{"id":10073,"date":"2022-02-07T07:23:52","date_gmt":"2022-02-07T12:23:52","guid":{"rendered":"https:\/\/flevy.com\/blog\/?p=10073"},"modified":"2022-02-04T09:25:59","modified_gmt":"2022-02-04T14:25:59","slug":"capabilities-driven-it-strategy","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/capabilities-driven-it-strategy\/","title":{"rendered":"Capabilities-driven IT Strategy"},"content":{"rendered":"

\"\"Customary practice to Capital Budgeting for satisfying needs of Information Technology development and support pursues a fragmented process and considers requests as stand-alone projects, each with its particular business justification.<\/p>\n

The approach bases most of the capital allocation on historical expenditure patterns and financial projections. \u00a0It handicaps the underlying Enterprise Architecture<\/a> making it inflexible and layered with unnecessary complexity.\u00a0 The practice results in inferior outcomes with far greater expenditure.\u00a0 It also increases the fixed costs of IT operations because of reluctance to retire legacy systems.<\/p>\n

Conventional approach to Capital Budgeting for IT projects<\/a> is too outdated and sluggish for today\u2019s Digital Age, where technology has taken a more strategic role.<\/p>\n

In the Digital Age, technology needs to be rapidly developed to support not only the operations of the organization, but also to directly support Corporate Strategy.\u00a0 Thus, we need a faster, more agile approach to IT Strategy<\/a>.<\/p>\n

Capabilities-driven IT Strategy<\/a> uses an approach where a comprehensive view to IT is adopted based on unique proficiencies of the company.\u00a0 It shapes an organization-wide justification for Information Technology. \u00a0It also puts IT function and business unit together for developing the IT Strategy. \u00a0Capabilities-driven approach highlights the strategic worth of visionary IT leadership, particularly in assisting companies comprehend which strategies are most feasible.<\/p>\n

The approach presses the company to base judgment on the manner in which the company creates value, on the investment required for distinguishing capabilities, and on the contribution that IT ought to make.\u00a0 Capabilities-driven approach centers investment on limited distinctive capabilities that set the company apart.<\/p>\n

Quite a few companies have employed such strategies, over a short period of time, and have attained a new kind of IT and operational leadership.<\/p>\n

Capabilities-driven IT Strategy is achieved through a 4-phase approach:<\/p>\n

    \n
  1. Determine our Distinctive Capabilities in Relation to IT.<\/strong><\/li>\n
  2. Prioritize our IT Project Portfolio.<\/strong><\/li>\n
  3. Develop Technology Roadmap of IT Investments and Activities.<\/strong><\/li>\n
  4. Develop Culture and Governance to Support IT Strategy<\/strong>.<\/li>\n<\/ol>\n

    \"\"<\/a><\/p>\n

    The phases are sequential, where in each phase, a fundamental question regarding the role of IT in the organization is answered.<\/p>\n

    Let us probe some aspects of the phases a little more deeply.<\/p>\n

    Determine our Distinctive Capabilities in Relation to IT<\/strong><\/h2>\n

    The question answered in this phase is regarding Distinctive Capabilities of the company\u2014capabilities that sustain the company\u2019s strategic priorities and gives it a Competitive Advantage<\/a>\u2014and how Information Technology can play a part in improving them.\u00a0<\/strong><\/p>\n

    Prioritize our IT Project Portfolio<\/strong><\/h2>\n

    The question answered in this phase is how should the IT projects that will enhance the distinctive capabilities identified in phase 1 be prioritized?<\/p>\n

    To do this, an IT investment portfolio matrix\u2014based on Strategic Importance and Value Potential criteria\u2014is used that places the IT investment in 1 of the following 4 categories:<\/p>\n