To align IT plan ue ea ais \% 250.00 IT STRATEGY AND MANAGEMENT, Second Edition Senjiva Shankar Dubey © 2011 by PHI Learning Private Limited, New Delhi, All rights reserved. No part of this book may be reproduced in any form, by mimeograph or any other means, without permission in writing from the publisher. ISBN-978-81-203-42217 The export rights of this book are vested solely with the publisher. Fourth Printing (Second Edition) ae ons nee December, 2010 Published by Asoke K. Ghosh, PHI Learning Private Limited, M-97, Connaught Circus, New Delhi-110001 and Printed by Raj Press, New Dethi-110012.Contents Preface xiti Preface to the First Edition wv Acknowledgements avid OPPORTUNITIES FOR FP id ¢Lt__Antredetion 1.2 Background 1 1.3 What is Business Strategy? 2 13.1 Business Strategy: Challenges and Opportunities in the Globalized, Interconnected. Convergent Wi a — — —— —— 13.2 Establish Principles before Practice 4 14 What is IT Strategy? 4 1.4.1 Application Strategy 5 14.2 Technology Strategy for IT 6 14.3_IT Management Strategy 6 15 Developing IT Strategy for Competitive Advantage ie L6__ Stages of IT Strategy Development and Implementation te Review Questions 8 References 2: Cuarrer 2_ BUSINESS AND IT ALIGNMENT 10-30 2.1___ What is Business and IT Alignment? 10 2.1.1 Definition of Alignment 12 2.2 Challenges of IT and Business Strategy Alignment 13 2.2.1 Inhibitors of Business and IT Strategy Alignment 14 2.3. Three-D Framework for Business and IT Alignment: Discipline, Design and Drive 16 2.3.1. Uniqueness about Alignment 17 2.4 How Can We Achieve Business and IT Alignment? 17 2.4.1 Communication School 17 24.2 Architecture School 19 vvie Contents 2.6 Summary 25 Review Questions 27 Casi Stupy: Bank of Hindustan 28 References 29 Cuarrer 3. STRATEGIC IT PLANNING 31-68 3.1 Business Implications for IT Suategy and Planning 2 3.2 What is a Strategic Plan? 3.3 Strategic IT Planning Motivations 33 3.4 __ SITP Process: Prevalent Planning Approaches 34 3.5 Difficulties in Developing and Executing SITP 36 3.6: Best Practices for Achieving Good SITP 36 3.7__ SITP Approaches: Prevalent Researches 37 3.7.1 __ Business Systems Planning Approach 38 3.1.2 _ Critical Success Factors Approach 39 3.7.3 _ Stages of Growth 40 3.7.4 Value Chain Analysis 4l 2 3.7.6 Linkage Analysis Planning 43 3.7.7__ Scenario Planning 4 3.8 _ Critical Comments on Various Planning Approaches 45 3.9 Integrated Planning Approach 46 3.10 Content of SITP 3.10.1 Typical Content of SITP 48 3.10.2 Planning Stages of IT Plan 49 3.11 Consideration for System Operations _ 52 ; sae ad : Ps 3.12_The Planning Horizon SA 3.12.1 Rapid-Response Planning for Intemet Applications 55 3.13 Resource Planning 55 3.13.1 People Plans 56 3.13.2__Financial Plans 36 us spate 7p nL Planning 56 3.13.4 Technology Planning 56 3.14_Managing Project Scope Tightly is the Key 56 3.15 Implementation Considerations of SITP 57 3.16 Change Management Issues of SITP Development and - implementation 62. 3.17 Monitoring and Measuring SITP Success 63 3.17.1 Information Technology Strategy Committee 64 3.18 Summary 65 Review Questions 66 References 67Contents @ vil Cuarrer 4 ENTERPRISE IT ARCHITECTURE 69-79 4.1 Introduction J __________69 4.1.1 Challenges Addressed by Enterprise IT Architecture 69 42 Why Define Enterprise IT Architecture? 70 4.2.1 Enterprise IT Architecture Aids Agility for 43 What is Enterprise IT Architecture? n 44 Need for EITA study and Contemporary Research. 7 44.1 Advantages of Defining EITA B 4.5 — Contents of a Typical Enterprise IT Architecusre 3 4.6 Standard for Enterprise IT Architecture 76 47 Summary a7, Review Questions 78 References B IT APPLICATION STRATEGY 80-98 5.1 Introductio 80 5.2. Why Develop Applications (Either In-house or Through Subcontracting)? 82 1 Why COTS? 82 1.3 Requirements Engineering is Common Challenge for Both 84 4 COTS Package Selection Life Cycle 85 5.4.1 Identification of Candidate Packages 86 5.4.2 Defining Evaluation Criteria and Selection Process for COTS RG 3 Package Customization Strategy 90 45 COTS Implementation Strategy 91 5.5.1__Best Practices for Successful Implementation 92 5.5.2 Multi-unit Implementation Altematives 94 5.6 — Posi Implementation Support and Management 94 $7 Summary 96 Review Questions oT Refe oR $1 Why Technology Management Strategy for IT? 99 62 Technology Management Strategy Framework 99 63 Technology Management Strategy Motivation 103 6.4 How Easy it is to Define Technology Strategy? 104 6.5 What If We Do Not Have Technology Management Strategy for IT? 105 6.6 What are the Constituents of Technology Management Strategy for IT? 105vill © Contents 6.7___ Prevalent Technology Reference Architectures Framework and Standards 6.7.1 The Open Group Architectural Framework (TOGAF) 112 Review Questions 116 References 116 Cuarren 7 STRATEGY FOR IT PROGRAM MANAGEMENT AND PMO 118-143 7.1 Introduction 118 7.2. Why Have a Strategic View for Project, Program and Portfolio Management? 118 7.3. Program Management 118 7.4 What is Program Management and How it is Different from Project Management? 120 Why Set up a PMO? 120 7.6 Some Quantified Benefits of PMO 122 7.1__ Desired Qualities of a Program Office Manager 122 7.8 Maturity of PMO 123 7.9 What Determines the Types of PMO? 124 7.10 What PMO Does? 125 7.11 Management of PMO 127 7.12 PMO is About Bringing Cultural Change 128 7.13 Implementation of PMO Strategy 128 7.14 Staffing of PMO 128 7.15 Measuring PMO Performance 129 7.16 Success Factors for PMO 130 7.17 Maturity Assessment of Project Management Practices 131 7.18 CobiT® Capability Maturity Model 131 7.19 CobiT® Maturity Levels 132 7.20 Strategy of Application Portfolio Management 134 7.21 Project Scope Management 136 7.22_Managing Overall Risk 140 7.23 PMO Dashboard and Reporting 141 7.24 Summary 141 Review Questions 142 References 143 Cuaprer 8 IT SERVICE MANAGEMENT STRATEGY 144-174 8.1 Introduction 144 8.2 Why Have Strategies for IT Service Management? 146 8.3 What is IT Service Management? 147 8.4 Information Technology Infrastructure Library (TIL) 147 8.4.1 ITIL Overview 149 8.5 ITIL Service Support Processes 149 8.5.1 Incident Management 150Contents @ Ix 8.5.2 Problem Management 150 8.5.3 Change Management 151 8.5.4 Release Management 151 8.5.5 Configuration Management 151 8.6 Service Delivery 152 8.6.1 Service Level Management 153 8.6.2 Financial Management 155 8.6.3 Capacity Management 156 8.6.4 IT Service Continuity Management (ITSCM) 158, 8.6.5 Availability Management 161 8.6.6 Security Management 162 8.7__ Services Life Cycle as Described in Level 3 of ITIL 162 8.7.1 Maturity Level of Processes 163 8.8 Stages of Implementation 164 8.9 Success Tips for Implementing ITSM/ITIL 165 8.10 Leading Vendors in the Area of ITSM Products and Tools 166 8.11 Complementary Frameworks in IT Service Management Space 167 8.11.1 Comparison between ITIL and BS15000 and 1S020000 167 8.11.2 Relationship between Microsoft Operation Framework (MOF) and ITIL 168 8.12 Measuring and Realizing IT Service Management Advantages 169 8.13 Some Useful Reference Websites m7 8.14 Summary 172 Review Questions 173 References 174 IT SOURCING STRATEGY 175-194 9.1 Background 175 9.2 Imperatives for Outsourcing? 175 9.3 What is Outsourcing? 176 a5 seal , 9.6 Outsourcing and Associated Risks 178 9.7 How to Minimize Risks 9 9.8 IT Management Layers and Considerations for Outsourcing 180 9.9 Strategic vs Generic Sourcing 181 9.10 Variants of Outsourcing 182 9.11 Business Process Outsourcing 184 9.12 Best-of- sort 9.13 Insourcing 185 9.14 Outsourcing Joint Venture 186X_ © Contents 9.15 How to Succeed with Outsourcing 187 9.15.1 Shortlisting Candidate Service Providers 187 9.15.2 Define Comprehensive Contract Content 187 9.15.3 Invest Time and Energy in Thorough Contract Preparation 187 9.15.4 Have Clear Scope of Service 188 9.15.5_Define Commercial Rewards and Penalty Clearly 190 9.15.6 Safeguard Typical Dispute Areas 150 9.15.7 Ensure Objective Tendering and Selection 9.16 Contract Management and Governance 191 9.17 Managing Outsourcing Transition 192 9.18 Summary 193 Review Questions 193 Cuarrer 10 PLANNING AND MEASURING RETURNS ON IT INVESTMENT 195-202 10.1 Background 195 11.2. IT Business Value Framework 195 10.3 Critical Factors for the IT Benefits Realization 197 10.4 How Much IT Investment is Optimum 199 10.5 How to Measure Benefits from IT 200 10.6 Defining and Measuring Return on Investment 200 10.7 Communicating and Marketing the Business Benefits 201 10.8 Summary 202 Review Questions 202 References 202 Cuaprer 11 STRATEGIES FOR MANAGING IT-LED CHANGE 203-221 11.1. Introduction 11.2. IT Strategy Implementation 11.2.1 Issues at Business and IT Alignment Layer 11.2.2. Issues with End-users 11.2.3. Issues of IT Professional: In-house as well as Outsourced Service Providers 11.3. Barriers of Change 11.4 Managing Change 1L5 Driving the Change Through Steering Committee 116 Acquire and Enhance New Skill Set 117 Summary Review Questions ‘Gist Shie Re Indian Telecom If: Dream IT 3. MG Retail: A Case of Missing ‘B’ in Retail References 203 203 204 205 205 206 208 210 210 210. REE Re aPreface @ Cuapter 12 COMPUTER ETHICS, IPR AND CYBERCRIME 12.1 Background 12.2 Why Study Computer Bthics? 222 12.3. What is Computer Ethics? 224 12.4 Categories of Computer Ethics Issues 226 12.5 Recommended e-ethics Code 227 12.6 Software Copyright, Intellectual Property and Associated Laws 228 12.7 Some Background of IPR Conventions and Universal Agreements 229 12.8 Copyright Laws in India 230 12.9 A Brief Overview of Cybercrimes 231 12.10 Challenges Enacting Laws in Cyberspace 232 12.11 Information Technology Act, 2000 233 Case Stupy: What is the WIN-WIN Model? 