Three Kinds of IT - Which is right post-recession?

Michael Treacy and Fred Wiersema knocked out a great book (The Discipline of Market Leaders) a few years back. In short, they opined that great companies make one of the following their defining competency: - Customer intimacy (think Nordstroms) - Operational excellence (think WalMart) - Product Innovation (think Intel)

A colleague and I were at lunch the other day and we were wondering if great IT groups fall into similar groupings. We discussed two profiles that fit many of the clients we see and study. These groups are:

-The single, standardized IT group – These IT shops buy application software from one suite provider (e.g., Oracle or SAP). They have one computing stack and standardize on the same hardware, systems software, etc. to take advantage of scale and volume discounts. The major business objective of these IT departments is to be a low cost IT provider. These groups are all about new efficiencies and greater IT effectiveness. They’re also great at reducing IT costs. Their focus on cost reduction drives them to use offshore firms, independent contractors and specific outsourcing solutions whenever cost-justified. These are operationally excellent IT organizations.

- The diverse IT organization – In this IT world, every business unit/plant/division/location has its own technology – technology that is precisely dialed in to the specific operations and local requirements those entities need. The software and hardware is designed to optimize local operations. This IT environment is customer intimate. IT is absolutely focused on the delivery of outstanding, precise and tailored services to each of its business constituents.

Interestingly, we didn’t immediately recall any Product Innovator IT organizations. After some back and forth, we realized that we had seen some in our careers. I recalled the IT organization at USAA. It has won a number of Computerworld 100 awards for several years. Likewise, companies such as FedEx and UPS have won a large number of these same awards as each has helped re-define an industry. In fact, as my colleague and I discussed this category, we frequently used the phrase “redefine the industry” in describing how IT was used as a material change agent and competitive differentiator. These IT shops are truly the product innovators.

As our meal arrived, we were discussing one more concern that Treacy and Wiersema also noticed. Businesses cannot be successful if they try to be all things equally (i.e., all three competencies) at all times. Just as a business cannot be a product innovator, a low cost leader/process excellent firm and a customer intimate firm simultaneously and equally, IT shops cannot be these things equally and simultaneously either. If your IT group is going to be customer intimate, it cannot deliver IT services at the same cost basis as an IT shop that is a low cost provider.

That last observation is important as IT groups emerge from the current recession. First, these groups need to validate what their new role, going forward, is to be. Many IT groups have become low-cost operations the last few years as a matter of corporate survival. Is that the plan going forward? Should the company began a new round of growth, what should the focus of IT be then?