The usual approach to information technology and strategy is to treat IT as a pure cost, with the aim of improving business efficiency. This usually means lowering head count or, what is equivalent, doing more with the same head count. In straw polls I conducted at various seminars, only around 10% of delegates said their organizations used IT to try and realize some form of competitive advantage.
There is a chasm here between traditional business apps – ERP, CRM etc and the new generation of customer focused, big data analytics applications. The former did indeed simply serve to make the business more efficient – in theory at least. The latter are nothing but attempts to gain some form of advantage – after all we don’t want customers buying from competitors do we? So for the rest of this article I’m going to be talking about technology that might deliver some form of competitive advantage.
When a business invests in technology it can choose from one of three options – do nothing (i.e. do not invest), do the same as everyone else, or do something different. There is a very well understood payoff matrix that shows the various payoffs. It is shown below:
So on the vertical axis is the strategies your competition might pursue, while the horizontal axis shows your strategies. If, for example, your organization chooses not to adopt a new technology that might deliver competitive advantage, then the best it can do is draw with other businesses that also do nothing. If you choose to play safe and do what everyone else is doing, you can only win if your competition does nothing. Finally if you do something different you are presented with three opportunities to win, and so this is the dominant strategy.
A number of assumptions are made here. The first is that your organization is skilled in its use of IT, and the second is that we can make a rational choice. Anyone with experience of IT in large businesses will know that this latter is a big ask, and here is why.
Procuring technology is a risky business, simply because we don’t really know what we will get until we start using it in anger. And there are many instances of large technology suppliers pulling the wool over their customers’ eyes – and as a result being sued by those customers. I won’t mention names, but a Google search will show that many large suppliers will go as far as mocking up what they believe a customer wants, with absolutely no substantial product behind what is seen on a monitor. The economists call this the adverse selection problem. It is an information asymmetry where the supplier knows much more about a technology than the buyer. As a result of this, business managers tasked with selecting a technology will generally follow the crowd. If 10,000 businesses are using a product, then it must be OK – surely. And there are personal agendas at work too – acquiring skills in a widely used technology can do wonders for the resumé. We could draw another payoff matrix that would show how from a personal perspective, procuring a widely used technology is a good move.
The net result of all this is that the dominant strategy pursued in many businesses is that of following what everyone else is doing – me too. From the perspective of the organization this is not a good move, because as the payoff matrix shows, there is only one opportunity to win – if competitors do nothing. Since this is unlikely, the ‘me-too’ strategy can only produce a draw. Playing a game with high stakes where the only outcome is a draw or loss, is not a very attractive game. However it is played every day by large businesses throughout the world.
Google, Facebook, Amazon and countless other businesses did not disrupt their markets because they played me-too. They did something different – and the rest is history.
I’ve visited organizations who understand these dynamics very well, and when a truly new technology becomes available they form a skunk-lab, largely insulated from the rest of the business so that the old habits do not determine direction. It happened when the Internet and the possibility of electronic commerce made its appearance, and it is happening again with the appearance of big data analytics technologies.
‘Me-too’ is fine for projects that are targeted at shaving off costs here and there, but it isn’t a good strategy if you want to grasp a significant new opportunity.