An organisation success in the business environment depends on its ability to move towards the common goals and objectives. Hence, the strategic direction the organisation takes will depend on the complementarities of its information technology (IT) and business strategies. If the organisation moves in different directions, the risk of business failure may increase. Given the high level of resources invested in IT by many organisations, it is vital for it to be used as a strategic resource to contribute towards the achievement of the organisation’s goals and objectives. The alignment of IT and business strategies examines the relationship of the organisation’s IT abilities and its business objectives. The degree to which the alignment is present in the organisation will depend on many factors. These factors include the following:
Strategic alignment refers to the alignment of IT with business strategy. It has becomes an important factor that managers worldwide are relying onto. They have to decide whether an improved alignment between IT and the business strategy will enable the organisation to achieve higher returns on their investment. Thus, managers see strategic alignment as the use of IT investments to support their business strategies. Figure 1.1 shows the dimension of the strategic alignment As shown above, the strategic alignment involves a bi-directional relationship between the IT and business strategies. Managers often forget that the strategic alignment can be upscale by introducing changes to the business strategy that takes into account the IT capabilities. This is a critical aspect of the strategic alignment. Business opportunities as well as internally enhanced IT capabilities can be developed to enhance the business strategy without having to make drastic changes to the organisation’s existing portfolio of IT budget. In the manner, it is possible to model the strategic alignment by measuring not only the extent to which IT supports the business, but also the extent to which the business strategy capitalises on the IT capabilities. The fundamental economic mechanisms by which IT investments boost productivity can be grouped into two categories.
In all sector of the economy, IT investment increases productivity via capital deepening. The results for multi factor productivity are witnessed clearly in some industry sectors, such as durable goods and high technology. In these sectors of the economy, it is the case that IT has also enable structural changes in production techniques and processes that permanently improve the prospect for economic growth. Interestingly, while average returns to IT investment are significant positive, the benefits vary widely among organisation. The greatest returns accrue to organisations that invested in system that enhance and compliment critical business processes. Of critical importance, investment in IT capital must be coupled with investment in original assets through practices such as process redesign, employee empowerment, training, and decentralisation decision-making. When an organisation regroups, restructures and generally refocuses its operations and processes, a proper IT strategy can help it to survive the challenges imposed by the current uncertain climate. Dependence on IT suggest that much of the organisation’s transformation will involve technology-enable operations and processes and, in many cases, technology-driven plans, processes, and other business activity. As IT is now at the centre of most businesses and that the business environment is changing continuously, the demand for coordination across value chains, functions, markets and geographies will continue to accelerate and it will be impossible to respond to this challenge without driving new ways of thinking through corporate ranks. IT is fundamental to corporate success and IT decision, like all other business decisions; need to be made on the basis of its value contribution. In the light of this, a solid, sound business case for IT investment requires mature IT and business judgement. Unfortunately, there are no shortcuts to developing maturity or to developing judgement. Both take time and experience. There is only one way to gain traction in these circumstances and that is to apply the collective experience of both IT and business people to the pursuit and execution of a single corporate strategy. The successful alignment of IT and business strategy means the development of a relationship between the organisation’s IT and business capabilities. This require that IT executives be recognised as essential to the development of credible business strategies and operations and non-IT executives be considered equally essential to the development of credible IT strategies and operations. The extent to which IT and business strategies are integrated is closely related to the way IT is viewed by the organisation’s senior management and the context in which it is deployed. A number of perspective exist that will help the organisation’s managers to successfully align the IT and business strategies together and sustain them so that the organisation can remain competitive and profitable. The first perspective involves the organisation’s structure which should enable the employers and employees to react rapidly to the business and technical demands of today’s highly competitive and volatile business environment. Next, the anticipation of any change in the business world will enable the organisation to invest in new technologies, operations and processes before its competitors. By building new IT and business architectures, the organisation will be able to compass its vision, principle, guidelines and standards so that critical assets can be acquired and used. Furthermore, the organisation will be able to recognise the strong relationship that exists between its people, processes and technology. These perspectives provide an insight into the progress an organisation can make in achieving strategic symmetry; that is a fully harmonised plan of action for dealing with the organisation’s environment and achieving operational synergy. However, the organisation needs to maximise the potential of its assets to prevent the current competitive environment and the combination of complexity and uncertainty that prevails nowadays to hinder its business growth. Economic success is directly related to the organisation’s ability to increase the value added through leveraging the collective and integrated use of its assets. This cannot occur in a world where both the conduct of business and competitive success depend on technology unless all lines between IT and business have been eliminated. For this to happen, organisation must fully embrace the integration of IT and business strategies and promote the ability of this combination as today’s organisational roots. Conceptually, aligning the IT strategy with the business strategy is the obvious solution for an organisation to succeed strategically, financially and technologically. The challenge, however, remains that the organisation does not have the necessary plan to implement IT into its structure, operations and processes and that the alignment of the IT and business strategies are not put into practice. Therefore, eliminating the discontinuities concerning the use of IT is fundamental for the organisation to transform itself. The cost of not taking action to align the IT strategy with the business strategy is likely to result in inappropriate investment decision, badly chosen priorities and ultimately the delivery of the desires result will not be achieved. Hence, the use of IT is essential for the organisation to successfully implement the strategies required for it to remain competitive and profitable in today’s business world.
The objective of this project is to build an organisational structure and set of business processes that reflect the interdependence of enterprise strategy and it capabilities. The essential issue is how IT can enable the achievement of competitive advantage for a business. The important issue of IT and business alignment is discussed in this project. Alignment models and the major factors that influence alignment including organisational structure, technology, planning, culture and communication are also discussed. It will be seen that change management and the need to continually review and adjust alignment are very important aspect nowadays. Furthermore, the following points will covered in the project:
The following points will also be covered in the project:
A number of attempts have been made to model where IT should fit into an organisation, to ensure it plays a positive role in achieving business objectives. Some of these models will be discussed in here.
The main factor in any organisation achieving proper alignment between IT and business is the structure of the organisation. This includes where the IT function is placed in the company and how it relates to the other functions and business groups. Good organisational design any reduce the costs of coordinating groups of people in a work place and enhance corporation and communication.
A factor that can influence the degree of alignment between business and IT strategy is resourcing. This includes human and financial resources and how they are allocated and controlled within the organisation. Allocating a proper portion of funds for the IT budgeting will provide enough technological material to support the IT strategy. Also the availability and quality of both management and IT staff (internal and contract) can significantly impact on the degree and effectiveness of alignment.
