February 22, 2013
Many CIOs are caught in the middle — stuck between competing demands from the CFO to reduce costs and from the CEO to increase innovation. In fact this is a topic which often comes up in our strategic planning workshops with clients.
The challenge is to find a means to achieve both goals simultaneously. Here are four steps you can take to achieve just that.
1. Get agreement on your business capabilities.
Business capability maps are a great way to gain clarity on what’s important to your business. A good business capability map for strategy work is one which is organizationally agnostic; i.e., when you look at the boxes on the map, you don’t see department names. The reason this is important is that you don’t want to put anyone in the position of having to defend “their box” on the capability map. By the way, this is much harder to achieve than you might think! Once you have a draft map, you can share it with business leaders to get their input. This is an important step, as the capability map must be owned by all business leaders — the process of refining the map encourages leaders to take ownership.
- Tip: Remember, not all your capabilities are inside your organization. Many firms leverage business partners to deliver key capabilities. For example, some firms will use FedEx or UPS to provide their distribution capabilities.
2. Identify your strategic capabilities.
Every organization has strategic capabilities. In a for-profit business, these are the three or four business capabilities which differentiate the organization in the marketplace. These capabilities are the ones the company uses most effectively to compete. Apple will define its strategic capabilities very differently from Wal-Mart. At Apple, the strategic capabilities could be “design,” “customer experience” and “innovation” — the means by which Apple commands intense brand loyalty and the ability to charge premium prices for its products and services; whereas at Wal-Mart, the strategic capabilities might be “vendor management” and “distribution” — the means by which it is able to achieve “always low prices” and maintain its position as the lowest-price retailer. (You may decide for yourselves what you think the actual strategic capabilities are for these companies — I use these for illustration purposes only.) You need to get agreement among your leadership team on which of your capabilities are truly strategic.
- Tip: One challenge you will face is a tendency for people to want to describe everything as strategic. While all capabilities are important — you can’t remove them and have the business survive — they are most certainly not all strategic. You need to try to limit the number of strategic capabilities to two, three or maybe four. What really is different from everyone else in the market?
3. Focus on developing strategic capabilities.
Once you have narrowed down your strategic capabilities, you can begin to explore how to enhance these capabilities in particular to get to your business goals. By definition, you are most likely to have an impact on business outcomes by changing these strategic capabilities. That doesn’t mean you should ignore generic capabilities; it just means the early focus is on the strategic. Sometimes you can make great progress toward goals by fixing defective generic capabilities, so you always need to assess how well all your capabilities are meeting the needs of the business.
- Tip: If you failed to make your capability map organizationally agnostic, you will see executives tending toward wanting to make “their capabilities” strategic as this reinforces their importance in the organization. Make sure your defined capabilities span multiple departments.
4. Simplify generic capabilities.
By definition, everything which is not strategic is generic. Your organization shares these generic capabilities with many of your competitors; these capabilities are not the reason a customer will choose your brand over your competitor’s. Because these capabilities are generic, most executives immediately see that, in a zero-sum game (which is what IT investing is), it is better to place investments in support of strategic capabilities and at the same time, simplify the underlying technology behind the generic capabilities. This is a big deal because now you have the basis for rationalization and commoditization of technology services in support of generic capabilities. These capabilities can be more easily supported by cloud-based services which are not heavily customized by IT. By reducing the complexity behind generic services, IT is able to free up more investment for innovation in strategic capabilities.
- Tip: The trade-off between strategic and generic capabilities is an important one. Too many strategic capabilities and you are back to square one, with no ability to differentiate what’s important from what’s generic. Over years of growth, organizations take on more and more capabilities as a means to reduce costs. The downside of this expansion in capability is the increasing complexity of the technology underpinning the enterprise. Over time the cost of maintaining the technology, and the inertia it creates in the organization, costs more than the company saves by having a highly tailored capability. Remember KISS — if it’s not differentiating, keep it simple, stupid.
These design principles come from work with many firms in developing strategic planning for technology and are covered in more depth in our strategic planning workshops. For more information, request an inquiry with me or contact your Forrester account manager.
Join the discussion … what tips do you have for using capability maps in strategic planning? Post your comments below.
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