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Does Enterprise IT need a M&A Strategy?

December 1, 2010 - 0 Comments

In the past I’ve written about the classic challenge within Enterprise IT, and specifically within the Data Center, that 70-80% of the resources are allocated to “legacy” activities. This obviously leaves very little time to work on new technology-centric innovations to drive the business. Or to put a different way, “IT only does innovation on Friday”.

The McKinsey Quarterly recently had an interesting article about reshaping IT management, where they introduce the concepts “Factory IT” and “Enabling IT”. The premise being that the focus of the Factory IT (70% of the activities) groups should be about cost-reduction, scale, standardization and simplification. The Enabling IT (30%, hopefully growing) should be focused on innovative ways to enable the business to grow. And the management of those groups doesn’t necessarily have to the same, since they’d have different objectives.The McKinsey approach seems logical, but as I was thinking about it in the context of corporate innovation and a separate blog I’d written about consumerization in IT, I started to wonder if a slightly different approach might make more sense. Internally innovation is difficult. This has been proven at large companies (Cisco included) across many industries. Innovation requires a certain environment to prosper, and being co-mingled with quarterly-driven groups often leads to politics and decision-making that is less about game-changing innovation and more about small incremental steps.

But what if Enterprise IT thought about their strategy for expanding that 30% as a M&A strategy? This strategy might mean that new projects are treated as greenfields or could also be considered to use public cloud services. This strategy might not assign new projects to existing teams, but rather look at assigning cross-functional teams from both IT and the business to look at new ways to bring great ideas into production. It might mean that some projects remain in “beta” for over a year as users experiment (and provide feedback) on innovative ways they are using the new service. It may even mean that ROI is no longer looked at on a project-by-project basis or be measured in months, but rather the ROI is evaluated on the broader portfolio of projects that are focused on expanding the 30%.

At Cisco, we’re had a strategy similar to this in place for the past 24 months. The results of the “Factory IT” portion has been well documented, with cost savings and improved efficiency exceeding expectations. The cycles freed up for “Enabling IT” has allowed us to roll-out social media, user-generated content, virtual tradeshows, mobile devices and collaboration services with much greater input from around the company.  We’re embracing the mixture of internal and external innovation that has helped drive growth for the business and channeling it back into the way we run the business.

We’d love to hear how your company is expanding the 30%. Please tell us your story, we’d love to share best practices and new ideas.

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