A key factor in aligning IT with business strategy is technology and the architecture of the technology. This includes the network, databases, internet, intranet, extranet, communications, servers, desktops and other hardware and software. The type and relevance of it infrastructure will plays a large parts in the degree to which it can be used as a strategic resource to assist in meeting business goal.
For business and IT strategies to be aligned there must be clearly defined business and it goals and a process to review and formulate these goals. Planning at a number of levels including tactical and operational planning is required. The planning should aim to provide transparency between the business and IT strategies.
Good, effective and relevant communication is particularly important in the IT industry because it is in an environment of constant change. This communication must be present between all levels of the organisation. If good personal relationship exist between business and IT staff and management it will facilitates good communication and hence good alignment.
The alignment of IT with business strategy may require the organisation to change various aspects of their business operations, structures and cultures. The success to which alignment can be achieved will largely depend on the success of the company’s ability to manage this change.
Information technology (IT) in many businesses till today, has not been given its rightful place as a strategic partner for its effectiveness, value creation and success platform. Culture wise, IT is seen as a mere service function to make sure that the computer system operates properly without interruptions. However, now things are changing. In the last couple of years being in the shadow even though bringing enormous success to an organisation, IT is finding itself alongside business to jointly formulate business strategies. Venkatramen and Henderson (1998) quoted that ‘IT is now being invited to the boardroom and is being expected to play a leading role in delivering top-line value and business transformation’. Literature on the concept of strategic alignment of business and information system strategies has existed since the eighties (McLean and Soden, 1977; IBM, 1981; Earl, 1983; Mills, 1986; Brancheau and Wetherbe, 1987; Parker and Benson, 1988; Henderson and Venkatramen, 1990; Dixon and John, 1991; Niederman, et. al., 1991; Watson and Brancheau, 1991; Liebs, 1992; Luftman, Lewis and Oldach, 1993; Goff, 1993), nevertheless, it has never been more timely than in today’s fast-paced, dynamic business environment (Papp, 1998; Rogers, 1997). The original alignment model was a largely theoretical construct that studied only a single industry (Henderson & Venkatramen, 1990; Henderson & Thomas, 1992) but has since been adapted for use by virtually any industry looking to integrate their business strategies with their information technology strategies (Papp, 1995; Luftman, Papp, & Brier, 1995). (Mckeen and Smith 1996) suggested that ‘ideally business and IT strategies should complement and support each other relatively to the business environment and the strategies development should be a two-way process between the business and IT, but the only problem will be a ‘poor alignment’. Furthermore, a business strategy reflects decision that incorporates corporate resources and capabilities with environmental threats and opportunities (Andrew 1980; Bourgeois 1985). This interpretation has implication for how we define and interpret strategic alignment. For example, by viewing strategic alignment as a snapshot of the link between business and IT strategies, we can focus on the content of strategic alignment, or specifically what aspect of IT are aligned with what aspect of business strategy. Previous research on strategic alignment has often applied this approach. For example, Reich and Benbasat (1996) apply the term “linkage” to” the degree to which the IT mission, objectives and plans support and are supported by the business mission, objectives and plans”. Similarly, Broadbent and Weill (1993) define strategic alignment as the extent to which business strategies were enabled, supported and stimulated by information.
The concept of strategic alignment is based on two building blocks: strategic fit and functional integration. The former recognises the need for any strategy to address both external and internal domains. The external domain is the business arena in which the organisation competes and is concerned with decisions such as product-market offering and the distinctive strategy attributes that differentiate the organisation from its competitors, as well as the range of “make-versus-buy” decisions, including partnerships and alliances. In contrast, the internal domain is concerned with choices pertaining to the logic of the administrative structure (functional or divisional or matrix organisation) and the specific rationale for the design and redesign of critical business processes (product delivery, product development, customer service, total quality), as well as the acquisition and development of the human resource skills necessary for achieving the required organisational competencies. Within the business domain, the fit between external positioning and internal arrangement has been argued to be critical for maximising economic performance. This logic is adopted to argue that the fit between external positioning and internal arrangement is equally relevant within the IT domain. More specifically, the IT strategy should be articulated in terms of an external domain; how the organisation is positioned in the IT marketplace; and an internal domain; how the IT infrastructure should be configured and managed. However, managers are more often comfortable with their capability to understand positioning choices in the business marketplace (where their products are sold) than with their understanding of how to be strategically positioned in the IT marketplace (where they obtain critical technological functionality that supports and shapes their business strategies). This is partly due to the fact that strategy, as a management concept, has historically been applied to the output market rather than input markets and that IT strategy has often been viewed as a functional, internal response to the business strategy. Thus, the position of the organisation in the IT marketplace involves three sets of choices:
Those specific IT systems (for example, electronic imaging, local-and wide-area networks, expert systems, and robotics) that support current business strategy initiatives or could shape new business strategy initiatives for the organisation. This is analogous to business scope, which deals with choices pertaining to product-market offerings in the output market.
Those attributes of IT strategy (for example, system reliability, cost-performance levels, interconnectivity, flexibility) that could contribute positively to the creation of new business strategies or better support of existing business strategy. This is analogous to the concept of business distinctive competencies, which deal with those attributes of strategy (pricing, quality, value-added service, superior distribution comparative advantage to an organisation over its competitors.
Selection and use of mechanisms (for example, joint ventures with vendors, strategic alliances, joint research and development for new IT capabilities) for obtaining the required IT competencies. This is analogous to business governance, which involves make-versus-buy choices in business strategy. Such choices cover a complex array of inter-organisation relationships such as strategic alliances, joint ventures, marketing exchange, and technology licensing. In a similar vein, the internal IT domain must address at least three components, namely:
Choices that define the portfolio of applications, the configuration of hardware, software, and communication, and the data architecture that collectively define the technical infrastructure. This is analogous to the choices within the internal business strategy arena to articulate the administrative structure of the organisation dealing with roles, responsibilities, and authority structures.
Choices that define the work processes central to the operations of the IT infrastructure such as systems development, maintenance, and monitoring and control systems. This is analogous to the need for designing the business processes that support and shape the ability of the organisation to execute business strategies.