235 12.12 Summary 236 Review Questions 236 Suggested Alternatives to the Case Situations 236 References 237 AppEnpix A Gap Assessment of ITSM Principles vs Practice: A Study of Indian Corporations 239-247 Apvrnorx B Multiple Choice Questions with Answers 248-256 Bibliography/Webibliography 257 Index 259-2651Copyrighted materialPreface I would like to thank the academic fraternity, professional colleagues and students for their wholehearted acceptance of this book as part of their knowledge enrichment process. Their encouraging feedback and suggestions have led to some useful additions to the second edition. Business environment and the role of IT have dramatically changed in the last two years since the book was written and the first edition came out. The role of IT has become much more critical for most major enterprises in these uncertain times. It has been seen that IT, if not managed strategically following the best practices approach, is a risk for the enterprise survival. On the other hand, IT, if managed properly and strategically, leads to enterprises’ phenomenal growth with umpteen opportunities. The new discussion cases in the second edition highlight these two dimensions. In addition, issues of Computer Ethics, Intellectual Property Rights and Cybercrime Prevention, etc. must be considered simultaneously and judiciously while deploying large-scale IT projects. Accordingly, this topic has been included as a new chapter to complete the IT Strategy and Management coverage in the second edition. On the request of the academic fraternity, multiple choice questions with answers have been included. I am sure it will help students as well, to test their knowledge while studying for examinations or job interviews. For faculty members, PowerPoint teaching aids are available on PHI website. It contains sessions plan, major discussion points, class navigational tips and teachings notes to help the faculty. I will be happy to receive further suggestions for improvement of the book. The feedback may be sent to: itsm.ssdubey@ gmail.com Sanjiva Shankar DubeyPreface to the First Edition Globalization is having a far-reaching impact on the way modern corpo- rations are being run. As more and more companies are becoming globally connected, the basic framework of all aspects of business, from soliciting customer and competing in the marketplace to production and services, is getting redefined. In the last two decades, Information Technology (IT) has become one of the most important resources for modern corporations in helping their continuous transformation, initially as a support or enabler and now as a competitive differentiator. IT has become the corporate lif in almost all cases, and the strategic value creator and differentiator in most cases. Its importance as the strategic value creator is growing at a much fas- ter pace due to the Internet, and convergence, which is forcing corporations to produce, serve and source from anywhere and any time from the world. In light of these changes, new challenges and opportunities have emerged in managing IT as a strategic resource. While IT strategy and management is a much sought-after discipline among practitioners, it is yet to be firmly established in management curriculum in India, largely due to lack of effort, in either distilling practices into theory or theoretical thinking to arrive at best practices. This book is an attempt to carry this thought further. Some time back, if any one would have asked what is the need for IT strategy and management, the answer would have been long winding and a lot of explanation would have been required to convince the questioner. The task is simpler now because the questioner would be convinced that IT is strategic in nature, needs a long-term perspective, and should be guided by the grounded principles of management, like any other strategic resources. The questioner, though, would still ask, how do we realize this? Technology management has been a difficult area to deal with and IT is no exception. While the technology of IT has seen phenomenal development, the management aspect of IT is still evolving. Some may say that in order to develop sound principles about anything, it should be stable and predictable. This being rarely the case for IT, it may remain the art form dependent upon individuals or progressive organizations who would claim some glory because they have some better convincing argument over the rest. A leading CEO once remarked that all IT consultants come with some mouse traps to captivate their users with fancy methodologies and PowerPoint charts for a promised delivery. But the situation hardly changes. xvHWI e@ Preface to the First Edition Granted that it was the user's frustration arising out of the lack of delivery to meet the requirements. But the real reason is non-adherence to the principles and best practices. Technology makes unrealistic promises which cannot be realized if the fundamental principles of using IT are not grounded in the organization. Without a strategic approach to IT, organizations would continue to grapple with the day-to-day problems of IT without making dramatic improvements in its cost, content, clock time or creativity (4 Cs of any business) parameters. This book will equip students and practitioners with business and IT linkage to develop IT strategy for competitive advantage. This will provide the necessary concepts and practices to manage IT strategically, effectively as well as efficiently. In short, the book will help them to: Analyze and critically evaluate information as a key resource. Analyze IT systems’ ability to meet the strategic information needs. Evaluate the use of IS/IT to gain competitive advantage. Prepare an effective plan for the implementation of information strategy. e Evaluate IT function service capabilities and enhance it using ITSM processes. As IT is evolving from just being a support to automate back office to all pervasive, all impacting discipline in the last 20 years, a comprehensive treatise with a practical outlook is needed. Without being mesmerized by jargons, an attempt is made to give a holistic perspective of IT strategy, planning, execution and management, in a comprehensive way. In this text, I have strived to encapsulate the proven principles and practices of IT strategy and management by bringing new perspectives arising out of my hands-on experience as a practitioner. I also felt the need for such a book from a teacher’s perspectives due to my close association with several B-Schools. I consider that teaching what you do and do what you teach, is the biggest service any professional can do to his brethren and aspiring youngsters. T have only added bits of my own thinking and lessons learnt in this area. However, I have depended on the prevailing body of knowledge already put forward by researchers, teachers and practitioners in published form. I offer my sincere thanks to all of them for creating a learning path for me to walk on. I will be most happy if my Ideas, shaped in the form of a Product (book), can help the reader produce useful Results. Only then this IPR is of any worth. Any constructive criticism for further improvement of the book is most welcome. Sanjiva Shankar DubeyAcknowledgements As a practitioner and teacher of IT Strategy and Management, I must thank all my fellow academicians, as well as authors and researchers whose works Thave consulted. It may not be possible to thank each one of them personally, but I would like to express my sincere gratitude to all of them for giving me permission to refer their works. 1 am thankful to my organization, IBM India, colleagues from the industry, and academics who have encouraged me from time to time. 1 would like to thank my elder brothers Sri Ashutosh Dubey and Dr. Vinod S. Dubey, and elder sister Smt. Pratima Mishra, whose affection and guidance has inspired and spurred me to write this book. My wife Vibha, son Priyamvad, and daughter Devisha are the silent contributors to this effort. They helped me during writing of this book by giving me support, and reading through the portions of the draft. Finally, I would like to thank the Publishers, PHI Learning, especially their editorial and production team, for the efforts they have put in to make the book clearer and more presentable to the readers. Sanjiva Shankar Dubey xviiChapter! Business Strategy: Challenges and Opportunities for IT Knowledge and information tend to be abundant: what is scarce is the capacity to use them in meaningful ways. 1.1 INTRODUCTION This chapter discusses the role of Information Technology (IT) in formulating today’s business strategy. The convergence of information and communication technology (ICT) has impacted almost all businesses, shaping up their business directions, As a result, IT has become a strategic resource and, therefore, needs careful management by the organization to make choices and arrive at prudent expenditure decisions. 