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IT Innovation

IT Innovation

A popular myth about IT organizations is that they are filled with nerds who are quick to embrace the latest technology products and gizmos. Yet in many companies, IT organizations have the reputation for being extremely resistant to technical change. Indeed, IT staff are seen by many users as trying to limit the rate at which new technologies are made available to them. Some of their caution reflects pressures and incentives to maintain a stable, reliable operating environment. It also reflects, however, the understandable desire to maintain control over their environment and work. For all their advantages, new technologies can pose threats to IT organizations.

From the standpoint of business innovation, IT organizations typically act more as the stewards of existing organizational processes and infrastructure than entrepreneurs who create new ways of doing business and organizational assets. Stewards spend their time enforcing the rules; entrepreneurs break the rules or make up entirely new ones. A challenge then for IT organizations is to shift the balance away from steward-like to more entrepreneurial values, norms and behaviors.

Yet the diversity of activities in IT make it far from simple to develop and operationalize the capability to innovate. As the Tetris model makes clear, there are different components of IT work and processes and the requirements and mindset for innovation will vary for each one. A culture of innovation in IT will not result simply from tinkering with mission statements or changing incentive schemes and appraisal criteria. It will not result from management exhortations, no matter how eloquent, about the need to be creative, take more risks and assume accountability for results. It instead requires a comprehensive and carefully coordinated set of changes starting with a re-examination of IT purpose and focus, a redefinition of roles, skills, and organizational structures, and a reformulation of management and HR practices, values and behaviors and leadership.

Linking IT Innovation to a Clear and Compelling Business Purpose

Popular management concepts like responsiveness, agility, flexibility and indeed innovation are abstract and meaningless to staff unless they are grounded in a tangible business purpose. It is therefore important that IT organizations connect their efforts to become more innovative to a clear and compelling business purpose. Most IT organizations now accept that their purpose is to deliver business value. The effect is often to direct IT attention and energy towards pursuing objectives such as building business partnerships and improving user satisfaction. While these goals are valid, they are only stepping stones to achieving the kind of value that counts most especially with senior executives and shareholders – economic value.

IT must make economic value creation its primary focus of innovation. Economic value is the most meaningful, consistent and enduring measure of value. It is the ultimate measure of business performance, and it is the basis on which IT is ultimately judged, both implicitly and explicitly. Other measures such as cost, service, quality and satisfaction are second order.

Economic value provides a challenging but powerful guide to and benchmark of IT innovation. Economic value created is the underlying reason why an IT organization, such as American Airlines’ Sabre Group, is so highly regarded. Sabre is a legendary innovator in the use of IT in the airline business, famous for the economic value it has directly created through IT-enabled business innovations, such as yield-management systems that have improved the performance of the airline’s operations, and for generating revenue and profits by selling IT-based products and services to other companies. Its contribution is reflected in the financial market value of the Sabre Group and some of its spin-off ventures including Travelocity.com which are currently valued at several billion pounds. Yet, this dramatic realization of the hidden market value of IT capabilities and assets has been largely viewed as unusual, even exotic, by business and IT executives alike. Today, however, the emergence of the Internet and it industry reshaping power has spawned a gold rush to realize the economic value of digital assets through market capitalization.

An IT organization focused on a mission of economic value creation must have a culture that is radically different from the typical internal, support group. It must think and act like an economic stakeholder in the business, and inculcate into its ethos a mindset and discipline that relentlessly focuses on generating economic return from IT capabilities and assets. IT organizations can create economic value in three ways – by enhancing productivity, expanding existing markets, and creating new businesses. Innovating in each of these areas requires fundamentally different approaches to utilizing IT and people:

Enhancing productivity involves innovating with IT to cut the cost and improve the output of the organization’s resources and processes. This requires a strong focus on and knowledge of the firm’s operational and administrative processes with a heavy emphasis on using techniques, such as process reengineering, resource consolidation and yield optimization to achieve operational excellence.

Expanding markets refers to innovating with IT to profitably grow the size of the market or markets in which the business participates, and to expand its share of them. This demands that IT organizations concentrate on areas, such as product development and market and customer processes. They must develop a strong capability to use IT to differentiate products and services to enable market growth.

Creating new businesses involves innovating with IT to start new electronic ventures and businesses. This demands an industry value chain and value network perspective, and a focus on market and business transformation through pioneering development of new electronic businesses and channels of distribution.

Most IT organizations have limited the focus of their resources and capabilities to enhancing the productivity of the enterprise. However, for IT to become a more powerful contributor to business innovation, it must learn to innovate with technology to create all three types of economic value.

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