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STRIVING TOWARDS STRATEGIC IT & BUSINESS ALIGNMENT IN SMALL AND MEDIUM-SIZED
ELECTRIC UTILITIES - A PRAGMATIC APPROACH

M Haglind, K H Cheong,

Royal Institute of Technology (KTH), SWEDEN
University Tenaga Nasional (UNITEN), MALAYSIA

Summary - Based on case research, this paper 73% of the projects are cancelled at some point in the
highlights critical issues in achieving alignment development cycle. According to the study, the
between business and IT strategies in small and involved organizations' limited ability to manage the
medium-sized electric utilities. The paper investigates rapidly changing regulatory and business requirements
potential benefits of using well-establishedframeworks during the development process are the predominant
as tools for decision support in strategic IT cause of failed and challenged IT projects
management, and obstacles in implementing such
frameworks. Finally, the paper provides suggestions to A lot of Information Systems (IS) research has been
circumvent the obstacles by proposing an alternative, directed at identifying the causes of the failure and to
more pragmatic, approach for strategic planningfound develop models and techniques to enhance the success
to be suitable f o r small and medium-sized utilities rate of IT investments. One of the most written causes
where resources for strategic IT management are of IT investment failure is that too much attention is
scarce. placed on technology itself, rather than its links with
business operations, customer value, and management
INTRODUCTION decision making [5]. In other words, there is a lack of
alignment or harmony between IT and other
Electric utilities are undergoing tremendous changes organizational and business imperatives. Because
due to deregulation, rapid development in Information business success increasingly depends on IT enabled
TechnoZogv (IT), and the enormous growth of the processes, products, and services, it is important to link
Internet. While deregulation has brought about threats business goals and the potential IT contribution.
and opportunities, along with many uncertainties to Although the need to integrate business and IT strategy
. utilities, modem IT has been regarded as an important has been advocated, few practical frameworks exist [6].
tool in order to meet the challenges ahead. However, Moreover, most research in strategic IT management
the deployment of software systems in organizations is has been conducted in North America with very large-
seldom without problems [ 1,2,3]. Barring technical scale organizations in mind PI. IT management in
problems in implementation, the systems still often fail small and medium-sized enterprises (SMEs) is
to satisfy all stakeholders around the system, as the generally considered to be under-developed and under-
delivered set of functions does not match the actual researched [8].
needs of the business. In a recent study conducted by
the Standish Group International (a US-based market The purpose of this paper is to highlight critical issues
research and advisory firm) within the electricity and in achieving alignment between business and IT
gas utilities sector shows that only 8% of the IT strategies in small and medium sized electric utilities.
projects had actually succeeded to fulfill their initial Based on case research, this paper attempts to highlight
expectations [4], see Figure 1. potential benefits and obstacles in applying well -
established strategic alignment frameworks as tools for
Success decision support in strategic IT management. To
8%
circumvent some of the obstacles, the paper proposes
an alternative, more pragmatic, approach for strategic
planning found to be suitable for small and medium
sized utilities.

Research approach. The research approach applied in
this study is based on a qualitative approach, which is a
combination of the case study methodologies
prescribed by Yin and Walsham [9,10]. At a later stage
Figure 1: IT-project resolution for utilities of the study, one of the authors was invited by the
organization concerned to partly participate in the on-
19% of the projects are challenged, i.e. the project is going process as external advisor. Thus, this part of the
completed and operational, but over budget, over the study could be considered as "action research," which
time estimate, and offering fewer features and is a methodology that pursues action (or change) and
functions than originally specified, and as much as research (or understanding) at the same time [111.

ClRED2001, 18-21 June 2001, Conference Publication No. 482 0IEE 2001
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Outline. This paper is organized into six sections. implementation of recommended IT-deployment
Section 2 provides an introduction’ to the issue of projects), and finally alignment. Alignment is, in this
strategic alignment. Thereafter, the theoretical theory, the degree to which the planning process results
approaches are contrasted with the current practice of in strategic information systems. Here, alignment aims
strategic alignment in electric utilities. Section 4 at achieving a fit between implemented projects and the
presents experiences from a strategic IS planning organization s objectives. Thus the theory views
initiative in a medium’sized utility. Thereafter, an alignment as the product or the effect or outcome of the
alternative approach to strategic IS planning is SISP-process. This is in-line with Reich and Benbasat
presented. Finally, the paper ends with conclusions. who define alignment as “the degree to which the IT
mission, objectives, and plans support and are
STRATEGIC ALIGNMENT - A MATTER OF supported by the business mission, objectives, and
COORDINATION plans” [ 141.

