RapidITStrategy9 2006

RAPID IT STRATEGY
DEVELOPMENT
Oct 7, 2008
Edward J. Maloof
140W. 86th St., Suite 15A New York, NY 10024 Tel: 212-579-8352 Cell: 917-885-7923 email: ed@maloof.org
Executive Summary 2
Edward J. Maloof
TABL E O F CO NTEN TS
INTRODUCTION........................................................................................................................4
PARADIGM I:
ORGANIZATIONS REACT TO MARKET DYNAMICS IN A FEED BACK LOOP.......................................................5
PARADIGM II:
IT SPENDING TYPICALLY ESCALATES AS PROFIT MARGINS DECLINE ...........................................................9
PARADIGM III:
IT SUPPORTS BUSINESS IT WAS DESIGNED FOR, NOT BUSINESSES THAT EXIST...........................................11
PARADIGM IV:
CAPABILITIES RARELY SATISFY STRATEGIC GOALS..............................................................................14
CONCLUSION:
FASTER IT STRATEGY DEVELOPMENT AND DEPLOYMENT IS NEEDED ........................................................15
Rapid IT Strategy Development 3

Edward J. Maloof
Rapid IT Strategy Development

Introduction
We are often asked to contribute to the creation and deployment of IT strategies at individual
organization and enterprises levels. The multitudes of questions embedded in these requests
include centralization and decentralism issues; cost levels, competitive strategies, legacy and
modern systems, e-commerce and conventional technologies. Often these questions are posed
as problems such as: why are systems so slow and expensive, why do we need to constantly
pay-up paying to replace infrastructure with the latest products and techniques, why are
implementation results often disappointing, why won’t my legacy systems completely
disappear, why doesn’t IT understand my business, why don’t users understand their own
requirements and why am I falling behind the competition?
This white paper offers insight into lessons we have learned with our clients, and some
helpful ideas. We have observed four central paradigms:
 No practical difference exists between IT strategy and business strategy. Actually, IT

strategy is a subset of a business strategy. There typically is little useful or robust
distinction between strategy and tactics. Frequently, the optimal strategy is to refine
and develop and the ability to be tactical.
 Most IT budgets are allocated to products with declining profit margins, not on those
with growing margins.
 Systems support the businesses they were designed for, which is not necessarily the
businesses that exist.
 Strategies rarely have the ability to predict exact outcomes in a dynamic environment;
therefore strategies must be constantly recalibrated.
Our general conclusions are:

Markets and markets forces are much more dynamic than the old theories of strategic
planning suggested. Therefore the length of time necessary to implement strategic solutions
is typically simply too long to support evolving business needs. Rapidity is the real
requirement. E-commerce is clearly amplifying this trend.

Edward J. Maloof
Paradigm I:
Organizations React to Market Dynamics in a Feed Back Loop
Successful IT strategies reflect and are subsets of the business strategy, that must parallel and
mirror business dynamics.
Inter-related, complex forces create demand. They include social,

FORCES economic and political drivers; technological innovation;
CREATING
DEMAND demographics; trade and commercial patterns; etc. Some are
subjective, such as mood – as in the case of Alan Greenspan’s struggle
to interpret seemingly “irrational exuberance”. In general, these forces
and their interactions are complex, and therefore hard to predict. In
Market most practical terms, they are not comprehensible until they exhibit
themselves in the market, in the form of demands for products and
services.
Organizations, and their competitors, offer their products and services to the market to meet
demand. Periodically, a notably innovative and successful product or service influences
underlying forces, and amplifies demand. Examples of these influential products and services
include the introduction of ATM’s and POS devices in the 1970s, the advent of derivatives,
the securitization of risk. Contemporary examples include the success of online brokerage
services.
The market reacts to product and service offerings either by buying or not buying or buying
from competitors. An advantage ofFORCES
a market economy is that the success or failure of a
FORCES
CREATING
product is rarely in doubt. The CREATING
market judges
DEMAND absolutely and unmistakably.
DEMAND
Products Competitive
and Products and
Market
Services
Products Services
Competitive
and Products and
Market
Services Services
Feedback

Edward J. Maloof
Included in that judgment is not only the relevance of the product or service to demand, but
all of its characteristics, such as its method of distribution, pricing, packaging, ease of use,
comprehensibility, embedded risk characteristics, and after sales service.
Institutions analyze this feedback and decide how, and if, to react. From these decisions,
products and services are developed, modified, or withdrawn from the market. This modified
array of offerings is then placed back into the market and, again, the market reacts, thus
establishing a continuous feedback loop. For example, positive feedback might encourage the
institution to increase its capacity; while negative feedback might cause it to reduce pricing.
If the market clearly prefers a competitive product, the institution might change its own
product to match its competitor’s.

