How can business leaders better guide their sizeable IT investments and decipher IT’s noisy signal? Where and how should they intervene in the work of getting IT up and running within their companies?
I advocate a two-part approach that first of all places work-changing technologies into three categories (based on their impact), then specifies three activities where the involvement of business leaders is either important or essential. Three tech categories times three activities makes IT leadership sound like a full-time job, but it’s not. In the 3×3 matrix of the framework I propose some cells entail a lot of work, others don’t.
Three Types of Work-Changing IT
When considering any new IT that will be visible to end users, a powerful question is "What is this technology intended to change?" Answers can be placed pretty cleanly into two groups: "It’s intended to facilitate the work of a single person (or task, job, function, or role)" and "It’s intended to facilitate interactions among multiple people (or tasks, jobs, etc.)." Both email and ERP facilitate interactions, though, so one further distinction is important: between IT that enables unstructured interactions (email) and IT that brings structured interactions like business processes (ERP). So asking "what changes?" yields three possible answers, and three IT categories:
Function IT (FIT), which facilitates standalone tasks. Spreadsheets and word processors are perhaps the most common FITs; they help analysts and writers, respectively, with their work. Function technologies also exist for specialists such as design engineers, statisticians, architects, photographers, and poker players. In fact, there are few types of knowledge worker today who don’t have FITs available to them. Function IT is not intended to connect interdependent people and tasks; instead, it’s often ‘software you can use when you’re not on the network.’
FIT case example: In 2001 Ducati Motorcycle’s racing subsidiary announced that it would start competing in the Moto GP racing circuit with the 2003 season. Bike designers began in November of 2001 by building many different ‘virtual engines’ using simulation software. These simulations quickly convinced the design team that a two-cylinder engine would not be powerful enough, and that the company needed to build the first four-cylinder engine in its history. The first physical engine was built in August of 2002, and two months later a motorcycle was racing around a track. In its inaugural Moto GP season Ducati was the second-winningest manufacturer, and its two riders finished fourth and sixth in the overall standings.
Network IT (NIT), which enables unstructured interactions. Network technologies let people and groups come together, share information, and collaborate without specifying the terms of the collaboration. My email client, for example, doesn’t tell me what information I can send, or who I can send it to. The WWW is similarly unconstrained in most countries.
Network technologies fall into two groups: channels and platforms. Channels like email, IM, and SMS allow one party to send information to another privately. Outside of the sender(s) and receiver(s), no one can see the information transmitted over channels, or even know that a transmission took place.1 Platforms, on the other hand, make information visible and permanent. bulletin boards, usenet groups, and blogs with comments are all examples of NIT platforms. ‘Web 2.0’ brought new platforms like Wikipedia, Flickr, del.icio.us, and MySpace. (A later post will be devoted to bringing Web 2.0 techs inside companies, and so creating what I call Enterprise 2.0)
NIT case example: By the end of 2005 the investment bank Dresdner Kleinwort Wasserstein (DrKW) had introduced three network technologies for internal use: group messaging software that logged all conversations, employee blogs, and a company-wide wiki, which is a simple website that anyone can contribute to or edit at any time without needing permissions or HTML skills.
IT staffers were the early users of these tools, but they soon started spreading throughout the bank. People used the messaging software to instantly ask a question of all the derivatives traders in New York, for example, or all the telecommunications analysts around the world. Individuals blogged, and posted comments to each other’s blogs. And some directors saw the wiki as a way to reduce email overload, and so encouraged their teams to post agendas, to dos, and work in progress to the shared online space instead of passing them around as email attachments.
Enterprise IT (EIT) , which imposes structured interactions. There have been lots of attempts to ‘carve up’ the EIT space into ERP, SCM, CRM, eProcurement, etc. but these applications really have the same goal, just with different organizational footprints.
EIT case example: In 2002 the retail drugstore CVS became concerned about poor service and long wait times at the pickup counters of its pharmacies. The first step in its prescription fulfillment process, an automated safety check for drug interactions, occurred one hour before the desired pickup time. This was immediately followed by an automated insurance status review. Both of these steps generated many exceptions; drug safety exceptions were handled by pharmacists in consultation with prescribing physicians, while insurance exceptions were managed by technicians in consultation with customers, payors, and physicians. Many of these exceptions were not resolved by pickup time, leading to customer frustration and dissatisfaction.
CVS business leaders decided to change the order of the two steps, and to perform the insurance review during prescription dropoff while the customer was still present. This let technicians work with customers to correct simple exceptions such as date of birth errors and changes in employer, and to tell customers if more complicated problems would prevent reimbursement. The change also allowed pharmacists to conduct the safety check as part of their normal quality control work on each prescription, instead of as a separate step. The new fulfillment process was quickly rolled out across CVS’s more than 4,000 locations, and led to substantial improvements in customer satisfaction with wait times and pharmacy service.
