Alignment between Business and IT strategies: A Case study status at a transport organisation.
1.1 BACKGROUND TO THE RESEARCH PROBLEM
2 Chapter 2 Literature review
The literature review will be based on the research into alignment of business and IT strategies. It forms the basis for answering the research question. The three theoretical models used in this research are first introduced. Then a comprehensive literature review of the current status of research as regards the alignment between business and IT is carried out. Where possible reference will be made to the three models used in this research. Alignment in the literature is divided into mainly two distinct areas, end state (static) or process driven (dynamic)…
2.2 The Theoretical Models
2.2.1 The strategic alignment model (SAM)
Henderson and Venkatraman (1993) architects of the SAM model developed the model to conceptualise and address the emergence of strategic management in IT. The SAM model Henderson and Venkatraman (1993) is defined in terms of four essential domains of strategic choice namely business strategy, information technology strategy, organizational infrastructure and processes and information technology infrastructure and processes. According to Henderson and Venkatraman (1993) the power of the SAM model is illustrated in terms of two essential characteristics of strategic management namely the strategic fit (the interrelationship between external and internal components) and functional integration (integration between business and functional domains).
2.2.2 Strategic Fit
Henderson and Venkatraman (1993) state that the concept of strategic alignment is based on two fundamental assumptions firstly that economic performance is directly related to the ability of management to create a strategic fit between the position of the organisation in the competitive product-market arena and the design of appropriate administrative structure to support it’s execution and secondly that this strategic fit is inherently dynamic and that strategic alignment Bricknall,Darrell,Nilsson and Pessi (2007) is a process and not an event. In this scenario strategic fit must be obtained externally as well as internally to obtain competitive advantage. Henderson and Venkatraman (1993) argue that the inability to realize value from IT investments is, in part due to lack of alignment between business and IT strategies of organisations. Strategy is viewed as involving both strategy formulation (decisions pertaining to competitive, product market choices) and strategy implementation (choices that pertain to the structure and capabilities of the firm to execute it’s product market choices) and there needs to be alignment between formulation and implementation Henderson and Venkatraman (1993).
Chorn (1991) researched strategic fit in terms of competitive situation, strategy, organisation culture and leadership. Superior performance was obtained from those businesses with a high degree of alignment between the four elements mentioned above Chorn (1991). Similarly Henderson and Venkatraman (1993) assert that no single IT application can deliver a sustained competitive advantage and that this competitive advantage is obtained through the capability of an organisation to exploit IT functionality on a continuous basis.
Henderson and Venkatraman (1993) contend that IT strategy should be articulated in terms of an external domain and internal domain and that the internal domain of IT strategy has dominated and the external domain of IT strategy has hardly been explored. As IT emerges as a critical enabler (and just not a cost centre) of business transformation with capabilities to deliver firm level advantages, it is imperative to pay attention the external domain of IT strategy Henderson and Venkatraman (1993). Their field research clearly indicates that the inadequate fit between external and internal domains of IT is a major reason for the failure to derive benefits from IT investments.
Thrasher (2008) extends the theory of strategic fit to the inter-organizational network, suggesting that strategic fit may be even more critical at the network level than at the more common firm level of strategic fit. Strategic fit has been researched and empirically supported at the firm level Thrasher (2008). The strategic fit of inter-organisational network Thrasher (2008) will play a key role in e-commerce and as such will require researchers to develop solid, theoretical models to better inform the IT community regarding the value of IT and strategic fit at this level of analysis
2.2.3 Functional Integration
Functional integration in the SAM models Henderson and Venkatraman (1989) depicts the relationships between the strategic perspective and the management of a function. Functional integration Henderson and Venkatraman (1989) relates to the integration of the positions of the firm in the competitive external market and the position of IT marketplace. This positioning will enable the realisation of IT investments. Similarly Nickels (2004) agrees that strategically positioning IT within the organization ensures that support for the business strategy drives the acquisition and uses of new IT technologies and services, and not the converse. Nickels (2004) maintains that the CIO plays a pivotal role in strategically positioning IT.
The second type of functional integration is the alignment of the business and IT infrastructures. The IT infrastructure influences and is influenced by the organisational infrastructure.
Besides the two dimensions of functional integration Henderson and Venkatraman (1989) recommend cross domain alignment which entails aligning business strategy with IT infrastructure. The cross domain is introduced as neither strategic integration or functional integration is not sufficient to align an organisation effectively Henderson and Venkatraman (1989). Avison,Jones,Powell and Wilson (2004) states that this multivariate co-alignment addresses strategic, as well functional integration. In the cross domain alignment perspective the multivariate alignment occurs only when three of the four domains are in alignment. There is the need to integrate the IT strategy and the business strategy. Two types of integration are identified, strategic integration the link between business and IT strategies reflecting the external components and operational integration linking internal domains (IT and organisation infrastructure and processes) Henderson and Venkatraman (1993).
Although the SAM model recognizes through strategic fit and functional integration the need for continual alignment, it does not provide a practical framework to implement this De Haes and Van Grembergen (2004). The BSC provides this practical framework as will be elaborated on later in this chapter.
2.3 Four alignment perspectives
The SAM model identifies four alignment perspectives. These are now described. For this refer to figure 1 above.
2.4 Business Strategy as driver
The first perspective is business strategy as the driver, the first two cross domain relationships arise when business strategy serves as the driving force.
2.4.1 Strategy execution
In this domain business strategy has been articulated and is the driver of both organisational design choices and the design of IT infrastructure see figure 2. This is the most common and widely understood perspective.