Choices pertaining to the acquisition, training, and development of the knowledge and capabilities of the individuals required to effectively manage and operate the IT infrastructure within the organisation. This is analogous to the skills required within the business domain to execute a given strategy. Distinction is important as traditionally, managers think of IT strategy in terms of the latter three components that reflect an internal orientation. It is understandable, since the historical view is that IT is a support function not essential to the business of the organisation. In the words of one frustrated manager, “IT in our organisation is viewed as the technical core of the management information systems (MIS) function. The widespread feeling is that it has very little to do with our business strategy. Unfortunately, we could not be farther from the truth.” This statement is applicable to those executives who view IT as a “cost of doing business.” As IT emerged as a critical enabler of business transformation with capabilities to deliver organisational level advantages, it is imperative that organisations also pay attention to the three external components of IT strategy. Hence, IT strategy should be elevated from its traditional internal focus to address external issues of how well the organisation is positioned in the fast-changing IT market-place. Before aligning the IT and business strategies, managers should understand the needs of their organisations and analyse whether their operations and processes are being affected by the competitive environment and whether the organisation can benefit from the use of IT to make it more competitive, efficient, effective and profitable. In many organisations, IT is looked upon as strictly a “cost centre” that provides support to the “real business components” of the organisation that generate revenue, collect cash, and manage the human resources among other things. While the operational managers will agree that technology is essential to the organisation’s operations and processes, they do not necessarily view IT as a critical element to their success. Often, IT is viewed as an obstacle. This leads to gaps in the organisation’s structure, whereby non-IT managers are not communicating enough with their IT counterparts. Hence, certain managers will start expressing concern about the IT strategy and that this might not be functioning properly. On the other hand, IT managers will say that the IT strategy is functioning properly and that they are not getting enough recognition from their non-IT counterparts. To prevent the separation of the IT and business entities, communication is important between the IT and non-IT managers. It is quite all right for the different departments to disagree or misunderstand one another. Operational managers see themselves as focused on the true core competency of the organisation and they view their role to be critical to operational success. Both IT and non-IT managers are completely accurate in their perspectives, but non-IT managers should view the organisation’s IT strategy as a critical entity for the organisation’s success. Furthermore, IT is one of the few organisation’s entity that can help the organisation to be more productive and successful. Another aspect is that managers need to plan their strategies carefully. When planning, the key technological issues that should be addressed by the organisation would be easily identified. IT initiatives and their priority of implementation would enable the organisation to forecast cost-saving measures, changes in operations and processes, and achievable benefits and profits. If the organisation’s priorities change, it will be easy to verify its IT initiative plans and change them to meet the organisation’s new goals, objectives and direction. Since today’s business organisations are increasingly using IT to conduct operations and processes, and drive innovation, managers need the knowledge of new business and IT initiatives to make strategic plans of the organisation’s goals, objectives and direction. The organisation will thus be able to respond with flexibility and speed to any customer demand, market opportunity, or external threat. However, there are certain challenges that the organisation should take into consideration before implementing this capability. The lack of understanding among business managers about how IT can help achieve corporate goals may hinder the formulation of any IT plans to support the business plans. Another aspect is that often for some organisations, the IT projects do not deliver enough value because they fail to align themselves with the business objectives. These organisations launch more projects than they can handle effectively; and they neglect to set project priorities based on their business objectives. In other words, the decision makers in these organisations do not know how to analyse the organisation’s needs and focus resources on projects that would lead to better efficiency and cost savings in the organisation’s operations and processes. To help the organisation meet these challenges, an effective strategy that allows it to align IT and application development projects, resources, and initiatives should be planned and developed. By developing and monitoring the measures that treat IT as an intangible asset towards business success and planning an appropriate and adequate IT strategy, the organisation will be able to better integrate its operations and processes, reduce cost, and face any exterior threat. In essence, aligning IT and business strategies allow the organisation to better manage its assets and operational capabilities. Hence the risk of failure is reduced and the organisation will be able to get higher returns on its investment. Managers will become more proactive towards the organisation’s goals, objectives and direction so that any business risk will be identified and solutions found rapidly. Organisations need to align their IT and business strategies to improve the way they use their existing resources in order to maximise productivity. Furthermore, the need for better IT governance will help the organisation in decision making by providing it with a framework which will help ensure that IT decisions are aligned with the overall business strategy. The participation of IT in setting business goals and directions will also help the organisation establish standards and prioritise investments so that it remains competitive and profitable. As with any new strategy, the introduction of an IT strategy into the organisation requires an investment of time and effort. However, this investment will yield benefits such as the closer alignment of IT and business strategies which will make the organisation respond with flexibility and speed to any customer demand, market opportunity, or external threat. Managers will be able to analyse and plan the organisation’s operations and processes, identify redundancies, allocate resources appropriately, implement new methods to steer the organisation towards a new direction, and spot new opportunities for it to expand. This perspective also leads to improvements in customer service and greater client loyalty towards the organisation’s products and/or services. The organisation’s infrastructure also benefits from the IT initiative and the alignment of the IT and business strategies. As managers call for integration of the organisation’s operations and processes, the fastest and most economical approach is to initiate an IT strategy that will integrate the business functionality and IT capability of the organisation in new and more efficient ways. Leveraging existing IT resources and existing business investments frees resources for the organisation, allowing it to be more proactive about revenue-generating activities and focus more on customer service. It is important to recognise that an IT strategy offers a quicker time-to-market approach to developing new business services. Customer-centric organisations can provide better service when they break down existing processes and data sets, and reassemble them as reusable IT services. As a result, business managers can empower employees to do more for customers, and empower customers to use IT to help themselves, so that the organisations can continue to evolve. Additionally, organisations need quick go-to-market strategies to stay competitive. Embracing the IT strategy helps address issues on the integration and alignment of the IT and business strategies. The integration issue combined with the organisation’s actual infrastructure can be addressed by managers to provide the organisation’s operations and processes with the necessary framework to transform it. Most important, as the organisation continues to search for new and profitable markets, the expansion of the organisation’s products and/or services can be made possible through the alignment of the IT and business strategies. This initiative will ultimately make the organisation more efficient, competitive, and also more profitable. If aligning the organisation’s business and IT strategies is to be a worthwhile activity with a positive return, there first needs to be a strategic business opportunity to which IT is integral. Finding and developing a business strategy that calls for an IT strategy is a critical process and is undertaken either proactively or reactively. For example, through the 1970s and 1980s the well-known financial services company United Services Automobile Association (USAA) grew both the quality and diversity of its products and services by focusing on the single objective of identifying and meeting customer needs, and by leveraging IT to meet that goal. There was vision and solid commitment from the top. Their strategy was proactive. In contrast, United Parcel Service (UPS), with its long successful history in package delivery, faced significant changes in its business environment in the 1980s. Deregulation of both trucking and airlines, and the success of new competitors such as FedEx awoke UPS to the realisation that the successful player in their evolving industry would be a logistics company as much as a transportation company. To their customers, information was becoming as important as their packages. However at UPS, IT had been very non-strategic, strictly an internal support tool. Their “wake up call” drove home the need for substantial investment in IT for customer service, and today UPS has superb logistics competency. Their strategy was reactive. Reactive examples are the more common of the two. It usually takes a wakeup call for an organisation to undertake major strategic change and the necessary investment. Also, the rate of change today tends to place organisations in constantly reactive mode, and developing a long-term strategy is a greater challenge than it has ever been. The strategic alignment model describes particular components of a business strategy to which an aligned IT strategy is a valuable partner:
The strategy proposes a product or service offering that either is information outright, or is heavily information-intensive.