Edward J. Maloof
Success in the market depends on two possibilities; leading the market by anticipating or
creating the sources of demand (for reasons previously reviewed this is typically difficult to
do), or accepting need to react to feedback correctly and rapidly. Resultantly, firms that are
FORCES
CREATING
DEMAND
Products Competitive
and Products and
Market
Services Services
Feedback
Product/ Analysis
Service and
Development Decision
highly efficient in their feedback loop can rapidly adjust to dynamic markets and respond with
products and services that meet current demand. Slow companies respond to yesterday’s
requirements. Fast firms respond to today’s opportunities. Rapidity is the real requirement.
What are the results of this paradigm?
 Little useful distinction typically exists between IT strategy and tactics. Strategy
increasingly looks like an accumulation of tactics. Organizations can have a great and
prescient strategy and be successful, or they can understand the market and respond
rapidly. In practical terms, in an institution, most product and service initiatives and
changes have systems implications. Therefore, to be a fast reactor, an institution must
have fast reacting systems at a reasonable cost.
 Many frustrations expressed by business users over the slowness of projects and the
drag of legacy systems are symptoms of the institution’s slow pace through the

Edward J. Maloof
feedback loop. They are unable to optimize reaction to the market because systems
cannot change with sufficient rapidity. From IT’s perspective, frustrations mirror
these business issues. Users continually change their minds, demand difficult to
absurd timeframes, and request information IT can’t provide.
 Therefore, it’s important that strategy for IT in an organization is able to tactical.
Optimally, we recommend having as little as possible that you can’t afford to throw
away and re-engineer in under six or seven months. The organizations that IT serves
operate in a real time market that constantly evaluates the firm’s products and services
and compares them to competitors on a daily basis. Each day used to milk a winner is
a day of incremental profit abandoned, and each day used to fix a loser is a day of
added expense and a day of profit lost.

Edward J. Maloof
Paradigm II:
IT Spending Typically Escalates as Profit Margins Decline
The chart bellow illustrates the relationship between relative product profitability and IT
spending for product support. The underlying problem results from the extended duration it
takes to develop full-scale systems plus the continually increasing dollars needed to maintain
them, an investment that frequently trails the product profitability life cycle. This chart
illustrates a five-year cycle.
Relative product profitability

over time
Relative systems spending

over time
Volume is
created by The system The firm has
market is been
A new The market demand and completed, trapped into
product takes management but it is investing
emerges. account of to offset technological
The new and
Actually, it’s the product declining ly
product is spending on
probably and margins. obsolescent.
understood a product
little more competitors This drives
and with
than several react. up operating Maintenance
exploited declining
unique Pricing starts costs during costs
and margins.
deals. to erode, system increase as
profitability New
There is and risk development product
climbs products
virtually no quality and variants are
steeply. IT can’t get
systems’ increases. A deployment introduced to
investment, priority
spending. big system is Competitive differentiate
typically, as because this
Lacking, needed for a pressures a commodity
a basic system is
competition, big product, increase. offering, and
system, overly
margins and to Related new staff, now
starts resource
climb rapidly contain products commanding intensive
growing require IT to premium
operational revise salaries,
costs system starts to
specification leave
s

Edward J. Maloof
This paradigm suggests systems spending should be moved to an earlier stage in the product
life cycle, where it can both support the product and contribute to the maintenance of
profitability margins. Benefits of this strategy include immunizing the product from expense
driven volume growth and making product variants and derivatives cheaper and sooner. The
results of such an investment pattern are shown below.
Relative Product
Profitability
Relative Systems
Investment
Characteristics of such a system are that it can be developed very quickly, and that it is
relatively inexpensive. Systems life cycles should exist within product profitability life
cycles.
Another characteristic of this investment pattern is that expenses should be as variable as

possible. Fixed expenses and depreciation increase the cost of the tail and decrease margins
in the out years. Mirroring this situation, business cases for systems and technology
infrastructure frequently look less compelling because benefits are stretched into the future.
A short-term investment cycle within the market driven investment cycle both strengthens the
economics and makes the plan more realistic. Variable expenses can be shut off, while fixed
expenses cannot. Small expenses are easier to write off than big ones.
The investment diagram on the previous page works against a firm’s speed and efficiency
around the feed back look. An investment pattern such as the one above supports the firm’s
ability to react. The strategic conclusions are: keep it variable, small, and rapid.

Edward J. Maloof
Paradigm III:
IT Supports Business it was Designed For, Not Businesses That Exist
It is a truism that every business evolves, and that current business is a reflection of past
developments (good and bad) plus current activities. Among the characteristics that shape
current business, whether as
Next
enablers or disablers, are the
Today’s Future
Year’s systems and technical
Business Business
Business
infrastructure that support the
business. This year’s systems
were last year’s development, and current development shapes next years capabilities.
Four observations follow:

1. Future systems are useless to the current business. Correcting a deficiency over a
period of six to nine months’ means that the business will be disadvantaged for six to
nine months or two to three earnings reports.
2. Development can only support future business activities if future business activities
are fully understood. Therefore, a systems strategy requiring twelve to eighteen
months or more to implement will only succeed if the business strategy it supports can
be fully articulated now, and that the business strategy must be executed as anticipated
for the system to be of value.
3. A system designed to support today’s requirements may be obsolete before it is
completed, an observation linked to the above item.
4. As markets and competitive actions rapidly change, business strategies are seldom
static over strategic timeframes. Rapidly evolving technologies make strategic
decisions even more difficult. A strategy that has to ‘freeze’ business requirements
while it is implemented is counter to the investment profile outlined in Paradigm II,
and creates institutional market inefficiency in Paradigm I.
Today’s Next Year’s Future