1.2 BACKGROUND The computer led the advent of the information technology era in the late 50s. In the beginning, IT was synonymous with automation of repetitive task to bring efficiency and speed. However, as its capability grew, newer avenues of usage of IT started to surface. In addition, the convergence of internet and telecommunication technology further opened up new strategic possibilities as well as management challenges Most industries extensively depend on real-time basis on ICT, so much so that if IT systems are down for a few minutes, massive disruption can take place in their operations and cause loss of reputation with their customer. Earlier, it was acceptable to take localized decisions regarding technology selection, management and investment, as the scale of operation was small. But now, as the size of the organization has grown, such decisions require a serious approach and rigour. So, when Porter’ says that companies must be flexible to respond to the competitive market changes, must benchmark continuously 12 ¢ IT Strategy and Management to stay ahead of its rivals, it reflects as to why IT is becoming important in strategy execution as well as formulation. Companies are spending huge amount to manage their IT. However, most of them do so without long-term thinking or proper planning. They struggle to quantify the results of the IT systems and consider it as cost of doing business. As the dependence on IT is increasing, a strategic approach to IT management is needed. Like any strategic resource, IT too will have a long-term “make or mar” impact if not managed effectively. This chapter concentrates on the finer nuances to establish Information Technology as a strategic resource and the need for a strategic approach in its management. IT in itself is not enough to yield business results unless it is closely intermeshed with business strategy. Therefore, it is important to understand the relationship between IT and business strategy and their inter- dependence to be able to chart a well thought out course for IT management. We discuss this relationship under the following topics: © What is business strategy? © What is the impact of IT on business strategy? @ Why we need IT strategy, what are its components and how to develop and maintain it. 1.3 WHAT IS BUSINESS STRATEGY? ‘Business strategy’ is a generic term, conveying many meanings. While some authors use it in terms of the goals and objectives of the firm, others use it in terms of the ways and means to achieve organizational goals. Mintzberg? advocates five P's to define strategy. Plan or course of action Patterns, company’s behaviour in the market place Position (unique or valuable) that a company wants to attain Perspective, i.e. organization’s fundamental way of doing things (e.g. McDonald's way) © Ploy, a specific manoeuvre intended to defeat its competition. There are several seminal work done by authors such as Porter who define business strategies such as cost leadership, differentiations, niche focus or innovation which a firm can adopt. To summarize, strategy is a set of objectives, plans, and policies for the organization to successfully compete in its markets. Some of its characteristics are: It is long-term (3-5 years) in nature. It specifies what the organization’s competitive advantage will be. It focuses on a few key areas. The pattem of decisions made over time is, in fact, an organization's business strategy.Chapter 1 Business Strategy: Challenges and Opportunities for IT_« 3 1.8.1 Business Strategy: Challenges and Opportuni- ties in the Globalized, Interconnected, Convergent World In the current business scenario where the trade boundaries have disappeared, knowledge and information flows freely and corporations are changing their organization structure, products and business model continuously. Strategy formulation and execution has become very difficult as well as interesting. When we probe deeper, we reaiize how IT has become important in supporting and executing such changes in strategy. 1. First of all, global competition makes it impossible for individual firms to survive unless they operate at the same level of efficiency and quality to be able to serve the customer at an acceptable price. These are the necessary conditions. IT helps in a variety of ways to cut cost, increase speed, and support business activities through applications, communications and technology. Look at any of the fast food chains such as Pizza Hut or Domino’s, they have the same level of operational effectiveness and efficiency, all supported by IT in their processes. Here, IT is the digital nervous system of a firm which runs its operations most efficiently and effectively. 2. When all companies start reaching the state of same levels of quality and efficiency, the operational efficiency does not remain the sufficient condition, though it is necessary for survival. Porter refers to competitive strategy (of a firm which is sustainable for long term) being different, choosing a different set of activities to deliver a unique mix of values.4 Here the role of IT is to provide this very variation and choice by pooling together capabilities to support the activities of the firm. Take, for instance, Toyota car which a customer can customize choosing accessories, colour, etc. or Dell which makes to order its products—both these companies provide a unique set of values, different than their competitors, using IT as an enabler. 3. Another perspective comes from the possibilities of using [T for innovating, and transforming the business. Companies are expanding their scope as well as reach using the Internet and are able to offer their customer a variety of products, not necessarily owned or produced by them. Airlines are becoming travel companies, hospitals are getting into health tourism, or the manufacturer of raw CD (e.g. Moser Baer) is getting into media distribution. In order to expand and enhance the scope as well as the reach of the business, IT becomes not only necessary but strategic in nature. Gone are the days when the strategy of the company was focused to gain local efficiencies in the local market. Companies such as Wal Mart, Nokia, Samsung, Microsoft, Infosys have to compete in the global market and bring in4 e IT Strategy and Management global efficiencies. All this requires robust and scalable IT infrastructure and business processes that have the abilities to respond to the local needs. Global connectivity is forcing enterprises to shape their strategy in a global way for the global customers and to face the global challenges. This simply means that corporations not only have to locate their operation and function where the right cost and skills are available, but also to integrate them all across in time and distance. All this can only be done using IT in a strategic, holistic and comprehensive manner. Finally, the ripple effect of one industry, one country or one natural disaster is felt more often in other places, sooner than expected. This also means that organizations have to have far more layers of preparedness and fallback systems organizationally to respond to such situation in shorter time frame. This can only be done if IT deployment is done keeping utmost levels of constant preparedness, “battle ready” conditions and agility in mind. To conclude, IT has started to play different roles in shaping up as well as executing the strategy. The emerging trend of ICT convergence and the phenomenal growth of Internet and communication technology have opened up new vistas for using IT as a strategic tool and differentiator. The question now is how, and the answer to this is that firms must formulate and constantly maintain IT strategy that is aligned with its business strategy. This has been further discussed in Chapter 2. 1.3.2 Establish Principles before Practice IT has always been seen from the technology perspective, and at times the newness of the technology has somehow overshadowed the fundamentals that enable its firm grounding for profitable usage. Over a period of time, like in any other human inventions, the principles get firmly established, based on which the technology and process improvement takes place to implement on a large scale. For example, the principles of floating and flying are firmly grounded in the buoyancy theory of Archimedes, drag and pull, based on which the large ocean liners or the aircraft have been built over a period of time. Once these principles are firmly grounded, the technology innovation further accelerates its adaptability, usage and scalability. Similarly, IT in the last 50 years of its existence has reached a stage of maturity as far as the technology principles of Information processing and management, data base or user experience are concerned. With this maturity, we can explain the principles of IT strategy, planning and management so that the technology is put in the right perspective for effective execution. 