Strategic alignment addresses the problem of lntemal
Enmmt
coordinating the relationship between the business
domain and the IT domain in an organization. Strategic
Planlung
alignment is often discussed in the context of Strategic Resources
Information Systems Planning (SISP). Strategic
alignment (in short “alignment”) and SISP are often
considered to be “two sides of the same coin”. While
1
Planning
SISP addresses the planning process of coordinating PmCeSS

the relationship between the business domain and the
IT domain, alignment represents the result, or product,

I
x
InfamationPlan
of that process. Improving strategic planning, and
hereby strategic alignment, has been considered one of
the most important IS management issues during the
last decade. But benefits of using IT can be achieved Implementah
only after the applications are in use. Thus; the supply
side of the IT domain must also be managed properly.
Galliers argues that the key to successful SISP lies in Aliinment

the integration of the IS strategy with that of the
business on the one hand (demand side), and IS Figure 2: A typical top-down SISPprocess.
development on the other (supply side) [ 121.
During the last years, the need for, and usefulness of,
As a result of the importance of SISP, a lot of IS SISP also in small and, mediumsized enterprises
research have been directed at develop models and (SMEs) have been increasingly advocated PSI. SMEs
techniques for planning purposes. A typical SISP are generally regarded as flexible organizations that
setting in the literature is a situation where top- can respond quickly to customers’ requirements.
management in an organization produces a strategic IS However, flexibility does not extend to IS adoption or
plan through a major, intensive study, and implements use [SI. SMEs that adopt IS without considering
the plan by deciding and initiating a number of projects strategy are unlikely to gain business benefits, due
concerned with changing or extending the primarily to the perception of IT as a drain of limited
organization s software systems as defined and SME resources rather than an opportunity for growth
prescribed in the plan [13]. Because of the importance [16]. In general, the focus of the prevalent theory is on
of the issue, organizations usually follow one of very large-scale organizations; there is very little
several, similar well-defined and documented guidance in literature how the theories and ideas could
methodologies to guide it or it could customize its own. be scaled down to fit smaller businesses [A.
The IS literature s approach to alignment has recently STRATEGIC ALIGNMENT IN ELECTRIC
been summarized in a theory of SISP, describing a top- UTILITIES
down planning process in which input to the model is
perceived and influenced by external environments The Swedish electricity market has undergone
(customers, suppliers, competitors, legislation, remarkable transformation in the last few years as
technology, etc.), internal environments (organizational market competition has replaced century-old monopoly
culture, size, structure, goals, management style, etc.), organization. The changes have implied extraordinary
as well as by planning resources (the organization s pressures on the utilities’, organizational structures,
business strategy and the time, effort, skills, and business processes, and business strategy thinking. The
experiences from management and consultants) p3], increasing demand for flexible energy products,
see Figure 2. The output of the process is the characterized by value-added services, and enhanced
production of a strategic IS plan, followed by this efficiency in operations have forced utilities to focus on
plan s implementation (i.e. the initiation and their business processes trying to integrate them more
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tightly as customer interaction usually cuts through the the organization. A study into several IS strategies
traditional functional organizations. formulated by utilities has however revealed that most
of the strategies formulated focus only on parts of the
Increased focus on cross-functional as well as inter- ESS [20]. Furthermore, in a recent survey conducted by
organizational information exchange in support of the authors, the results show that only about 45% of the
business processes, have fundamentally reshaped the Swedish utilities had an IS strategy in place Ell]. The
requirements concerning IT within a utility. In the research shows that, as many as about 70% of these
same time, the information intensity of the industry has companies were not satisfied with the impact of the
grown and it is several orders of magnitude greater strategy on their business activities. One of the main
today than before deregulation. Today, access to reasons for this dissatisfaction was a lack of alignment
accurate and timely information are not only a between the IT and business domains. This is reflected
prerequisite for an open, competitive market but also in the survey results that, so far, existing IS strategy has
considered to greatly impact the capability of a utility not had any significant impact on the utility s business
to maintain its service excellence while increasing its functions, for example, in reshaping its business
competitive edge [ 17. strategy, in redefining its taskdprocesses, roles and
responsibilities of its people, and relationship with its