2.4.2 Technology transformation
- Role of top management
- Role of IS management
- Performance criteria
- Technology transformation
- Business Strategy
- Technology visionary
- Technology Architect
- Technology leadership
2.5 IT Strategy as an enabler
IT Strategy as an enabler, the next two cross domain relationships arise when management explores how IT might enable new or enhanced business strategies with corresponding organisational implications
2.5.1 Competitive potential
As shown in figure 3.2 this alignment perspective is concerned with exploitation of emerging IT capabilities to impact new product and services (business scope), influence key attributes of strategy (distinctive competencies), and develop new forms of relationships (business governance)
- Role of top management
- Role of IS management
- Performance criteria
- Competitive potential
- I/T Strategy
- Business visionary
- Business leadership
2.5.2 Service Level
As shown in table 3.3 this alignment perspective focuses on how to build a world class I/S service organisation. This requires an understanding of the external dimensions of IT strategy with corresponding internal design of the I/S infrastructure and processes. This Strategic fit for IT creates the capacity to meet the needs of I/S customers
- Role of top management
- Role of IS management
- Performance criteria
- Service level
- I/T Strategy
- Executive leadership
- Customer Satisfaction
2.6 The enablers and inhibitors of business/it alignment
Luftman and Brier (1999) modified the SAM model. by identifying twelve alignment components from the SAM model. The relationship between these twelve alignment components defines Business/IT alignment Luftman and Brier (1999). An assessment tool was developed to address the alignment of business and IT in firms by identifying the strengths and weaknesses related to the business/IT alignment by utilising the relationships between the twelve alignment components from the SAM model. These twelve alignment components are
2.6.1 Business Strategy
Business Scope includes the markets, products, services, groups of customers/clients, and locations where an enterprise competes as well as the competitors and potential competitors that affect the business environment.
Distinctive Competencies the critical success factors and core competencies that differentiate a firm from it’s competitors to provide it with a potential competitive edge. This includes the chosen strategy, marketing the brand, internal and external research, manufacturing and product development, cost and pricing structure, and sales and distribution channels.
Business Governance how companies set the relationship between management, stockholders, and the board of directors. Also included are how the company is affected by government regulations, and how the firm manages its relationships and alliances with strategic partners.
2.6.2 Organisational Infrastructure and processes
Administrative Structure the way the firm organizes its businesses. Examples include central, decentralise, matrix, horizontal, vertical, geographic, federal, and functional.
Processes how the firm’s business activities (the work performed by employees) operate or flow. Major issues include value added activities and process improvement.
Skills H/R considerations such as how to hire/fire, motivate, train/educate, and culture.
2.6.3 IT Strategy
Technology Scope the important information software, applications and technologies used.
Systemic Competencies those capabilities (e.g., access to information that is important to the creation/achievement of a company’s strategies) that distinguishes the IT services.
IT Governance how the authority for resources, risk, conflict resolution, and responsibility for IT is shared among business partners, IT management, and service providers. Project selection and prioritization issues are included here.
2.6.4 IT infrastructure and Processes
Architecture the blueprint for describing the enterprise architecture for the business includes business, information and technology priorities.
Processes those practices and activities carried out to develop and maintain applications and manage IT infrastructure.
Skills IT human resource considerations such as how to hire/fire, motivate, train/educate, and culture.
IT human resource considerations such as how to hire/fire, motivate, train/educate, and culture.
Table 1 Comparison of Enablers and Inhibitors adapted from Luftman,Papp and Brier (1999)
|Senior executive support for IT||IT/business lack close relationships|
|IT involved in strategy development||IT does not prioritize well|
|IT understands the business||IT fails to meet commitments|
|Business – IT partnership||IT does not understand business|
|Well-prioritized IT projects||Senior executives do not support IT|
|IT demonstrates leadership||IT management lacks leadership|
As can be seen in the table 3.4 the same set of topics (executive support, understanding the business, IT business relations and leadership) show up as both an enabler and an inhibitor.
From the survey results Luftman and Brier (1999) produced a six step approach to make alignment work in any organisation namely, set the goals and establish the team, understand the business IT linkage, analyse and prioritise gaps, specify the actions (project management), choose and evaluate success criteria and sustain alignment
2.7 The strategic alignmment maturity model (SAMM)
Luftman (2001) developed the SAMM model methodology for assessing a company’s alignment.
The model is based on the Capability Maturity Model developed by Carnegie Mellon’s Software Engineering Institute, but focuses on a more strategic set of business practices.
Six interrelated components together with criteria for assessing alignment maturity are identified Luftman and Kempaiah (2007).
Communications measures the effectiveness of the exchange of ideas, knowledge, and information between IT and business organisations, enabling both to clearly understand the companies strategies, plans business and IT environments, risks, priorities, and how to achieve them. The alignment criteria for communications are understanding the business by IT, understanding of IT by business, inter/intra organisational learning, protocol rigidity and knowledge sharing and liaison effectiveness
Value uses balanced measures to demonstrate the contributions of information technology and the IT organisation in terms that both the business and IT understand and accept. The alignment criteria for value are IT Metrics, business metrics, balanced metrics, service level agreements, benchmarking, formal assessment/reviews and continuous improvements
Governance defines who has the authority to make IT decisions and what processes IT and business managers use at strategic, tactical and operational levels to set priorities to allocate IT resources The alignment criteria for governance are business strategic planning, IT strategic planning, organisational structure, budgetary control, IT investment management, steering committees and prioritisation process
Partnership gauges the relationship between a business and IT organisation, including IT’s role in defining the business’s strategies, the degree of trust between the two organisations, and how each perceives the other’s contribution. The alignment criteria for partnership are business perception of IT value, role of IT in strategic business planning, shared goals, risk, rewards/penalties, IT program management, relationship/trust style and business sponsor/champion
Scope and Architecture measures IT’s provision of a flexible infrastructure, it’s evaluation and application of emerging technologies, it’s enabling or driving of business process changes and it’s delivery of valuable customised solutions to internal business units and external customers and partners. The alignment criteria for communications are traditional enabler/driver external ,standards articulation, architectural integration (functional organisation and enterprise), architectural transparency, flexibility and managing emerging technology.
Skills measures human resources practices, such as hiring, retention, training, performance feedback, encouraging innovation and career opportunities, and developing the skills of individuals. It also measures the organisations readiness for change, capability for learning, and ability to leverage new ideas. The alignment criteria for skills are innovation, entrepreneurship, locus of power, management style, change readiness, career crossover, education, cross training and social, political, trusting environment.
The levels range from level one to level five where level five is the highest level of maturity. A higher alignment maturity correlates with higher firm performance measures Luftman (2001)
2.8 The Balanced Scorecard:
The Balanced Scorecard (BSC) had its origins in 1990, in a one year KPMG sponsored multicompany study called, “Measuring performance in the Organisation of the future”. David Norton served as the study leader and Robert Kaplan a Harvard University Professor, as an academic consultant. The study was motivated by a belief that existing performance measurement approaches, primarily relying on financial accounting measures were becoming obsolete Kaplan and Norton (1996).
