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May 31, 2005

The Business Logic of IT Services

Business reliance on enablement through IT has evolved into a necessity for IT strategy to become a design element of business strategy.

Seen as a critical success factor, IT enablement describes the basic underlying assumption of the business's execution of strategy. That is, overwhelmingly due to IT, operational fundamentals such as communication, analysis, and processing are meaningful and viable in the face of change, costs, speed and regulation.

However, the relationship of IT to business is not one of simple cause-and effect.

Intuitively, we link motivation to importance (i.e, what is valuable) and we link automation to opportunity, which goes a long way towards clarifying the main difference between business strategy and IT strategy. But they must be reconciled.

Reconciling the strategies means to develop assurance that alignment is established between the type of opportunity generated and the type of value pursued. In alignment, "opportunity" represents satisfaction of certain pre-requisites for subsequent gain, and "value" controls the prioritization of possible effects leveraged from the opportunity. In alignment, prerequisites-for-priorities, rather than cause-and-effect, is the key relationship.

Practical institution of alignment is an ongoing management function. Business organizations and technology systems are both developed with the idea of their being functionally reliable, but their respective functions reflect significantly different design dynamics that easily diverge or lack synchronicity. Functionality in technology systems is increasingly focused through automation, while the functionality of a business organization is increasingly focused through motivation.

The successful business operation is one in which the negotiation between organizational motivation and systems automation is successful.

Typically, where motivation is the business basis of effectiveness, and automation is the business basis of availability, their combination generates the execution capacity of the business. To manage that execution capacity, the alignment negotiation must internally balance motivation against change, costs, speed and regulation -- and do the same for automation -- and then balance the two against each other.

Customers experience that execution capacity as the "availability" of the entire business, through the business response to specific customer demands. In effect, to the customer competitively evaluating things, the business behavior represents what the business "wants to do". The question is whether that perception is favorable or not.

For managers who want sustained execution at a level that creates advantage from the customer's evaluation, it means creating descriptions of business availability that literally make sense in terms of organizational motivation. For example, does the business want to do follow-the-sun customer support? If so, why?

Regarding IT, the description should highlight IT's enabler role in the business. In the business view, "value" describes the importance of something. The objective of IT meanwhile is to create or enlarge opportunity for the organization to pursue selected value.

Approaching the bottom line

IT can be pretty successful in its role, however, the business must still actually use the opportunity to get anything out of it. In fact, when assessing the "value" and "return on investment" of IT's role, the difference between them is that while business value describes the importance of IT's role, ROI actually describes the business opportunity IT creates, more than it does the business result. The business ROI of IT's role can correlate with business value but it does not cause it.

In aligning opportunity and value, the primary agents are processes and policies which act as mediators. Most simply, processes coordinate goal-oriented activities, and policies likewise coordinate decisions.

As a mediating agent, the design of a process or policy ideally navigates or corrects the various functional strengths, weaknesses, opportunities and threats (SWOT) characterizing the technology systems and likewise the business organization.

Processes and policies often want to perfect their respective SWOT solutions separately, and/or to target either the systems or the organization but not both. The danger in this is that disparities between events and accountability will usually develop, sometimes with extremely counterproductive impact.

Therefore, for aligning the business-IT relationship, the most critical aspect is the correspondence created between processes and policies. To generate and sustain maximum business capacity, they must ensure that they way they shape operations is complementary to each other, collaboratively managing responsiveness within accepted tolerances. (Typically, this is where businesses are advised to specifically model the interactions of people, process and technology -- and where now a pronounced emphasis on performance management and governance has emerged.)

Whether the issue is the systems or the organization, Directors and Managers in the business live with the additional responsibility of continuously tuning the SWOT solutions to minimize constraints which especially provoke future risk, opportunity cost, and malfeasance.

This strategically important adjustment occurs as the outcome of dialog that discusses the business model. Because the form and/or the "metabolism" of the business model adjusts over time to its market environment, the dialog is ongoing or recurring, and changes to the constraints are iterative.

Thereafter, the collection of constraints allowed in the systems and in the organization represents the business' operational tolerances, which typically are documented or institutionalized in the form of practices (adopted) and agreements (contracted).

"Services" operationalize these practices and agreements by defining the way that planned availability (or "IT supply") is finally allocated and requested against planned effectiveness (or "business demand"). The definition provides a common "interface" for business and IT to manage execution capacity through a lifecycle of needs, orders, fulfillment, replenishment and improvement.

Posted by Malcolm Ryder at May 31, 2005 8:09 PM

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