operations and supporting functions, should be involved in the IT strategy planning process as early as possible. Only in this way can the business and IT strategies optimally complement each other.
Conducting regular IT Assessments
An IT strategy should be regularly reviewed and adapted to new requirements – whereby adjustments to the basic outlines should be very well justified.
Prioritizing initiatives based on the overall business strategy & business goals
A robust IT strategy will take into account short-, medium- and long-term business goals. During implementation, a quantitative roadmapping process will ensure that all priorities are addressed.
Investing in training and developing the IT Department
As a comprehensive IT strategy places new demands on the IT department, it is part of the resource planning to ensure the necessary development of the staff.
Importance of Continuous Improvement
When creating the IT strategy, many compromises will have to be made – after all, it usually has an existing organisation and infrastructure as its starting point. This is one reason why it should be continuously adapted and improved. In addition, new technologies and market developments make it necessary to further develop the IT strategy. However, this does not mean that continuous development should not be anchored in the IT strategy itself.
In this article, we have recognised that
- A good IT strategy can only be developed closely with the business strategy and all key stakeholders. The business and IT strategies will have a strong impact on each other.
- Communication should start early and be transparent, and all levels of staff should be involved in the design.
- The organisation of the IT department and the question of resources should be addressed early.
- Questions about internal IT development or the use of third-party solutions should be decided from a strategic perspective.
- The technology strategy will determine the direction of future developments.
- The IT organisation must meet the various requirements for business development, infrastructure and technology – for example, allow for robust core processes on one hand, and agile innovation processes that are as independent as possible on the other.
- Finally, a wise use of external resources can bring the necessary know-how into the company, relieve internal staff and bring a fresh perspective on existing approaches.