Fusion = innovation: How to align your firm's IT and business strategies

Three things you will learn from this Masterclass:

1. What typically drives decision making on technology expenditure

2. Why you need better IT leadership, an IT mandate and IT governance

3. How refocusing your IT function can improve firm profitability

 

In Act III, scene II of Hamlet, Queen Gertrude responds to a question from Hamlet with the famous line "the lady doth protest too much, methinks". The phrase has come to signal exhortations or exclamations so intense as to suggest that their opposite is true.

Convene a group of IT managers anywhere in the world and, within a few minutes, you'll hear adamant pronouncements on the need to align IT strategy with business strategy. That sentiment is so widely espoused within IT circles as to have risen to the status of truism - or, as Queen Gertrude might say, untruism. It is honoured more in the breach than in the adherence.

The irony of such pronouncements has not been overlooked. A decade ago, Nicholas Carr, in a seminal Harvard Business Review (HBR) article, suggested that IT had become irrelevant in the modern business landscape. It was a necessity, and a staggeringly expensive one at that, but for most businesses it conferred no competitive advantage whatsoever.

The article provoked a storm of protest, with more letters to the editor than any HBR article to date. Carr transformed that debate into the book Does IT Matter? The answer to the title's question is left implicit on the cover of the book. But, it is clearly "no, mostly". In Carr's view, for most businesses, IT doesn't matter anymore.

How do you change all that and use your technology investments to secure competitive advantage? Carr himself suggests that IT can matter, and even that it should matter, given the level of IT investment necessary nowadays.

Here we'll discuss three key steps designed to move IT from a back office cost centre to an essential component of your firm's business. It is possible; indeed, some law firms have become widely known both inside and outside the law for coupling technology and business strategy to deliver real practice innovations.

It turns out that IT managers have been right all along. IT strategy and business strategy should be closely aligned. When they are, innovation almost always follows and competitive advantage is often on its heels.

Typical decision making

We'll start with what not to do. Much IT decision-making both inside and outside the law is driven by two imperatives, neither of which assures tight alignment of IT strategy with business strategy. We'll call those two imperatives the ovine imperative and the consumerist imperative.

1. The ovine imperative

In ancient practice, a wether goat (sometimes called a bellwether for the bell it wore on its neck) would lead lambs into the abattoir for slaughter. That's an apt and nicely descriptive model for much of the technology decision-making that goes on inside law firms and companies these days.

The first sign of such ovine decision-making is often the question: "What are other firms doing in this area?" If enough 'sheep' have trodden the path beforehand, then a purchase or a project is deemed safe enough to undertake.

Indeed, many vendors count on (as in build their revenue projections on) the bellwether phenomenon. Early adopters are induced to try new products by means of clever incentives in hopes that others will follow the goat. Once enough have gone down the path, even remarkably inept products can survive in the marketplace. Where some have gone, others will follow.

In the legal sector, we see millions spent on moribund technologies year after year. For example, document management applications have been around for decades and, notwithstanding being rebranded as content management systems and then matter management systems, they continue to function in about the same way as they always have. They permit versioning of documents and the addition of some searchable metadata to those documents, but not much else.

That doesn't matter, however. Document management companies are thriving on the ovine imperative alone. Once a firm adopts a document management platform, it becomes an annuity based on a succession of fabulously expensive maintenance contracts and upgrades.

Are any firms more competitive as a consequence of all this? Perhaps those that saved their millions and didn't follow the flock. But, clearly, much of the considerable expenditure on these document management applications has been wasted.

2. The consumerist imperative

Consumerism, a term from the realms of economics and social science, aptly names a second imperative that often drives IT decision making. Consumerism is the purchasing of goods and services beyond basic needs and often in ever-increasing amounts. Coupled with static budgeting practices, it accounts for much of consumption in the technology sector. The consumerist decision process goes something like this: "I've got a budget, now let's see what I can spend it on."

The technology marketplace operates much like other consumer marketplaces. Technology magazines and trade shows are full of subtle and not-so-subtle messages regarding how to spend IT budgets. Technology vendors do their best to get you to think like this: "If I'm a responsible IT manager, I'll buy an Acme load balancer because it's the right thing to do."

As with the ovine imperative, the need to spend cannot in itself confer competitive advantage. Yet, each year, firms and companies start their IT budgeting processes with what is essentially a shopping list compiled from browsing trade publications and walking trade show aisles. Skilful marketing can pull dozens of firms into a product selection, whereupon the ovine imperative takes over.

We see now in many markets, including legal, a rush into cloud computing. That surge is no more rational, I would assert, than the rush into any popular fashion accessory. In fact, cloud computing is not new. It is, however, rebranded and generating the kind of buzz that prompts lawyers to demand their IT departments "do something" in cloud computing.

Fusing strategies

Three things must change to begin to fuse the firm's IT and business objectives into a common strategy:

1. IT leadership;

2. the IT mandate; and

3. IT governance.

1. IT leadership

When an organisation chooses a chief executive, it looks for certain qualities: leadership skills, communication skills and the ability to envision and then execute that vision, for example.

Many organisations, including law firms, have expanded the chief role far beyond the executive suite. Nowadays it's commonplace for every major department or division inside an organisation to have its own chief. In this way, IT departments have acquired chief information officers (CIOs) and chief technology officers.