The BSC evolved from this project and was summarised by Kaplan and Norton (1992).They contend that traditional financial performances, which worked well in the industrial era, are out of step with modern company requirements. The requirements which modern organizations required were a “balanced” set of measures between financial and operational measures.
The BSC allowed managers to look at the business from four important perspectives namely
- Customer satisfaction perspective (How do customers see us?)
- Internal business perspective (What must we excel at?)
- Innovation and learning perspective. (Can we continue to improve and create value?)
- Financial perspective. (How do we look to shareholders?).
The name reflected the balance between
- Short and long term objectives
- Objective measures (e.g., financial) and Subjective measures (e.g. customer satisfaction).
- Leading indicators (outcomes desired and performance drivers) and Lagging indicators (financial), and
- External (for shareholders and customers) and Internal (for internal business processes, innovation, and learning and growth),
This is depicted in Figure 1 where the four perspectives are shown with cause and effect relationships
When the BSC was first introduced it was about measurement, not strategy. The BSC evolved from an improved measurement system to a core management system Kaplan and Norton (2001a).Early adopters of the BSC achieved breakthrough results using this tool as a strategic management tool Kaplan and Norton (2001a).
To discover how this was achieved Kaplan and Norton (2001a) researched how these companies achieved breakthrough results. Their research into strategic management revealed that three concepts kept arising:
Strategy: They made strategy the pivot around which the organizational agenda was developed.
Focused: Focus on the strategy was the main driver
Organisation: Employees were encouraged to act in different ways, guided by strategy.
Five principles of productive organizations emerged from Kaplan and Norton (2001a) research on successful BSC users. These five principles describe the key components of building an organization able to focus and align it’s strategy to deliver breakthrough results, through strategy execution, Kaplan and Norton (2001a)
1. Mobilize transformation through executive leadership – To drive change, executives must be the primary change agents. They need to develop a vision and strategy on where they want to guide the organization.They must ensure that the entire executive team is aligned with the strategy of the organisation. Executive sponsorship is critical to ensure transformational change is a success. Executives need to be involved in making strategy execution a core competency within the organisation. This is done by
- Been actively involved in strategic planning and implementation
- Visibly communicating the strategy through the communication channels used in the company.
- Appoint and encourage transformation/ change agents
- The case for change must be clearly articulated.
- Ensuring leadership team is engaged and not operating in silo’s
- Vision, mission and strategy is clearly defined and implemented.
2. Translate the strategy into operational terms – Been able to translate strategy to operational terms has proved problematic. The BSC was developed to address this problem, to translate strategy into a language all can understand. The BSC provides a framework for describing and communicating the strategy in a consistent way. A strategic map is used to communicate the cause and effect relationship that show how intangible assets are converted into tangible (financial) outcomes. The BSC use of quantitative lead and lag measures allows the value creating process to be described and measured and thus be managed rather than be inferred. Setting targets that are linked to well defined and understood objectives ensures that the measures are clearly understood by all. Targets can be used to stretch the organisation (to ensure effort from employees) and to ensure that efforts are focused on the right set of measures.
3. Align the organization to the strategy. The whole point of an organisation is to make the whole greater than the sum of the parts, to create synergy. Whether it is about sharing resources or sharing customers creating new sources of value requires organisational alignment. These new sources of value, derived from organisational design and behaviour are referred to as synergies. The key to creating organisational synergies is to ensure that the individual units are aligned around shared goals and objectives. To do this the organisation must clearly define it’s role, which helps define the synergies that it wishes to create at the lower levels. This provides a strategic architecture that guides organisational alignment by aligning corporate with support business units, ensuring support unit are aligned with each other and external partners and finally that the board of directors are aligned. For every organisation the primary source of value is the customer. They make judgements about the value of the organisations products or services and can choose to utilise/not utilise their products/services.
4. Motivate to make strategy everyone’s job – This is built around Human resource management (HR) systems. This is the innovation and learning perspective of the BSC. These HR systems are used to shape the objectives, incentives, capabilities and competencies of every employee. Employees are required to understand the strategy of the organisation, if the strategy implementation is to be a success. How they conduct day-to-day business must ensure that it contributes to the strategy’s success. Employees need to first understand the vision of the organisation and how the strategy is aligned with it. Without this knowledge, employees cannot adapt their work to contribute to effective strategy implementation. Communication is a major lever for organisational success. Good communication is needed to
Instil an understanding of the organisation’s strategy throughout the organisation
- Foster buy in to support the strategy
- Educate the organisation about measurement and management system for implementing the strategy
- Provide feedback about the strategy
Communication and education and aligning incentives and personal objectives are critical to implementing strategy. Leading organizations are also developing personal scorecards to further enhance the personal development process to the strategic management process. Incentive compensation helps organisations move beyond creating strategic awareness to motivating people to behave strategically. It is important to thoroughly consider the design issues that can most influence performance, for example the use of quantitative or qualitative measures tied to compensation decisions, whether to reward individual or team performance.
5. Govern to make strategy a continual process- Using the BSC as a strategic management system entails strategy formulation, strategic performance reporting, strategic reviews, strategic planning, budgeting and integration.
Kaplan and Norton (2004) showed how strategy maps provided a visual framework for integrating the organisation in the four perspectives of a BSC. Strategy maps illustrated the cause and effect relationships that link desired outcomes in financial and customer perspectives to critical internal processes. The strategy maps identifies the specific capabilities in the organisations intangible assets that are required for delivering performance in the critical internal processes Kaplan and Norton (2004).
Intangible assets have become decisive for sustainable value creation. The learning and growth perspective of the BSC highlights the role for aligning the organisations intangible assets to it’s strategy. This perspective contains the objectives for three components (human capital, information capital and organisation capital) of intangible assets essential for implementing strategy Kaplan and Norton (2004). They must be aligned and integrated with the objectives of the internal processes.
As this research is about aligning Business and IT strategies further detail will be provided on the Information Capital intangible asset. Information capital consists of systems, databases, libraries and networks that make information and knowledge available to the organisation. Using this approach the focus shifts from evaluating the information capital performance by cost and reliability statistics to evaluation based on strategic alignment, measuring how information capital contributes to the organisations strategic objectives. Information capital must be managed like an asset, with it’s value been measured by how it contributes to the organisation strategy for creating competitive advantage Kaplan and Norton (2004).