In order to meet the changing business requirements customers. There is even less impact on the
conceming information management, there is a need organization s structure and the relationship with its
for completely new functionality, but also effective suppliers. Similar results are found in other studies in
integration of existing software systems in most which the existing IS strategies were found to provide
utilities. Today, an overall Enterprise Software System very little or no assistance at all to the different IT
(ESS) in a mediumsized utility may comprise of deployment projects carried out in the studied
hundreds of interconnected systems with different organizations [221.
degree of interaction, some of them not even within the
organization. However, the traditional management CASE STUDY: SISP IN AN ELECTRIC UTILITY
strategy for automation of tasks within utilities has
been a bottomup approach, in which functional areas In order to further explore the issue of strategic
were automated on an application-by-application basis, alignment between IT and business domains, a case
without consideration for integration and optimization study investigating SISP practices has been conducted.
at the firm level [18]. Thus, the inflexibility of existing The company under study was a mid-sized Swedish
legacy systems is still a major obstacle for achieving electricity retailer formed by a merger of the previous
system integration. As a result of the increased level of electricity sales operations of five municipally owned
dependency between different systems, Enterprise electric utilities. The company was established in 1996
Sofiare Architecture (ESA) has become a key issue. and during the first years, management had been
focused on consolidation issues such as establishment
In the process of adapting their ESS to the new of organizational structure, management team, and
business requirements, several utilities have started to working routines, rather than aggressive business
deploy a new wpply strategy. Traditionally, systems strategies. In 1998, management had started to review
have been developed and customized from scratch in the strategies of the company in order to prepare for
order to fulfill the specific requirements for one forth-coming changes in the market. Management was
organization, This is however changing as the cost for forecasting that the sales and marketing strategy had to
tailor-made software systems is arduous to bear for be more aggressive and customer-focused, and that the
most organizations. The trend for enterprise software cooperation with other companies to facilitate bundling
systems is thus an increased use of COTS - of products and services had to be enhanced. Also, the
Commercial OffThe Shelf- software. The COTS lowered margins on electricity sales urged for better
components used vary in size, but are often fairly large control of ’the company s business processes, more
grained and might even comprise complete systems, effective risk management in the electricity trading,
e.g. Customer Information Systems. By using COTS- and reduced administrative costs in the handling of
software, utilities are able to bring down the effort of small customers.
developing “bread and butter” functionality, but in
retum the use of COTS increases the total system Early in the strategy review, management concluded
complexity and introduces a complete new plethora of that most problems identified were related to
problems that must be tackled [ 191. shortcomings of the existing legacy ESS to support the
business operations sufficiently. The existing ESS was
As a result of the increased complexity of IT and its a heritage from the mother companies and consisted of
potential business impacts, there is a need for an a wide-array of legacy systems and components. The
effective strategy to fully exploit its benefits [12]. ESS lacked functionality in several critical areas and
Many utilities have recognized this, and planning and provided on the other hand, over-lapping functionality
development of an IS strategy have become the in several others. The company experienced problems
accepted way to identify those areas in which to merge information for analysis and effective
investment in IS will provide the greatest benefit for reporting purposes as several of the mission critical
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systems lacked capabilities for interoperability. components, nor they provided guidance concerning
Furthermore, the limitations in interoperability made it the trade-offs between for example, change impact on
difficult to introduce multi-channel customr processes versus software systems, solution flexibility
interaction, or conduct effective electricity trading and versus versatility, solution simplicity versus
risk management. integration, implementation time & costs versus
operational costs, for the different alternatives.
In order to start the process of introducing a more Therefore, management found it difficult to’ sort out
appropriate ESS, the management team decided to and prioritize the most important parameters of a
undertake a systematic and formal IS planning process. successful ESS for their specific situation.
A major management consultant firm was contracted to
apply their methods and frameworks to help the utility After a few months of intensive work, management
to develop a migration strategy for the major part of concluded that the applied method could not help them
