Differentiating Strategy Logic

There exist at least two types of strategy logic

• Strategy Pyramid, the traditional top-down strategy development approach that many companies use, going from vision to mission, from mission to goals and from goals to strategy. The Strategy Pyramid is very effective in stable contexts and motivates re-use
• Strategy Stretch, a hybrid logic combining top-down and bottom-up strategy development. This logic is highly effective where innovations need to be built or where uncertainties need to be managed. It introduces new capabilities that might be re-used later using the Strategy Pyramid logic if the new capabilities aren’t temporal

If we look at the value chain types (as described in post An IT Value Chain must be decomposed to match different Innovation Goals) it seems as if a good match can be made between the value chain types and the strategy logic variants. The following table shows the mapping.

 

	Strategy Logic
IT Value Chain archetypes	Strategy Pyramid	Strategy Stretch
Commodity IT	Good match	Poor match
Adaptive IT	Poor match	Good match

 

So from the above table we can see that when developing a commodity IT value chain, the strategy logic that seems to fit best to such a chain is the traditional strategy pyramid. This makes sense because the value chain is focused on delivering stable, repeatable (long-lasting?) services which in turn deserves a solid strategic development that is focused on effectiveness in stable contexts.

To support the development of an  adaptive IT value chain, type strategy stretch logic seems to fit well to this type of chain. This is mainly because the strategy stretch logic looks at opportunities and new capabilities and is focused on delivering new (innovative) services. The context in which this takes place usually has no time for long duration, top-down strategy developments so it seems fair to use strategy stretch here instead. 

In a next post, I will dive into the relationship between IT Value Chain archetypes, Strategy Logic (this post) and how these relate to ambidextrousity of an IT organisation.

An IT Value Chain must be decomposed to match different Innovation Goals

IT organisations should focus on developing two dedicated value chain archetypes, each archetype optimized for specific innovation goals as listed below:

• differentiate, the ambition of this innovation goal will usually be to become best-in-class compared to your competitors, you can never spend enough money here because this is what makes you survive!
• neutralize, the ambition of this innovation goal will usually be to become (just) good enough compared to your competitors; you should spend no more money than needed to neutralize (become just as good as your competitor); you should certainly not try to become better than your competitor here by spending more money
• productivity, the ambition of this innovation goal is to become (just) good enough compared to your competitors; there is no need to become better than your competitor so keep the money in your pocket or rather spend it to differentiate

These innovation goals are realized using Business value chains. To support these Business value chains with IT Products/Services,  there should also be two distinct IT value chains that drive the (internal) IT organization:

• Commodity IT value chain: probably every organization needs IT products/services that are simple, based on non-differentiating routine tasks, often need for high-volume operations, focus on commodity type of services, sometimes these will be long-lasting services, implemented by simple architectures etc. which if combined together, can become a typical candidate for an Operational Excellent innovation strategy. This IT strategy can be allmost fully decoupled from the overarching Business strategy (whatever that is) and thus have it’s own, dedicated life cycle management.
• Adaptive IT value chain:  besides commodity IT services, every organization might also have a need for IT products/services that are more complex, sometimes implemented as one-off initiatives, driven by fast time-to-market, driven by the need to differentiate the overarching business processes, sometimes focussed on low-volume operations, often realized with complex and/or adaptive architectures, sometimes implemented as short-lasting services etc.  These IT products/services are mapped to dedicated innovation strategies and will highly depend on the type of IT service needed to support the Business innovation.

So in order to optimize IT efficiencies when having two IT Value Chains, the commodity IT value chain should be setup to become operationally excellent. Here we will only spend the necessary money. We will decouple it’s innovation lifecycle from Business lifecycles to the max. This calls for a very special type of funding since Business usually sees IT as a short-term resource while commodity IT value chain investments usually will call for a more longer-term investment.

The adaptive IT value chain should maximally align with the Business (innovation) lifecycles and should optimize primarily on Business benefits.

This vision leads to the notion that traditional Business-IT alignment strategies might not be optimally suited to support decomposed IT value chains. This is however still a hypotheses which  needs further research. In a next post I will investigate which strategy logic is best suited for either IT Value Chain: Strategy Pyramid vs Strategy Stretch.