There are also a few hybrid technologies: Knowledge Management systems impose structure on data, but not on how people use the data. Groupware, on the other hand, establishes processes for sharing information, but does not pre-define what kind of information can be shared.
Why is it helpful to divide work-changing technologies into FIT, NIT, and EIT? The shallow reason is that most corporate applications fall pretty neatly into one or another category. The deep reason is that differences among the three technology types help explain IT’s noisy signal — the fact that outcomes appear to be all over the map in important areas like performance benefits, the organization of work within and across companies, IT project outcomes, and competitive position. A large part of the reason that IT’s signal is so noisy is that it’s really the combination of three different signals — from FIT, NIT, and EIT.
Later posts will explore differences in these categories, the good and bad reasons to use IT to impose structure, and other topics related to FIT, NIT, and EIT.
3 Areas of Involvement
Another major reason for IT’s noisy signal is that some companies are simply better than others at using and leveraging technology. As discussed in an earlier post, these differences are due to organizational factors, not technical ones. This means that the primary responsibility for IT success rests with those in charge of shaping organizations, in other words business leaders.
So where and how can business leaders intervene with IT? They have three main opportunities, corresponding to three different points in the life of an IT project: selection, adoption, and exploitation.
Selection is the work of deciding what new work-changing IT, if any, to acquire. Selection is a critical subset of IT portfolio management, or stewardship of a company’s IT assets. As I’ll describe in a later post, decision makers in many companies think their selection process does not work well, that IT purchases are not well-aligned with business needs, and that a large fraction of IT spending is wasted. A major reason for this dissatisfaction, I believe, is that many companies have a predominantly ‘outside-in’ approach to IT selection. They start outside the company by scanning the landscape of available technologies, then decide which of them to bring in. I advocate the opposite — an ‘inside-out’ approach in which companies start inside by understanding what they need IT to do, then look out at the IT landscape.
During selection, the link between the inside and the outside is the idea that different technologies deliver different capabilities. Companies start inside by analyzing what new or enhanced capabilities they need and where they need them, then look outside for the IT that will provide them. The categorization of work-changing IT into FIT, EIT, and NIT becomes relevant and powerful here because the three technology types provide dissimilar capabilities, without a lot of overlap. FIT brings greater experimentation capacity, precision, and labor substitution, EIT provides the ability to design, standardize, and monitor processes and organizations, and NIT delivers forums for collaboration, the expression of judgment, and archiving of both the practice and outputs of knowledge work. I’ll elaborate on each of these in later posts.
What’s more, all the different ‘flavors’ of FIT, NIT, and EIT are basically just variations on the theme of providing these capabilities. There are huge differences, of course, between a 3-dimensional CAD system and poker software (both FITs), between email and a wiki (both NITs), and between ERP and an expense reporting system (both EITs). But from a business leader’s point of view, each of these pairs is more similar than dissimilar because both technologies in the pair provide the same set of capabilities. Within each category, technologies differ primarily in their ‘footprint’ — the portion of the company that they cover — and in their ease of adoption and exploitation. Beyond that, from a business leader’s point of view, they’re all birds of a feather.
Adoption is the process of getting a new piece of technology into the hands of its users so they can start to work with it. Some elements of IT adoption, like testing, are highly technical, and have no real role for business leaders. Leaders, in fact, often have little to do in the adoption phase of FIT and NIT efforts (although there are some important exceptions to this, as I’ll discuss in a later post). EIT adoptions, however, are a different story. They typically require the deep and sustained involvement of business leaders precisely because they are efforts to impose new ways of working on interdependent people and groups. This makes EIT adoption a particularly difficult type of organizational change effort, and one that requires a great deal of management and leadership. As I’ll discuss in a later post, a big part of the reason for IT’s noisy signal is the challenge of adopting EIT.
Exploitation is the art of getting the maximum benefit possible from the FIT, NIT, and EIT that a company has adopted. I use the word ‘art’ because exploitation is the least well-understood of a business leader’s three IT-related roles. I’ve seen some brilliant examples of IT exploitation, and a later post will describe them and use them to develop principles, but much work remains before we have the complete playbook on how to leverage technology.
Together, selection, adoption, and exploitation define a set of ‘contact points’ between business leaders and function, network, and enterprise IT. A company’s IT success is largely determined by what happens at these contact points.
Some of the text of this post is taken from an upcoming Harvard Business Review article.
1Companies can monitor the email and IM traffic of their employees, but few if any make this traffic widely visible.