StraTechGy 01: Where Technology meets Strategy

The hidden “strategic” value of “technology”

Strategy and technology are cool words that many board level presentations need to have, in order to get approval, support or budget. With the explosion of digital success cases, and the holy grail of becoming an Amazon, an Apple or a Google, everybody understand (or say they understand) that technology has “something” in terms of strategic value, but that “something” stays very often elusive, even after millions buried in technology investments.

Of course, there is an inherent risk behind technology-related investments. Even with very clear ideas, solid strategic plans and effective executions, there is always a risk behind any transformation or innovation initiative, of any kind, not just those related with technology. Nobody has a crystal ball to anticipate the many potential hurdles that lay along the journey. If I had one, I would be billionaire (what is not the case), so I will not pretend to write a “dummy guide to get rich with technology”.

However, in addition to that inherent risk, there are many avoidable failures that come from the misunderstanding of both strategy and technology (sufficiently complex by themselves), and from the never-ending collision between both worlds when, in fact, magic happens at the reinforcing intersection between them.

I don′t know if I have proactively built a career around both topics or if I have been pushed by casual “cosmic forces” along the years, but the fact is that I have always worked at that frontier, finding myself explaining technology (at least trying) to the pure strategists, designing and executing strategies at technology firms, or debating with technologists on the strategic implications of technical decisions. Believe me, a diplomatic career cannot be so different from working at that intersection!! You are always the one that contradicts the general opinion: when in strategy forums, technology details are boring; when in technology forums, strategy is too high level.

Funny thing is, when I share similar thoughts at my MBA classes (on strategy), the connection between both worlds arises in a natural way. Technical decisions are discussed from a strategic perspective (I love the Mobileye case study) and strategic debates are openly started from the possibilities of technology (my students will remember the “Netflix in gaming” debate). Because the connection is, in fact, quite natural!

So, if that is the case, why is there a collision? Why is it so tough to identify and capture the strategic value from technology? There could be many reasons, but I would remark the following ones.

The word “strategy” is over-used, particularly when connected to “technology”

Everything seems strategic nowadays. We talk about strategic partners, strategic initiatives, strategic offerings or markets. It seems as if everything needs to be strategic in order to be relevant. And that overuse of the “strategic” concept dilutes the importance of those really “strategic” elements of an organization.

Let′s take the simple definition of “strategy” from the brilliant book “7 Powers: the foundations of business strategy” (which I strongly recommend):

“Strategy is a route to continuing power in significant markets”

A route because it is a well-designed path and set of choices. In the search of continuing power, as the set of conditions (tough to replicate) that creates the potential for persistent differential returns. And, of course, much better if this happens in markets with high general margins and significant growth.

Just this definition helps you to differentiate the scarce strategic elements from those multiple elements that are needed to survive (maybe critical to sustain operations, but not strategic). Actually, when you are restrictive with the definition of “strategy”, you would come to the conclusion that not so many companies have a real strategy. Many companies have a clear “north”, but just having a direction does not mean that they are creating the potential for differential returns.

Those in the technology industry will say that technology has always been strategic. Wearing my “technology” hat I have always believed in technology as a great driver of change. However, when I wear my “strategy” hat, I realize that, for several decades, technology has been (no doubt) a source of enormous operational improvements, but improvements that were adopted (more or less) in parallel by all participants in the industry. If we follow the previous definition of “strategy”, the adoption of technology was, in most cases, a necessary condition to stay in the race but not a source of competitive advantage or a way to enter new markets.

However, something has radically changed in the last few years from a strategic perspective. Nowadays technology is not just an enabler of industry-wide operational improvements, but a potential source of competitive advantages, an opener to new attractive markets and, in some cases, the source of disruption for full industries.

As a source of competitive advantages, technology is behind new differentiation strategies (e.g., personalization, connected products), is the way to create network effects (e.g., marketplaces, P2P models, crowd-models), is the source of process advantages (e.g., proprietary algorithms or data), or is the enabler of scale advantages, when variable cost business models are converted into fixed cost business models (e.g., digital process outsourcing platforms Vs traditional BPOs).

As an opener to new attractive markets, technology has been the enabler of accelerated (web-based) internationalization strategies or the way to access niche segments only economically feasible when reaching a global population. And who knows what will happen with the metaverse, but what is clear is that (again) the potential to open new markets is there.

YES, technology has the potential to create continuing power in significant markets.

NO, that does not mean that everything built on “cool” technologies is strategic.

Technology has finally entered the board room, but not deep enough.

The strategic potential of technology is crystal clear for all those pure digital players, growing in every industry, that have technology in the essence of their strategic DNAs. Players that (when applying the well-known Porter industry analysis) are moving from the category of “entrants” to the category of full-fledge “competitors”, competing face-to-face with traditional players.

This accelerated growth of digital players has changed the view on technology in the board rooms of many well-established corporations. When talking about digital disruption around 10 years ago, many board members were on the side of considering IT as a pure cost-centre, in charge of running day-to-day operations at the minimum cost. A few years later the situation has changed, with many companies incorporating “digital” as a core topic of their strategies and budgets (new digital channels, new automation capabilities or new cybersecurity needs).

However, when looking into detail, 2 elements are still generally missing in those board-level technology debates.

