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IT value chain: How enlightened IT executives can maximize IT’s value

MylesS ‎07-24-2013 07:57 AM - edited ‎08-02-2013 11:08 AM

In this post, I’ll describe how the business notion of value chains can be applied to IT management. As important, I’ll explain why viewing IT management this way fundamentally changes how IT thinks about its relationship with business customers. For IT leaders, this involves changing from thinking about the things IT does (the how) to thinking about what these things enable (the what). Richard Hunter and George Westerman said in their book, “Real Business of IT: How CIOs Create and Communicate Value,” that IT is like an exercise bike. The value proposition of the exercise bike is not in the pedals, handlebars, or the other components, it is in the ability to lose weight and get in shape.


Origins of value chain thinking

Several years ago, Michael Porter wrote the seminal book, “Competitive Strategy: Techniques for Analyzing Industries and Competitors.” The book caused many business organizations to rethink how they view competitors, market lifecycle, and competitive strategies. Porter then wrote “Competitive Advantage: Creating and Sustaining Superior Performance.” In that book, Porter honed in on how competitive advantage is really created and retained.

The value chain approach proposed by Porter looks at the activities of an organization, and relates them to the competitive strengths of the organization. Value chains are built on the idea that an organization is more than a random compilation of machinery, equipment, people, and money. Only if these inputs are arranged into systems is it possible to produce something of value for which customers will pay. Porter suggests that this ability to perform particular activities and manage the linkages between activities is the basis of business competitive advantage. Porter distinguishes between primary activities and supporting activities. Primary activities are concerned with the creation or delivery of a product or service. Each of these in turn is linked to support activities that help to improve effectiveness or efficiency. For Porter, there are four main areas of support activities: procurement, technology development, human resource management, and infrastructure (systems for planning, finance, quality, information management, etc.). So if I were to draw a high level organization chart, line functions would likely have primary activities and streams (sales, marketing, manufacturing, operations, and IT) and staff functions would have supporting activities and streams. As well, there would be intersections of streams such as IT fulfillment.


Application of value chain thinking to IT management

IT is more than a random compilation of machinery, equipment, people, and money. IT leaders arrange these components into capabilities that our internal or external customers pay money for. By doing so, we establish a major source of our business’s competitive advantage. IT—just like its business brethren—has primary and support activities in the IT value chain. The value of the “IT exercise bike” is the ability to reach a business goal.

Let’s first look at how IT creates competitive advantage for the business. IT organizations achieve this by doing three things with increasing effectiveness and efficiency:


value chain.png

We often do not consider how important IT’s mission is to the enterprise’s overall success. But within IT, we do amazing things. We are the digitizers of the enterprise, delivery of that enterprise digitization and keep that business running 24/7/365. Paper processes no longer exist for most organizations; when an IT-delivered capability does not work, the business process no longer works. For example, several years ago I got to meet a cell phone provider. They were noticing that sales in mall kiosks moved in a way that did not make business sense. So they measured the POS application latency over time and overlaid the results on top of sales. The results almost completely correlated. What was happening? As the POS performance slowed in the kiosks, lines increased and potential customers left, most likely to another vendor. There was a measurable business impact to the quality of business capability delivered that IT had digitized. And when things break or users need help, IT manages the requests and incidents coming from end-users to ensure they are handled with appropriate business priority.


IT’s value chain

I would suggest that IT’s value chain consists of four primary activities and five supporting activities. The four activities have also been labeled as value streams. HP has defined these value streams with members of the IT4IT consortium, a team of customers and partners. The quality of each of these value streams is the basis by which IT creates competitive advantage for its business customers.


  • The Strategy to Portfolio value stream is the portfolio of capabilities that IT fields for business competitive advantage. The portfolio needs to involve conscious choices.
  • The Requirement to Deploy value stream is about how strategic demand is delivered and managed—how closely requirements that are delivered match business needs.
  • The Request to Fulfill value stream is about operational demand—how well IT fulfills requests when system access, IT components, or PCs are needed.
  • The Detect to Correct value stream is concerned with fixing things according to the service design portion of Requirement to Deploy; in other words, is the right warranty in place, and does IT deliver to it?


Single value chain.jpg



So what have we discussed? I have described the notion of business value chains to describe the business of IT, as IT relates to the enterprise. I have said that IT is one business value chain consisting of four value streams. I have said that IT provides value as a digitizer of the business, the deliverer of business digitization and ongoing maintenance for the digitized enterprise. And these go after how IT digitizes business capabilities, manages digitized business capabilities, and services customers. In the weeks that follow, I’ll drill into the details of each value stream and how they work together. Stay tuned!

Related links: Finding your true value

Solution page:  IT Performance Management

Twitter: @MylesSuer

About the Author


Mr. Suer is a senior manager for IT Performance Management. Prior to this role, Mr. Suer headed IT Performance Management Analytics Product Management including IT Financial Management and Executive Scorecard.

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