1.4 WHAT IS IT STRATEGY? When any resource becomes not only necessary for the business survival but also acts in bringing about strategic differentiation, one needs to depart fromChapter 1 Business Strategy: Challenges and Opportunities for IT « 5 the ad hoc decision making. As explained earlier, IT is integral to support, enhance and expand business strategy. Therefore, we need a long-term view of IT in the form of IT strategy. The formulation of IT strategy is required for two reasons. © Competitive necessity: Products, services, processes, or capabi- lities that are necessary, simply to compete and do business in an industry. © Competitive advantage: Developing products, services, pro- cesses, or capabilities that give a company a superior business position relative to its competitors and other competitive forces. The role of IT strategy for any organization is to ultimately provide effective, efficient, responsive and flexible systems to meet the current and future business as well as legislative requirements. A good system developed out of strategic thinking would support business processes and provide a cost- effective framework for executing the business strategy rather than just information keeping. IT strategy would provide and sustain an information technology framework to enable the firm to meet its mission, objectives and strategic aims. IT strategy, which helps in business strategy execution, is further subdivided into the following subcomponent: © IT application strategy Technology management strategy for IT e IT management strategy 1.4.1 Application Strategy The application strategy, in simple terms, means answering, which all applications for which all the business areas and for what benefits and at what cost. The first and foremost strategic decision for IT is to identify the business areas which need IT intervention and IT systems that will support in meeting their requirements. A strategic perspective of IT is needed to select, prioritize and decide about investment and approach for implementation for IT applications. Any lasge organization has numerous IT applications serving its various needs. All these IT applications are further evaluated based on their present as well as future importance, so as to classify’ them as either Support, Factory, Turnaround or Strategic category. This categorization helps IT Manager or Chief Information Officer (CIO) to take decisions regarding these IT appli- cation development, deployment, maintenance and continued management. Support class of IT applications score low in terms of their importance in present as well as future business scenarios. Whereas Factory class IT applications (also called automation application) may be important today but may not remain so in the long term, as the business may undergo a change.6 © IT Strategy and Management On the other hand, Turnaround type IT applications score low on current importance but are futuristic in nature, therefore the name turnaround. Finally, Strategic class of IT applications are those which are not only important in the current context but remain important for the future of the business as well. Firms which have multiple product and services and operate out of multiple locations need further refinement of their IT Application Strategy. The business area analysis (defined as “naturally cohesive groupings of business functions and data”) is an important method to help identify the common as well as unique systems, especially for large corporations. This helps in conceptualizing IT applications for organizationwise processes which , could be either common (centralized or replicable) or unique. Business area analysis establishes a detailed framework for building information needs of an enterprise using diagrams and matrices to model and record the data and activities, such as data models, process flow models, process decomposition diagrams and other tools to help in prioritization and investment decision. In the absence of such a strategic view, IT applications get sponsored and developed without considering an organizationwise impact or following sound architecture principles. We have discussed application strategy in detail in Chapter 5. 1.4.2 Technology Strategy for IT The technology strategy refers to the long-term approach for planning and selection of underlying information technology components and tools, considering various factors such as skills available, cost effectiveness as well as time and resources available to the firm. While the application strategy identifies applications to address the business needs, the technology strategy addresses the choice of long-term view of the technology, their sustainability, availability and reusability. We have discussed the technology strategy in Chapter 6 in detail. 14.3 IT Management Strategy IT management has become a more complex and involved function in recent times. Earlier, it was easier to hire some trained computer professionals and allow them to develop codes as per the business requirements. But the frequent tumover of the employees, lack of adequate quality and reliability of bespoke developed product as well as the underlying risk in the event of system failure, has forced IT managers and CIOs to apply new thinking in IT management. The most important thing is managing IT projects and programs that can meet the business expectations in the desired time, cost and budget. Another issue is regarding the decision of outsourcing vs doing in-house. Not only this can have a far-reaching impact based on the core competency and cost but also on the management time and effort needed to do either way.Chapter 1 Business Strategy: Challenges and Opportunities for IT © 7 Yet another issue is about establishing IT systems management processes that can ensure the best in class services and uptime, and manage the capacity and growth. In addition, one must take a long-term view of measuring and managing the returns on IT investment. Finally, IT Management covers developing change management strategies for people who are either part of IT department (who implement IT systems) or those in user departments who get impacted due to IT project implementation. All these are discussed in Chapter 7 through 11. 15 DEVELOPING IT STRATEGY FOR COMPETITIVE ADVANTAGE The first step of IT strategy development is to evaluate how organizations can use IT to gain competitive advantage. For this, the IT strategy planner must understand the strategic dimension, points of opportunity as well as areas of concern. We have seen in the discussion on application strategy identifying which systems could be termed strategic and which could be termed support or factory (automation) related. The second question that needs to be answered is, whether corporate strategy should drive IT or vice versa. In the context of today’s world, both questions are relevant and therefore need to be addressed. Based on this, the purpose of IT and its management approach can be decided Those applications that are support or factory can be outsourced so that less management intervention is needed in managing them. There can be many possible motivations for developing an IT strategy. It helps in setting long-term direction for IT of the firm. IT being a complex function, its success depends a lot on garnering support from business managers and having an IT strategy in place. In its absence, the IT manager (CIO) may feel isolated and unsupported. A well-articulated IT strategy helps in justifying the requisite funding for developing and implementing IT applications. When the IT strategy is developed, it is important to recognize that it will be fitting into an existing business context and is consistent with the business needs. 16 STAGES OF IT STRATEGY DEVELOPMENT AND IMPLEMENTATION The first step of developing IT Strategy is always to have a deeper understanding of business strategy. Other steps are as follows: Aligning business and IT strategy (Chapter 2) Developing strategic IT plan (Chapter 3) Developing enterprise architecture (Chapter 4) Developing IT application strategy (Chapter 5) Developing technology strategy for IT (Chapter 6) we oe8 © IT Strategy and Management Once these IT strategy constituents are in place, the next step is to implement and manage IT strategy as envisaged. Implementation and management of IT is discussed in Chapters 7-9. The organization must ensure that the returns and benefits from strategic TT initiatives as drawn in the IT strategy and plan are continuously measured. TT projects always start from being a novelty and end up being a necessity like most of the technology interventions. It is, therefore, necessary to articulate and plan the benefits and also to ensure that these benefits are realized and measured for management purposes. Chapter 10 covers the planning and measuring returns on IT investment to ascertain whether the IT strategy is yielding the desired results. IT systems impact the roles, responsibilities and behaviour of the people who use them. In addition, the development and implementation of the IT system is always human-centric whose success is largely governed by how softer issues are addressed, right from planning to implementation of strategic IT initiatives. The book will not be complete unless people related change issues are discussed for the benefits of the readers. Chapter 11 deals with these aspects of IT strategy and management. ener 1. What is business strategy? How IT is gaining importance in formulating and implementing it? Explain this importance with examples from real- life case studies. Answer: Section 1.3 2. What are the challenges and opportunities for shaping up business strategy in the globalized, interconnected, convergent world using the power of IT? Answer: Section 1.3 3. What is IT strategy and why it is necessary to have one for the organization? What are the constituents that make up the IT strategy of an organization? 4. What are the broad steps for developing IT strategy for competitive advantage? Define the stages of IT strategy development and imple- mentation briefly, giving an example from a known industry. 