it intensity defines future success

CXO Advisor

Insight – Innovation - Acceleration

IT intensity and your organisation’s ability to change quickly

Why does IT Intensity matter?Many authors talk about IT intensity: Most refer to it as the spend on IT versus the cost base of the business

This may be too narrow. I believe that IT intensity is: The amount of IT needed/used in the production/operation/innovation

of a company’s products/services . IT intensity relates to both business cost and revenue

IT Intensity – increasing your scale and reach without increasing your mass

Using IT you can reach new clients, increase customer loyalty, open new channels to customers, and create new products (scale) –

IT intensity allows companies to compete convincingly no matter the size of the companiesIT intensity allows companies to leap-frog competitors more easilyIT intensity allows companies to propagate innovations that are less structured than entire business processes (Trial, Proof of concept, Minimum viable products)IT intensity allows companies to capture and retain customers remotely

IT intensity is more than a financial measure – it is a measure of use and dependency on IT to deliver business products and services

IT Intensity – increasing your scale and reach without increasing your mass

Using IT you can reach new clients, increase customer loyalty, open new channels to customers, and create new products (scale) – without opening new branches, increasing production facilities etc. (mass)

IT intensity allows companies to compete convincingly no matter the size of the companiesIT intensity allows companies to leap-frog competitors more easilyIT intensity allows companies to propagate innovations that are less structured than entire business processes (Trial, Proof of concept, Minimum viable products)IT intensity allows companies to capture and retain customers remotely

IT intensity is more than a financial measure – it is a measure of use and dependency on IT to deliver business products and services

Sample IT Intensity by industry

The numbers are variable across samples but consistent within a single sample

Source: Gartner

Sample IT Intensity by industryThe numbers are variable across samples but consistent within a single sample – this is just the top 20 of 94

Rank Industry Name Average IT Intensity HIGH IT INTENSITY

1 Computer systems design and related services 46.09514 2 Miscellaneous professional, scientific, and technical services 31.66354 3 Information and data processing services 31.00029 4 Publishing industries (includes software) 15.44312 5 Securities, commodity contracts, and investments 13.45748 6 Administrative and support services 12.67477 7 Legal services 11.1754 8 Insurance carriers and related activities 10.77791 9 Rental and leasing services and lessors of intangible assets 10.63165 10 Computer and electronic products 9.622643 11 Other transportation equipment 9.1888 12 Machinery 8.920644 13 Credit intermediation, and related activities 8.850244 14 Wholesale trade 6.304108 15 Motor vehicles, bodies and trailers, and parts 6.059119 16 Chemical products 5.65757 17 Construction 5.163015 18 Miscellaneous manufacturing 4.595446 19 Electrical equipment, appliances, and components 3.835276 20 Broadcasting and telecommunications 3.821168

Source: Brynjolfsson, et al. (2008) Scale without Mass: Business Process Replication and Industry Dynamics; Electronic copy available at: http://ssrn.com/abstract=980568

Ad Hoc Service Process Differentiate Core

Definition Don’t use much IT at all. E-mail, word

etc.

Use IT to service

business administratio

n needs. Some GL, HR

Fully automated

and integrated business

processes

Use IT to differentiate products and

services, reach new

markets and provide new

channels

IT products and services

are the business

product and services

IT Intensity – five levels

The amount of IT needed/used in the production/operation/innovationof a company’s products/services . IT intensity relates to both business cost and revenue.IT Intensity increases scale without increasing mass

Ad Hoc Service Process Differentiate

Core

IT Dept. Posture

Ad hoc Supplier IT Experts Business Partner

Core

Use IT straight

from the store, as

and when

needed

IT department

told what the business wants. They

get it and run it

IT department are experts in IT, but not business

experts. Business have a

problem, IT looks for the IT

solution

IT and business

work together on

business problems. IT

brings a unique

technology perspective to business

issues

IT and business are the same. IT innovation is

business innovation. New

products, markets and channels are a

business imperative.

Business increases scale without

increasing mass

IT Intensity affects IT Department posturePosture: The way business sees and uses IT in relation to their business activities, products and services


< 0.5% 0.5% - 1.0% 1.0% - 2.0% 2.0% - 5.0% 5.0% - 10.0%

IT spend as a percentage of business revenue

Tends to be ad hoc, low spend. Use ad hoc support from outside if something goes wrong.