Strategic fit exists when the network of internal performance drivers is consistent and aligned with the desired customer and financial outcomes (the cause and effect of Strategy maps).
Kaplan and Norton (2006) looked at aligning organisational units by introducing the role for an enterprise Strategy Map and BSC. These tools are used to clarify corporate priorities, which can then be clearly communicated to each business unit, and also to the board of directors and key customers, suppliers and alliance partners. The corporate headquarters then evaluates how each business unit is performing as regards the priorities set by the corporate headquarters. In this way executives are provided with a governance framework that’s helps to unlock previously unrealised value from enterprise synergies Kaplan and Norton (2006).
The alignment process of necessity, should be cyclic and have a top down bias Kaplan and Norton (2006).The alignment sequence recommended by Kaplan and Norton (2006) to create enterprise derived value starts with corporate headquarters articulating the enterprise value proposition that will create synergies among operating units, support units and external partners. In this scenario IT is taken as an internal support and service unit. By utilising the Strategy maps and BSC for the alignment sequence, allows this process to transform IT from an expense centre to a strategic partner Kaplan and Norton (2006). Alignment is then viewed as a management process. Most organisations attempt to create synergy in a fragmented uncoordinated way and when no one is responsible for overall organisation alignment, the opportunity to create value through synergy may be missed Kaplan and Norton (2006).
In aligning IT with the corporate organisation the IT must be competent at basic necessary services while developing the capabilities to collaborate with business units, offering them customised services, solutions and technologies that advance their strategies. This strategic positioning shifts the paradigm from how much to spend on IT to how much to invest in IT to advance the organisation’s strategic agenda Kaplan and Norton (2006).
2.9 Criticism of the BSC
Norreklit (2003) investigates if the BSC is based on convincing theory or if it is the result of persuasive rhetoric. Norreklit (2003) comes to the conclusion that the BSC text is persuasive a trait that can be ascribed to the status of the authors. According to Norreklit (2003), the dramatic approach used in the BSC relies too much on emotional appeal (pathos), which appeals to the recipients emotions and mood and the reputation/authority of Kaplan and Harvard Business Publishing(ethos) meaning that trust is garnered by the recipients by the authority and credibility of the author, rather than on sound logical development (logos) the logical arguments gained through human reasoning.
Reilly and Reilly (2000) discuss and criticize the balance scorecard approach. The primary limitation is that it does not define appropriate balance, particularly in terms of stakeholder value and the relationships among measurements and between perspectives is not explicit Reilly and Reilly (2000).
Ittner and Larcker (2003) state that most companies have apparently adopted the BSC, but seldom establish the cause and effect relationships between the measurements and desired outcomes between non financial measures. This allows manipulative managers to chose and manipulates measurements to enhance their own agenda. It appears that nonfinancial measurements if not monitored correctly are just as, prone to manipulation as financial accounting measurements, and perhaps even more damaging to the companies because of the opportunity costs incurred Ittner and Larcker (2003)
According to Schonberger (2008) goal setting and scorecard approaches interact with process improvement in the following ways, most goals and targets are too highly hedged to indicate how to respond when the goal and targets are not attained , those setting the goals and targets are not the ones who have to implement the processes, KPI management tends to cause over reaction to variations that are normal to the system,most KPIs are influenced by factors that are beyond the control of the workforce and by focusing on management set goals and metrics there is a reduction on the focus of the processes and process data needed for continuous improvement.
2.10 Alternative Performance Management Tools.
Activity-based costing (ABC), bridges finance and operations. On the operational level, it identifies the activities that are required by a company to deliver the goods or the services that it produces. It also defines which resources are needed to fuel these activities. On the financial level, activity-based costing provides managers with insight about the costs of business activities or processes by allocating direct and indirect costs to various steps for each activity or process, the so-called cost drivers Buytendijk (2008).
Activity-based management (ABM) aligns activities, resources, and financial results Buytendijk (2008).
Buytendijk (2008) describes Six Sigma as a rigorous and disciplined methodology that utilizes data and statistical analysis to measure and improve a company’s operational performance, practices and systems.
The European Foundation for Quality Management (EFQM) Excellence Model is a strategic performance management methodology. It is a framework based on nine criteria. Four of these criteria are outcomes, with respect to one’s own performance, customers, people, and society. These are achieved by managing the five enabling criteria: leadership, strategy, partnerships and resources, people, and processes. The EFQM process largely consists of self-assessment. According to EFQM, self-assessment is a inclusive, systematic and regular review of an organization’s activities and results referenced against the EFQM Excellence Model, Buytendijk (2008)
2.11 Existing alignment research between Business and IT
This section presents the current status of research into alignment between business and IT. Where possible reference will be made to the three models used in this research.
2.12 What is alignment?
There is no consensus on the terminology used in publications to define alignment between business and IT strategies. Terms like fit, harmony, linkage, fusion, congruence, synchronised and integration are frequently used synonymously with the term alignment, Henderson and Venkatraman (1993),Reich and Benbasat (1996),Luftman and Brier (1999).
2.12.1 Alignment definitions
Henderson and Venkatraman (1993) assert that alignment is the proportion of strategic fit and functional integration among the four domains of the SAM model namely Business and IT strategies and Business and IT infrastructures.
Reich and Benbasat (1996) describe alignment as “the degree to which the IT mission, objectives, and plans support and are supported by the business mission, objectives, and plans”.
Luftman and Brier (1999) said alignment is, “applying IT in an appropriate and timely way and in harmony with business strategies, goals, and needs”.
The BSC supports these definitions as it seeks to translate the strategy to operational terms and also to ensure alignment throughout the organisation to the business strategy.
Kaplan and Norton (2001a) discuss BSC alignment in terms of synergies created between business units and the corporate headquarters. Synergy means that the whole is greater than the sum of the individual parts. This synergy would ensure tighter alignment as the business units would be focussed on a common goal or strategy.
According to Avison et al. (2004) alignment is seen to assist a firm in three ways: by maximising return on IT investment, by helping to achieve competitive advantage through IS, and by providing direction and flexibility to react to new opportunities. These show how IT will be utilised to assist with strategic alignment between business and IT.
None of these definitions speak specifically about measuring alignment the basis of this research.
2.13 Alignment dimensions
Reading the literature reveals several dimensions (scope or magnitude) of alignment for example strategic/intellectual, structural, social and cultural.
