Innovation and Driven Knowledge Management

As described in Chapter X, fundamental to the company’s innovation capabilities is the level of collaboration and knowledge management capabilities available to support the innovation process. The ability of an organization to identify, acquire, and utilize external knowledge, known as knowledge absorption, can be critical to the firm’s operational success (Adams, Bessant, & Phelps, 2006). A survey by Adams et al. (2006) shows that three areas of knowledge management are critical for innovation management: idea generation, knowledge repository (including the management of tacit and explicit knowledge), and information flows (including information gathering and networking). Further they note that several researchers have found that the firm’s ability to “absorb and put to use new knowledge,” known as knowledge “absorptive capacity,” has direct impact on the firm’s innovation and performance (Chen, 2004; Tsai, 2001). Popadiuk and Choo (2006) have further shown that innovation and knowledge creation are related. Innovation is a result of knowledge creation. Innovation is related to the firm’s ability to combine new knowledge with existing knowledge to create new knowledge that is unique to the firm. It is also related to the firm’s ability to diffuse knowledge throughout the organization so that the organization as a whole increases its absorptive capacity. Knowledge diffusion can be facilitated by IT infrastructure and knowledge management system. Knowledge management is aimed at leveraging internal and external knowledge to create value from the firm’s intangible assets. According to Metaxiotis and Psarras (2006), knowledge management contributes to value creation by enhancing: intellectual asset management, operational efficiency, customer and competitor intelligence, continuous improvement, organizational learning, innovation in products and services, and time to market. They report of findings from American Productivity and Quality Center that greater emphasis should be made by firms on “using knowledge management to become more efficient innovators.” To leverage knowledge management for business innovation, IT managers must first understand the basic principles, theories, and practices of knowledge management. Next, they must understand how knowledge management will contribute to innovation. This chapter aims to address both topics to help make IT managers become the IT innovators.

The CIO Enabling IT Governance

In many organizations, information technology has become crucial in the support, sustainability, and growth of the business. This pervasive use of technology has created a critical dependency on IT that calls for a specific focus on IT governance. IT governance consists of the leadership and organizational structures and processes that ensure that the organization‘s IT sustains and extends the organization‘s strategy and objectives (Grembergen, Haes, & Guldentops, 2004). IT governance matters because it influences the benefits received from IT investments. Through a combination of practices (such as redesigning business processes and well-designed governance mechanisms) and appropriately matched IT investments, top-performing enterprises generate superior returns on their IT investments (Weill, 2004).

Enterprise and Technology Architectures

The role of integrated enterprise architecture in IT strategy and strategic alignment is explained in Chapter V. This chapter describes in detail the principles and methods for developing a business-aligned enterprise architecture that will define the roadmap to attain the future state of the enterprise envisioned by the business strategy and guide the IT investment portfolio necessary for the state change.

Strategic Programs

The previous chapters describe how IT strategy and enterprise architecture can be defined in line with business strategy. The success of business and IT strategies, as explained in Chapter IV, depends on the firm’s ability to translate the strategies into work packages known as strategic programs, and diligently plan, prioritize, and execute the strategic programs in a sequence that is in accordance with the business strategy and priorities. Chapter VI describes enterprise architecture as the link between business strategy and information systems planning and implementation (which, in effect, executes the strategy). The gap analysis of the current enterprise architecture in comparison with the target or future state architecture will identify the scope and extent of change required on the current architecture to transition towards the target architecture. Compared to business strategy gap analysis, architecture gap analysis offers a more granular and integrative assessment of the business and system changes required to realize the business strategy. The scope and extent of architecture change required constitutes the overall scope of the strategic programs that need to be defined and developed to deliver the objectives of the business strategy. These programs will be prioritized by IT governance using IT project portfolio management principles. Their implementations in time sequence will define the migration path of the current enterprise architecture towards the target future state architecture. This chapter explains the theory behind and the practice of strategic program planning and program management. We first describe two contrasting approaches to IT strategic planning, namely: the Cassidy model, and the Y model discussed in Chapter IV. The Cassidy (2006) model uses the business vision to define the IT architecture direction from which the IT strategic plan is then specified including its business case justification. In terms of the Y model, strategic program planning and execution fall in stages 4, 5, 6, and 7 of the model. Discussions of the Y model and analysis of barriers to strategy implementation will give the readers a basic understanding of IT strategic planning and program execution (introductory project management practice). We conclude the chapter by describing the principles and methods for enterprise architecture-driven strategic planning as well as IT project portfolio management principles. This is a more advanced practice, typically taken by firms with higher maturity in IT management practice.

Critical Success Factors of IT Strategy

As discussed in Chapter III, a successful IT strategy must align with the business, fully at every stage of the end-to-end strategic management process, from strategy setting and planning to detailed program execution and delivery. Most publications (Luftman & McLean, 2004) on business–IT alignment to date have been centered on one dimension of the alignment issues, for example, on strategic planning or organizational issues. In this chapter, we discuss the critical success factors of IT strategy holistically across four dimensions of the strategic management process from strategy formulation to planning to execution and to value delivery monitoring end-to-end because IT leaders have to manage alignment in all four dimensions in order to maximize the strategic value of information technology deployment. The most basic requirement for the success is that IT must be regarded as being part of the business, devoid of the “us” vs. “them” chasm (separating IT from the business) found in most traditional organizations where IT is viewed as a subservient role performing basically a “back office” function. This critical organizational culture requirement of “IT and business acting as one” is founded on the rigor and discipline of IT governance. IT governance is integral to corporate governance, subject to periodic governance compliance audit by is chapter will briefly describe this function as it applies to the end-to-end process of IT strategy. A more complete treatment will be covered in Chapter IX.

