Business-Technology Link Driving Growth?

Companies that don't integrate business strategy, technology planning will lag competitors, consultancy asserts

Plano, TX — May 8, 2003 — Companies integrating their business strategy and information technology (IT) planning efforts are more likely to invest in innovation and growth activities, adopt new technology earlier and fuel business growth through IT-enabled innovation, according to a new study by management consulting firm A.T. Kearney.

The consultancy said that the study, commissioned by A.T. Kearney's global strategy practice and based on a survey conducted among senior executives at 144 large U.S. and European companies by Harris Interactive, indicates that effective innovation and early adoption of IT as an integrated business tool can produce real competitive advantage.

Based on the survey results, A.T. Kearney is forecasting a growing gap between companies that use technology effectively in support of business strategy and those that do not.

"Technology is pervasive in business today, but many companies continue to view the planning, funding and measurement of IT efforts as separate or only semi-related to the creation and planning of business strategy," said Mark Livingston, a vice president in A.T. Kearney's strategy practice specializing in technology. "Companies with solid business-IT integration are better positioned to adopt and develop more innovative technology that confers a competitive advantage."

In the study, only one-third of the surveyed companies characterized their IT planning as integrated with business strategy. But among companies devoting the largest portion of their IT investments to innovation, rather than to cost or growth initiatives, 50 percent said their IT planning was fully integrated with corporate strategy. Nearly 70 percent of these "innovative" companies said they grew faster than key competitors over the last five years.

Another benefit of an innovation-focused IT strategy, A.T. Kearney said, is the early adoption of technology and the rewards it brings. Thirty-five percent of the "innovative" companies said they are early or leading edge adopters of technology, compared with 29 percent of overall survey participants. Among these early technology adopters, 63 percent grew faster than their competitors over the past five years. Also, 60 percent of early adopters said their IT sponsorship is primarily business-driven rather than IT-driven.

Innovative and agile companies will continue to outperform static businesses by effectively offering new products or means to serve customers, Kearney concluded. "It's clear from our study that partnership with business creates the foresight and confidence to anticipate change and then move quickly to adopt technologies early and seize growth opportunities from evolving market demands because true business needs are well understood," Dan Starta, a principal in A.T. Kearney's strategy practice.

To capture the benefits of the integration of business strategy and technology, Kearney advised companies to:

  • Redefine the role of their IT organization and its place in the corporate structure, and seek IT leadership with strong business and operational skills.

  • Manage IT innovation and adoption as an organizational activity aimed at delivering business value.

  • Extend the use of strategic measurement into IT to capture results in terms of value to the business rather than return on investment.

  • Manage IT as a portfolio of business capabilities.

  • Continue to invest in technologies that will enable next generation business strategies.

U.S., European Differences

The study also revealed sharp differences between how companies in the United States and Europe manage and plan their technology investments. U.S. companies were nearly twice as likely as European firms to say their business and technology planning efforts were integrated and their IT investments over the last two years were driven by business sponsorship rather than IT sponsorship. Nearly half the European companies surveyed adopted technology after it had matured, considerably later than U.S. firms.

A.T. Kearney believes the root of these differences lies in the fact that many European companies have distinct business units in the numerous countries throughout Europe. While this makes integration of strategy and technology more challenging, it doesn't appear to be hampering the ability of European firms to grow their top lines faster than U.S. firms — the average rate of top-line growth over the last five years for companies in both regions was 17 percent. The reason: European firms are investing heavily in customer relationship management (CRM), mobility and sales applications that help improve customer relations and further integrate their multiple companies, customers and operations.

"European companies must continue using technology to bridge the cultural differences and business challenges across the region," said Dirk Buchta, an A.T. Kearney vice president based in Germany. "We expect closer integration of strategy and technology planning within European companies to evolve as current technology investments prove successful."

A.T. Kearney conducted the study with Rochester, N.Y.-based Harris Interactive in fall 2002. The sample size of 144 consisted of 74 respondents from the United States and 70 from Europe. Survey respondents were board members and senior-level executives from European and American companies with $500 million or more in revenue. All interviews were conducted by telephone.

The research targeted companies across five key industries: automotive; communications/high-tech; consumer products/retail; financial institutions; and process industries (energy and chemicals). The effort focused on gaining better understanding of how technology is incorporated into companies' business strategies, the decision making around those strategies, and business issues related to the adoption and implementation of technology.