Creating Financial Value from Innovation & Agility
An Excerpt from THE POWER OF CONVERGENCE
- by Faisal Hoque, Founder & CEO, BTM Corporation
When Adam Smith wrote The Wealth of Nations in 1776, he described the characteristics and benefits of a free market in which wealth was transferred between the producers of raw materials, manufacturers, and consumers of refined goods. Smith argued that a free market would ensure competition that resulted in higher quality goods at lower prices. The underlying presumption is that manufacturers would always have to create or respond to changes in the market to ensure their viability and success. In Smith’s era, however, change came at a glacial pace; it would take years, sometimes decades, before change rippled across global markets.
The modern economy—global, domestic, and local—is fast and dynamic; the market is in a constant state of change. The greatest overarching challenge facing business leaders and their enterprises is to be able to quickly respond to market change; they must be the catalyst of organizational change that will guide their businesses to market leadership. The pressure for change requires enterprises to be resilient, innovative, agile, and adaptive.
- Resilient: able to bounce back from shock.
- Innovative: able to push the envelope and develop new products, services, and methodologies that advance beyond the competition.
- Agile: able to act nimbly to seize opportunities.
- Adaptive: able to sustain innovation through repeatable processes and organization that ensure advancements happen due to planning, not happenstance.
The connection among these concepts should not be surprising. Innovation, after all, is doing something new that creates value in the marketplace. Agility and resilience imply the ability to react to something new.
Organizational design and behaviors directly affect how the enterprise can react to and recover from forces beyond its control. Our research illustrates what leading organizations around the globe—including Global 2000 corporations, government agencies, and small to medium size enterprises—have learned about innovation. Successful organizations all moved towards the “convergence” of business and technology, applying similar and interrelated organizational designs and behaviors.
Convergence occurs when business and technology activities are intertwined and the leadership teams operate almost interchangeably. Our research further suggests that there is demonstrable economic value in advancing maturity of business and technology management, and the payoff is greatest for those enterprises that are approaching convergence.
BTM’s Business Technology Convergence Index I study showed that enterprises operating in the same economic environment with a more converged technology management structure exhibited superior revenue growth and net profit margins as compared to their non-converged peers. The numbers spoke for themselves:
- 4 percent average higher return on equity (ROE).
- 8 percent average higher return on assets (ROA).
- 13 percent higher return on investments (ROI).
- 7 percent higher earnings before interest, taxes, and depreciation (EBITD) than those delivered by their industry groups.
- 36 percent average annual earnings per share (EPS) growth in contrast to 8 percent for their industry groups.
- 12 percent average annual revenue growth as compared to 1 percent for their industry groups.
The Business Technology Convergence Index II study further confirmed the durability, persistence, and value of converged outperformance. Of particular interest was the performance of convergence leaders in the second five-year period (2004–2008), which coincided with the economic downturn. This updated study employed the same methodology as the initial study (see summary chart below).
Figure :: Leaders’ Financial Outperformance, 2004–2008.
By developing converged business and technology management capabilities, an organization creates an environment for strategic exploration and business agility. This occurs in the context of a clear understanding of technology's potential to accelerate development of innovative business models.
To understand what these successful companies were doing differently, we evaluated them against a set of essential management capabilities.
These capabilities are grouped in four functional areas—Governance and Organization, Strategy and Planning, Strategic Investment Management, and Strategic Enterprise Architecture. Each capability, as evaluated in four critical dimensions—Process, Organization, Information, and Technology—is marked by repeatable processes, executed through appropriate organizational structures, and enabled by the right information and technology.
The Business Technology Convergence Index—an unweighted database of the enterprise-wide management maturity levels of approximately 100 commercial enterprises and public sector entities—was created to measure the prevalence and effects of convergence. Enterprises in the Index were included because their maturity levels had been validated, not because of any desired set of operating characteristics.
To create an environment where technology helps to shape--rather than simply enable--strategic choices, leading enterprises are already working to convergence--rather than simply align--their business and technology decision-making. You can’t win today unless your business and technology are united as one.
Faisal Hoque is the founder and CEO of BTM Corporation. A former senior executive at GE and other multi-nationals, Faisal is an internationally known entrepreneur and thought leader. He has written five management books, established a research think tank, The BTM Institute, and become a leading authority on the issue of effective interaction between business and technology.For his commitment to business-technology convergence, CIO Quarterly magazine designated him “Mr. Convergence”. In May 2008, the editors of Ziff-Davis Enterprise named him as one of the Top 100 Most Influential People in Technology. His latest book, The Power of Convergence, is now available. © 2011 Faisal Hoque.
For more information about The Power of Convergence, please visit www.thepowerofconvergence.com.