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Running Head: Alignment of IT strategy and business strategy

Alignment of IT strategy and business strategy

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Running Head: Alignment of IT strategy and business strategy

Introduction Technology is fast becoming the source of competitive advantage to companies and because of this, companies are paying more attention to the IT investments like never before. An IT strategy with a focus of the maintaining cutting edge technology sounds like a brilliant idea. This is because cutting edge technology could give the company an edge in the market. However the risks associated with focusing on cutting edge technology outweigh the advantages. In this paper I will discuss the reasons why I dont agree with the statement that an IT strategy whose focus is maintaining a cutting edge technology position is the most effective way to support any kind of overall business strategy. When coming up with an IT strategy the companys CIOs need to have the corporate strategies of the company in mind. These corporate strategies include the companys objectives, goals and mission as well as values. This will allow for an alignment of the IT strategies to the corporate strategies for the benefit of the organization (IT Governance Institute, 2005) Berkman (2001) argues that an alignment is required between IT and all the other departments so that it can effectively contribute to the overall organizational strategy. The IT strategy should be based on an IT plan. This plan should be created based on the corporate strategy and should form the basis of any technology implementation. The Business value of the strategy is another major consideration that should be taken into account. According to Cronk and Fitzgerald (1999) information system Business Value is the sustainable value that is added to the business by the systems either collectively or by an individual system as seen from the organizations perspective compared to the expenditure required. Business value is calculated based three key factors, It is measured based on the cost

Running Head: Alignment of IT strategy and business strategy savings after the solution has been implemented. It is also measured based on the revenue increase as a result of the system use. Lastly its measured based on the increase in the key indicators used in the business and the difference in IT costs since the change is affected.

An Effective IT strategy should focus on the organizations need. According to Berksman (2001), CIOs should consider renting or leasing in some areas of technology because it makes more sense to rent or lease some high cost equipment than buying them. He also states that its easier to outsource some functions rather than acquiring them only to have them becoming obsolete within a short time. CIOs should be focusing on getting the organization to the digital age instead of focusing on building an empire. An organizations IT strategy should be based on the business goals. This will ensure that any investment or decision that is made by the CIO is done with the organizations goals in mind. This will ensure that an organization is reaping high benefits from technology (Holmes, 2007). Instead of focusing on the latest cutting edge technology, monitoring should be done on the current technology to see if its delivering in terms of supporting highly critical business process. Monitoring can also be done on the basis of the key performance indicators. This will yield more results as opposed to taking a reactive stance on technology (Keynote Systems, 2005). This performance analysis involves measuring several factors regularly. These factors include measuring the revenue that is generated from transactions that have been processed. The analysis also measures a breakdown of the Transaction volume based on customer type and the compliance of the transactions to availability and response time. These measurements are made

Running Head: Alignment of IT strategy and business strategy in relation to all IT investments and they are done with an intention of making enhancements or additional investments to the existing investment (Keynote Systems, 2005). Business process exceptions for instance measuring the transactions that exceed the Service level agreements, application downtimes, reported performance and availability issues and time taken to resolve downtime and applications are important in evaluating applications (Keynote Systems, 2005). The IT strategies should have security and privacy as key considerations. These are particularly important if one is coming up with e-business solutions. Any IT investment that is made in by the CIO should address the security and privacy needs in the organization (Keynote Systems, 2005). The IT department should invest in application monitoring tools that will monitor the

business expectations of performance. These tools enable organizations to gain understanding of the health of their systems and they can get notifications incase of any problems (Keynote Systems, 2005). The IT strategy should focus on cross functional integration. According to Papp (2001) an effective IT strategy should allow collaboration of the different units in the organization. For instance, collaboration between IT and marketing would lead to improvement in sales due to ecommerce and data warehousing. If this collaboration is made both IT and marketing could bring a big contribution to the organization strategy. The IT strategy should also focus on the size of the organizations. The size of the organization could determine the resources required and the mode of acquisition as well as the quality. If the organization has a medium client base, then the most logical way of acquiring high

Running Head: Alignment of IT strategy and business strategy cost equipment is leasing or renting. This is important as it curbs IT overspending. The size also informs outsourcing decisions (Papp, 2001).

The organizations structure is a major consideration when coming up with an IT strategy. The IT strategy formulated should take into consideration the organizations structure. It should complement the current structure. If it required a change in structure, then there should be management involvement to make sure that if the strategy is implemented, management will enforce these structural changes (Papp, 2001). The success rates of previous strategies should also be considered when coming up with an IT strategy. If there have been failures, then its important to identify the points of failure so as to ensure that future strategies do not fail (Papp, 2001). The nature of competition that an organization faces could determine the nature of its IT strategy. According to Porter (2008), an organization could use technology to gain competitive advantage. In a highly competitive industry higher investments in technology will be of paramount importance in order to stay relevant and keep making profits. The business capabilities should also be considered when formulating an IT strategy. This is important especially in terms of the human resources available and their knowledge level. According to Papp (2001), An analysis of the existing competencies will enable an organization understand the strategic capabilities that are core to the organization and how IT can best be used to gain competitive advantage and organizations profitability. The stakeholder opinions on innovation and risk also determine the nature of the IT strategy. If the stakeholders encourage innovation, then the IT strategy will reflect this. The

Running Head: Alignment of IT strategy and business strategy

degree of risk that stakeholders are willing to take will be reflected in the IT strategy (Hedman & Kalling 2002). A good IT strategy should be crafted with business knowledge. The CIOs creating the strategy should have business knowledge. Research shows that a strong business background is one common characteristic that is among CIOs who have aligned IT with an organizations strategic goals. CIOS who have a background in IT have a greater understanding of the demands that a business unit leader faces and will be able to communicate with the business leaders at that level (Holmes, 2007). A good IT strategy should be collaborative. There should be involvement of the different departments and units to make the strategy successful. This means that when a new technology is adopted, the corresponding changes that are required to make the technology successful should be adopted by the entire organization (Holmes, 2007). According to the IT Governance Institute (2005) a good IT strategy should be turned outwards towards the customer. the organization will concentrate on delivering service to the customer and concentrate on coming up with better products and better ways of reaching them. Conclusion IT can no longer be looked at as an enabler. It is a part of the overall organizational strategy and needs to be incorporated in the corporate strategy. An IT strategy should not put its focus on one thing alone; instead it should focus on different aspects of technology and business so as to contribute effectively to the overall strategy.

Running Head: Alignment of IT strategy and business strategy References Cronk, M.C. and Fitzgerald, E.P. (1999) Understanding IS business value: derivation of dimensions, Logistics Information Management, 12:2 .Print.

Papp, R. (2001). Information Technology: Opportunities for Competitive Advantage. New York: Idea Group Inc (IGI). Porter, M. E. (2008) Competitive Strategy: Techniques for Analyzing Industries and Competitors. Simon and Schuster. IT Governance Institute( 2005) Governance of the Extended Enterprise: Bridging Business and IT Strategies. John Wiley & Sons. Eric Berkman (2001, January 24), Why we're Still Talking About Alignment, CIO Magazine. Retrieved from IT University of Goteborg. (2013). Aligning IT Strategy with Business Strategy Through The Balanced scorecard, Retrieved from Allan Holmes (2007, January 1) The ROI of Alignment. CIO Online. Retrieved from Keynote Systems( 2005). Score High on Business Scorecards.Monitor What Matters, Retrieved from .

Running Head: Alignment of IT strategy and business strategy