Business spends on IT (often reluctantly) to service business administration needs. IT often feels undervalued, under-resourced and unappreciated.May go up to 2%

Business processes are fully automated and integrated. IT spend focused on business improvement at best.May go up to 3.0%

Business understands that IT can change the game for them, and uses IT to differentiate their offerings.May go up to 10%

IT is the business offering. Internal IT has an external focus. Internal IT used as the test-bed for new products and services.May go up to 45%

IT Intensity and IT spend

There is a proven relationship between IT spend and business performance. However this relationship is often skewed by poor spend decision making, and definitely affected by legacy spend. (IT spend to business improvement does reach a stage of diminishing returns)

Ad Hoc Service Process Differentiate CoreAbove the momentum line spend

0 % 5% 20% 30% 40%

IT budget(How IT spend is used in the company)Below the line = “Keep the lights on”Above the line = Resourcing IT for business improvement

No business improvement initiatives using IT

Business improvements focused on improving admin processes and automation.Above the line spend tends to be ad hoc, as needed

Business understands they need IT to operate efficiently.They tend not to fund strategic, innovative, or speculative IT initiatives

Business knows that a constant stream of differentiating technologies links them closer to customers and markets. They also understand that differentiation is temporary and fund constant development

Business is IT. They know that R&D is essential to business success, and fund new IT effectively.They understand that constant funding of development, innovation and breakthrough products is essential

IT Intensity and business momentumBusiness momentum is the amount of money a company needs to spend on IT to maintain the existing momentum of business: Mass (geography, staff, assets etc.), Speed (How fast the business/product/customer cycle works), and Direction (acquisitions, growth, defence of share)


IT Projects None 1-2 per annum 5 – 15 pa 15-30 pa > 30 pa

Do no IT projects

Any “project” is ad hoc as business administration requirements dictate

A number of business (and IT) improvement projects are undertaken

In addition to business improvement projects, there are a number of new products, markets, and channel projects. Usually Proof of Concept and Pilot projects

Much of what the business does is new business using IT. Maintenance and improvement of IT products / services is well funded. New IT products and services are also extensively pursued.

IT Intensity and projects“Projects” may reflect the change using IT in a business. Depends on the nature of the project – four value layers – fix (broken), maintain, improve, create value


Applications Office Admin System System of record

Business process

Differentiating Applications

Core product / service

Use off the shelf personal productivity tools

Use off the shelf administration IT tools

Use COTS ERP systems. Use business process automation tools

Have rapid application development tools, to trial and deploy differentiating applications to customers

Develop, test, deploy, and maintain IT services and applications into the customer base

IT Intensity and applicationsTypical applications used per intensity level.

Cumulative from the left.

Ad Hoc Service Process Differentiate CoreIT Dept. Posture Ad hoc Supplier IT Experts Business Partner Core

IT Spend / TO < 0.5% 0.5% - 1.0% 1% - 2 % 2% - 5% 5%-10%

IT Budget Below Above Below Above Below Above Below Above Below Above100% 95% 5% 80% 20% 70% 30% 60% 40%

IT Projects None 1-2 pa 5-15 pa 15-30 pa > 30 pa

Applications Office Admin System System of recordBusiness process

Differentiating Applications

Core product / service

Industry Norms

Education

IT Intensity – the big picture

FarmingManufacturing

Food industry

Logistics

Retail

Banking

Software

Media

IT Services

Consulting

TelecommunicationsHealthcare

Energy & Utilities

Government

Mining

Cloud services

Big Data services

IT Intensity increases scale without increasing mass

BPO

Airlines

IT Intensity ScenariosScenarios define possible future paths and the “road-signs” that will indicate which path is unfolding

Scenarios allow for rapid and intelligent response to different pathsScenarios aid future decisions

Discontinuous Technological

Change

Predictable Technological

Change

Low ITIntensity

High ITIntensity




Change


Change

Low ITIntensity

High ITIntensity

Aliens at the Door

(Surprise!)

Boiling Frogs(What

happened?)




Change


Change

Low ITIntensity

High ITIntensity

Aliens at the Door

Me too(Fast follower)

Shapers(Leaders / disrupters)

Boiling Frogs



Aliens atthe door Boiling

frogs


Change


Change

Low ITIntensity

High ITIntensity

Aliens at the Door Me too

ShapersBoiling Frogs

Roadmap

Org

anis

ation

suc

cess

Time



Shap

ers

Me t

oo

Aliens atthe door Boiling

frogs


Change


Change

Low ITIntensity

High ITIntensity

Aliens at the Door Me too

ShapersBoiling Frogs

Roadmap

Org

anis

ation

suc

cess

Time

SummaryIT intensity is about business understanding of what IT can and should do for the organisationOften the IT Department acts as a brake on increased IT intensity Through their posture Defence of their delivery model Lack of agility Inability to communicate at a business level

Increasing IT intensity (the right way) increases an organisation’s ability to respond to economic and competitive threatsOptimum IT intensity allows organisations to disrupt their market… To lead rather than follow

None of this matters if the relationship between IT and the organisation is not a full partnership striving for business success

IT INTENSITY INCREASES SCALE WITHOUT INCREASING MASS

Terry [email protected]