Business Business Business
Last Year’s This Year’s

?
Development Development

Edward J. Maloof
IT strategy problems become even more difficult:
Capability for institutions is fundamentally determined by systems that control business

performance in the marketplace. When systems capabilities fall short of current market
needs, then the firm is forced to operate with yesterday’s resources and capabilities against
market conditions that have already changed, this produces a competitive capabilities delay
that disadvantages the firm.
This situation does not arise because business managers and IT managers are shortsighted. It
results from the real time nature of the market, which as earlier illustrated, means that they
can anticipate future requirements only with some degree of uncertainty. While the time to
develop and deploy systems and operational capabilities is significantly longer than the rate at
which the market evolves, IT strategy will be problematic.
Today’s Next Year’s Future

Business Business Business
Future
Last Year’s This Year’s
Capability
Development Development

Edward J. Maloof
More problems are created by the inverse relationship between the complexity of the
undertaking and the difficulty in catching up. Illustrating this dilemma, an institutional
merger requires enormous effort that can absorb available resources for significant periods of
time. Although the results may be profitable, time, staff, money, and management is focused
absorbing and rationalizing the present, as differentiated from building for future capabilities.
Next
Today’s Future
Year’s
Business Business
Business
Last This Next

Year’s Year’s Year’s
Capability Capability Capability
Prior Last This

Year’s Year’s Year’s
Development Development Development

Edward J. Maloof
Paradigm IV:
Capabilities Rarely Satisfy Strategic Goals
Strategies normally have a specific

direction toward a business goal, within
a range of results. Investments are
made to optimize the business along the
strategic direction.
However, reality usually diverges from

the most likely strategic direction
anticipated, perhaps not by much, but
enough to exclude some of the original
range of outcomes, and introduce new
possibilities. If a strategic commitment
has been made against a highly specific
capability, some of that commitment
will be wasted, and other new
possibilities are not covered.
As time moves forward, such a pattern

continues to evolve, so that business
reality is progressively less close to the
original expectation.
In order to minimize the potential

wastage involved, it is necessary to constantly re-measure realty (i.e., recalibrate the strategic
direction from a new starting point) and reestablish a new strategic direction.

Edward J. Maloof
Conclusion:
Faster IT Strategy Development and Deployment is Needed
The Air Force spends billions of dollars optimizing and integrating human and automated
interactions in a competitive environment for jet aircraft. These weapons are limited by the
reaction time of the operator (which is being improved through new tools and training) and
the system’s capabilities (which are increasingly being automated). Exceeding either
limitation can be disastrous. In a fight, to fly slowly is to die. To win, one must have human
and IT reaction times that are as fast as one’s competitors.
All indicators suggest the advantages of being able to develop and deploy systems rapidly.
This indicates that systems must be more accurately targeted, cheaper, and smaller than they
have historically been at many organizations. The competitive dilemma for organizations is
not the high cost of systems, but how long they take to develop and deploy. They frequently
sacrifice the value of variable, small, and rapidly implemented systems while building of
systems that meet some current needs. When the time to build a major system exceeds the
rate at which the business evolves, there will be a tension between business needs and systems
solutions that is not easily resolved.
Rapidity by itself is not a perfect strategy. It may produce dubious architectures, reduce
application lifespan, and jeopardize quality and reliability. However, ability to react rapidly is
a risk-reducer and competitive advantage while the breath of market dynamics increases and
the pace of market evolution quickens.
Rapidity is the real requirement. E-commerce amplifies the need.

RapidITStrategy9 2006

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RAPID IT STRATEGY

Rapid IT Strategy Development 3

Rapid IT Strategy Development

 No practical difference exists between IT strategy and business strategy. Actually, IT

Our general conclusions are:

Rapid IT Strategy Development 4

Inter-related, complex forces create demand. They include social,

Rapid IT Strategy Development 5

Rapid IT Strategy Development 6

What are the results of this paradigm?

Rapid IT Strategy Development 7

Rapid IT Strategy Development 8

Relative product profitability

Relative systems spending

Rapid IT Strategy Development 9

Another characteristic of this investment pattern is that expenses should be as variable as

Rapid IT Strategy Development 10

Four observations follow:

Today’s Next Year’s Future

Last Year’s This Year’s

Rapid IT Strategy Development 11

IT strategy problems become even more difficult:

Capability for institutions is fundamentally determined by systems that control business

Today’s Next Year’s Future

Rapid IT Strategy Development 12

Last This Next

Prior Last This

Rapid IT Strategy Development 13

Strategies normally have a specific

However, reality usually diverges from

As time moves forward, such a pattern

In order to minimize the potential

Rapid IT Strategy Development 14

Rapidity is the real requirement. E-commerce amplifies the need.

Rapid IT Strategy Development 15

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