5. Is IT strategy a competitive necessity or competitive advantage or both? Explain by giving examples of some of the new age business segments, such as Telecom or Retail. Answer: Section 1.3 6. What are the constituents of an IT strategy? Answer: Section 1.4 7. What are the broad steps for developing IT strategy for competitive advantage? Answer: Section 1.5Chapter 1 Business Strategy: Challenges and Opportunities for IT © 9 5. 6. Report on The Knowledge Based Economy. Organization for Economic Co-operation and Development, Paris, 1996. Michael E. Porter, What is Strategy, Harvard Business Review, Nov.-Dec., p. 64, 1996. Henry Mintzberg, Strategy Safari, Free Press, New York, 1998, pp. 9-15. Michael E. Porter, op. cit. J. Earl, Strategic Grid Management Strategies for Information Technology, Prentice Hall Inc., Englewood Cliffs, New Jersey, 1989. James Martin, Information Engineering, Prentice Hall Inc., Englewood Cliffs, New Jersey, 1989.Chapter 2 Business and IT Alignment Every one agrees that Business and IT alignment is of prime importance for the organization. Yet, when asked, they describe it in a vague form. There is hardly unanimity on the approach by which alignment can be achieved, if at all. Ironically no one thinks he is responsible or accountable to realize it, despite its dire necessity. Sounds familiar. Welcome to the world of Business and IT alignment!" What? Why? How to do and how to measure? 2.1 WHAT IS BUSINESS AND IT ALIGNMENT? Business and IT alignment (or lack of it) is an oft-repeated success principle, most sought-after management instrument, and also widely discussed subject of several theoretical research among IT researchers and practitioners. We have seen that business needs support from IT in executing its strategy. Moreover, IT has also started to make competitive differentiation and gives competitive advantage to the business. IT and business affect each other and, therefore, there is a need for a closer alignment between these two, Business needs information to take action and information comes from information systems built on top of IT infrastructure. Business must get information within the acceptable time, quality, responsiveness and cost. It seems like a simple task, but for most organizations the alignment of Business and IT remains a dream that is partially realized, if ever. In simple terms, the alignment between IT and business means that IT delivers what business needs to their satisfaction and also is able to play a strategic role in shaping new business strategy. An underlying assumption is that this feat is achieved in a cost-effective manner with a relentless pursuit of absorbing new technology opportunities for business benefits. The trans- formation of IT from being a back office support function to strategic differentiator makes this much necessary task manifold complex and difficult. There are several definitions of business and IT alignment as put forward by several researchers, which can be summarized as a construct concerning the 10Chapter 2. Business and IT Alignment @ 11 degree of congruence of an orgai with the organization's strategic business objectives and infrastructure. Business and IT alignment can be understood by a simple framework proposed by Henderson and Venkatraman® by showing Business Strategy, IT Strategy, Business Infrastructure and IT Infrastructure relationship across two ordinates, strategic fit and functional integration (Figure 2.1). tion’s IT strategy and IT infrastructure 2 A. Business | External een D. IT strategy | Strategic fit -}--- Internal B. Organization infrastructure ©. IT infrastructure Functional integration > © Business function > IT funetion + Need for IT Offering by IT FIGURE 2.1 Business and IT alignment framework.‘ Business strategy covers a firm’s long-term plan regarding its products and services, its core competencies and behaviour in the marketplace. IT strategy pertains to the firm's long-term decisions regarding choice of technology, application development or use of packages solution, outsourcing or in-house staffing and initiatives to make IT strategic to its business. For the success of business sirategy, IT strategy must be functionally integrated to meet its requirements as shown in Figure 2.1. In order to implement business strategy and IT strategy, a firm would require suitable internal infrastructure such as processes, skills, tools and technology, at business as well as IT implementation level. These two internal factors, denoting the firm's capabilities, must seamlessly integrate with their strategic (external) factors across the ordinate of strategic fit. For example, if a firm's business strategy is to be a low-cost producer of mass marketed product, it will have to adopt business processes that make it lean by partnering with distributors and retailers, outsourcing its non-core functions, renting real estate and not owning all the resources that are needed, to support its operation. Given this business strategy, a suitable, functionally integrated IT strategy would be to use open standards, low-cost application systems, web-based interfaces and low-cost tools and technologies. This IT strategy would aim to facilitate integration of disparate systems of the partners, subcontractors and outsourced suppliers across the value chain. By doing this,12 © IT Strategy and Management the firm can become a supplier of low cost, mass marketed product through IT support. Accordingly, both infrastructure blocks, business and IT, must be aligned, in this manner, to their respective strategies through devising appropriate processes, applications, skills, tools and technologies. Such a framework also gives the IT-led perspective of the interdependent relationship between the four building blocks. In the era of widely accepted IT penetration in our business and consumer life, giving a strategic perspective of IT (ie. IT Strategy), by examining IT potential and capabilities and impact on business strategy, can lead to unique opportunities for business efficiency, enhancement and expansion. Consider any bank or financial services institution in the present scenario, it would surely consider the power of the internet, wireless and broad band connectivity while formulating business strategy. Instead of opening more branches or ATM, it would use net banking, partnering with other service providers to reach and serve its customer. Starting with IT strategy block can help identify new IT-led business opportunities, products or services for the firm. We have seen most banks becoming a single stop shop for buying financial products (insurance policies, stocks) and becoming advisors during home purchase. Hotels are taking end-to-end travel management responsibilities by collaborating with partners for the benefit of their guests through the use of IT. Several years ago, the American Airlines made available its reservations systems, called SABRE, for the rest of the airlines for the overall benefit of the airlines industry. Who would have thought that the IRCTC, the travel and catering arm of the Indian Railways, will emerge as the largest e-commerce site in India, giving phenomenal benefits to millions of travellers to save their time and efforts in getting reservation in trains as well as giving cost-effective travel packages? In both examples, these firms used IT to add a new source of revenue stream for the parent firms, besides serving its customer efficiently and effectively. To summarize, business strategy and IT strategy are the two starting points to understand the Business and IT alignment framework. While starting from business strategy will help us devise appropriate IT strategy and infrastructure for its implementation, IT strategy, as a starting point, leads us to explore new possibilities for business scope, scale and also superior business infrastructure. 2.1.1 Definition of Alignment According to the Oxford dictionary, alignment means joining as ally, denoting equal, if not important, status for both business and IT, in contributing towards success of business strategy, be it executing, defining or shaping. A metaphor of two parallel railway tracks can show the importance of alignment and the danger it poses for the lack of it, Business and IT are so interdependent these days that it can be compared to two people running together a three-legged race and they cannot win unless they have a common envision drive towards the goal, support each other and run at equal speed and energy.Chapter 2. Business and IT Alignment © 13 Cathleen and McFarlan’ mention benefits of alignment by choosing similar examples. World-class cyclists expend significantly less energy when properly positioned to draft off one another. Similarly, geese travel 70% farther when aligned in an efficient ‘V’ formation. Businesses, too, can achieve substantial benefits from greater alignment. Achieving greater alignment helps organizations in multiple ways. It mines hidden value through increased efficiency and reduced risk while providing options to hedge against an uncertain future. Due to the use of IT in all walks of business processes and execution, complexity and investment in IT systems have grown manyfold. A misalign- ment between business and IT leads to decreased payoff from IT investment as well as decreased competitive capabilities for the organization as whole.