High Performers Take IT Risks
If you have any growth aspirations at all, you need to make some high risk “change the rules” IT investments. This seems to be the conclusion of a recent McKinsey study. The high risks should be calculated risks, of course. But if you don’t take them, and others do, they will out-grow and out-perform you in the long run. In fact, when you compare high performance companies with high growth aspirations against low performance companies with low growth aspirations, the high performers invest four times as much in “change the rules” IT projects as the low performers.
Even companies with low growth aspirations do better with a high proportion of medium-high risk IT investments. Although the high and low performers spent the same on high risk investments, the high performers spent twice as much on medium risk “win the race” investments (60% of all projects).
What does this all mean, and how might it apply to document assembly?
Stay in the race investments are low risk. These are projects to maintain basic IT services, like email and word-processing. If your plan for 2008 is to upgrade Word (and maybe tweak a few macros), your best hope is to stay in the race. You are unlikely to outperform your peers.
Win the race investments are medium risk. These are investments that lower the costs and boost the productivity of your current activities. For example, a law firm rolling out document assembly to its internal staff. Or a bank rolling out an automated approval and document production solution to its business lending team. Applied to your existing business, document assembly is a medium risk, win-the-race investment. In the right context, those who do it should outperform those who don’t.
Change the rules investments are high risk. These are innovations that transform existing markets or open up new ones. Rather than using document assembly to make an existing process more efficient (clear the bottleneck), change the game with a self-service document assembly solution that eliminates as many redundant steps as possible (throw away the whole bottle). For example, a law firm offers an automated online solution that lets clients create and manage their own contracts (eg, employment contracts, real estate leases, technology licenses, or franchise agreements), using fixed pricing to transform and dominate a niche. Or a bank locks in small business banking customers with value-added online services such as company incorporation, insurance, and a package of tailored legal documents. Why go to a law firm when your bank can supply terms of service, NDAs, employment contracts, distribution agreements, etc, all tailored to the needs of your business? Apparently 60% of consumers would prefer to get legal services from a bank or supermarket than a law firm. Are small (or mid-sized) businesses really any different?
The secret to high performance, according to McKinsey, is to evaluate each project using a method that suits the risk. Net present value is fine for low risk projects. But for high risk ideas, you’re better off with a venture capital approach, placing calculated bets on promising technologies, with regular evaluation to see what’s working and what’s not.