2.13.1 Strategic and intellectual dimensions
The dimensions of strategic alignment refer to the extent to which the business and IT strategies and business and IT plans, are in congruence with each other, Chan and Reich (2007). Alignment of strategy between business and IT, facilitates the development of Business and IT plans Avison et al. (2004).
The intellectual dimension of business and IT alignment refers to how internally consistent and externally valid the business and IT plans are. These plans need to be formal and documented for alignment to occur. Intellectual alignment is describe as “the state in which a high quality set of inter-related IT and Business plans exist” Reich and Benbasat (2000). These plans are used to facilitate strategic alignment between business and IT as stated previously.
Reich and Kaarst-Brown (2003) looked at how transferring IT personal to other departments realized benefits in terms of intellectual capital. They found that there was an increase in IT knowledge when these employees were transferred to other departments. This led to retention of IT staff and also IT innovation. This sharing of intellectual capital in this case the IT staff led to better alignment between business and IT .Organizational advantage was realized from this intervention.
2.13.2 Structural dimensions
Bergeron,Raymond and Rivard (2001) found that more complex IT structures (the interrelation or arrangement of parts in a complex entity) are not necessarily superior, but that incremental structural complexity aligned with a risk taking IT management can increase competitive advantage in terms of growth and profitability. This complex IT approach Bergeron et al. (2001), which is incremental, is more entrepreneurial and risk-taking lends itself to a decentralized IT structure
Structural alignment according to Chan and Reich (2007) refers to the extent of structural fit between IT and the business, and these maybe centralized, decentralized or hybrid in nature.
2.13.3 Informal structure
Chan and Reich (2007) found that the informal structure between IT and business managers was of utmost importance in improving business and IT alignment and performance. The informal structure was defined by Chan and Reich (2007) as “relationship-based structures that transcend the formal division of labour and coordination of tasks”. This means improving the business and IT executive’s informal relationships will augment alignment. Chan suggested that organization rather spend more time improving the informal structures than on aligning formal structures as this would be more enduring.
2.13.4 Social dimensions
Reich and Benbasat (1996) conducted a study of measurement issues associated with social (relating to human society and its modes of organization) dimension of linkage. They describe the social linkage as the understanding of business objectives and plans by the business and IT executives. As stated previously linkage is used as a synonym for alignment. The key social linkages they researched were:
- Cross references between written IT and Business plans
- Understanding of common objectives by IT and Business executives
- Shared vision among executives for long term objectives of technology deployment
- Executives rating of the linkage of the social dimension .
They wanted to understand the short and long term measures of the social dimension of linkage. The conclusion was that in the short term, the common objectives of executives and in the long term- the shared vision were found to be the most promising measures of social linkage between business and IT executives. This is in stark contrast to the informal dimension mentioned previously as it is more formal in approach.
In a later study Reich and Benbasat (2000) researched the influence of the social dimension on alignment between business and IT. Using the short and long term conclusions described above. The outcome was that the influence on the short term on alignment between business and IT was found to be, shared domain knowledge, IT implementation success, communication between executives and IT planning. Shared domain of knowledge was found to influence the alignment between business and IT in the longer term.
The social dimension Reich and Benbasat (2000) refers to, “the state in which Business and IT executives within an organizational unit understand and are committed to the Business and IT mission, objectives, and plans”. This is a reciprocal understanding by executives and links into Luftman et al. (1999) enablers of business and IT alignment.
2.13.5 Cultural dimension
Corporate culture is defined by Chan and Reich (2007), as ” the norms of behaviour and shared values that allow every organization’s employees, at every level, to work together successfully toward a common goal”. Meaning all employees are aligned towards a common goal or strategy.
Burn (1993) proposed an organisational cultural audit (OCA) to examine the relationships between organizational (business) and IT strategy formulation processes. The OCA comprised two audit cultural checks; first an Organizational strategy and structure and secondly an IT strategy and structures audit. This framework was used to research the interdependencies between business strategy and IT strategy.
Luftman (2001) states that attaining a trusting environment between the businesses and IT, where risks are shared and innovation and entrepreneurship thrive, is essential to achieve improvements in diverse business cultures.
Sledgianowski and Luftman (2005) identifies the following management cultural practices; cultural and social environment, pervasiveness of a change readiness culture and innovation to assess an organisations strategic alignment maturity to enhance alignment between business and IT strategies.
2.14 Levels of alignment
Kaplan and Norton (1996) shows that an organisation that is able focus on its strategy is one that is able translate its strategy to operational terms. This ensures that all levels of the organisation are aligned, the strategic, tactical and operational levels if the strategy is translated to operational terms.
Tan and Gallupe (2006) found a linkage between business and IT at the operational level of alignment. Their research found that the higher the level of shared cognition between the respective executives resulted in higher levels of alignment between business and IT and vice versa at the operational level. This is similar to Reich and Benbasat (2000) shared domain of knowledge perspective of the social dimension of alignment.
2.14.1 Internal vs external alignment
The SAM model Henderson and Venkatraman (1993) recommended that the organization interact with its external environment by means of strategic fit, the interrelationship between external and internal components. Strategic fit is not only the business interacting with the external environment but also significantly Henderson and Venkatraman (1993) suggest that IT strategy also has a role in interacting with the external environment. Internally the alignment is by means of functional integration, the integration between functional domains. The predominant IT strategy is internally focused Henderson and Venkatraman (1993) declare that IT strategy needs be more externally focussed for the organisation to gain competitive advantage.
Luftman and Kempaiah (2007) assert for strategic alignment maturity to be optimised, externally IT should interact with the company’s business partners, customer’s and clients by extending it’s reach to accommodate the value chains of said customers and suppliers. This is not normal as IT strategy is normally internally focussed.
2.15 Alignment models
Henderson and Venkatraman (1993) the creators of the SAM which is the most cited model is based on four domains of strategic choice namely Business and IT strategy and organisational and IT infrastructure and processes.
Luftman (2001) proposes five levels of strategic alignment maturity in his SAMM model namely (1) Initial/ad hoc process; (2) committed process; (3) established focused process; (4) improved/managed process; and (5) optimized process. Six criteria are identified to measure the level of maturity these are, communication, competency/value, governance, partnership, scope and architecture and skills. Each criteria is assessed individually and then combined to give an overall average. Luftman (2001) recommends that both Business and It executives participate in this assessment.
