Business managers must be involved in the strategic planning and management of information systems because IT is so crucial to many businesses’ day-to-day operations. To make the relationship between IT and other aspects of business management easier for managers to grasp, author and Harvard Business School professor F. Warren McFarlan introduced the strategic grid concept in 1984. It illustrates the relationship between business strategy, IT strategy and business operations. Specifically, the McFarlan model illustrates how projects involving IT investments will fare due to the investments.
TL;DR (Too Long; Didn't Read)
A strategic grid is a tool businesses can use to assess the impact IT investments will have on their current and future projects.
Constructing a Strategic Grid
The McFarlan strategic grid is constructed as follows. Four quadrants, labeled from top left to bottom left in a clockwise motion labeled support, turnaround, strategic and factory represent the four possible roles an IT enterprise can fill within an organization. The grid’s X axis shows projects’ impact on IT strategy, and its Y axis plots projects’ current impact on IT operations.
Using the X axis, a manager can determine how a potential project will impact the company’s operations and whether it will make it possible for the company to capture new market share. With the Y axis, a manager can work out how a project will make existing systems more efficient or more productive.
In greater detail, the four quadrants represent:
- Support. IT investments that can improve the company’s operations but are not necessary for its continued operation
- Turnaround. IT investments that provide strategic opportunities
- Strategic. IT investments that are necessary for the company’s future success
- Factory. IT investments the company needs to maintain its continued operation
Understanding the McFarlan Model
The strategic grid shows how a company is using its IT investments and its need for both new and reliable IT support. As a framework, the strategic grid is meant as a tool businesses can use to assess their current and continuing IT needs rather than to simply state the company’s IT use status.
The need for IT support in business was first recognized in the 1970s, and today, it is more critical to daily operations than ever before in nearly every type of enterprise. Understanding this, business managers must be involved in the strategic planning and management of information systems.
In 2005, McFarlan and Richard Nolan updated the McFarlan model to reflect the IT realities that 21st-century businesses face. Now, the strategic grid’s X axis is labeled “New IT,” and its Y axis is labeled “Need for Reliable IT.” This did not change the core purpose of the grid or how companies can use it. It simply updated the terms used to match modern business needs.
The Strategic Grid in Action
Because business managers must be involved in the strategic planning and management of information systems, putting strategic grids to work is a crucial part of managing a profitable business.
The strategic grid can be used to prioritize IT purchases by putting proposed actions into a clear diagram. It forces the manager using it to accurately assess how important IT projects are to his company’s current operations and how important they are to its future operations. For example, a company that currently issues each employee a tablet might score fairly high on the Y axis, putting it in the factory quadrant. If that same company has no plans to increase its reliance on technology, it would fall close to the left-hand side of the X axis, putting it in the support quadrant as well.
Using this example, the manager might anticipate that in five years’ time, the company will increase its workforce by a third and thus will need additional IT support. In his projection for the next five years, he would plot the company higher on the Y axis, acknowledging that for the company to continue its current operations smoothly at a larger scale, it will need to invest in more of the same IT support it is already using.
Lindsay Kramer has been a full-time writer since 2014. In that time, she's experienced the ups, downs and crazy twists life tends to take when you're launching, building and leading a small business. As a small business owner, her favorite aspect about writing in this field is helping other small business owners and aspiring entrepreneurs become more fluent in the terminology and concepts they face in this role. Previously, she's written on entrepreneurship for 99designs and covered business law topics for law firms.