Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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What is the Production Function of IT?

by Mark P. McDonald  |  June 27, 2010  |  5 Comments

Understanding IT’s role in the enterprise is complex and incomplete.  IT is the subject of great debate as some see it as the source of competitive advantage and others see it as an enabling function.  CIOs and IT professionals themselves have a tough time answering the question about IT’s role.

Why?  because I believe we are asking the question in the wrong way.

We need to ask,

“What is the production function of IT?”

Production function, sounds kind of academic right, but its simply the output you get for all the combination of inputs.   Its what you take and what you make.

Every part of your enterprise has a production function.  So, when you ask different parts of the enterprise what they take and make you get answers like:

SALES

TOP LINE REVENUE: We take prospects and turn them into orders

SUPPLY CHAIN

PROFIT: We take orders and turn them into invoices

FINANCE

CASH: We take invoices and turn them into cash

IT

?????? Silence  ??????

I know its silence because I have asked the question to dozens of IT leadership teams.  They look at each other and cannot put IT’s contribution in a simple answer.  It is not because IT is more complex than these other functions.  No its more that IT professionals have thought of themselves as something apart for the enterprise, something special and therefore not falling under the same rules.

There are two production functions for IT that can be summarized in two words SPEED and SCALE.

SPEED:  We take strategy plans and turn them into operational performance

IT’s production function is to deliver speed of execution against the company’s strategy and plans.  Strategy execution involves change and change requires IT participation.  The faster IT is able to execute its processes, deliver results and accelerate strategy execution the better.

IT drives speed when it concentrates on reducing its own internal cycle times for providing IT services, solution development and governance.  Concentrating internal operations on speed of execution makes IT more responsive and innovative.  IT organizations operating at speed give their business a steady stream of value that actually expands ITs role and enterprise flexibility.

Without speed, IT is a bottleneck to strategic execution and operational performance.  It is the reason we cannot go faster.  This is the reason why change is expensive.  The reason why I have to control IT costs, because if they cannot go fast enough for me, then I had better make sure that they do not cost too much.

SCALE:  We take operations and increase their capacity and reduce their average cost

IT’s other production function is to create scale of operation across the enterprise.  Scale in this sense is the ability to IT to aggregate activities and deliver greater capacity at a lower average cost.  IT creates scale through its infrastructure and operations activities that make the modern enterprise possible.  IT is one of two scale functions in the enterprise.  The supply chain is the other scale function.

IT drives scale through the infrastructure by constantly aggregating operations, virtualization and active contract management to gain the benefits of being bigger.  Without this scale, growing transaction volumes and the cost of operating disparate infrastructures would literally consume the company’s profit.

Without scale, operations drown in a combination of complexity, duplicate cost and faltering service levels.  You see this with high growth companies that are heroes that suddenly fail – because they do not have scale.

***

What is IT’s production function?  To deliver speed and scale to the enterprise.

Speed and scale can seem as two different things, and that can be part of the reason why they are difficult for CIOs and IT leaders to articulate.  Most go “ah ha” when they think about their role in speed and scale.

But, when you boil it down, we know why an enterprise has a sales function, a supply chain, a finance function, etc.  We had thought that IT existed to manage the technologies that these functions depend on.

That is true in terms of the activities IT provides, but ‘to what end’

Speed of execution and

Scale of operation.

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