Why does it need a change in IT strategy development?

The importance of IT in companies has changed rapidly in recent years. Classified as a support function and regarded as a cost center to be optimized, IT has long played a rather secondary role in strategy development. This has long since changed and IT has taken on a central role in companies. Due to the strategic role of IT, its large value contribution to the overall business success, but also the associated large financial expenditures, it is crucial for companies today to develop their own IT strategy and to pursue it in a targeted manner with suitable measures.

Development of an IT strategy – traditional approach

The development of an IT strategy usually proceeds as follows: The starting point for the strategic alignment of IT is the previously developed and specified corporate strategy. The first step is to determine how IT should contribute to achieving the company’s goals. The next step is to define how the IT measures for achieving the goals can be measured and controlled, and to establish metrics and control mechanisms. Finally, a large number of concrete actions and measures are defined, the successful implementation of which is intended to achieve the strategic goals. While the exact procedures may differ, the process models are usually based on the same assumptions and beliefs. Long and complex planning cycles, which can last many months, are used to build a precise IT strategy for the next 2-3 years. In other words, a serial top-down development of the strategy, in which all measures are planned and defined in detail in advance, starting from the general corporate strategy, step by step and over many levels up to the detailed activity. A decoupling of thinking and action, whereby a small project team commissioned by the management plans the strategy, while the implementation is the responsibility of the lines. In addition, strategy implementation is usually controlled by elaborate budget and planning processes, but also by appropriate bottom-up reporting.

VUCA world – what must change in IT strategy development?

When developing their IT strategy, most companies today rely on the same deductive process models that have already proven themselves in the past for strategy development. But are these procedures still functional and adequate today or are they an anachronism in a VUCA world characterized by constant change? One should also ask oneself to what extent the previous models have really proven themselves. Were the goals always achieved and were they still relevant? We find ourselves in an age characterized by complexity due to constantly changing conditions. In addition, we are experiencing right now in the Corona crisis how quickly an external event can completely change the assumptions and framework conditions on which a strategy is based, making it necessary to immediately review the strategic orientation of the organization. In this context, nevertheless, how can an IT strategy be developed that does not look outdated again after a short time?

The answer is that the traditional multi-year cycles of developing a strategy and creating a detailed plan are now – even without extraordinary external events – far too long to keep up with the increased speed of modern change and to respond to change. The forces of digitization are changing the rules of the market game. Digital technologies increase the points of contact with customers, suppliers and partners and the chance to offer individualized products and services directly. Exponentially growing volumes of data allow companies to generate insights in real time and to make data-related forecasts and predictions, but at the same time require new skills in the collection, processing and analysis of data. In addition, digitization is accompanied by a huge potential for the automation, networking and use of cloud technologies, which allows smart, self-controlling and cross-company value-added networks. Furthermore, there is a drastic change in global competition. Globalization offers companies new sales markets, but also opens up existing sales markets to new competitors, thereby increasing competitive pressure. Moreover, digital business models and cheap venture capital enable young, highly innovative companies to grow rapidly and become real competitors within a few years.

The IT strategy of the future is agile

As described above, this changes the requirements for the strategy process enormously. Time-consuming serial development processes do not provide satisfactory answers to the dynamic challenges that companies face today. But what are the planning cycles and how can strategic goals be achieved or the constantly new challenges be solved? Our answer to this question is that agile methods in strategy development can create a completely new view and approach. The increased need for agility results from the dynamic challenges of digitalization and globalization and the general fast pace, complexity, ambiguity and intrinsic transparency of the VUCA world. To increase agility, however, existing assumptions and approaches of the strategy development process have to be rethought. Derived from the agile values and principles, implications arise in the context of strategy development, such as co-determination, organizational learning, transparency and customer orientation.

An increased right of participation and co-determination for employees is already successfully applied in many areas of companies. With regard to the strategy process, there should be a transition to multilateral cooperation and decision-making. In the joint development of strategic initiatives, the company management defines the general framework within which the employees and departments involved can operate and define their contribution to the strategy without direct instructions.

Due to the complex and uncertain environment, more assumptions and hypotheses must be taken into account in the strategy process, as experience alone is no longer sufficient. It is therefore important to establish a positive error and learning culture so that learning effects do not remain on an individual or team level, but can be used to further develop strategy processes and action patterns for the entire organization. The digital possibilities of information provision and communication facilitate the transfer of knowledge in organizations, if the corporate culture and corporate structures allow and promote knowledge exchange and continuous learning.

The basis for effective employee involvement and learning culture is transparency and openness for participatory strategy development. The decisive factor is not only the involvement in the design process, but also that the strategic decisions are comprehensible to those involved. The use of digital channels for the provision of information and the promotion of (virtual) collaboration in cross-functional teams has proven its worth.

The focus on the needs of the customers results from the change in customer requirements and the growing customer desire to participate in the design of individualized solutions. In addition, new sources of information and data make it possible to better understand and fulfill customer needs. For strategy development, this means involving the customer and his needs more strongly in the strategy process, if not placing them at the center.

In addition to the general implications explained above, there are further concrete requirements for an agile strategy process that differ fundamentally from classic strategy development. The three most striking differences are the iterative-incremental approach, the experimental, competence-building approach and the speed at which decisions are implemented. These three requirements rely on short, repetitive time intervals in which usable prototypes are generated from ideas. These prototypes can either be expanded in subsequent time intervals or allow new insights to be gained through early feedback. In the strategy process, this not only allows for short-term re-evaluations and adjustments of the strategy, but also for feedback and adaptation of decisions and experiences from the implementation, which influence the planning as well as vice versa.

The dynamic challenges of digitization and globalization are forcing companies to radically rethink their strategy process. New approaches are needed in strategy development; agile methods can help companies in IT strategy development. To do this, the assumptions and procedures of the strategy development process must be rethought and new demands placed on the strategy process, which in turn raises further questions. Why do the described requirements apply and what are the success factors for agile IT strategy development? Who is involved in strategy development? Which methods are suitable for agile IT strategy development? And which focal points are important?

Quelle Titelbild: Adrià Tormo