their legacy ESS. In the process of collecting in their mission and the SISP initiative was canceled.
information, a comprehensive set of activities was Instead, the company decided, due to shortage of time
carried out by consultants, activities that were mainly and resources, to launch a pre-study with the purpose
directed toward the top management team and of preparing the procurement of an ESS suitable for
comprised elicitation of business strategies, objectives, their business operations. However, the method did not
and priorities. As the business operation had started fail completely. As a result of the exercise, the
just a few years earlier, there were no long established, management team increased their awareness of the
documented working routines or processes. Also, the problems with the existing legacy ESS and it showed
business strategy was mainly held informally within the need for explicit business strategies.
the top management team. This is a characteristic for
SMEs, which tend to be organic with informal Analysis of the SISP initiative
management structures built around small management
teams [8]. Due to this fuzziness, the consultants found Based on the results from the case study, one can
it difficult to document the business objectives, conclude that implementation of a formal SISP
structure, processes, etc., an important and integrated initiative in a SME is not an easy undertaking. It is
part of the applied framework. found that the planning framework applied was useful
in increasing the awareness of the top management in
The management team on the other hand, had an terms of interdependencies between different elements
opposite view of the fizziness of the business domain; of the organization. However, several obstacles arose
they rather saw it as an opportunity. Management had, in trying to fully implement the.framework.
based on the company s limited supply of skills and
resources, understood the need to extensively use Firstly, during the process it became clear that the
COTS-components in order to limit the risks coupled applied method was designed primarily with big
to extensive software development and integration. By organizations in mind. Thus, the amount of resources
searching for a vendor with extensive knowledge needed both in terms of personnel, money, and time,
concerning the business conditions in which the was found to be a major problem for the studied
systems should be installed and with a system based on company. Neither, did the method take advantage of
large grained COTS-components, management saw an the informality of the business strategy, nor did it
opportunity to find not only a system but also key address the supply strategy based on COTS
business processes that were matched and aligned to components properly. Thus, the results highlight the
the system and suitable for an electricity retailer active dangers of assuming that current SISP methods are of
in the deregulated Swedish electricity market. “one size fits all” variety. Similar shortcomings of
present SISP methodologies have also been reported in
Rather early in the process, the scope of the applied several other studies [23,24].
method became large and difficult to grasp. Also,
activities and outcomes failed to win the support or Secondly, the method was found to be based on an
involvement of the organization ‘at large. Furthermore, underlying assumption that strategic planning is a
when the conclusions were presented, they were found rational process and as such it assumes that managers
to be on a too abstract level. Also, as the consultant involved in the process are perfect, rational and
firm was the driver of the SISP exercise, they had a purposive beings who are technological experts,, and
substantial influence on the recommendations, and the also that the adoption and implementation of various
objectivity of some of the recommendations became changes in processes, structures, and systems are a
questioned. Although different design alternatives were straightforward and predictable process where the
presented, the results did not provide information about means to specific ends are known, and where the
the complexity of the proposed solutions or the outcomes of the organizational actions are in line with
resources needed for implementation and training. the involved actors’ intentions [25]. However, the
Neither, did the conclusions take enough notice of the research shows that a strategic alignment initiative is
specific characteristics of the organizational settings, not primary a rational, analytical, and certainly not only
e.g. the need to extensively use well-proven COTS- a technical activity. Potential success is highly
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dependent on the communication skills of all involved. objectives). The second perspective is business process.
During the SISP process, business managers and IS This focuses on understanding the work processes to
planners did show that they were unable to express appreciate whether information flows inhibit business
themselves in a common language, necessary to cope activities, and also to identify changes that might be
with the absence of rationality and analyzability. made as a result of introduction of IS. Finally, the
strategic content embodies the vision for change and
STRATEGIC ALIGNMENT - A PRAGMATIC the practicality of its introduction given organizational
APPROACH circumstances.

