How does IT create value when the business model 'in play' isn't designed to do so?

An article by Tom Costello in the May/June 2010 edition of the IEEE IT Professional magazine caught my eye because the title sounded like a new CD from a favorite band of my youth, "Status Quo - The Silent Killer " It's not every day I can say that about my technical reading! Costello makes the point in his article that, today, IT are often asked to justify the business value of every initiative that touches IT with the underlying requirement that IT is expected to create value for the business.  He goes on to ask the question, "So how does IT create value when the business model 'in play' isn't designed to do so?" and then, "What can technology investment achieve?" Based on the premise that if the first 80% of technology capability in a particular problem space can be delivered at a given cost then the next 10% will have a similar cost and the next 5% the same cost and so on, Costello's answer to this last question is based on trying to work out where your company is on this particular curve. With some simple but interesting models and charts, Costello argues that the potential for IT to create business value is dependent on whether the business growth strategy at any given time is proactive, reactive or passive and where the business sits in relation to its competitors on a spectrum of profit margins for different revenues.  Essentially, Costello puts the case that the only case where IT can be expected to create business value is when the business growth strategy is proactive and the business has low revenue but high margins relative to the competition.

IT business value

Costello presents and interesting concept and one that can be fairly easily constructed for companies competing in the public space.  it brings to mind Christensen's disruptive technology proposition.  However, it has weaknesses.  For example, it assumes that the problem space stays the same and doesn't allow for low cost innovation due to changes in either technology capabilities or the business environment.  Such changes effectively reset the degree to which the current capabilities satisfy the problem requirements back to below the 80% level.  I guess that Christensen would argue that this is precisely the opportunity that a disruptive technology seeks to address because its business model is more flexible that the incumbents. Finally, I wonder what the equivalent of this sort of analysis is for the government departments?

Written by Michael D. Harris at 11:29
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