Building IT infrastructure for strategic agility.(article examines how to incorporate information technology to achieve greatest benefit)

Recent research indicates that managers at top-performing companies are able to identify the nature and array of initiatives they may need to implement, then determine the unique combination of IT service clusters necessary to create that agility.

Senior executives make few choices more critical than deciding which IT investments will be needed for future strategic agility. As it has become increasingly clear that those choices can significantly enable or impede business initiatives, managers must anticipate future strategic moves and make often-complex assessments about how the IT infrastructure must adapt to support the enterprise. Although the goal is to create a unified IT infrastructure that supports long-term, enterprise wide strategies while being responsive to the demands of business unit strategies, investments by different business units are often made independently. These independent investments are often of a short-term, catch-up or bleeding-edge in nature, and the resulting technologies are often incompatible. Overinvesting in infrastructure leads to wasted resources that weigh heavily on the bottom line. Underinvesting (or worse, implementing the wrong infrastructure) translates into delays, rushed implementations, islands of automation a nd limited sharing of resources, information and expertise by business units.

Infrastructure investments (say, an enterprisewide customer database or communications network) are often shared across many applications, business initiatives and business units. But sharing requires negotiation about how much infrastructure is needed, who pays for it and who should be responsible for it. To what extent should the IT infrastructure be standard, shared and available enterprisewide? To what extent should infrastructure be customized for individual business units? In what areas should infrastructure capabilities be industry leading? New research indicates that getting the IT-infrastructure balance right requires collaboration by the heads of business lines and IT professionals. And the payoffs can be considerable -- despite lower short-term profitability, enterprises building appropriate infrastructures have faster times to market, higher growth rates and more sales from new products. (1)

Executives need a framework for making informed decisions about IT infrastructure. To that end, we examined 180 electronically based business initiatives in enterprises that were among the top three in their industries and studied their IT-infrastructure choices. We were able to identify, first, the specific infrastructure capabilities needed for different types of strategy-related business initiatives and, second, whether they were within individual business units or within a central group and made available across the enterprise. (See "About the Research") The key finding: In leading enterprises, each type of strategic agility requires distinct patterns of IT-infrastructure capability. And any company that can determine the type of agility it will need for specific business initiatives is more likely to make sensible infrastructure investments.

The average enterprise spends more than 4.2% of revenues annually on information technology. (2) Overall, those investments account for more than 50% of the total capital budget. Although the components of infrastructure are commonly available, the management processes needed to implement them flexibly are less evident. About 55% of the IT budget goes toward the complex fusion of technology, processes and human assets that comprises infrastructure. (3)

Once a company's infrastructure is in place, there is a potential payoff: Competitors need long lead times to emulate the new business initiatives that the infrastructure enables. But there is also a cost: As with infrastructure investments in people or real estate, IT-infrastructure investments involve a trade-off between profit levels today and tomorrow, especially if the resulting infrastructure is not flexible or not exploited. On the other hand, tailored, strategy-enabling infrastructure can be reused for many business initiatives while also reducing time to market.

Many enterprises comprise more than one business and need infrastructure investments at multiple levels -- corporate, individual business-unit and public infrastructure. (See "IT Infrastructure Can Be Deployed at Multiple Levels.") Whether to place the IT infrastructure capability in individual business units or make it enterprisewide is a strategic decision. For example, a company may want one contact point for customers across multiple business units. By integrating information from separate units, the enterprise can take full advantage of a customer's transaction with one part of the business and cross-sell related products and services. For example, State Street, a $3.6 billion financial-services enterprise serving more than 90 markets in 23 countries, moved from a strategy of independent business units to a companywide strategy called One State Street. The bank created a shared-IT-services unit to support its innovative business units, enabling an improved customer experience. Centralizing activities ena bled the company to take advantage of economies of scale as well as shared development capability and faster time to market. (4)

An integrated IT infrastructure combines the enterprise's shared IT capabilities into a platform for all business processes. The extent of the infrastructure capability depends on the business needs. For example, the executive vice president of customer service at Delta Air Lines describes Delta's integrated IT infrastructure as Delta's "digital nervous system." He says, "If we were to have a change in our operations control center -- let's say a canceled flight -- with one or two entries, that information would be pushed into all of the operating and customer groups. ... So the real power behind the digital nervous system is having the ability to push the technology out into ways that would make it easier for customers who do business with us." (5)

IT Infrastructure as Services

The leading companies we studied tended not to establish their infrastructure through a few large one-time IT investments, but gradually, through incremental modular investments. It is useful to think …