The organisation is seeking to add value to the customer in a way that is unique and outshines the competition and that has IT as integral elements. The UPS example has elements of both. UPS had to develop logistics as a business (i.e. information as a direct customer service) and a new competency distinct from existing competition. That called for “front office” IT technologies and applications. After having crafted a business strategy, an immediate leap into building an IT strategy can be a costly error if other areas need attention first; so it is critical to do a careful assessment of the organisation. Areas of weakness should be carefully examined (the strategic alignment model is again a useful tool). For example, the organisational infrastructure should be examined and defined. The proposed strategy should also focus on either product or customer segmentation. If the analysis reveals weaknesses, there is an absence of strategic fit in the organisation. The structure does not fit the strategy. In this case the alignment perspective is depicted as follows: The focus is on leading from a strong strategy viewpoint to achieve strategic fit within the organisation. At the same time, IT structure and processes are defined by the business processes. Hence, this business-to-IT relationship is between the organisational and IT infrastructures. IT is not yet strategic; so IT strategy does not even appear in this perspective. Once the business side of the alignment model has been addressed, and the strategy and structure are in a state of “fit”, a different domain will become the area of weakness. If the business strategy is one to which IT is integral, the perspective becomes: Here the business strategy is driving the need to develop the IT strategy. Now the most critical relationship is integration between the strategies. IT structure and processes now depend upon IT strategy decisions, which define the technologies that are integral to the business strategy. This means the strategic fit focus for now is between IT strategy and IT infrastructure. What perspective evolves next depends on the path of the business. Where information actually is a core product or service the organisation’s focus may turn to providing IT service, as in this perspective: Here IT strategy is the principal driver; in fact it could be viewed as the business strategy. Management focus is to fit IT structure and processes to the IT strategy so that IT structure and processes will enable business structure and processes. An organisation may never experience this perspective organisation-wide; however, some IT executives often do, by viewing their IT organisation as a business within a business. This view carries the risk of losing sight of the business strategy of the enterprise, encouraging IT to view itself as a service function, and mitigating against IT being a strategic resource. Where IT strategy has been necessary to build a distinctive competence (e.g. UPS), leveraging IT may enable new strategic opportunities. When this happens IT has become a truly vital force to the business enterprise, as depicted in this perspective: At first sight, IT appears to be driving the business; however, IT’s role is best described as enabler, or in some cases an integrator. Again considering USAA: For 50 years they were an insurance company concentrating on two businesses: property and casualty, and life insurance. Starting in the early 1970s they developed an IT strategy towards the goals of enhanced customer service and price performance. The customer information collected as a result of that strategy enabled expansion into highly successful new businesses such as consumer banking and investment management. With the focus on integration between the strategies, IT is clearly playing a vital strategic role. As the new business opportunities enabled by IT evolve, the organisational structure and processes will need to fit the evolving strategies. And, as those strategies take shape the perspective will change yet again. The perspectives of alignment mentioned earlier have been tried in a number of organisations. To successfully find out the required perspective for the organisation, the following should be considered:
The Strategic Alignment Model calls for the recognition of multivariate relationships, or more precisely, cross-domain relationships. Four types of cross-domain relationships exist. The first two cross-domain relationships arise when business strategy serves as the driving force.
This perspective is anchored on the notion that a business strategy has been articulated and is the driver of both organisational design choices and the design of IT infrastructure. This alignment perspective is, perhaps, the most common and widely understood perspective as it corresponds to the classic, hierarchical view of strategic management. Thus, it is not surprising that several different analytical methodologies are available to make this perspective operational: critical success factors, business systems planning, and enterprise modelling. It is important to identify the specific role of management to make this perspective succeed. Specifically, top management should play the role of the strategy formulator to articulate the logic and choices pertaining to business strategy, whereas the role of the IT manager should be that of the strategy implementer, one who efficiently and effectively designs and implements the required IT infrastructure and processes that support the chosen business strategy. The performance criteria for assessing the IT function within this perspective are based on financial parameters reflecting a cost centre focus.
This alignment perspective involves the assessment of implementing the chosen business strategy through appropriate IT strategy and the articulation of the required IT infrastructure and processes. In contrast to the strategy execution logic, this perspective is not constrained by the current organisation design, but instead seeks to identify the best possible IT competencies through appropriate positioning in the IT marketplace, as well as identifying the corresponding internal IT architecture. For example, United Services Automobile Association (USAA), a leading U.S. insurance company, decided that their business strategy of low-cost insurance delivery via telemarketing required the development of a superior document-handling system based on state-of-the-art electronic imaging technology. Since such technology was not available, they pursued a joint development venture with IBM. Their IT strategy involved defining this key technology scope and the associated critical competencies and committing to a technology alliance. Equally important, however, the strategic management process also defined the changes in the IT infrastructure that were necessary to execute this technology strategy. Thus, they understood the issues in migrating their technology architecture, including the need to invest in the development of data architecture. Another example is American Express Travel Related Services Co., Inc., whose business strategy is anchored on two technology-based competencies: providing quick approval of purchases made by charge card and providing copies of receipts to the cardholders. The approval process on a charge card (without any preset spending limit) typically has a longer lead time than a corresponding transaction involving their competitors’ credit cards (with a preset spending limit). It was imperative that American Express match the response time of the leading competitors to reduce the possibility of the cardholder switching to an alternative, faster-transacting card. This business strategy required a systematic competence involving expert systems as well as corresponding changes in the internal IT organisation for developing, maintaining, and controlling the systems. Although cardholders expressed satisfaction with this service, the cost of maintaining and distributing the slips was becoming prohibitive in the traditional mode. Their investment in an optical-scanning, storage, and laser-printing system allowed the delivery of the same level of service more efficiently. These examples highlight the impact of business strategy (especially, distinctive competence) on IT strategy (IT governance and systemic competencies, respectively) and the corresponding implications for IT infrastructure and processes. Techniques used to aid executives in the development of this strategy include technology forecasting and a variety of architectural planning approaches. The role of executive management in this perspective is to provide technology vision that would best support the chosen business strategy. The role of the IT manager should be that of the technology architect, who efficiently and effectively designs and implements the required IT infrastructure that is consistent with the IT vision (scope, competencies, and governance). The performance criteria in this perspective are based on technology leadership, often utilising a benchmarking approach to assess the position of the organisation in the IT marketplace. The following two cross-domain relationships arise when management explores how IT might enable new or enhanced business strategies with corresponding organisational implications.
