Is building custom software a necessary evil, a process that’s divorced from the really important parts of a business? Or is the ability to do this well the underpinning of every successful organization? The truth is probably somewhere in between these two extremes. One thing is clear, however: In many organizations, how well a firm executes its business strategies is inextricably tied to how good it is at creating and running new applications.
Is building custom software a necessary evil, a process that's divorced from the really important parts of a business? Or is the ability to do this well the underpinning of every successful organization? The truth is probably somewhere in between these two extremes. One thing is clear, however: In many organizations, how well a firm executes its business strategies is inextricably tied to how good it is at creating and running new applications.
Think about it: Nearly every organization pursues strategies to differentiate it from its competitors. In most firms, custom applications play an essential role in providing this differentiation. The uniqueness they make possible might well be the most important way that information technology provides business value.
Yet custom applications don't just magically spring into existence. They also don't happily chug along unchanged forever. Instead, both the creation and operation of custom applications are accomplished through the process of application lifecycle management (ALM).
The link between ALM and business strategy isn't always clearly understood. From the right perspective, however, it's clear that for a modern organization to be good at strategy-and thus at providing long-term profitability-it must also be good at ALM.
FROM INNOVATION TO OBLIGATION
The essence of business strategy is being different. A firm might do different things from its competitors, for example, such as offering different products or addressing different markets. Alternatively, it might do the same things in different ways, such as providing a lower-cost service. In either case, what marks an action as strategic is its ability to differentiate an organization from its competitors, letting it provide unique value to customers.
Competitive advantage flows from successful differentiation. Yet keeping good ideas secret is hard, and so remaining different is challenging. Figure 1 shows what typically happens.
2
Figure 1: Successful innovations by a strategic leader eventually become obligations for other firms in the industry.
The first firm in an industry to implement a successful innovation gains a significant competitive advantage. The second firm to implement this strategy also derives some advantage from it. By the time the third firm in an industry follows suit, the new approach is usually well on its way to becoming a best practice. Anybody who doesn't implement it is likely to be at a competitive disadvantage. What begins as an innovation becomes an obligation.
There's no shortage of examples that illustrate this. The first airline to add self-service check-in kiosks, for instance, gained a significant competitive advantage. The second airline to add self-service check-in What begins as an kiosks also got some advantage. Yet today, kiosks are a cost of doing innovation becomes business for every airline-not having them would be a competitive disadvantage. Similarly, when FedEx let its customers track their packages an obligation. directly via the Web, this innovation was rightly hailed as a powerful competitive edge. Today, we expect this from all shipping companies-the innovation is now obligatory.
FROM STRATEGY TO UTILITY
Pretty much every modern business strategy depends in some way on IT. Self-service check-in kiosks and Web-based package tracking are good examples of this reality. Yet note what happens: Over time, every successful strategy becomes part of the IT infrastructure. It's fair to say that virtually all of IT was once an innovation that conferred competitive advantage on its first adopters. Eventually, however, everything becomes a utilitarian IT function that must be supported effectively.
Given this, it's possible to divide IT spending into two broad categories:
3 ? Strategic IT, spending on new capabilities that directly support new business strategies;
? Utility IT, all other IT spending. To a large degree, the technologies in this category represent the accretion of... [download for more]
