Complexities for organisations moving from cost cutting to entrepreneurial mind set

IT organisations are facing a critical challenge in 2010 as they tackle the need to shift gears from a cost cutting to a revenue growth mind-set, according to Gartner.

Gartner analysts said the recession of the past two years has had virtually every IT organisation operating in ‘keep the lights on’ mode, and many organisations are ill-equipped to support and drive revenue growth opportunities.

“For IT leaders, entrepreneurial growth, and the shift from a ‘problem-focused’ organisation to one that is ‘opportunity-focused’ requires more planning and execution than simply changing the organisation chart,” said Jorge Lopez, vice president and distinguished analyst at Gartner. “Entrepreneurial IT organisations must maintain a dual focus: achieving ambitious growth, while running the current business. Both are critically important to the mission of the organisation.”

Gartner maintains that the building of new sources of revenue and positioning the business for dominance in the new venture is an entrepreneurial task and one that requires an entrepreneurial organisation with an equally entrepreneurial CIO to seize the opportunity. Analysts have identified two key tools that the CIO must employ to satisfy ambitions for entrepreneurial growth. These frameworks define the agenda for change and the key actions required to fulfil it.

The Entrepreneurial Scope Assessment Framework: This tool enables CIOs and other business executives to evaluate the magnitude of the opportunity for an entrepreneurial organisation. It is a requisite assessment to understand the scope of the task facing IT, as well as other business units.

The Strategic Change Road Map: This level by level tool provides a clear cut assessment of the tasks that must be performed by an organisation in moving from the current mind set and behaviours of cutting costs to a mind-set that is entrepreneurial. It delineates today’s situation, compared with the desired future and identifies the changes that will transform today’s organisation, infrastructure, processes and mind-sets into tomorrow’s state.

Lopez explained that to best understand the scope of the change facing an organisation, it is important to evaluate two factors that were first defined by Gary Hamel and C.K. Prahalad in the book, ‘Competing for the Future’. They challenged the concept that to win in business, one must first have superior amounts of resources. They observed that, when starting out, resource positions were very poor predictors of future performance, and that the businesses that seemed to win were those that had two key capabilities; ambition and resource leverage.

“Ambition is the animating entrepreneurial vision that redefines the rules of competition for an industry,” said Lopez. “It deliberately sets out a compelling picture of the future that will outstrip existing resources to challenge incumbent competitors to match the magnitude of their vision.”

Lopez said that examples of companies that have demonstrated high levels of ambition include: Apple, with its ecosystem around the iPod and iTunes; Amazon, and its ambition to unseat Wal-Mart, using the web; and thousands of bloggers, who daily compete for attention with established outlets, such as the New York Times.

The concept of resource leverage is based on the premise that great differences exist between different industry rivals and the competitive impact they are able to generate with a given amount of resources. The ability to create greater distance between the required efforts and the results is an important distinction for the entrepreneur and, in doing so, establishes new levels of competition. Examples of advances in productivity leverage include the work of HP in radically reducing its IT cost structure before a recession had emerged as a reality, as well as the move by pharmacies to provide very low cost retail healthcare in the US and, thus, to restructure that industry.

Nevertheless, the move from a problem-focused organisation to an opportunity-focused organisation presents many risks for a business.

“The greatest conflict faced by entrepreneurial CIOs will be the tension between the team that is focused on the entrepreneurial opportunities and the team that is focused on ‘keeping the lights on’,” Lopez said. “Both must function effectively in an environment of elevated risk. Failing on either responsibility is unacceptable and highly dangerous for the business.”

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