This alignment perspective is concerned with the exploitation of emerging IT capabilities to impact new products and services (business scope), influence the key attributes of strategy (distinctive competencies), and develop new forms of relationships (business governance). Unlike the previous perspective that considers business strategy as given (or, a constraint for organisational transformation); this perspective allows the adaptation of business strategy via emerging IT capabilities. Beginning with the three dimensions of IT strategy, this perspective seeks to identify the best set of strategic options for business strategy and the corresponding set of decisions pertaining to organisational infrastructure and processes. Key examples of this perspective include the exploitation by Baxter Healthcare of its IT position (enhanced technology scope, greater systemic competencies, and governance with IBM through the Spectrum joint venture that will provide software service to the health care marketplace) to deliver superior, value-added service to its hospital customers and the consequent implications for redesigning the internal organisational processes. Similarly, the attempt by Federal Express Corp. to create a new standard for overnight delivery with corresponding implications for redesigning its internal processes or the ability of American Express to leverage its IT infrastructure to develop capabilities for electronically filing income tax returns and for customised financial products reflect how an effective IT positioning can be used to enhance or create new business strategies. That is, in each of these cases, an important enabler of the ability of the organisation to move quickly to acquire technology or achieve the competencies necessary to embark on their strategy was their position in the IT market. The specific role of top management to make this perspective succeed is that of the business visionary; one who articulates how the emerging IT competencies and functionality as well as changing governance patterns in the IT marketplace would impact the business strategy. The role of the IT manager, in contrast, is one of the catalysts; one who identifies and interprets the trends in the IT environment to assist the business managers to understand the potential opportunities and threats from an IT perspective. The performance criteria in this perspective are based on business leadership with qualitative and quantitative measurements pertaining to product leadership such as market share, growth, or new product introduction.
This alignment perspective focuses on how to build a world-class IT service organisation. This requires an understanding of the external dimensions of IT strategy with corresponding internal design of the IT infrastructure and processes. This strategic fit for IT creates the capacity to meet the needs of IT customers. In this perspective, the role of business strategy is indirect and is viewed as providing the direction to stimulate customer demand. This perspective is often viewed as necessary (but not sufficient) to ensure the effective use of IT. The IT organisation must deploy resources and be responsive to the growing and fast-changing demands of the end-user population. Analytical methodologies even partially reflecting this perspective require a systematic analysis of both the customer needs and the products and services that currently exist, along with those under development. Examples of analytical methods include end-user-needs surveying, service-level contracting, and architectural planning. The specific role of top management to make this perspective succeed is that of someone who articulates how best to allocate the scarce resources both within the organisation and in the IT marketplace (in terms of joint ventures, licensing, and minority equity investments). The role of the IT manager, in contrast, is one of executive leadership, with the specific tasks of making the internal service business succeed within the operating guidelines from top management. The performance criteria in this perspective are based on customer satisfaction obtained with qualitative and quantitative measurements using internal and external benchmarking.
Today’s business environment has forced many organisations to evolve reactively and create new strategies and plans for their operations and processes. Managers are now faced with a complex and overwhelming mesh of technologies and applications, often not easy to implement without the use of proper IT strategies. This situation is expensive to maintain and difficult to understand and manage. Yet in today’s competitive environment, managers must understand the operations and processes of their organisation in order to make faster, cost-effective, IT investment decisions based on their core business strategies. Thus, organisations are now beginning to tackle this problem by taking a more holistic approach to using IT together with business strategies. Plans and decision making will be enabled and an overall organisational strategy based on its entities will be developed. Managers will analyse and optimise their organisation’s operations, processes and technologies which will provide tremendous value to the organisation’s business. This aspect will be the foundation for aligning IT with the business strategy and maximise the business value through IT investments. One of the most compelling reasons for a closer alignment of the business strategy with the currently invested technologies is to have a clear view of the organisation’s goals, objectives and direction in the highly competitive business world. Another reason includes the support of the organisation’s operations and processes in general. Having a proper strategy can better support initiatives which will support the introduction of new applications and business functionality within the organisation. There are a few areas to take into consideration when thinking about aligning IT with the business strategy. For example, it is vital to understand how the business operates. This means capturing and understanding the underlying operations and processes across the organisation. By planning and then creating the associations between applications, processes, and technologies, business managers can begin to understand what their organisation needs and the operations and processes they need to support and implement. Creating this type of view of the organisation can immediately provide returns on investment to management in the form of better decision-making abilities by understanding the impact of proposed change and organisational transformation. Another area of consideration when aligning IT with the business strategy is generating a plan. The purpose of a plan is to define and communicate a clear strategy for achieving the business goals, including what part IT needs to play in the organisation. A plan enables managers to focus on strategic business goals while associating them directly to required assets and changes to the IT strategy. By planning goals and objectives, managers are better able to communicate a central and unique strategy, one that increases efficiencies and aligns IT directly to the business strategy. This leads to another very important consideration that is communication. Planning the relationships between business initiatives, goals, operations, processes, policies, and the actual underlying IT infrastructure gives managers the tools they need to make strategic decisions based on the use of IT in the organisation and the overall business strategy. Organisations that have been able to successfully integrate technology and business strategy have created significant business returns. IT has become an important enabler of business strategies in such areas of mass customisation, competitive differentiation, quality improvements, and process automation and improvement. Managers that have aligned IT with business strategies argue that the integration was crucial to the organisation’s survival and its success. IT has added value to an organisation’s effectiveness by acting as change agents, focusing on business imperatives, and helping to achieve effectiveness and efficiency. Research on the alignment of IT and business strategy has shown positive linkages among competitive strategy, IT, and performance. The alignment of IT and business strategies has been utilised by organisations to create and improve efficiencies, reduce costs, improve customer and buyer/supplier relationships, and to create new products and business solutions. Organisations that fail to strategically align IT and business strategies face increasing financial and opportunity costs. Failure to align business strategy with IT results in the following mishaps:
There are several methodologies available to align IT and business strategies together. One quite efficient way is through the use of a strategic model. A number of models are available that seek to show the dynamics of the IT and business alignment concept. Because business and IT environments and strategies are constantly changing, alignment needs to be understood and continually reviewed and adjusted.