From the results of the case study, it is apparent that the
Strategic
traditional SISP methods that share the underlying Content
assumption that IS planning is aimed at merely
translating an organization s business strategy and
objectives into an IS structure is impractical, especially
for use in SMEs. The failure of SISP exercises to
provide strategic directions for IS projects implies that
the relation between a specific project and the
organization s overall business strategy might not be
clear for all involved parties. This might lead to
contradictions, disagreements, and/or lack of policies
concerning the strategic business level and the need for
IS support, during the project, which might obstruct the
Figure 3: Thefour themes of theproposed framework
achievement of alignment [26]. Thus, there is a need
for an alternative approach for strategic alignment
Based on the four perspectives of the framework, an
efforts, which is based on the special characteristics of
alternative SISP process is proposed. Compared to the
SMEs taking account of e.g. their informal approach to
conventional topdown IS planning process, the
business strategy, their operational focus, their limited
alternative process is a more iterative, goal-onented,
expertise in IS, and their limited supply of resources. In
and evolutionary process of organizational learning, i.e.
line with Ciborra, we argue the relation between an IS
an approach that corresponds with what Earl refers to
related project and an organization s overall business
as the organizational approach [28]. Although the
strategy should be considered part of every specific IS
proposed process model consists of four sequential
project [6 1.
steps, the process to develop, implement, and assess an
ESA is typically iterative.
In the alternative project-based approach, business
strategies, processes, and actions concerning the ESS
1. Definition of scope aims at defining the scope of the
are defined and aligned concurrently within an IS
undertaking including elicitation of objectives, goals,
Ihe approach is by a requirements, constraints, but also documentation of
strong focus on teamwork as user participation helps to
existing legacy systems. Stakeholders from different
ensure fast and effective implementation. The approach parts of the organization are enlisted in a cross-
is based on a framework in which
lifecycle model for
an architectural
Software functional team to ensure effective implementation.
(EsA) is a central part. ESA is i n extension of the 2. Scenario construction aims at visualizing
traditional concept of software architecture to include dependencies between business strategy, business
the interconnected “system of software systems”
processes, and software systems. Also, the scenarios
characteristics. As such, ESA provides a conceptual
are used to make sure that the planning results are
model of an organization s software systems without understood early on by making the deliverables visible
focusing on specific software technologies and and tangible. Although scenario construction should
functionality. The ESA is described using properties, start from existing business vision or business
normally addressed as quality attributes (or systemic processes, the scenarios are also made possible, even
competencies [SI) and can be defined as non-functional suggested, by emerging technologies. Typically,
characteristics of a component or a system, such as
scenarios are extracted through changing or adding
flexibility, integrability, modifiability, reliability, or components in the architecture.
availability [27].
3. Representation and analysis of ESA alternatives
In order to stress the importance of alignment, the aims at evaluating feasible architectural alternatives
framework also adapts Walsham s three themes, or based on the proposed scenarios. The altematives are
perspectives, for IS strategy, see Figure 3 [IO]. First, characterized in terms of functional and qualitative
the business context provides the understanding of the requirements based on existing legacy systems and
business environment in which the SME operates with relevant COTS components. The design alternatives
a particular focus on the market, the relationship with are then reviewed whether the advantages of
customers and suppliers (business strategy and
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appropriate technological opportunities are considered, circumvent some of the obstacles with the present
and that other perspectives of the framework are strategic alignment methodologies, a pragmatic project-
properly aligned (business context, business process, based approach is proposed based on the special
and strategic content). Here, functional mapping characteristics of SMEs. In the approach, business
combined with the quality attributes of the ESA strategies, processes, and actions concerning the ESS
provides a conceptual yet structured, and analyzable are defined and aligned concurrently within an IT
view of the complexity of different solutions. project. The approach have been tested in the case
study and proved to be more appropriate and more
4. Architectural modification aims at deciding acceptable by the management compared to a previous
whether to conclude the analysis and proceed with more formal SISP initiative.
implementation or to refine the architecture by
additional iterations. The rationale for iteration is the REFERENCES
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