Do your IT application investments align to your business strategy?

Many organisations invest millions of dollars on their IT application portfolio to address business needs and goals. In a complex environment, how can we make sure these IT investments (outlined in the IT strategy) align to the overall business strategy? In essence, are the dollars allocated to each application capability proportionate and representative of the return it delivers against the business strategy. How can we validate this?

One potential solution could be to look at the application portfolio in a pace-layered approach. Gartner’s Pace-Layered Application Strategy is mainly used for managing the application portfolio and its life cycles based on their rate of change. However, I believe having a pace layered view provides a mechanism to validate whether the IT investments align to the overall business strategy.

Here is a brief overview of the pace layers described in the Gartner Pace-Layered Application Strategy:

The idea is to group all of the organisation’s application capabilities into 3 categories based on their rate of change (or pace).

1. Systems of Record – These are application capabilities (based on common ideas) where an organisation is happy to follow commonly accepted ways of doing business. Most organisations use established commercial off-the-shelf (COTS) products or internally developed stable legacy systems. The applications in this category have a very slow rate of change.
2. Systems of Differentiation – These are systems and application capabilities which provide, processes and capabilities which differentiate your organisation from others in your industry or market segment. This is where ideas that provide a competitive edge mostly reside. The rate of change for this category is considered medium, typically with a life cycle of 2 to 3 years.
3. Systems of Innovation – These are very fast changing applications and capabilities required by the organisation to take advantage of new opportunities or ad-hoc business requirements. Applications which support new ideas and proof of concepts, reside in this category. Typically, the life cycle for these applications can be 1 to 12 months. It is also important to note that as applications mature, they may move into the other two categories.

So, how can this approach validate your organisation’s IT application investments against the business strategy?

I believe looking at the IT investments allocated or planned for the 3 categories can be a good indicator. If the majority of your spending is in the Systems of Record category and your business strategy is geared towards gaining a competitive edge or going after new opportunities, this can signify a misalignment.

It is important to note, the same application capability can qualify into different categories depending on your organisation’s industry and business goals. For example, most organisations will find the HR and employee management capabilities would fit into the Systems of Record category. These organisations typically leverage commonly utilised fit-for-purpose systems to address this need, as it will not provide a huge competitive advantage. There is no substantial return on investment for spending unnecessarily in this category. However, if you are a recruitment organisation, HR and employee management capabilities will fall into the Systems of Differentiation category. In this case, investing more into HR and employee management capability will make more sense and yield higher returns.

Looking at IT application investments from this point of view then starts to highlight what applications and capabilities add real value to the business and strategy. I strongly believe most of the IT application investments for an organisation should be focused on the Systems of Differentiation and the Systems of Innovation categories where it can provide a better return. However, depending on the situation, there may be times an organisation needs to focus on getting the basic systems in place and invest more in the Systems of Records category in order to get the foundations right.

In summary, checking the business strategy against these categories can provide a useful insight in identifying if IT spending aligns to the overall business strategy. These insights may help an organisation realign the IT spending into the more appropriate categories and maximise the return on investment.