A number of attempts have been made to model where IT should fit into an organisation, to ensure it plays a positive role in achieving business objectives. Some of these models are discussed below. Clarke (1994) provides the following diagram constructed by Scott Morton (1991) that illustrates five factors that influence an organisation’s strategic goals. These are structure, management processes, individuals and roles, technology and strategy. The model shows that the relationship between technology and strategy is not simple or direct and the relationship may be influenced by the organisations culture. The relationship may also be impacted by internal and external technological and socio-economic environments. Because the internal and external environments of an organisation may be highly dynamic, alignment must be continually re-examined and monitored. The central element of the model is ‘management processes’. These processes stand between IT and business strategy. Hence the model suggests that if adequate management processes are not put in place, then alignment between IT and business strategy will be difficult to achieve. The model also emphasises the importance that organisational structure and individuals and roles play in contributing to alignment. The relationship between IT and structure may be direct without any impact from management processes. Curtin (1996) discusses a business model called the ‘Strategic Alignment Model’ originally developed by Henderson and Venkatramen (1993). The model has four domains or variables: business strategy, IT strategy, organisational infrastructure and IT infrastructure. The model is more simplistic than the one constructed by Morton and takes the emphasis off ‘management processes’.
Kosits (IBM) suggests that to achieve business and IT alignment, the organisation must first define its goals and then determine which domain of the Henderson and Venkatramen model will have the most impact on future success. The weakest domain is then examined in detail (usually IT strategy). Specific actions can then be set to improve alignment, with the actions varying depending on the organisation and its environment. Both models presented previously show the relationship between the domains is dynamic with a strategy or technology decision impacting on one or more of the other domains. Hence, the alignment model inside an organisation must be continually reviewed because of the constant change in the internal and external environments. Corrective action must be taken to realign the organisation when necessary. Many managers do not realise that a decision imposed on one domain may impact on one or more of the other domains. Different people depending on their experience and background will have different strengths in each domain. An IT professional would likely have strengths in IT strategy or infrastructure while a business manager would likely have strengths in business strategy or organisational infrastructure. This could lead to problems if communication channels are not strong and management processes are not in place to facilitate alignment. Luftman (1998) describes a study by IBM involving executives from over 8000 organisations. The study found that the six most important factors for aligning IT and business were:
These findings support the alignment models presented and show the importance of the ability of management to facilitate the alignment process between business and IT.
An important factor in any organisation achieving good alignment between IT and business is the structure of the organisation. This includes where the IT function is placed in the organisation and how it relates to other functions and business groups. Good organisational design may reduce the costs of coordinating groups of people in a workplace, and enhance cooperation and communication. Many organisations are structured to have centralised computing staff and information and hence centralised information flow. Control of information flow can create a significant power structure within the organisation. Centralised structures may also create conflict and resentment from users who may avoid the central system or create their own systems that offer them the flexibility they require. Goodman (1998) makes the point that there can be poor alignment between IT and business because organisations concentrate IT in one group. This argument may be valid, but dispersion of IT staff can lead to poor communication, loss of standards, and an increased risk of system failure and data loss. What is critical is a strong relationship between the users and the IT developers. An IT staff member who has a thorough knowledge of the business area that the application is being developed for will most likely raise the quality of the system that is produced and managed. IT can influence how an organisation is structured. Making information available more widely through an organisation may allow decisions to be made at a lower level. Conversely IT could centralise decision-making at a higher level because of a greater capacity to process information. It may also provide for better decisions because of more timely and relevant information. The computerisation of functions may result in sections of an organisation becoming obsolete and new sections forming. For example it is not uncommon for organisations to now have a web development and maintenance section. In addition to considering the organisational structure when discussing alignment, the occupational structure (the distribution of employment among skill classes and occupations) of an organisation should be considered. Laudon and Marr undertook a twenty year longitudinal study of occupational structure in three large, IT intensive US organisations. They concluded that ‘organisational occupational structures are quite stable in the face of massive IT change and claims that IT bringing about revolutionary changes in organisational structure have little empirical foundation even though there may be isolated cases where such rapid and drastic changes do occur’. The study also found that many factors mediate the IT; occupational structure relationship including management strategy, organisational culture, and pre-existing occupational structure. In an article by Slater (1999) a description is given how the Ford motor company has implemented a four-stage model to keep all parts of the organisation aligned to common corporate goals. The basic model is composed of the company’s mission, strategy, processes and infrastructure objectives. The model is mirrored at each level of the company including the IT section, that is, the IT section will describe in an appropriate level of detail how it will achieve or align itself with the company’s mission, strategy, process and infrastructure. Ford has centralised its IT services, taking IT staff out of their functional areas. To ensure the IT staff does not lose touch with their business areas, personnel report both to the Chief Information Officer (CIO) and to business function heads. This type of matrix management can have its own problems, but it does illustrate the importance that Ford has placed on the IT area remaining aligned with the functional business areas, and its preparedness to change its structure to ensure good alignment.
