Excerpts from Mckinsey article titleld "Divide & Conquer: Rethinking IT Strategy"

Focusing exclusively on bottom-line costs, however, limits the top-line potential. By forgoing investments in IT innovation, companies are passing up opportunities to gain a competitive advantage or to change the rules in their industries fundamentally. Yet some companies with a broader vision have pursued IT opportunities.IT can be used as a competitive weapon, but managing IT to deliver on that promise requires a differentiated approach that many companies find difficult to implement-either because they fail to see the potential or because they don't distinguish between commodity IT services and innovation.

Companies should manage their investments in IT as they manage their financial investments, categorizing them as low, medium, and high risk. Typically, most of a company's IT investments (up to 60 percent, depending on its market position and aspirations) should focus on maintaining and enhancing basic IT services, including core business applications, systems to meet regulatory demands, e-mail, and Web services. These are low-risk functions necessary for staying in the race.An additional 10 to 30 percent of a company's IT investments (or more, depending on its aspirations) should aim to help it win the race currently played in its sector. These investments help a business operate at significantly lower cost or higher productivity than competitors do-for example, automating online lending-approval processes or automatically providing call center agents with each customer's service history.More difficult to manage is a smaller category of high-risk, high-reward investments that focus on changing the race within the sector: innovations that open new markets or make it possible to offer new products or services that are substantially different from and more desirable than those of competitors.By differentiating the way these categories are managed, companies can run their daily IT operations cost effectively while making limited, targeted investments in new and promising technologies.

Three types of IT management
Scale IT investments. Such stay-in-the-race projects involve the most familiar applications of information technology-those that are necessary to compete in a market and must be managed for cost. The IT priorities in this category should be to reduce operational costs and to ensure service and quality levels, but these investments alone will not create a competitive advantage.

Competitive-advantage investments. Win-the-race investments improve service, cut prices, and increase the effectiveness of decision making or the efficiency of operations. Companies should select and manage such projects in close alignment with other business and operational investments.

Rule-changing innovations. Change-the-rules investments deliver a competitive advantage by creating new and unique products or services or by generating a hard-to-replicate cost or performance advantage.

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Prashanth Rai