Kaplan and Norton (2004) propose using their BSC model together with strategy maps to ensure all in the organisation are aligned. This is one of their five principles to ensure organisations are focussed on their strategy.
These three models form the basis of this research and will dealt with in more detail in a later chapter.
2.16 Variance MODELS: antecedents and outcomes
In the literature about alignment, alignment is seen as a single event or as a process which evolves over time and is thus continuously adapting and changing, Henderson and Venkatraman (1993)
This section deals with factor models (events), highlighting precursors or drivers of alignment and then the results that can be anticipated when alignment is achieved and lastly process models and variables are described
2.16.1 Antecedents to alignment
Background antecedents (precursors to alignment) are corporate culture, shared domain of knowledge and prior experience with IT, Chan and Reich (2007). Similarly foreground antecedents (the visible behaviours that influence alignment) include leadership approach, planning processes, skills, competence and communication styles, Chan and Reich (2007).
2.16.2 Background antecedents
Reich and Benbasat (2000) established that two background antecedents shared domain knowledge and IT implementation achievement contributed to behaviours such as communication between IT and business executives and relationships between IT and business planning. From their research they established that four factors were antecedents to short-term alignment but only shared domain knowledge was an antecedent to long-term alignment Reich and Benbasat (2000).
In addition, the occurrence of clear business plans which would also be an antecedent contributed to both short-term and long-term alignment.
2.16.3 Foreground antecedents/behaviours
Reich and Benbasat (1996) found that if leadership did not share common knowledge, that is speak the same language then leadership is abdicated.
Mobilising change through executive leadership is proposed by Kaplan and Norton (1996). Change been proposed and implemented from an executive stands a greater chance of success. Therefore an executive sponsor is essential to the successful of implementation of alignment. This is the number one enabler of alignment between Business strategy and IT strategy Luftman and Brier (1999).
To achieve and sustain Business and IT alignment Luftman and Brier (1999) found that the enablers were senior manager’s support for IT, IT leadership, IT understands the business, partnership between Business and IT. Preston,Chen and Leidner (2008) found a strong correlation in the partnership between the CIO and Business executives, influenced the CIO’s level of decision making authority. The connections between Business and IT planning Reich and Benbasat (1996) were only found to influence the alignment in the short term.
Research by Luftman (2001) revealed that integrating the IT strategic planning process with the strategic business process allowed the organisation to achieve a higher alignment maturity level.
Teo and Ang (1999) states that there are few studies on the critical success factors for aligning Business plans with IT plans. The results of their research found that top management is committed to the strategic use of IT to be the top critical success factor. The other critical success factors are in table 2
Table 2 Critical success factors in the alignment of IS plans with Business plans Teo and Ang (1999)
- 2. Information systems (IS) management understands the business
- 3. Top management has confidence in the IS department
- 4. The IS department provides efficient and reliable services to user departments
- 5. There is frequent communication between user and IS departments
- 6. The IS strategies are able to keep up with advances in IT
- 7. Business and IS management work together in partnership in prioritizing applications development
- 8. Business goals and objectives are made known to IS management
- 9. The IS department is responsive to user needs
- 10. Top management is knowledgeable about IT
- 11. The IS department often comes up with creative ideas on how to use IT strategically
- 12. The corporate business plan is made available to IS management
Communication was identified by (Reich and Benbasat (2000),Sledgianowski and Luftman (2005)) to be a key antecedent to alignment. Sledgianowski and Luftman (2005) stated that communication should be pervasive and a repeatable task of all managers and employees. They advocated that this communication be informal and use email, videoconferencing and face to face communication.
2.16.4 Outcomes of alignment
IT alignment plays a key role in the business because of its potential impact on a firm’s performance. Henderson and Venkatraman (1993) argue that the inability to realize value from IT investments is in part due to the lack of alignment between Business and IT strategies. Furthermore Henderson and Venkatraman (1993) state that economic value is dependent on management’s ability to create strategic fit in the organization. Research by Luftman and Kempaiah (2007)found a positive correlation between Business and IT alignment as regards firm’s performance. The BSC was initially developed as a performance management tool Kaplan and Norton (1992). The BSC was developed to counter a reliance by organisations on only financial performance measures.
2.16.5 Organisational Performance
Using the strategic topology developed by Miles,Snow,Meyer and Coleman Jr (1978), Croteau and Bergeron (2001) found a positive link between strategic activities and organizational performance for organizations with prospector strategies, and a negative link for organizations with reactor strategies.Bergeron,Raymond and Rivard (2004) states that organisational performance is the result of fit between two or more factors for example strategy, technology, culture and the environment. Chan,Sabherwal and Thatcher (2006) found empirical evidence to prove that alignment improved organizational performance, but stress that “not all firms are equally served by allocating scarce resources to improve IT alignment.”
Tallon and Kraemer (2002) states there is little empirical evidence to prove the organisational benefits obtained from alignment. Tallon and Kraemer (2002) found that alignment in some cases did not translate into an increase in business performance. In what they called the “Alignment Paradox” whereby strategic alignment leads to increased performance up to a certain point and beyond this point performance decreases. This was ascribed to organisational inflexibility and environmental uncertainty. Organisations that are tightly aligned will not have the flexibility to react to change and to adapt during turbulent times.
Preston et al. (2008) found that the CIO strategic decision-making authority leads to IT’s contribution to organizational performance. Chan et al. (2006) indicates that there is no standard method for improving alignment and that organisational size, type of strategy and industry all had an influence on performance in alignment.
2.17 Contingency perspective
Contingency theory Teo and King (1997) is based on the idea that there is not a best way to achieve “fit” between organisational factors. Results of studies carried out by Teo and King (1997) confirmed an evolutionary pattern of integration of Business planning and IT planning from administrative, sequential, reciprocal, to full integration. Teo and King (1997) also came to the conclusion that the competence of the IT executive was a key factor in influencing the extent of integration.
Contingency Theory according to Chan and Reich (2007) facilitates alignment when context and business factors fit together. These factors produce superior performance when integrated in certain contexts, Chan and Reich (2007). This supported by Bechor and Glezer (2009) used contingency theory to investigate the success of strategic information system planning (SISP) as a function of key success factors (KSF) with different approaches and contexts. Bechor and Glezer (2009) also stated that integration among various design dimensions of the planning process of (SISP) was not understood, nor identified and had no empirically support.