® Nickel’ extends this thought by saying that the potential benefit of achieving better alignment not only impacts positively and significantly on the capabilities of IT infrastructure but directly impacts overall organization performance. Any infrastructure planning has to be based on its current as well as planned usage. IT also needs this input coming from the business and, like most infrastructure development, it also takes time to build. Since, in the case of IT, it is somewhat difficult to visualize the future requirement, a joint envisioning exercise is needed to create opportunities for the future. If IT infrastructure is planned and designed keeping a long-term view in mind, then unique strategic opportunities can be tapped. Take the case of telecom infrastructure that has been laid in recent times and its impact on overall economy. No one visualized that the growth of mobile penetration will happen so fast, unique ways of generating revenue as well as work life simplification would take place. All this could happen just because the telecom infrastructure was laid, keeping future growth potential in mind. Realities on the ground, however, do not present an encouraging picture to the level at which this alignment has been achieved by the organizations across the world. For the last 15 years or more, several studies conducted by leading journals® and research organizations among the CEOs of leading corporation, have brought out time and again the issue of lack of alignment as top concerns as well as critical success factors. With ever-increasing invest- ment of IT in firms as well as rapidly changing technology and short window of business opportunities, this alignment is a priority action both from theoretical and practical perspective. 2.2 CHALLENGES OF IT AND BUSINESS STRATEGY ALIGNMENT Business strategy is a long-term plan to achieve certain corporate objectives. In order to achieve these objectives certain tools and technologies are needed.14 @ IT Strategy and Management IT is one such tool that can help the organizations achieve their strategic objectives. The first and foremost challenge is always the lack of alignment between strategic objectives and the deployment of IT. This happens due to several reasons. The most important reason is the absence of a well-articulated strategy of the firms that can be taken as the basis for developing IT strategy. Most companies do not have business strategy as published documents, due to documentation or the fear of competitive leakage. The second challenge encountered during the formulation of IT strategy is the completeness, comprehensiveness and speed with which the end-users’ requirements can be captured. While strategy is a higher level, the second step is to translate this strategy into factors which will ensure that strategic objectives are achieved. For example, if the firm wants to adopt the strategy of excelling through customer service, it will have to ensure that all customer needs are captured and necessary organizational systems are in place to serve the changing needs of the customer. The key success factor would be the speed and quality of response for the customer's requirement. The third challenge is the uniform and seamless communication of the strategy, objectives, and critical success factors to the entire organization so as to prepare the employees to respond to the strategic IT plan initiatives. IT impacts all the three layers of the organization namely top, middle and operatives, simultaneously if used properly and effectively. For example, while formulating the strategy of service excellence, IT can help in understanding, and capturing the customer needs and designing suitable IT enabled processes to serve them. 2.2.1 Inhibitors of Business and IT Strategy Alignment According to Jerry’, the following three factors facilitate or inhibit the business and IT alignment process. The topmost factor facilitating this process remains the senior management involvement and support, without which this process cannot be kick-started. IT should not only be involved in strategy formulation and development, but it should also understand the business. These factors are: 1. Leadership level congruence: It summarizes business leadership desire to take along IT leadership in strategy formulation develop- ment and execution. This includes the level of IT leadership reporting within the organization and their say in the top decision making body. 2. IT’s ability to identify and partner with business: This includes abilities such as IT’s ability to understand business and develop IT plans linked to the business plan to gain competitive advantage. Unless there exists a good communication between IT and business so that IT works in partnership or alliance, this alignment is not possible.Chapter 2_ Business and IT Alignment e 15 3. IT's ability to deliver: Beyond just having good understanding and partnering between IT and business, the bottom line ultimately is how IT delivers and meets its commitment. If the first two have been done right, this factor becomes somewhat easy. However, IT faces some real challenges in discharging its role effectively. Senior executives must support IT in prioritization of requirements, adhere to and respect the IT development process, and provide requisite budget and resources to enable IT to get the desired infrastructure. Business and IT alignment have to be achieved at three levels to achieve functional, application and IT infrastructure alignment. Van der Pols et al. (2005)" considers Business and IT alignment as an iterative process where the knowledge of business needs, application development process, and management of technology infrastructure need to function as three inter- dependent elements. Unless IT is able to manage the-three effectively, it would not be able to meet its commitment. In addition, the adherence to user disci- pline in the IT process can make or mar the IT systems development. This has been shown in Figure 2.; a 4 meaaaeal, management) \ PPS < aw \ \ infrastructure ) evar management) manageintont © // FIGURE 2.2 Three levels of business and IT alignment. Any discussion about inhibiters as well as enablers of business and IT alignment would not be complete without considering the issues which are related to the organization culture, climate and human issues. Indira and Michelle"! in their study have underlined the role, value and skills of IT professionals in the organization to facilitate this process. IT professionals have various roles to play right from the facilitator, problem solver, meddler to strategist, in order to successfully align IT systems with the business. Unless the organization as a whole creates conducive climate and develops the so- called “IT culture” within the organization where IT is seen as necessary as well as critical differentiator for the business and is given as much partici- patory role, the alignment would not take place.16 © IT Strategy and Management 2.3 THREE-D FRAMEWORK FOR BUSINESS AND IT ALIGNMENT: DISCIPLINE, DESIGN AND DRIVE In order to address the need of business and IT alignment, a simple three-D framework is proposed. 1. IT, for most organizations, has become synonymous with the infrastructure dimension. It has acquired such an importance that without it nothing will function properly in most organizations. So, if there is no culture of having planned mechanism of IT infrastructure planning, local decisions would be taken to acquire IT systems and technology. For example, if in a new township there is no plan for sewer and water supply for the entire city, every individual dwellings will have to do something to find localized solution. However, once the city planning process comes into being, people have to follow its guidelines and discipline so as to prevent infrastructure mess. In many organizations, the impatient business managers take ad hoc decisions (for good reasons!) regarding IT and thus create barriers for developing an IT culture and discipline. If we extend the example of city planning, the next step is to build a process of design for the future needs. Unless IT managers know what can happen tomorrow, they cannot plan for the future. There are several Indian cities where the town planners 100 years ago planned them well to let them flourish despite so much growth. However, there are many riewly laid out colonies that create an urban mess. A process of design means IT and business are future-oriented and aim to present a larger picture, accommodating future needs as well. If these two are done correctly, the metamorphosis into a state of drive for results can be casy. This is a stage when the organization has correctly built the IT infrastructure and designed for future as well as continued growth, and now wants to reap the benefits for competitive and unique differentiations. We all know that once a railroad is built to a new town, the economy of that town auto- matically flourishes. In the same way, afier having a well-designed TT infrastructure in place, both business and IT managers must aim to exploit it for enhancing business strategy and scope to gain competitive advantage. Some inhibitors are also worth noting at this stage. Notable among them are the lack of IT management leadership, attrition of IT staff and unmanaged outsourcing of IT services.Chapter 2. Business and IT Alignment e 17 2.3.1 Uniqueness about Alignment There are several unique insights about business and IT alignment mentioned by researchers. Strategic alignment”? is the extent to which the IT infra- structure of an organization supports its strategic orientation and is a continuous process of consciously and coherently interrelating all components of the business—IT relationship in order to contribute to the organization's performance over time.