Pundits often claim that 80% of an organization’s IT budget is spent on “keeping the lights on” rather than on business activities that enable it to differentiate and compete. On the whole, this figure is nonsense, because for most organizations the proportion of IT spend that goes into supporting business activities that are non-differentiating is far closer to 50% than 80%. However, it is clear that IT has a mandate to drive down the cost of non-differentiating activities in order to make resources available to invest in the activities that enable the business to compete more effectively, both in terms of the cost of the product or the service it offers, and the ways it engages with customers, partners, and just as importantly, employees.
Ovum advises clients to classify their business activities into three categories and apply different approaches to each. This approach builds on the thinking behind “pace layering,” in which applications are classified according to their rate of change by looking beyond applications and systems to the higher level business activities they support.
Ovum’s model proposes three classes of business activity: Utility, Assembly, and Delivery. Utility activities are those that may be essential for the operation of the business, but do nothing to differentiate the product or service the organization offers, or the way in which it interacts with customers, partners, or employees. Assembly activities relate to the process of creating or manufacturing the product or service the business offers. Finally, Delivery activities are those business processes that take place at the edge of the organization, where it interacts with the outside world.
Each class of business activity has different rates of change, brings different levels of differentiation to the organization, and requires a different approach to investment and innovation. The classification process is intended as a tool to enable organizations to select the approach that is most appropriate for each type.
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