A factor that can influence the degree of alignment between business and IT strategy is resourcing. This includes human and financial resources and how they are allocated and controlled within the organisation. Also the availability and quality of both management and IT staff (internal and contract) can significantly impact on the degree and effectiveness of alignment. A well resourced and managed IT section within an organisation is expected to have a larger impact and influence than a poorly resourced IT section. If the IT section has the ability and resources to significantly impact business operations and decisions there is a need to ensure it is aligned with corporate goals. If it is perceived the IT section is not aligned with corporate goals variations in resource allocations could be used to draw it back into alignment. For example funding and staff could be reallocated to the functional business areas. This can however create problems such as the dilution of IT expertise and standards and loss of knowledge sharing. Mingay, Furlonger, Andren (1998 Gartner Group) believe that for organisations that cannot afford to be at the top of the IT staffing food chain, IT skills will become the defining limitation on what organisations are able to achieve with IT, rather than a lack of capital. This lack of talent in the industry seems to be evident in the market place at the current time but is expected to dissipate with time as more graduates become available in the IT area. The shortage of IT skills in Australia is made worse by many practitioners moving overseas for better salary packages. Rather than having its own IT staff and resources organisations may choose to outsource the function. The Australian Government has adopted this approach in recent years. As indicated by Bushell and Walsh (1998) the primary tool to maintain business alignment using IT outsourcing is the structure and management of the contract and business relationship. If the contract and business relationship is not satisfactory then the ability of IT to align with business goals will be poor. One advantage of using outsourcing is that the IT function they perform must be clearly documented which may make it easier to see if alignment is evident. The function of internal IT sections may not be as clearly defined.
A key factor in aligning IT with business strategy is technology and the architecture of the technology. This includes the network, databases, internet, intranet, extranet, communications, servers, desktops and other hardware and software. The type and relevance of IT infrastructure will play a large part in the degree to which it can be used as a strategic resource to assist in meeting business goals. Slater (1999) identifies a difficulty in aligning infrastructure with business strategy as being the difference in time between the change in business strategy and IT infrastructure. A business strategy may last 12 months, and IT infrastructure 5 to 7 years and some databases more than 10 years. Hence, it can be very difficult and expensive for IT to respond to a business environment that is changing at an increasing rate. The internet has introduced a new way of doing business and traditional business and IT strategies are being challenged. The need for new strategies has resulted in the need to re-evaluate alignment given that a focus on E-business may require new technical architecture, new skills and staffing, new funding, new corporate standards and new business rules. New business relationships such as internet service providers and maintenance may also be required. The internet and E-business has provided organisations with a new way to market their products, conduct financial transactions, communicate with clients and distribute information. The internet provides organisations the ability to directly interact with clients to help to achieve corporate objectives. It also enables organisations to collect much more demographic and marketing information regarding the customer base than ever before. The internet has caused many organisations to review both their business strategies and IT strategies in view of new competition in the marketplace and advancement of globalisation. Some organisations may regard IT as a bottom level tool or expense rather than a strategic asset. The proliferation of E-Business is helping to change this view. E-business is clearly demonstrating that alignment between IT and business strategy can result in improved efficiency and profitability. Better alignment is maximising the organisation’s investment in IT and enhancing the achievement of business objectives. Within organisations intranets are being used to disseminate information more efficiently which contributes towards the attainment of corporate goals. Extranets are achieving direct alignment of IT with business. Extranets use web technology to connect the organisation with its customers and suppliers irrespective of the partners’ geographic location. The advancement of computer networks and telecommunications in general has allowed the development of flexible working arrangements such as tele-working. Ruppel and Howard indicate that the factors suggested by tele-work literature as influential in tele-works adoption are:
If it is a business strategy to reduce business rental costs and increase the mobility and flexibility of the workforce then an initiative such as tele-working may be directly attributable to improved technology. Many of the issues above however relate to management of the initiative and hence good communication is required between the business managers and tele-workers. Other business initiatives that are technology based such as call centres, speech recognition and virtual teams may have an impact on organisational structure and operation. Call centres and speech recognition may fulfil the business objective of more efficient and cheaper customer service while virtual teams may satisfy a business objective of less space required by staff and more flexible working arrangements. These initiatives may demonstrate a high degree of alignment between business and IT strategy.
For business and IT strategies to be aligned there must be clearly defined business and IT goals and a process to review and formulate these goals. Planning at a number of levels including tactical and operational planning is required. The planning should aim to provide transparency between the business and IT strategies. It is important for good alignment that IT professionals are involved during business planning and that business professionals are involved during IT planning. A recent survey indicated that Chief Executive Officers (CEOs) expect more from IT than it can deliver (Brier 1999). The survey found that greater involvement of executives through the information management framework does seem to have helped better alignment between the executives’ expectation and the IT product that is delivered. Before any IT project commences, the project should be able to demonstrate its linkages to business plans and how it is aligned with corporate objectives. The IT project plan should be continually reviewed to ensure it remains in alignment with continually changing business conditions. Measures could be implemented to monitor alignment. Such measures would include financial and operational data. The project should be within the appropriate range of risk that the organisation is prepared to endure. The project risk factors to be taken into consideration include:
Part of the plan to ensure the IT project has been aligned with business objectives is to implement performance measures and targets and evaluate performance before and after implementation.
Griffin (1990) defines effective communication as ‘the process of sending a message in such a way that the message received is as close in meaning as possible to the message intended.’ The Jenson Group (1997) comments that although ‘changes around us are demanding quantum leaps in performance, accountability and new behaviours …, almost none of our communication (<20% on a good day) is designed to achieve these goals.’ Good, effective and relevant communication is particularly important in the IT industry because it is in an environment of constant change. Brier (IBM) indicates that a climate of clear communication is a necessity for the alignment of IT and business strategies. This communication must be present between all levels of the organisation. If good personal relationships exist between business and IT staff and management it will facilitate good communication, and hence good alignment. Perry (1992) refers to a study by Schein (1981) that suggests there are three basic levels of culture in an organisation.
These levels are not mutually exclusive, but are interrelated. Hence the implementation of a new IT strategy or a new business strategy may require a change in structure, culture or both. To implement a new strategy a change in the reward system or modification in the staff’s values and beliefs may be required. Mingay, Furlonger, Magee and Andren (Gartner Group 1998) point out ‘There is no greater obstacle to change than corporate culture, entrenched management practices and internal politics’. Brier (IBM) argues that alignment must become part of the corporate culture to be successful. He states that for an organisation to stay aligned it should focus on:
Glasser (2000) describes alignment of business and IT at Capital One Financial Corporation in the US where the vice president defines alignment as “a balancing act of the organisational forces of decision making, leadership, process and reporting relationships”. The company has used IT to invent products and develop its market. Alignment of IT with business objectives has been made a fundamental part of the corporate culture. The company uses an alignment training tool consisting of four components: flexibility, economic judgement, alignment with the business and support for the company culture. All staff is trained in the importance of maintaining alignment.