> Alignment is also needed at several levels of the organization. As stated earlier, both internal/external alignment and functional integration must be taken into account in totality. 2.4 HOW CAN WE ACHIEVE BUSINESS AND IT ALIGNMENT? The significant problems we face cannot be solved by the same level of thinking that created them. —Albert Einstein We have seen the factors that facilitate as well as inhibit business and IT alignment. The next question would be that, even if there are proven frame works for Business and IT alignment, which define precise responsibilities for actions, how can we measure the success of each of these alignment frameworks? At least three prescriptive frameworks have been found in the literature, which are worth noting down. For the purpose of simplicity these are named communication, architecture, technology and people school for the alignment framework. We have to know as many of them as possible as practitioners take a holistic and practical summation from among them to produce results. 2.4.1 Communication School Researchers following the communication school hypothesized that alignment is largely achieved through good communication between the CEO and CIO and IT’s strategically positioning within the organization.!4 This would facilitate the linking of strategic planning process of both business and IT and lead to goal congruence between the IT initiatives and the organization vision IT’s strategically positioning ensures that business strategy drives IT technology and services acquisition, not vice versa. However, Rockert, Earl and Ross! had earlier postulated alignment as a bidirectional process and suggested CIO’s (and senior IT managers) involvement in the business strategic management and/or high level task-force initiatives. In addition, involvement of senior business managers in IT was suggested so that they could understand IT opportunities. Rich and Benbast (2000)!° moved a step ahead and came out with the idea of cross rotation of IT managers in business functions, hiring candidates18 © IT Strategy and Management with business experience into IT domain and business managers participating into IT project environment. All these thoughts are complementary as well as useful in nature. However, they only solve the issue of communication to facilitate alignment. These are necessary but not sufficient conditions. In addition, if not dealt properly, actions will impact the career of the participating task force managers. Moreover, such approach needs to be institutionalized considering other factors which we discuss in the following section. ‘We will summarize the communication school of alignment thread as planning approach which largely depends on improved communication and positioning of IT with business to achieve business and IT alignment. Typically, thé target segment to this approach would be top and senior managers. STORY: What happened to the task force manager? Andy, a seasoned task force manager who led the major Business and IT alignment exercise of leading Australian steel and Mining behemoth, was sharing his experiences of how a concerted effort through a task force approach led to the steel company making the dramatic tumaround during the mid-80s. Over last several weeks, Jiva was learning the softer sides of this exercise while working alongside him in the Newcastle Steel Works near Sydney. Incidentally, Jiva had an equally daunting job for an Indian steel major to transform its IT and install IT systems to meet the global standards. Despite a powerful vision, the internal dynamics of the organization was hindering progress leading to frustration and lack of visible results. Andy opined that the task force method to bring the business and IT leadership for major transformational projects was the best, and he had reasons to prove his powerful arguments with past happenings. Jiva had a similar view but like all change initiatives, there is price attached to this transformation too. Jiva asked seemingly a simple question at the end. “When the transformation takes place and IT systems are implemented, what happens to the task force leader, who knows as much about the business issues as he knew about the IT systems? How do you reward the change champion.’ Andy thought for a minute before answering, “Yes, this is a tough question to answer. ‘The task force manager develops an envious profile that invites grudging respect. Yet, IT would think he has been too long away from IT and has almost become a business user, and Business, on the other hand, will always think of him as a guy from IT and will never accept him. Only the top management can respect him for turning into a true general manager” and he paused. Jiva continued his inquisitive stare for the next sentence from Andy. “But his champion Managing Director retired ahead of his time, and in the absence of a powerful mentor, the task force leader almost lost his job. Sometimes an idea ahead of its times is not accepted,” Andy said with a tinge of remorse in his eyes. Jiva never knew that he too will have a similar fate seven year later, that will lead him to launch a new successful career of a management consultant, thanks to the organization dynamics.Chapter 2. Business and IT Alignment « 19 2.4.2 Architecture School The approach adopted by the Architecture School is recommended by several researchers and followed by the consulting firms. The proponents of the Architecture School first define business architecture and superimpose IT architecture to achieve the alignment between the two. A widely quoted work of Maes!” et al. further adds information and structure at the intermediate steps. While information is the glue that binds business and IT, it is structure that translates strategy into processes and infrastructure. Keeping information separate from the technology helps in finding what technology we need and why. Similarly, when we define the organization structure, then only will we be able to articulate the organization processes and IT support for them. BOX 2.1 Business Strategy and IT Strategy building blocks Business strategy —» Information strategy -» Technology strategy L L Organization Organization structure structure 4 L Business > Information > Supporting technology process requirement and tool The integrated architecture framework (IAF)!8, as shown in Box 2.1 following the architecture alignment approach, adds a third layer of design between information and technology to further elaborate context (mission and strategy), conceptuaV/logical design leading to physical design elements covering resources needed. IAF also considers transformational (i.e. roll-out issues), aspects of security, roles/responsibilities and governance aspects while designing the aligned architecture. Other notable approaches are Quality Function Deployment (QFD) being most complete, Design & Engineering Methodology for Organizations (DEMO) by Jan Dietz and Information Engineering (IE ) developed by James Martin. IE covers all the three stages of architecture development, namely business area analysis, business systems mapping and Business systems design. Fach of these approaches has some advantages over the other and has been around for some time. ‘We agree that now business and ICT are closely ‘intertwined’ and there- fore business design and organization cannot be done without considering ICT or vice versa. Many of the comprehensive solutions (such as ERP, CRM) presume or prescribe specific organizational processes and business infra- structure solutions, which are “ready to use”. However, by just having a good, elegant architecture would not solve the alignment issue between business and IT. This approach has been criticized on two grounds. One is the very nature of business which demands continuous20 ¢ IT Strategy and Management changes needing concurrent (parallel) design, development and implementa- tion of architecture, because linear development consumes too much time. The second is the lack of addressing complex organization dynamics, power equation and approval mechanism to adhere to these seemingly “exotic” principles. Most of these architecture frameworks including recent additions such as Service Oriented Architecture (SOA), Software as a Service (SAAS), are too complex for the understanding of the business managers. Middle level managers, whose contribution or critique can help in refining the architectural alignment framework, have little time and patience to ponder over business modelling presentations by taking time away from their busy daily schedules. In most cases, business managers neither provide their acceptance nor ownership to any of these propositions, leading to non-implementation of the architectural alignment framework. 