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Business-IT Alignment Understanding Your Position

Second of a Series By Thomas E. Curtin Many people interpret business-IT alignment in terms of prioritizing IT projects to support the priorities outlined by an organization's senior management. So common is this view that it is safe to label it a "traditional" interpretation of alignment. In the last issue of Enterprise we took a much-expanded view, introducing the concept as a set of relationships among strategies and structures depicted in the Strategic Alignment Model.* We suggested that your view of relative strengths, both within each domain of the model and in the interplay among the domains, was a key to the state of business-IT alignment in your organization. Following are some common scenarios of non-alignment. 1. As an IT director, you have been frustrated at your organization's insistence on managing IT strictly as an expense. You think you have an IT strategy but you don't know much about the specifics of the business strategy. 2. As a CEO, or COO, you wonder what of real value is being done with all the organization's workstations. Also, why does it always take so long and cost so much to deliver applications? 3. You're an IT director reporting directly to the CEO. You understand the business strategy and have crafted an IT strategy that both you and the CEO believe is aligned to it. But the other functional executives have widely divergent views of what should be the organization's IT priorities. How can we use the model to develop views? The answer lies in defining the three dimensions of alignment revealed by the model. The first dimension is the content of the four domains: What is business strategy? What are the components of IT infrastructure? Each domain consists of specific sets of choices. Business strategy contains: Scope - What business are we in? What are our products, services, and target markets? Distinctive competencies - What do we concentrate on doing well in order to distinguish ourselves from our competitors? Governance - What external business relationships and/or joint ventures do we depend on? Business infrastructure contains: Structure - What is the organizational structure? Who reports to whom? Processes - What are our key business processes? Skills - What human resources do we have or require to accomplish our specified competencies? Strategy decisions involve external issues, those concerning the organization's marketplace and environment. Infrastructure decisions areinternal. The second dimension of the model is the relationship between these external

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and internal domains. It's important that the two fit each other. On the surface this idea isn't new: Structure follows strategy. Valuable market opportunities are missed when (for example) an organization's structure or skills cannot respond to them. However, the assertion that strategy and structure must fit each other raises that notion to a new level by not stating which is fit to which. As will be discussed in a subsequent article, there are valid reasons for structure driving strategy. The choices on the IT side of the model closely resemble those on the business side, and in fact are analogous sets of choices an external set and an internal set. IT strategy contains: Scope - What technologies either support or create strategic business opportunities? IT or systemic competencies - What characteristics of IT create business advantage? IT Governance - What external relationships (e.g., outsourcing alliances, make vs. buy decisions) do we depend upon? IT infrastructure contains: Architecture - What are our choices of platforms, hardware, software, network configurations, data architectures? Processes - What are our IT processes: development, maintenance, system operations, database administration? Skills - What skills do our IT management and staff require to maintain the architecture and execute the processes?

Achieving fit between strategy and structure is as important on the IT side as on the business side. For example, an organization serious about crafting an IT strategy and using IT as a true strategic tool is unlikely to succeed if it maintains a strictly "glass house" architecture with the processes and skills that architecture implies. Many IT success stories show a correlation between strategic success and use of IT to extend the business infrastructure to the customer. The third dimension of the model is the set of horizontal relationships between business and IT or functional integration, both across the strategies and across the infrastructures. The traditional interpretation of alignment mentioned earlier is a good example of both kinds of integration. Senior management's priorities may involve enhancing business processes, or reorganizing, for instance, from a functional organization to work groups. In this case the focus is on business infrastructure components. IT's response is application development (enhancement of the IT architecture), which is IT infrastructure. If, on the other hand, senior management is planning to improve their competitive position by adding a customer service function, a new distinctive competency, the focus is on business strategy. IT's response will be to invest in

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a customer information system and/or call center technology, expanding IT scope, which is IT strategy. So what is alignment, in the context of these definitions? It is a continuous process, ideally executed by a management team working together, and: Recognizing where their organization is strong and weak (and why); Developing action plans that leverage areas of strength; Building and managing the four domains and the interrelationships. Let's analyze the three hypothetical organizations described at the beginning of this article. In scenario 1, the IT director who is being managed as an expense is insulated from business strategy. With little understanding of business strategy decisions, this director views the strategy as weak. With no foundation on which to base an IT strategy, he/she views IT strategy as weak. The choices that the director thinks are "IT strategy decisions" are usually related to hardware, The assertion that strategy and structure must fit each other raises that notion to a new level by not stating which is fit to which. software and an applications portfolio, which are elements of the IT infrastructure. The director understands these well and considers them strong. With relentless expense control pressure, the director has difficulty focusing on the contribution of the applications portfolio to business processes. IT infrastructure decisions on the business infrastructure is unclear. In scenario 2, this CEO is confident of the business strategy but doesn't communicate the strategy to IT. A strategy that is not shared with and "bought into" by the management team is inevitably a weak one, and managers reporting to the CEO are likely to view it as such. The IT director in this organization has no foundation for any IT strategy, so that is weak too. Nor does the CEO take the initiative to understand IT. The IT director has limited knowledge for evaluating the business contributions of IT expenditures and activities and communicating them back to the CEO, thus weakening the effect of IT infrastructure on business infrastructure. Both relationships between the two strategy domains also will be weak. In scenario 3, the CEO and the IT director are evidently well "bonded." They both see strength in all four domains and in most relationships. Other functional heads see only how well IT is supporting that function's business priorities. Some of them will surely see weakness in both IT domains and in the business IT relationships. This situation would benefit from greater "cross-functional consciousness" from the CEO and IT director. The functional heads must buy into the business strategy and the IT strategy, and understand why particular strategic choices are being made. Using the strategic alignment model as a tool to structure your thinking about relationships between business and IT has been the focus of this article. The next article will explain the pathways that organizations take through various perspectives to get from problem scenarios to alignment.

*Henderson, J. C., and Venkatraman, N., "Strategic Alignment: Leveraging Information Technology for Transforming Organizations," IBM Systems Journal , Vol. 32, No. 1, 1993. Cited by permission.

Reprinted from permission. Copyright 1996. International copyright secured. All rights reserved.

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Thomas E. Curtin , consulting faculty member at the IBM Advanced Business Institute, Palisades, New York, has 28 years experience both in managing information technology and developing and teaching executive education programs. One of the programs he currently teaches is "Executive Role in the Information Age," which presents the subject of strategic alignment to senior executives.

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