Chan et al. (2006) found that precursors to alignment were contingent to the industry in which the business operated. The key research contribution Chan et al. (2006) was the empirical demonstration that the importance of alignment, as well as the mechanisms used to attain alignment, vary by business strategy and industry. Furthermore Chan et al. (2006) state not all firms are equally well served by allocating scarce resources to improve IS alignment. Among business firms, it would appear that Prospectors and Analyzers Miles et al. (1978) have more to gain from aligning business and IS strategies
2.17.2 Organizational size
Chan et al. (2006) found that organisational size impacted private companies but had no influence on academic intuitions size. This was because in academic institutions the leaders had similar qualifications as well as similar organisational structures and processes Chan et al. (2006). This contrasts with large businesses which have more organizational slack to invest in aligning business and IS strategies than their smaller counterparts Chan et al. (2006). To overcome the organisational slack in large organisations Chan et al. (2006) suggest that managers invest more resources on specific alignment mechanisms.
2.17.3 Strategic orientation
Miles et al. (1978) defined a typology for business strategy whereby business’s are classified as prospector, analyser, defender or reactor. Croteau and Bergeron (2001) did an empirical study to identify various profiles of technological deployment related to various types of business strategy that best support organisational performance. Using the Miles et al. (1978) topology they found that an outward technological profile had a positive impact on organisational performance for the prospector and analyzer business strategy. The inward profile for technological deployment had and indirect impact on organisational performance for the prospector business strategy, Avison et al. (2004) research revealed a strong correlation between alignment and performance for prospectors and analysers but not for defenders. Importantly Chan et al. (2006) concluded that the type of business strategy approaches had an impact on the relevance of alignment. Their study revealed that prospectors had a lower alignment than analyzers.
An economic downturn, merger and acquisition brings about uncertainty, change and fear in the organisation Gartner (2007). Organisations with high levels of alignment maturity Luftman and Kempaiah (2007) recognised the need for effective change management process where the IT and Business work together effectively. Kaplan and Norton (2001b) states that thee BSC is not a measure project but a change management project. Kaplan and Norton (2001b) found that several adopting companies of the BSC were experiencing difficult times and that the need for change was to overcome the threat of failure and loss of jobs.
2.18 process models of Alignment
Henderson and Venkatraman (1993) describe alignment not as an event but as a process of continuous adaptation and change. A comparison is now done on the classic versus the processual schools of thought.
2.18.1 Classic versus processual schools of thought
The classical school Whittington (2001) is has at it’s source a model of rational adaptation. The core ideas are organisations are market driven and adapt to circumstances occurring in the external environment. IT is viewed as are source to be utilised according to the requirements of the external environment recognising the contingencies of technology and it’s potential impact on Business strategy.
Contrasting the classical view Chan and Reich (2007) state that the processual approach excludes “formal plans and methodologies, exposes hidden social values, political interest and structural inertia, which shape formal instruments of rationality and identifies the role of IT as a resource and an instrument for gaining power and not achieving adaptation”.
2.18.2 Continuous management of specific organizational components
Henderson and Venkatraman (1993) identified four dominant alignment perspectives; strategy execution, technology transformation, competitive potential and service level with their related interrelationships. The interrelationship needs to be integrated among the factors. Service levels agreements between IT and Business are recommended by Luftman (2001) . This entails entering into measurable agreements with the Business for IT service delivery. The highest level of maturity for service level agreements is when it is enterprise wide and involves external partners Luftman (2001).Sledgianowski and Luftman (2005) supports service level agreements and recommends continuous review of service levels agreements between Business and IT.
Luftman and Brier (1999) identified enablers and inhibitors of alignment and suggests that executives focus on those that would enable alignment for example executive support for IT, IT supports Business development and IT understands the business.
The BSC has four interrelated perspectives Kaplan and Norton (1996) which are used in a cause and effect relationship to align strategy. These cause and effect interrelationships between the four perspectives overcomes a previous reliance on only financial outcomes as a key determinant of business performance Kaplan and Norton (1992).
2.19 Modeling alignment over time
These include stages of growth, lead-lag and punctuated equilibrium models
2.19.1 Stages of growth
Henderson and Venkatraman (1993) assert that IT strategy was previously internally focussed mainly viewed as a support function. Business now recognises the strategic importance of IT. IT strategy focussed on the external domain is now a feature of the growth of IT within the organisation. The external perspectives of IT strategy are that of competitive potential and service level.
Kaplan and Norton (2006) developed levels of excellence for their strategic management model that measures maturity in five perspectives; mobilize, translate, align, motivate and govern. The higher the level of maturity reflects the growth of the organisation in meeting the requirements of this best practice model. In the alignment perspective they recommend that all in the organisation are aligned to the Business Strategy and this includes IT Strategy.
Luftman and Kempaiah (2007) recognises that maturity of alignment between Business and IT will give the business competitive advantage. According to the authors the higher the level of maturity the more improved the alignment.
2.19.2 The lead-lag model
Henderson and Venkatraman (1993) states that no single application no matter how advanced or sophisticated can deliver sustained competitive advantage to an organisation. Advantage is obtained when an organisation continually improves it’s IT functionality on a continuous basis. This leads an organisation in it’s quest for continuous improvement in IT functionality and changing role of IT.
Luftman and Brier (1999) suggests that executives meet and brainstorm, to identify the gaps in Business and IT strategies. This session leads to a prioritised list of IT projects that can enhance business opportunity.
The BSC Kaplan and Norton (1992) was developed to address the lead lag implications. Specifically finance indicators were viewed lag indicators and the other three perspectives as leading indicators of future organisational performance.
2.19.3 Punctuated Equilibrium
Sabherwal,Hirschheim and Goles (2001) used a punctuated equilibrium model to investigate the dynamics of change in alignment through strategy interactions .The punctuated equilibrium model is a long term or evolutionary change interrupted by short periods or revolutionary change. Sabherwal et al. (2001) found that revolutionary change affected long term change. The reason for this is that either alignment is entrenched or managers do not recognise low alignment as a problem.
The short term dynamic change (revolutions) Avison et al. (2004) needed a combination of the following interventions; environmental shifts, sustained low performance, influential outsiders, strong leadership and perceptual transformation.
