Sustainable Advantage Gets Harder to Achieve Everyday
Creating a Sustainable Advantage is the Penultimate Goal of any Business
When I first started in IT, back in 1978, companies were able to achieve sustainable advantage through advertising, floor and shelf space monopolies and the creation of a people intensive support structure for clients and customers. While product viability was still critical, these brand enhancing tactics were used in various combinations to represent the product family to an increasingly diverse consumer demographic. Building a strong recognizable brand was as important as building the products and services that the brand represented. Once certain levels of brand saturation were reached in a market, it was very difficult for a competitor to break through those barriers to entry. In many markets such as the entertainment business, the barriers to entry were impenetrable walls, requiring massive cash inflows which could be used in very few ways to break through an entrenched barrier[i]. This reality drove at least some part of the reasoning to Jack Welch’s famous demand that any GE business had to be either first or second in its market, or it needed to be dropped.
Typically, IT is viewed as just another Investment for an Organization
A company’s IT organization is rarely thought of as an enabler of long term strategic advantage. As thrilling and disruptive as new technology is, as helpful as it can be to everyday work life, the bottom line is that every dollar of IT spend competes explicitly or implicitly with budget allocations for sales people, advertising, logistical upgrades or the purchasing of political influence. This makes sense when one wears a business lens.
The logistics of creating sustainable advantage is complex. This is an important consideration given the following Business realities:
- Global Market Forces have a greater and faster influence than in any previous era, and they shift rapidly.
- Business Demand is more complex to model for most industries, and can change rapidly, not just according to typical seasonal shifts. For instance demographic segmentation is not just a regional artifact since subcultural trends often transcend national and religious boundaries. A good example is the Harley Davidson brand where pockets of people all over the world relate to the messages of its lifestyle.
Technology has a vital role to play for most growing businesses, but there are technical realities that constrain this role:
- For most companies, significant global presence and efficiency must be enabled by strategic investments in IT which must be robust and enable business process agility.
- Making Business and Technology bets are crucial to remaining relevant, but timing is important because moving too early could lock a company down a wrong path, enabling slower moving companies to leapfrog any initial “early mover” gain. The conventional wisdom stating that later movers suffer market woes is not necessarily cast in stone anymore.
- Some markets have a “gold rush” feel to them. There are great gains early, and so “no expense is too great” and then as the market matures the margins become more normal, requiring stricter cost control. When this happens the ‘early opportunity” applications hastily thrown together become “instant legacy systems” that need significant rewriting. A typical IT organization has a portfolio littered with such early opportunity applications.
- Unlike a Financial Portfolio, an IT Portfolio cannot be readily cleansed of bad investments; instead they become legacy technology that can feel like a boat anchor around an executive’s neck. A legacy application can be deemed “off limits for retirement” if there is a great fear that its many interconnections can’t be “undone.”
These conditions lead to the uncomfortable reality that in most cases competitive advantages have short life spans, making them hard to sustain. The question for many executives now becomes “how do we consistently compete, and strive to be THE choice for our clients and customers?”
This question is particularly vexing given the business and technical realities stated above. Nonetheless the delicate balance between strategic vision and the harsh current state realities must be dealt with.
- Vision- IT investment must become a strategic enabler of the business, so that when the business is ready to flex its muscles, IT moves in the direction specified, as opposed to slapping the business in the face.
- As much as 90% of a company’s IT investment is bogged down by maintaining older, legacy equipment and applications[ii].
Is it any surprise that IT investment is often viewed with a jaundiced eye by many executives as they are bombarded with requests for more machines, more license fees and more staff, even as the ability to leverage business process agility from this investment is just a sad dream?
Now that I have exposed the ugly truth, the next blog will explore what can be done to position the IT function as the strategic enabler of the business.