First, when debating technology initiatives at board rooms there is not a sufficient level of understanding about the complexities and best practices of technology.

We assume that everybody in a management position has a good understanding of a P&L and a balance sheet, but that is not the case with technology. And, in the digital age, this is very relevant, because managing technology is a company wide responsibility, not just an IT function role.

If we look at the automotive industry, we find extremely sophisticated and cost-effective machines, with multiple configuration options that are built from a limited set of standard modules and components, frequently shared by several models or even brands. And that is possible because designers, marketeers and manufacturing engineers work together from the very beginning, finding the best feasible alternatives.

These concepts of simplicity, modularity, configurability and standardization should be the basic principles of any modern IT architecture, but the reality is very different. An IT architecture is the result of business and IT decisions: if you push for business complexity the architecture will be complex, if you don′t modularize your business the architecture will be monolithic. And that’s where we are right now in many large corporations: with complex, monolithic, hard-coded and heterogeneous architectures that hinder the possibility to transform and innovate.

Changing the situation requires a different approach, with business and IT sharing the same challenges, and addressing (from the very design) the structural bottlenecks of current architectures. Starting from board-level discussions.

Second, most of “digital” plans are focused on the optimization of operations, but do not address the strategic potential of technology

Most of companies have digital plans in place, with clear objectives of customer centricity, efficiency or risk protection. Those are fantastic news, as these companies are getting ready for the new normal of operations. Nowadays (and forgive me for the oversimplification) it is about AI-based robots, remote field operations or new digital channels; instead of the ERPs and CRMs of the 2000’s. But at the end of the day, it is about fighting to stay in the race.

However, the question is if these initiatives (fully needed from an operational perspective) are really strategic: are they really building a “continuing power” or opening new “attractive markets”? In many cases, the answer is No. That’s the second “missing element” in board-level technology debates: they are not generally addressing the out-of-the-box potential of technology to build new strategic positions.

“Strategists” and “Technologists” need to build a common ground.

A good technologist has to go deeply into the details to make things happen. Reliability, time-to-market and scalability are achieved by understanding the many small details of technology implementations. In parallel, a good strategist has the ability to model a business in an extremely synthetic way, what facilitates the analysis of scenarios, macrotrends or acquisitions.

Going up and down at that intersection between strategy and technology is not an easy task (e.g., jumping from designing a digital ecosystem to understanding the implications of a microservices or API architecture). Especially when you consider the over-accelerated evolution of technology, hard to sustain even for the best of technical architects.

Fortunately we don't need superheroes.

We just need strategists and technologists forcing themselves to move into the opposite direction and find a common ground to establish constructive plans.

A good technologist needs to build an aerial view of technology, act as an “urban-planner” (more than an architect) and be able to identify the strategic implications of technology decisions: which functional domains have real strategic value Vs those that are operationally critical but not strategic? is my vendor a potential competitor? am I protecting the right intellectual capital? is the architecture providing the right business flexibility for the future?

And a good strategist needs, of course, to understand the possibilities of technology and the competitive dynamics of a fully digital world. But his/her “technification” does not end there: if a strategist wants to bring strategies to life, he/she should also have a general understanding of the technical implications and feasibility of business decisions: which functional domains support the strategic differentiation of the company? is the architecture ready to build open ecosystems? where is the balance between business complexity and business flexibility? Is there a value in developing local IT stacks or should the company move fully global?

This effort is not trivial, because we, as human beings, are naturally designed to be on one side or the other: the strategist gets bored with the details and technical terms, and the technologist gets frustrated with the abstract over-simplified plans. But remember, we don′t need superheroes, superb at both sides; we just need an overlap between them, so that they can collaborate.

The end of the start: launching “StraTechGy”

In summary, if the “hidden” strategic value of technology is still “hidden” for many organizations, is because we are failing to natively integrate both disciplines in our collaborative problem solving and decision making processes.

If we segment what part of technology is really strategic from what is not…

... If we, at Board rooms, are fully realistic but, at the same time, highly aspirational with the possibilities of technology…

... And if we start by pushing ourselves into a common “problem solving ground” between strategists and technologists…

… That hidden value will start to arise

If you somehow feel identified with these hypothesis, then this newsletter is for you. StraTechGy is an attempt to close the gap between both worlds and, as an indirect result, to facilitate the conversations that will unleash that hidden strategic value from Technology. At a minimum, if I find a group of people with that same “diplomatic” feeling, we will be able to organize the right therapy groups. At a maximum, the newsletter (and most importantly the reaction and contribution of everybody to this newsletter) will contribute somehow to the success of those innovation and transformation initiatives. And, in any case, it will be fun along the journey.

My commitment?

• Simplicity. If we pretend to close the gap between strategy and technology, complex explanations and technical jargon are not the way. We need to find that common ground where technologists and strategists can collaborate.
• Depth. Strategy is about going to the very essence of things. You will not see one of those “metaverse is the future of retail” type of articles. Maybe that is the case, but I will not write something like that if I don’t have the right strategic analysis.
• Applicability. This is not about writing an academic essay or finding the next frontier of strategy. The objective is to share ideas and open debates that can be easily applicable to your job, not just on paper but on execution.

My expectation? Participation, debate, ideas… in any format.

The next chapter, “Setting the basics of Strategy”, in a few weeks.