John Chambers, former CEO of Cisco, has predicted that two-thirds of all major enterprises will no longer be around in 25 years’ time. And according to Martin Reeves, senior partner at BCG, approximately one third of all public companies will go out of business within the next five years because they failed to adjust to the fast changing environment. As technology cycles get shorter with the ever faster changing digital landscape, adaptation to market developments increases in importance, as do focus on prioritised problems and opportunities.
[…] one third of all public companies will go out of business within the next five years because they failed to adjust to the fast changing environment.
Many of the IT frameworks and methods in use today are either not designed for a fast-changing environment or they are implemented in a way that doesn’t support continuous change. They are a product of a time where IT was a production factory and cost, stability and predictability were top priorities. Long-term planning and forecasting may be applicable to mature and stable environments but dynamic environments require a balance between the level of planning and execution. Organisations have often focused on rigorous planning and extensive implementations with multiple tasks based on three to five-year IT strategy cycles with long implementation times. This has resulted in poor responsiveness, where the required pace of change has become difficult to achieve. Moreover, it has created a false sense of certainty leading to selective blindness to changes in the external environment. IT has become slow and irrelevant.
Agility in everything: Revisiting the approach to strategy to create responsiveness and flexibility
Executives have come to view organisational agility as critical to business success and of growing importance. In turbulent markets, agile methodologies give companies the ability to react sooner to threats and opportunities. They enable IT organisations to create more value by delivering faster, abandoning bad ideas more quickly and learning from continuous feedback. Furthermore, agile methodologies allow companies to create learning milestones that measure the efforts and progress being made. Learning milestones give an objective view of the situation and where the company is headed.
A directional IT strategy is based on the principle that companies need a rapid feedback cycle between the business and the IT organisation, unlike in a traditional IT strategy cycle. This strategy should outline the vision, overall objectives, purpose and key priorities for IT. It’s no longer feasible to develop detailed blueprints or plans for three to five years ahead and expect these to remain static and the sole authority for design decisions. A directional IT strategy helps companies understand what works and what doesn’t and enables them to adjust their functional strategies for each business unit accordingly.
Based on a digital vision, a directional IT strategy supports a continuous strategy formulation process. For some this may seem counterintuitive and cumbersome. However, through application of classic tools, analytical rigour and design thinking, the process can be made both efficient, inclusive, and most importantly: adaptive to changing pre-requisites.
The strategy formulation process consists of three steps:
- Scenario-based transformation planning
Based on the business strategy and the digital vision, a directional scenario should be developed jointly by business and IT. The directional scenario (see exhibit 1) should detail a possible end-state for a specific area, complete with a narrative outlining a compelling storyline for change. It should be anchored with senior stakeholders and define the constraint for the change effort. It is based on an opportunity or a challenge that is tangible, clearly articulated and that creates a sense of urgency in the organisation. A key benefit of a scenario-based approach is that it allows for natural involvement of a broader audience, thereby enabling both clarification and communication of the business strategy and laying the foundation for strategy formulation. Whereas scenario-based planning commonly is used as an inspirational process for a more formal strategic planning process, a directional scenario is used as a ‘most feasible end-state’ guiding subsequent decision-making and strategy formulation.
- Iterative ideation, refinement and prototyping
The iterative ideation, refinement and prototyping process aims to facilitate cross-functional creative thinking and identifying great ideas that can be refined, tested and evaluated within and outside the organisation – within the boundaries of the identified directional scenario. Key success factors include clear boundary constraints, strong facilitation and leadership, creativity and cross-functional expertise. This step serves as a fundament to cascade the strategy to specific teams or parts of the organisation. It provides a feedback mechanism and facilitates new ideas, thereby providing data to adjust, fine-tune or detail the IT strategy. Ultimately, it‘s also a test of the scenario-based plan, validating or invalidating critical assumption in the strategy.
- Project execution
Project execution is based on the implementation brief and typically follows the organisation’s normal project process (including tollgates, funding and governance) or as a part of the line organisation. This allows the organisation to tailor the execution approach to the specific organisational context, project/change initiative characteristics and technological constraints.
Exhibit 1: What is a directional scenario?
A directional scenario for IT strategy is a feasible end-state for IT given its current capabilities, IT environment and one likely context.
- It is based on an opportunity or a challenge that is tangible, clearly articulated and that creates a sense of urgency in the organisation.
- It includes a compelling narrative outlining the events and underlying assumptions that drives the materialisation of the specific scenario based on the primary drivers affecting the organisation. The narrative is akin to storytelling that contextualises the assumptions made in the scenario.
- It typically includes a high-level description of an operational model, a target architecture, financial model and guiding principles for governance, sourcing and capability development.
- It outlines the most critical risks associated with the scenario.
A directional scenario isn’t a detailed description or elaborate forecasting and typically fits on a few slides. It serves as an interpretation of the vision and a guiding beacon for what IT needs to become to deliver business value. Thus it’s important that the scenario’s components are coherent and related to the challenge or opportunity upon which it is based.
The directional scenario is a key component for communication. Done right, its simple structure makes is a powerful tool that can be used across multiple channels and in different parts of the organisation. It empowers individuals to relate and contextualise decision-making, ongoing initiatives and events in day-to-day activities.
