McKinsey developed the ten timeless tests for strategy (Chris Bradley et al., 2011). In the following I will not go into the business-related question as this is very well described in the article above. I will rather focus on the architecture-specific viewpoint and how we can use these tests to challenge a business strategy and move from execution to co-creation.
1. Will your strategy beat the market? … and does your technology usage beat competition?
In the early stages of e-commerce most retailers were very much focused on optimizing costs. Retail has very thin margins and they optimized their EBIT mainly by reducing costs as much as possible. Then the worst retailer of all times – at least according to these benchmarking standards – entered the scene. A company called Amazon that has spend over 6% of their revenues on IT.
However Amazon did somehow fairly well as they no longer looked at IT cost as a cost driver but rather as an investment. Most companies are not there yet and it is an important discussion where to spend more on IT to create business value rather than sticking to an arbitrary budget number.
2. Does your strategy tap a true source of advantage? … and is your technology aligned with it?
It is important to note that wishful thinking is usually not a competitive advantage. If you are a brick and mortar retailer and try to compete with a digital native e-commerce player head the head in an e-commerce pure play this usually does not end well as there is no source of true advantage you could tap into. Using a multichannel-approach where stores and the knowledge of the employees play a much more important role might be more promising.
Once the strategy passes this hurdle and the source of a distinctive competitive advantage is clear the next quest is if there is a technology strategy that turbo-charges it. One might think that it would be common sense that if an area is a competitive advantage and critical for winning in the market naturally the entire company – including IT – would focus on this area.
Quite often the exact opposite is the case. Most of these competitive advantages have been established over years, sometimes decades. They were born in a world where technology was far less present and following the mantra “never touch a running system” were quite often left untouched for quite some time.
3. Is your strategy granular about where to compete? … and is your capability map granular about where to differentiate?
As the strategy should be granular about where to compete (and where not to compete) also the IT strategy and the underlying capability map should be very specific about the areas of high differentiation and commodity.
Define the capability domains where you want to differentiate as a company and ensure these domains do not cover more than 10-15% of the total number of domains.
4. Does your strategy put you ahead of trends? … and does Enterprise Architecture support the implementation of the most relevant emerging technologies (for the strategy)?
Technology trends can be quite disruptive. The most prominent examples are how Blockbuster got overrun by Netflix and how Kodak was not able to compete with the advancements of the digital camera market. And even in 2010 a lot of retailers would wait for this Internet trend to come to an end.
Identify trends and rigorously assess if these are applicable to the areas of differentiation identified in the last step and ensure that they are not contaminated by a technocratic bias – as discussed further down.
5. Does your strategy rest on privileged insights? … and do you have the capability to continuously produce new insights?
Clearly the business strategy should be based on facts and these facts should represent unique insights that sets your company apart from its competition. At the very basic level this means that you at least know your position and the position of your competition. Growing EBIT by 10% can be good or bad – depending on the rest of the industry shrinking or growing at 30%.
The additional angle that Enterprise Architecture can bring into this discussion is to what extent these insights are generated by flashes of inspiration and are therefore not reproducible or if these actually come out of an analytics and insights factory that will produce similar findings in the future.
Having a good dialogue about what insights are driving the business value and how technology can accelerate and improve these is quite valuable and should be part of every strategy discussion.
6. Does your strategy embrace uncertainty? … and is your landscape modular and flexible enough to manage uncertainty?
Constant change is the only thing we can be absolutely certain about – in the business but also in the field of technology. Part of the success story of Amazon is that they have built their architecture in a way that individual services are modular and could be offered externally.
These examples show the tremendous value one can gain from being flexible enough to manage uncertainty. In a strategy discussion one should always look at the capability landscape and discuss how easy or hard changes to this structure would be in the event of a carve out, an acquisition, changes in the market or by the regulator.
7. Does your strategy balance commitment and flexibility? … and does your Enterprise Architecture help you make these trade-off decisions?
No one could bear the cost of the highest possible flexibility all over the place. Here again the capability map comes into play. Quite often there is a correlation between the capabilities that one considers differentiating and those where a high degree of flexibility is required. While there is a correlation it is usually not a one on one mapping.
As pointed out above some of the flexibility needs might be driven by (potential) regulatory requirements. Flexibility in the manufacturing IT might not be differentiating but there might be a regulatory requirement for encapsulating in-country IT. In practice you should have two versions of the capability map – one color-coded according to differentiating and commodity domains and another one depicting the domains that require a high degree of flexibility vs. those with a long-term commitment of limited change
8. Is your strategy contaminated by bias? … and does your EA provide objective analysis to offset technology biases ?
In the technology context I observe two very different biases. On the one hand there is quite often some kind of technocratic thinking that technology will cure everything and that the technology trend on the recent Forbes cover is the silver bullet for all the company’s problems.
The other extreme is some technophobia – mostly observed among stakeholders that were part of a large IT transformation failure – where they consider every technology project as the entry point to losing more money.
9. Is there conviction to act on your strategy? … and is this conviction established in business and IT?
Is there conviction is a vague question. The question becomes usually a bit more practical and impactful if we extend it:
- Is there conviction to commit the necessary time and resources (business and IT)?
- Is there conviction to invest the necessary amount of money?
- Is there conviction to change the operating model?
This step is incredibly important and a lot of miserable failures I have observed are based on a lack of conviction and commitment from the key stakeholders.
Being brave and committing to an impossible task is the worst thing an IT team can do. Trying to compensate for a lack of conviction by working harder has limitations and seldom leads to a successful outcome.
10. Have you translated your strategy into an action plan? … and does this plan include necessary Enterprise Architecture and technology changes?
I listed in the last paragraph already some critical elements for the action plan – in particular resource commitment and funding. Also securing the most capable leader to execute against the plan is important. As a rule of thumb the person that is the hardest to free up for the position to lead the effort is usually the right person to target.
Making the action plan really tangible and specific is important to ensure that all the elements that will make the strategy a success are in place.
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