Supercharge Your IT Strategy by Breaking Down Business Capabilities

 

Every organization has a purpose, whether it be a charity serving a community, a technology firm creating a new product, a start-up raising funds, or a healthcare facility improving the lives of their patients. Organizations often find it’s easy to state your purpose, but it’s not always as simple to serve your purpose. For organizations to achieve what they’ve set out to do, they must develop strategies to inform their plan and set the stage for execution, change, and ultimately, success.

Once the strategy is set, what is next? What needs to be done to achieve the desired results? How do you get from point A to point B on time and on budget? Who on the team needs to buy in? Who needs to believe the change is possible, and take action to drive the desired change?

This article will explain the benefit of clearly articulating your capabilities and then effectively aligning operational functions, people, and technologies to those business capabilities or functions to ensure success in pursuing the strategy and desired target.

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Part 1 / Model for Aligning Strategy to Business Capabilities

In an effort to fulfill purpose, organizations do things — sometimes they are successful and sometimes not. What factors determine strategy success or failure? Some companies take the time to articulate a strategy and define the details in the context of their capabilities.

Successful strategies must be compelling and clear – stating what will be different in the future and why. Another fundamental component is they need to be understood by all parties involved. The better informed the constituents are from the beginning, the more effectively they can contribute to the ultimate goal. A strategy also needs to be quantifiable – easily tracked and measured, so progress can be checked along the way. While many have spent countless dollars to facilitate these functions in projects and targeted investments, these functions hold true for all functions across an organization. Often these non-project efforts facilitate significant change levers to achieve a strategy.

Let’s take a look at the framework for enabling strategy for a targeted function such as a Servicing Operation or Enterprise IT.

First, we must define the motivation for change. Simply stated, what is the reason a change needs to occur in terms that align to the overall business purpose? Are you producing a new product? Integrating an acquisition, addressing risk? Analyzing data differently to make informed decisions? Once defined, leverage the enterprise purpose and/or strategy to articulate your technology goals, aligned to the business purpose. Keep in mind your current state and define the change to take you to target. (see Figure 1)

Model for Aligning Strategy to Business Capabilities

From here, begin to identify and evaluate the core capabilities that can enable this change to get you from current state to target state. It is important to focus this exercise and not attempt to decompose all capabilities of the enterprise. Begin with those that obviously will have an impact. This exercise is called strategic capability decomposition.

Some examples include:

  • Ownership of Fulfillment
    • Who is responsible for delivery?
    • Ownership at both at leadership and performer levels
    • Solve for decision makers who influence performer priorities
  • Technology Enablers
    • Where can advanced analytics accelerate needed change?
    • Is automation or artificial intelligence an option for efficiency and/or quality improvement?
  • People and Performers
    • What needs to change?
    • How do “I” affect change?
  • Process
    • What mechanisms and/or methods require change?
  • Measurable – current and future
    • How do you measure progress from day 1 and throughout the change process?
    • What are those measurements today; what is your baseline?
    • Understand the implications of measurement and develop mitigation of undesired behaviors
  • Change prioritization operating model
    • Iteratively prioritizing what needs to happen first and revisit often

Strategy decomposition exposes where the change levers are located within the organization that can enable strategy realization. (See Figure 2)

strategic capability decomposition

Given the result of capability decomposition, you can begin to target change in areas such as:

  • Pursuit of new infrastructure, data, applications and security architecture patterns
  • Migration to incremental investment delivery models, for example scrum
  • New business process models/architecture
  • New accountability models and measurement across IT and Operations

In recap, an actionable strategic plan is:

  • Transparent – Current to Target State Roadmap
  • Believable – Desired change, defined outcomes, qualified measurement
  • Achievable – Delivery models/mechanisms
  • Sincere – Accountability and incentives at all levels
  • Functional – Technology and operational improvement methods

The capability decomposition framework allows these common practices for delivering investments and managing operations through a common perspective, therefore enabling both cooperation and integration across the departments of an organization.

Moving from a hypothetical process to the real world – let’s take a look at what happens when this process does not occur with an enterprise IT framework.

 

Part 2 / Learning From Mistakes – A Case Study

Here’s an example of a client who struggled with strategy realization as a result of strategy delivery opacity.

A mid-market financial services organization saw a decrease in market share as a result of several factors:

  • Servicing commoditization for deposit and lending products
  • A growing competitive landscape due to digital banking start-ups
  • Historical customer demographic aging and prospect customer expectations changing
  • Competitiveness on rates decreasing as a result of high operational and technology costs

The organization was three years into a five-year enterprise objective with the following expected outcomes:

  • Reduced operational costs of back and front office
  • An increase in product pricing competitiveness as a result of lowering costs

The organization hit several challenges during year three that caused frustration among leadership and increased employee turnover due to burnout.
Financially, annual run rate of operational costs had not only remained consistent, but increased year-over-year as a result of operational resource investment to support the enterprise strategy. Revenue had continued to shrink at the same rate prior to pursuing the strategy while new customer growth remained stagnant. They lost market and share of wallet.

Operationally, several projects had been started and delivered, but savings were not realized or committed to in future forecasting.

The following were corrective measures as a result of our capability decomposition model:

  • Assess initiative goals and declare servicing costs and customer experience objectives as the top priorities
    • Reduce time to resolve customer needs correlated to immediate and long-term cost savings
    • Mitigate risk to customers leveraging current state servicing patterns as new patterns introduced through intentional and targeted change management
    • Deliberate servicing channel pattern changes targeted towards high priority customer prospect segments
  • Define core capabilities that support the top priorities including:
    • Authentication of customers
    • Make a payment
    • Establish electronic communication preferences
  • Map business processes and owners
  • Calculate current productivity and cost measures
  • Identify technology systems that are required to fulfill these core capabilities and related processes
  • Establish target productivity and cost measures
  • Identify unintended consequences of measurement visibility including developing mitigation approach for each consequence
  • Establish targets into mid-level management objectives
  • Establish ongoing measurement of core capabilities for both short- and long-term management, with transparency from both an investment and operations management perspective
  • Stand up investments targeting each of these core capabilities with methodologies and architecture targets that align to these core capabilities including servicing automation and AI enabled customer interactions
  • Assign ownership to performer management levels for both the technology and operations teams
  • Drastically reduce all other investment initiatives across the organization to increase focus
  • Establish methods to evaluate these core capabilities by targeted investment efforts and operational changes to confirm progress and incremental re-prioritization

As a result, the organization had clarity into where to focus their energies in pursuing their strategy.

 

Part 3 / Summary

While simple in concept, these methods are often interrupted because steps are missed or minimized as part of the process. To some extent, the simplicity of capability decomposition can lead to abatement, resulting in less than ideal quality of the information captured and leading to an inaccurate path forward. Therefore, it is critical for decision makers to create the bandwidth and intentional focus to carry these thought processes forward from the beginning. This is not a one-and-done exercise and must be revisited and managed throughout the strategy realization journey.

To mitigate or alleviate the risk of losing intentional focus on the capability decomposition methods, many clients engage external assistance to provide both industry expertise for target state definition while offering unobscured facilitation and focus. This is very helpful when initiating these methods because the organization is typically still reacting to the challenges described in our example above. As part of the Impact Makers engagement model, this outside assistance not only helps accelerate the upfront analysis but allows the internal team time to build the skills and protocols necessary to carry these methods forward throughout the strategy realization journey, resulting in less of a dependence on external assistance.

At Impact Makers, we partner with clients on business and IT strategy execution using our capability decomposition model. We act as player/coach strategists, equipping business and team leaders to carry out the analysis and plan, or staying on to lead execution if requested.