In the sequence outlined above, strategy formulation is both a top-down planning process and a bottom-up emergent process. It’s a creative process where a big vision is translated into small, manageable pieces of work that can be verified before scaled. However, it’s imperative to maintain governance and analytical rigour in each tollgate; scenario selection, idea selection and project execution at scale. The strategy team needs to manage the tollgates across the process:
- Ensure fact based scenario selection
Scenario development is a stringent process. Each scenario, albeit high-level, should be scrutinised thoroughly. The strategy formulation team needs to establish robust evaluation models to ensure a fact-based scenario selection that can be used to drive the dialogue with management, senior stakeholders and colleagues in the organisation. In addition, the team needs to continuously revisit scenario assumptions using external input (e.g. market drivers, emerging technologies and trends) and the learnings from prototypes and ongoing projects.
- Prioritise ideas and assess potential
Within the boundaries of the directional scenario, there can be an abundance of ideas. Each idea needs to be evaluated against scenario priorities and objectives, but also their general feasibility and risk characteristics. It’s also critical to link the idea to all or a subset of scenario objectives and set a well-defined scope for prototyping and timelines. The strategy team also needs to assess what ideas to scale, which means reviewing and evaluating each prototype’s potential and alignment with the strategy. In this review, the team may identify ideas that have high potential but low alignment, which should trigger a revisit of the assumptions underlying the directional scenario. Through these regular tollgates, based on lightweight prototyping, a direct learning mechanism is built-in to the continuous strategy formulation process.
- Maintain a portfolio of projects
Successful prototypes and initiatives should be scaled enterprise-wide. The methodology and process for execution should be tailored to organisational context, characteristics of the project and technological prerequisites. Some projects may be run as agile projects, whereas others can follow a waterfall approach – depending on the capabilities of the organisation. From a strategy formulation point of view, it’s essential to manage this portfolio of projects as a whole within the boundaries of the scenario. As with the ideation and prototyping, it’s key to incorporate feedback from project execution to the directional scenario allowing for refinement, detailing and adjustments.
- Incorporate feedback and revisit scenario assumptions
A common thread throughout the process is the incorporation of continuous feedback to refine the directional scenario. The environment is ever-changing, and the organisation should allow for continuous changes to the directional IT strategy. In all tollgates, the underlying narrative for the scenario should be revisited.Both external and internal factors need to be accounted for in the process. The factors serve as the necessary input that gives the strategy team the information they need to adapt the strategy to the turbulent dynamics. Hence, it’s important to take into consideration the factors that might affect transformation initiatives. To do this effectively for every iteration, organisations need well-defined processes for gathering data and packaging it for the development of the strategy. This makes communication between different parts of the organisation key. It’s highly important that continuous dialogue exists between the business and IT organisation. This ensures that the IT strategy has a close connection with the organisation, which helps both in feedback gathering and the IT strategy implementation.
Scenario development should be undertaken with a set frequency, e.g. using an annual cycle, or as needed based on input from the feedback process. As implied by the process, the strategy team draws on capabilities across the organisation; from operations to development, to IT architecture and PMO. Furthermore, this team needs to maintain a deep relationship with the business.
Exhibit 2: Common pitfalls when working with a directional scenario based methodology
3gamma has identified five common pitfalls while using the directional scenario based methodology:
The directional scenario based methodology can be a big change for people who have worked with traditional project methodology where a detailed plan is specified. The key around this is to focus on the directional scenario, which can act as a compass that direct where the company is headed and through that give employees something to base their work on.
In a directional scenario based methodology, trusting team members to deliver on their respective area is key. With cross-functional teams, trust can sometimes take longer to build. By investing time to create trust in each other and have committed accountable roles, organisations can overcome this pitfall.
As the plan will not be defined in detail, there is risk that team members end up in endless discussions. Dialogue between project members is essential, but so is execution and taking action on tasks. A balance between the two is critical to success. To make sure that the team is executing on their task, continuous follow-up should be promoted.
When translating the vision and goals into smaller manageable pieces of work, a common pitfall is that the project lacks focus and don’t prioritise the tasks, which continuously increase in number. The solution is a steering group of influential people who have sufficient mandate to hold back on the organisation’s requirements.
Typically, IT projects include technical complications. It’s therefore crucial not to overlook how time consuming technical challenges can be. For example, integration architecture often presents complex challenges due to multiple dependencies between systems when aiming to create a flexible and agile delivery organisation. It’s vital to reserve time and resources to overcome these sorts of challenges.
IT strategy can no longer take place in silos—it’s an integrated part of operations
IT strategy can no longer take place in silos. As markets change, companies must change with them. An agile approach with multiple iterations and scenario based planning enables businesses to do quick optimisations of key resources and learn what is yet unknown. The basis for this is a clear well-known embedded vision, overall objectives, purpose and key priorities – a directional IT strategy. It’s in the context of this direction that organisations need robust mechanisms to understand internal and external factors that influence operational, tactical and strategic decisions.
Continuous clarification, excellent communication and feedback is key to achieve transparency across the organisation, which helps companies address the challenges arising from highly turbulent markets. By creating a stronger link between strategy and implementation as well as integrating feedback loops into the process, companies can embed greater agility in the organisation.
A well implemented and communicated agile strategy enables organisations to seize a steady flow of small opportunities and mitigate risks, leading to greater value of their strategy.