The alignment of IT with business strategy may require the organisation to change various aspects of business operations, structures and cultures. The success to which alignment can be achieved will largely depend on the success of the organisation’s ability to managing this change. The degree of change to better align business and IT strategy will depend on the circumstances of the organisation and the extent to which alignment is already present. IT projects and strategy can centralise or disseminate decision-making, they can flatten or deepen structures, they can shift power structures, and they can raise or reduce job satisfaction and staff morale. Because of the potential impacts of IT projects and strategy it is important to implement appropriate change management processes. Included in the change management toolkit will be processes such as:
Raymond and Luftman (1994) found that the key enablers to alignment included executive support for IT and the need to participate in developing business strategy. IT leadership was the third enabler identified by both IT and non IT executives. The study found that the major inhibitors to alignment were lack of a close relationship between IT and business, poor prioritisation of workload, failure of IT to meet its commitments, and lack of executive support for IT. Unless the high level management of an organisation are committed to achieving alignment within the organisation it will not happen. Once alignment has been achieved it must then be monitored and maintained as the environment and business changes.
The world and everything associated with it are changing nowadays. This means that the environment that organisations face is also changing. With the liberalisation of the world economy, organisations face tougher competition and have to find ways to remain competitive so that challenges can be overcome and opportunities taken. Moreover, with the current economic crisis in the world, organisations have to face even tougher challenges for survival. Hence, new business methods are necessary to transform the organisation into a competitive one. The changes that are affecting organisations are as follows:
The research methodology sets the guidelines for conducting research. The processes involved in the researching material for the dissertation are as follows:
Case study research is the most widely used methodology in IT research domain (Alavi and Carlson, 1992; Benbasat et al. 1987). Case studies allow researchers to examine the subject in greater depth than other method. Triangulation can assist this, because it means using different sources of information to build a better and more extensive picture. For instance, an observation could take place, then a questionnaire, an interview, and examination of medical records, and even an experiment. But not necessarily everything at one go, it depends on the research focus and needs. However, with triangulation, the data may not all correspond, but one looks for instances where it does. Case study has been a subject to criticism due to a lack of ability to make statistical generalisation and the space for interpretation left by the richness and complexity of the data collected. Yin (2002) and Drake at al. (1998) has therefore called for an improved quality of case study research, which will involve using specific research question before the research begins and clearly documenting the trail of evidence to the case analysis. Hence for this particular title “alignment of business and IT strategy”, a case study is a more suitable form of research method as it will help to examine the subject in a real case scenario. The retrieved data will help to generate more realistic ideas that will help transforming a business. Moreover, the information gathered from case studies will reflect strategies opted by the researched company in different business circumstances or economic climate. This will help to tackle the issues in a much better manner which will be up to date with today’s business environment. Some researchers have outlined the importance of the case study methodology. The likes of Samuel Levy (1988) who conducted a study of instructional and research computing at the University of Arizona and his study replicates and extends the Levy (1988) study, and was conducted at Fairfield University. Levy’s current study extends the Levy (1988) study in its examination of aspects of the Internet, the World Wide Web, and Client/Server computing. Levy (1988) established the use of the case study as appropriate for the research project, and this researcher also used the literature to confirm the use of case methodology in the study at Fairfield University. The history and development of case study methodology is reviewed, in support of the current case study at Fairfield University. There have been periods of intense use followed by periods of disuse of this technique, as documented by Hamel, Dufour, and Fortin (1993) as well as others. The relevance of that history to this study is important in that it establishes the known advantages and disadvantages of the methodology. The particular technique of a single-case study is reviewed, since that is the specific implementation of a case study at Fairfield University and was also used by Levy (1988). The quintessential characteristic of case studies is that they strive towards a holistic understanding of cultural systems of action (Feagin, Orum, & Sjoberg, 1990). The case studies must always have boundaries (Stake, 1995). Case study research is not sampling research, which is a fact asserted by all the major researchers in the field, including Yin, Stake, Feagin and others. However, selecting the cases must be done so as to maximize what can be learned, in the period of time available for the study. For this particular title we will be researching on a company who is the market leader in the betting industry. The company is highly sophisticated in terms of information technology, as they believe continuous investment in IT will help them to edge on their competitors. The company is ‘Ladbrokes plc’.
Ladbrokes plc is a world leader in global betting and gaming market. Today the company, whose origin stretch back to 1886, employs 14000 people in five countries, making it world largest fixed odds betting company. In retail, Ladbrokes is the leading bookmaker in the UK, Ireland and Belgium with over 2600 owned and operated betting shop. It also operates betting facilities at most of the leading premiership grounds and a number of leading race courses. The betting and gaming industry is a service business. The product is the experience customers enjoy when they place a bet with the employees and watch a race in the shop. In an increasingly competitive market place the Ladbrokes brand is a key asset. Ladbrokes is perceived as the market leader by the general public and over 50 percent of regular bettors.
In addition to its extensive retail presence, Ladbrokes is a world-leader in remote betting offering thousands of betting markets each day over the telephone and Internet. Its telephone betting service services 120,000 active customers via call centers in London and Liverpool in the UK as well as in Kuala Lumpur, Malaysia. Over 500,000 active customers bet with Ladbrokes over the Internet at its world-leading Internet site Ladbrokes.com. Betting is available in 16 currencies and 11 languages. Ladbrokes is expanding internationally and in 2006 established its first shops in Italy, where they opened 200 outlets by mid-2008. Ladbrokes also plans to launch operations in Spain where the Madrid region has announced plans to regulate sports betting for the first time.
Ladbrokes has expanded globally, the company has opened retail shops around the world and operates part of their call centres business in Malaysia. The company control the call centre operation in a virtual manner from its head office based in London. They make use of the latest technology to control the operation abroad and conduct meetings and monitor performance. The company has been operating as a virtual organisation successfully due to their appropriate network and virtual teams appointed to set up the site and manage it.
Ladbrokes uses the latest high tech technology to manage its virtual operations. The company have created their own specific intranet site, where every member of the organisation can access and get up to date information of the company business, training and promotion briefings. Moreover, the company have a strong IT staff team to manage its virtual operation, with facilities such as, video conferencing, conference call, web-cam, emails and the bespoke system. These available technologies facilitate the functioning and managing of the virtual operations.
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