Theories and Models of Business Firms

A general understanding of business firms is required in order to be able to develop business and IT strategies. This chapter will present the resource-based theory of the firm, the activity-based theory of the firm, and the firm in terms of its value configuration, business model, and e-business models. These theories and models describe conceptually how the firm is constructed and resourced in delivering uniquely differentiated customer value in sustainable ways. It highlights the ways in which IT is used in the process of value and revenue creation for the firm using the chosen value configuration. It also classifies the ways in which Internet-based business strategy, known as e-strategy, may be represented as ebusiness models. The purpose of IT strategy, which is the core subject of this book, is about analyzing the business vision, mission, and strategy and defining the value configuration (business process or business model) and the attendant IT architectural model from which the requisite IT infrastructure to support or enable the firm’s business operating model is designed and implemented. It is hoped that by illustrating to the readers the varying contexts in which IT can add value to the business in each of the value configurations or e-business models, the integral nature of the ways that IT has embedded in our business today can be better appreciated. An understanding of firm theories and value configurations is important to later discussions of the topics in the book. The resource-based theory is applied to understand resources needed for e-business, sourcing, and governance. An important resource is knowledge in terms of know-what, know-how, and know-why. Knowledge management theory andprinciples and their relevance to business innovation will be discussed in Chapter XI of the book.

Business-Aligned IT Strategy Case Example

This chapter is about the “know-how” part of IT strategy and management best practices. This case example aims to illustrate a successful practical application of IT strategy principles and concepts by using a proven best practice from the industry. It can therefore be used as a guiding example of how to effectively develop and execute a business-aligned IT strategy. Kaplan and Norton’s (2004) strategy maps approach (described in Chapter V) has been chosen as the methodology for formulating the business–IT alignment strategy. To that end, the case study requires an in-depth study of the selected company’s business and IT strategies, from which a strategy map of the espoused business and IT strategies are “reconstructed” using the strategy maps principles. The reconstruction process follows the strategy maps methodology (Kaplan & Norton, 2004). The readers can thus adopt a similar approach to help them formulate or “reconstruct” their company’s business–IT alignment process and the resulting business-aligned IT strategy.

Strategic Management Principles

Building on the understanding of the theories and models of firms, this chapter reviews the basic principles of strategic management of business enterprises. First, the basic principles of business strategy are explained. Only through in-depth understanding and diligent application of these principles will business executives be able to make strategic choices and craft an appropriate business strategy and the corresponding value configuration, business model, or e-business model for the firm. Second, the role of corporate strategy and its relationships with business unit strategies are discussed. The discipline of strategic management is introduced together with the principles of strategy maps—a model which is explained and illustrated by case example of its application by a leading corporation in more detail in Chapter V as part of a strategic alignment discussion. Third, the principles of strategic planning and the measurement of competitive strategy are described. These tasks ensure a corporate/business strategy is rigorously planned, resourced, and diligently executed to deliver the requisite strategic goals. Following on from the resource-based and activity-based theories of firms discussed in Chapter I, this chapter describes the corresponding resource-based and activity-based strategies. In addition, with the increasing importance of corporate governance comes the need to ensure due consideration is given to ethics in information technology deployment. Theories for ethics in IT and their incorporation in IT strategy are still emerging. The basic issues for IT strategy developmental consideration are reviewed.

Business Innovation and Information Management

The Global CEO Survey by IBM (2006) shows that two thirds of the CEOs anticipate significant change to their companies over the next two years. The inevitable change is attributed to changing market forces caused by intensifying competition and increasing customer expectations, which are further compounded by globalization, technological advances, regulatory changes, and workforce changes. The CEOs see innovation as the only way to survive and thrive in this rapidly changing industry landscape. Firms can no longer be satisfied with their current market performance, however superior they may be. They must constantly challenge the status quo and reinvent themselves to stay ahead of the curve to avoid being made obsolete by the competition. The 2005 McKensey Survey of Global Business Executives (Marwaha, Seth, & Tanner, 2005) also “identifies the increasing pace of technological innovation, the growing affluence of emerging economies and the low-cost offshore manufacturing (and now services) as the most important trends of global business.” Both the business and technology executives see innovation as the number one driver for growth. The Gartner (2007) Survey of Global CIOs show that 63% of enterprises expect to grow at a faster rate than the market, twice the percentage from 2006. Innovation is also rated as the key driver for growth.

Strategic Alignment for Business Value Creation

Chapter IV defines the macromodel for achieving business/IT alignment. This chapter defines the detailed methodology for each step of the IT strategy process. First, the business strategy process must be methodical and able to clearly show the linkage between corporate strategic intents and the respective specific business functional plans for realizing the intents. For example, for a specific productivity goal defined for the corporation, the respective initiatives planned for sales and marketing, and those for supply chain management must be clearly linked and explicitly correlated in a “cause-and-effect” manner. A good method invented by Norton and Kaplan called strategy map is an effective tool for this purpose. This chapter reviews the basic principles of IT strategy. It briefly discusses various models used to analyze or describe disparate parts of strategic alignment. These strategic alignment models are contrasted with our end-to-end alignment model for defining and executing business-aligned IT strategy. It shows that our model has integrated all the individual disparate alignment elements proposed by these models. Further, it shows our model has addressed some key requirements which have either not been considered or only partially considered by some of these models. The main strengths of our model compared to previous work are twofold: (a) it addresses all alignment elements in an integrated fashion to make them meaningful and useful for practitioners; and (b) it addresses the full life cycle of strategic alignment from direction setting to strategic outcome monitoring and ongoing feedback loop for self-adjusted alignment (aided by architecture principles and IT governance).