Executive expectations for IT have evolved from delivering technology services to contributing to strategic differentiation and growth of the business. CEOs are increasingly asking their CIOs: Do I have the right IT? And how do I know? To answer these questions, CIOs must connect their IT capabilities with the unique perspectives of their business models for delivering value.
The first step is to define your enterprise’s business models in terms of asset types and rights, using a framework based on research by MIT’s Center for Information Systems Research and research funded by the National Science Foundation.
Start by identifying the assets at the core of your product and service offerings. Then, determine the rights you hold to the assets. Do you create the asset for the customer (creator), rent or lease it to the customer (landlord), distribute a product or service (distributor), or match up buyers and sellers (broker)?
The next step is to define the models in greater depth by describing their uniqueness in terms of 10 perspectives as based on the approach developed by Arvetica consulting partner Alexander Osterwalder, formerly of the University of Lausanne. They are:
Value proposition; Target customer segments; Communication and distribution channels; Relationships with customers; Core capacities; Configuration of activities; Partners and their motivations; Revenue streams; Cost structure; Values and principles. The final step is to connect these perspectives with IT capabilities.
DETERMINING THE TRUE BUSINESS MODEL
There are two basic elements of a business model. The first is an archetype, which essentially defines what business the enterprise is in relative to what rights to which assets the business sells. For example, a financial services company that makes loans offers temporary-use rights to financial assets (money). A complex business may include multiple archetypes.
The second element details how the enterprise does business in terms of the 10 perspectives previously listed. The perspectives must be defined for each archetype represented in the company’s businesses. The way that perspectives are configured can be unique to an enterprise, creating competitive advantage (or disadvantage). Knowing the true business model is the first step in finding the right IT. The next step is to discover the IT that makes the business model work.
DISCOVERING THE RIGHT IT
The right IT is the IT that is consistent with all perspectives of the enterprise’s business models and delivers maximum value to the enterprise and its customers. In assessing IT’s fit to the business, it helps to first frame what IT does in terms of the business model perspectives, working from the customer value proposition on down. This description is the IT model.
A gap between the IT and business models might be a potential that is not being realized in a specific perspective of the business models, not just an obvious current weakness. Also, inconsistencies in the IT model are sometimes a result of inconsistencies in the business models. For example, unacceptably high IT cost structures might result from maintaining multiple versions of applications that perform essentially the same functions in different parts of the business. With the IT model defined and checked for consistency against the business models, the final step is to implement it.
EVOLVING WITH THE BUSINESS MODEL
Implementation of the right IT model may mean extensive changes for the IT organization. When IT doesn’t match the business models or effectively maximize value, something must change. Analyzing competitors in terms of all ten perspectives of their business models reveals the extent of change required throughout the value chain to respond to a competitive move and, ultimately, the IT needed to support the change.
By using business models systematically to understand the inherent strengths and challenges in its way of doing business, an enterprise can find new ways to maximize its effectiveness. And finally, by using business models in the same way, CIOs can find and demonstrate the right IT.