The collapse of the dot-com euphoria coupled with the downturn in the business cycle is driving many firms to abandon their high-growth strategies in favor of current earnings.
This article argues that, whilst hedging against adverse future conditions, firms must retain an ability to seize up-side business benefits by framing IT investments as strategic options. The authors use three illustrative examples to develop a strategic management process that they term the “Strategic Options Navigator”. They conclude by drawing implications for CEOs, CIOs and CFOs.
The role of information technology (IT) in business operations is once again under attack: the dot-com failures and the fallout from lofty NASDAQ valuations are compelling companies to rethink the role and position of IT within business operations. Some believe that the failure of so many dot-coms so quickly simply validates traditional business models. Others believe that IT should continue to be a cost center, with a role restricted to supporting business strategies.
Currently, we are in transition, both cyclically and in perceptions of IT. This article is based on the premise that when we emerge from the current global recession the drivers of business value will be based on exploiting the developments in information technology – computers, communications, software, analytics and so on. The dot-coms may have failed as a category but the impact of the Net has not disappeared nor slowed down. The digital era has barely begun.
In these uncertain days, it is natural to focus on generating current earnings to demonstrate viability to the stock market. Since such earnings rarely come from increased revenues in a sluggish economy, reducing costs has become the priority and technology projects are justified mostly on grounds of efficiency improvements or immediate cost savings. This imposes a much-needed discipline, but it may leave many opportunities untapped. We believe that winners must also pursue opportunities offered by technological innovations. The firms that become lean as well as build and nurture growth opportunities will be best positioned for the up-turn of the business cycle. They need to focus simultaneously on top-line growth and bottom-line profitability.
By this measure, firms’ actions over the last few years have been piece-meal and ill-conceived. Companies embraced the Internet without appropriate consideration of top-line and bottom-line indicators of success. Growth was pursued at the expense of profitability. Separate e-divisions were created to spearhead digital initiatives without articulating the actions that they could pursue – which may be in conflict with the traditional operations.
Continue reading in PDF format