2.20 What are the Challenges in attaining alignment?
2.20.1 Alignment challenges related to knowledge
Business managers are not always knowledgeable about IT and IT executives are not always involved with developing business strategies. To address this issue Luftman and Brier (1999) suggest in their enablers for Business and IT alignment that business executives support IT, that there is a partnership established between business and IT and that IT understands the business.
- The other challenges identified by Chan and Reich (2007)
- Corporate strategy is not known
- Lack of awareness in the importance of alignment
- Lack of industry and business knowledge
- Alignment challenges related to locus of control and the status of IT
- Alignment challenges related to organisational change
2.21 WHAT ARE the shortcomings of alignment?
Research carried out in Information systems was predominantly positivist and of an objective nature Orlikowski and Baroudi (1991)
Ciborra (1997) is critical of alignment literature stating that it is too theoretical to be practical in the real world of human actors. Furthermore Ciborra (1997) says that the everyday life of managers comprises frustration, accomplishments, gossips, confusion, bricolage, joy and desperation. This is far removed from the sterile theoretical environment of literature on alignment. A more practical understanding of strategies of care, hospitality and cultivation by managers is recommended by Ciborra (1997) as opposed to strategic alignment as proposed by theoreticians
- Chan and Reich (2007) identified the arguments why alignment is not always desirable in the following themes;
- alignment research is mechanistic and fails to capture reality,
- alignment is impossible if the business strategy is not known or in process,
- alignment is not suitable as an end in itself since the business must always change, and
- IT should often challenge the business, not merely follow it..
Since the most cited alignment paper by Henderson and Venkatraman (1993) was published, Leonard (2008) asserts that the world of alignment has radically transformed. Leonard (2008) states that the current organisational contexts are
Blurring of boundaries between IS and the business function
According to Leonard (2008) the SAM model does not address the blurring of boundaries between domains. The SAMM model depends on a organisational view which may not always be beneficial.
Unpredictability regarding the consequences of technology led change
The SAM model is deterministic and does not engage with unpredictability of technology led change. Some of the factors of the SAMM model are also deterministic for example governance whilst communication can assist an organisation dealing with unpredictability of technology led change. The punctuated equilibrium Sabherwal et al. (2001) model allows for several types of change to be examined. The coevolutionary model focuses on interactions in rapidly changing environments Benbya and McKelvey (2006)
Strategising in situations of very rapid change.
The SAM does not support discrete business strategy driving an IT strategy and vice versa as it is seen to be to deterministic Leonard (2008). The SAMM model does not address this problem. The coevoluntionary model has the potential to address this problem if it is correctly defines and develops the concepts of Business and IT strategy Benbya and McKelvey (2006)
2.22 How IS ALIGNMENT MEASURED?
For Chan and Reich (2007) the measurement of alignment is important for example it allows practitioners to mange alignment more readily and for academics it allows for reliable and valid measures if their alignment research is to be rigorous. Several different approaches have been used to assess alignment, including typologies and taxonomies, fit models, survey items, mathematical calculations and qualitative assessments Chan and Reich (2007)
2.22.1 Typologies and taxonomies
Miles et al. (1978) identified four strategic types of organisations Defenders, Analyzers, Prospectors and Reactors. These typologies which are deductive, intuitive groupings or classifications of phenomena are used to measure business strategy and predict the appropriate IT strategy Chan and Reich (2007).
Gutierrez,Orozco and Serrano (2008) proposed a taxonomy structure, which are groupings based on the results of intuitive, empirical analyses Sabherwal and Chan (2001). The taxonomy has theoretical and practical capabilities to support comparative mechanisms of analysis Gutierrez et al. (2008). Insights into alignment assessments are achieve by means of six theoretical and six practical constructors.
2.22.2 Fit models
Venkatraman (1989) identified a conceptual model which is central to the study of strategic management and identified six perspectives of strategic fit namely fit as: moderation, mediation, matching, gestalts, profile deviation and covariation.. The problem Venkatraman (1989) identified was the inconsistent use of the perspectives for example researchers often used one perspective in a theoretical discussion whilst employing another in empirical research. Venkatraman’s framework classifies these characterizations based on the number of variables in the equation, the degree of specificity of the functional form of alignment, and the presence or absence of a criterion variable.
Baker,Cao,Jones and Song (2009) identified these six perspectives of alignment as an end state perspective
2.22.3 Prescriptive measures for achieving alignment
Nickels (2004) found in the literature research three recurring prescriptive measures for improving the achievement of better Business and IT alignment. Those prescriptive measures involve strategically positioning IT within the organization, linking and integrating IT and business strategic planning processes and ensuring the congruence of strategic IT initiatives with the corporate vision.
2.22.4 BSC for measuring alignment
Van der Zee and De Jong (1999) states that the BSC can be a valuable contributor to implementation of an integrated Business and IT planning and evaluation process. They identify two main problems in Business and IT management namely the time lag between Business and IT planning and the lack of “common language” between Business and IT. They recommend the BSC to resolve these problems for the following reasons
Business and IT management can use the same “performance measurement” language, thereby integrating IT planning and evaluation fully into the business context. The BSC introduces overall goals and quantified norms for the whole business including IT.
- Integrating the business and IT management processes eliminates, or at least considerably reduces, the time lag between the two.
- Kaplan and Norton (1996) identified four specific barriers to effective BSC implementation that have to be overcome:
- Visions and strategies that is not actionable;
- Strategies that are not linked to departmental, team, and individual goals;
- Strategies that are not linked to long- and short-term resource allocation;
- Feedback that is tactical, not strategic
Braam and Nijssen (2008) distinguishes between the BSC as a performance measurement system Kaplan and Norton (1992) and as a strategic management system Kaplan and Norton (1996). Their research revealed that top management involvement and the influence of the finance department are critical for both implementations of the BSC. Braam and Nijssen (2008) researched the two implementations of the BSC in terms of three antecedents namely, leadership characteristics of the organization’s management, internal organizational characteristics, and external company characteristics. They find that the usage of the BSC as a strategic management system ensure alignment.
As can be seen from the extensive literature review on the alignment between Business and IT there are many approaches. This research will concentrate on the measurement of alignment. There is little or no research on the integrated usage of the SAM, SAMM and BSC models to measure alignment. The theories to support this approach will be reviewed in the next chapter.
Constance LDW Student No 209230371 Master of Technology (IT)