But, we have often excused these new CIOs from the expectations that apply to chief executives. Many CIOs, as a consequence, are CINOs: chiefs in name only. They lack the leadership and management qualities necessary to align IT strategies with the principal business strategies of their firm or company.

The process by which we select these chiefs is often to blame for their lack of fundamental business skills. Many IT departments are led by 'super peers': consummate technicians who have risen through the ranks and come to be seen as best of breed by their peers.

However, the skills necessary to assure, say, that local and wide area networks function efficiently and at high availability levels are not necessarily the skills needed to transform business processes and foster innovation.

Indeed, one can argue that the conservative outlook and risk aversion needed in an IT infrastructure manager is antithetical to the kind of dynamism and acceptance of risk found in a true business leader. Those conservative traits may also lead 'super peer' chiefs into ovine and consumerist decision-making.

So, the first task in aligning IT and business strategy is to look closely at your IT leadership choices and ask a series of questions.

• Is your IT chief a chief technician or a chief executive?

• Does he cultivate other leaders inside the IT organisation who are driven not by technology imperatives but by business imperatives?

• Is the IT organisation insular and invisible, as it might be if led by a technician, or connected and highly visible in everyday operations?

• Can your technology leaders operate within the upper management strata of your firm as peers to top management, rather than as suppliers?

• Can they embrace the strategic imperatives of the firm in formulating their own plans? Can they understand them?

 

2. The IT mandate

A second line of inquiry in aligning IT strategy with firm strategy concerns what we ask the IT function to do. The principal and very often only mandate that drives most IT functions is that of 'keeping the lights on'.

On average, more than 90 per cent of IT budgets go to procuring and maintaining basic IT infrastructure: the servers, networks, desktops, laptops and basic applications that keep operations running from day to day. Very often, 100 per cent of the thoughts of IT management are devoted to those tasks. The result is an inherently conservative organisation that is consumed with the details of day-to-day operations and useless in seeking out innovations that will help to make the underlying business more profitable or competitive.

If you doubt this, then ask what metrics are used to measure the success of your IT operations. Most often, budget compliance is the only metric that rises to the attention of top management in the firm. When that is true, you are communicating to IT management that 'keeping on keeping on' is their only job.

To change all that, begin to measure the impact that technology initiatives have on firm performance - on profitability, profit per partner or revenue per lawyer. You needn't start with measuring the impact of basic IT operations. The nexus between basic operations and profitability is too tenuous (which suggests an IT infrastructure management strategy focused on efficiency). Instead, start with discrete projects.

In my own firm, we have identified the technology-related operations that most impact profitability and now manage and measure them separately from basic IT operations. And impact on profitability is an everyday metric for those groups.

For example, the tools and techniques our firm uses to manage practice economics grew out of one of those groups. We can now examine the pricing and project management initiatives that use those tools and techniques and determine with some precision their impact on profitability. Being able to point to a positive impact on profitability helps to broaden use of these tools and techniques.

You can change the expectation under which your IT group operates simply by changing what you measure. I suggest you avoid the trap of measuring return on investment, perhaps the most easily manipulated of all project justification devices.

Rather, begin to ask IT management to help improve profitability in a discrete area of practice. Given the rise of fixed fees and the need to develop efficiencies in areas of practice previously insulated from that need by the billable hour, there should be ample opportunity to do so. Treat that as the thin end of the wedge and try to broaden the impact over time.

3. IT governance

Much has been written about IT governance. Perhaps the most provocative recent discussion of the subject is Peter Hinssen's 2011 book Business/IT Fusion: How to move beyond alignment and transform IT in your organization. He urges us to ignore everything that has been said about IT governance.

Conventional wisdom has focused on developing a monitor and control culture for IT. The problem with that approach is that it creates a bureaucratic, compliance-focused culture that is the antithesis of the flexibility and creativity necessary for IT to truly become a participant in the business of the firm.

What is required is a fusion of the strategies of the IT group and the organisation. CIOs must become entrepreneurs rather than compliance officers. The success of the IT organisation can be measured as much by its degree of connection to the firm as by its impact on profitability.

We can find many good examples of such connections. One of the foremost comes from the consulting world. Accenture is, as you might expect, very focused on key performance metrics. However, when it undertook to transform its learning management technology and culture, it was faced with a unique challenge. How could it take something as prosaic as training and use it to drive profitability? And how could it measure the results?

The tale of how Accenture did that is captured in the book Return on Learning: Training for high performance at Accenture by Donald Vanthournout. Accenture managed to reduce its budget for training dramatically, yet at the same time achieve a measurable impact on profitability more than three times its investment.

The secret to Accenture's success was that its learning initiatives programme was highly 'interleaved' within its management structure. Dozens of business units had a hand in its success and executives from every level of the organisation acted as stakeholders for various components of the project. This deep connection philosophy is embodied in its V-Model graphic (see Figure 1).

As is evident from the graphic, the programme used sponsors and stakeholders at every level of the organisation. The same approach works in other settings, including law firms.

Source of innovation

Once you ensure that your IT organisation has appropriately entrepreneurial leadership and a mandate to innovate, don't squash their initiative with a compliance-heavy approach to governance. Rather, strive to broaden its degree of connection to critical projects.

Multiply real stakeholders and sponsors and let them interact with the IT group. The more you do that, the more lawyers, managers and others inside your organisation will come to see IT as a source of innovation rather than a source of frustration.

John Alber is the strategic technology partner at international law firm Bryan Cave (www.bryancave.com)