2.4.8 Technology School The alignment approach proposed by the Technology School generally refers to the operational alignment at the user level covering business role, information role, function of IT as well as of IT infrastructure. While this seems to be simpler than the others, it has its own issues. This is the level at which the actual work is performed, and the dissatisfaction level runs high due to inadequate direction and vision, percolating down the team from the other higher level approaches of alignment frameworks. The alignment at the technology level does address IT infrastructure management issues such as service level management, data storage, data reporting and modelling. The lack of alignment for the common objectives leads to daily war of words or email, affecting day-to-day productivity. The problem gets further compounded due to the outsourcing of the large part of these services to a third party vendor, who will have his organization, profit and people issues. ITIL (Information Technology Infrastructure Library) frameworks help in the alignment of IT service management and have been discussed in Chapter 7. Outsourcing issue are elaborated in Chapter 8. 2.4.4 People School A small but focused group of researchers and authors have espoused the need of people level alignment between IT and business. Indira and Michelle have researched on the role of IT professionals, skills required, and aspiration management to achieve this alignment. Charles! talks about alignment as a collaborative process that involves all management, users, and the IT department at the earliest stages of a company’s life cycle. Collaboration is not something that upper managers should wait to establish, becauseChapter 2_ Business and IT Alignment e 21 technology issues occur at the birth of a company and the inception of the IT solution development process. IT team, due to various reasons, such as overwork, lack of appreciation, career path within the corporation, always ends up as a dissatisfied lot. Work exhaustion of the IT professionals does lead to dissatisfaction towards work assigned to them. In fact, in the earlier discussion in this chapter, we talked about task enhancement as well as work rotation to take care of the people issue. The role of IT in various types of business is that of utility, support, entrepreneur and team player. These roles were contingent upon whether the organization was a high growth player or matured market operators, and whether IT plays a tactical or transformational role. High-performing businesses with a tactical and supporting role for IT require informed and responsive support from the IT utility; however, they are not generally prepared to invest much time in IT governance as it is perceived to have little strategic opportunity. The IT utility should use IT governance to ensure IT/business alignment and provide periodic visibility of IT's contribution and value. In high-growth, market-leading companies, govemance for the IT partner player is integrated with business management. IT is expected to require no more governance and attention than any other aspect of key business activities. Mature, market-following enterprises have an expectation that IT will be highly aligned with business objectives, using formal IT governance practices, and culturally compatible with the business decision-making style and management culture (the “team player”). The “Team Player” uses IT governance as a mechanism for systematic interaction between the business and IT. In mature businesses where IT plays a tactical, supporting role, cost containment and risk minimization are the priorities. The CIO should use IT governance and benchmarking so as to maintain the IT budget at an appro- priate level to continue to provide adequate and reliable service levels. The support IT should make the business aware of the importance of investing in IT, how IT is delivering value and provide assurance that the business can understand and control IT spending. IT professionals can adopt any of these four roles to aim towards four goals of IT alignment. Both IT professionals and IT champions, when get too much engrossed in the IT-led projects, at times lose sight of the opportunities and fail to get enough motivation to continue. The central block of Figure 2.3 shows that IT, in many organizations, remains as potential untapped as many parts of the organization may have different ways to exploit IT. Tt is evident that business and IT alignment need initiatives at various levels of the organization, not only once but continuously. Table 2.1 summarizes the alignment framework.22 © IT Strategy and Management IT helpa TT plays a TT is utility, in growth strategie we cannot run like true role without it ” actropreneis IT is core in anything you do and every thing you do, a potential en untapped IT teams up Stoll Managing the to deliver but 1 tactical, kitchen, a good not very support support strategic team player ‘Mature market, follower Growth market, leader FIGURE 2.3. The role of IT professionals. TABLE 2.1 Business and IT Alignment framework summary Perspective Tools Target level in Measure of the organization success Communication Planning Co-creation of Top and senior Number of new School strategy through management of IT-led strategic . seamless business and IT initiatives ‘communication Architecture Process Unified business Middle TT-led innovation in School and IT managers, IT the area of cost, architecture information _customer service or analyst addressing competitive space Technology Performance Enterprise Business user, Adherence to and School systems, IT tools IT analyst improvement of and applications business operating parameters impacted by IT People School People Motivation, cross IT professionals Attrition rate among fertilization of and userIT —_IT professionals, skills between IT champions number of IT and business professionals community moving to business roles and vice versaChapter 2 Business and IT Alignment _e 23 2.5 BUSINESS AND IT ALIGNMENT TOOLS, TIPS AND TRAPS IT and business alignment is a difficult task because it impacts strategies of the organization, priorities and organization dynamics of power and influence. There are several good practice i ives that have been found to be of help in achieving the congruence of business strategy with IT strategy. An organi- zation can choose from among them. However, just one initiative may not be good enough. The tools for helping business and IT alignment are as follows: 1. Steering committee: It has been found that forming a cross functional steering committee at corporate as well as divisional levels, led by the senior members of the group, helps in keeping the overall objective and progress on track. Project teams get bogged down with the day-to-day transaction, and a forum such as steering committee helps to raise and resolve issues impacting more than one group or department. Joint task force group: If the project is well defined and needs participation from various functions or groups (including IT), a joint task force group under an able business leader makes a lot of sense and progress. However, the challenge remains as to how the group can wield and be given authority so that it can accomplish the task as entrusted. If the steering committee mechanism is firmly in place, the task force groups come out with better success rate than if there is no steering committee approach in the organization. Appointing IT champion in the user department: A very useful approach to achieve alignment is by appointing IT champions in the user departments, who have indirect relationship with the IT team to supervise/oversee and support IT projects. A suitable reward and recognition, as well as performance assessment model should be in place to make this initiative effective. Appointing function wise user advocate or subject matter expert in IT department: This is the reverse of the earlier practice where the IT department has functional advocates or SMEs (Subject Matter Experts) who understand the business well and have built a relationship with the user community of the particular function. Most IT departments are organized based on the technical competency, and the growth of the IT professionals is considered based on the technical expertise they carry. While this helps, to some extent, to grow technical competency, it also, in a way, alienates them from being closer to the business function. Sabbatical to IT or business user function: This is a slightly modified version of the above two practices wherein the user or IT professionals are allowed to work in each other’s department for a24 ¢ IT Strategy and Management short period of time for a year or during the project duration. We have experimented with this practice with several professionals and got phenomenal results, and for many, it was a career enriching assignment. Joint projects for innovation: A slight variation of the task force approach, this approach focuses on new projects which are innovating in nature and done jointly with the user departments as well as the IT. Making IT members part of executive committee, strategy group: Most business strategy discussions are led by the functional directors wherein IT is either not involved or considered as an after- thought. By making IT professionals part of the business strategy groups or management steering groups will not only help them understand where the business is headed to, but will also invite their contribution from IT to shape up the new business strategy and business model. Co-authoring papers and seminar presentations by user and IT on its achievements: This is simplest of all initiatives but very useful. When the IT and business team write/talk about their achievements to the outside world (or even in in-company seminars), they, in a way, own the success together and iron out any differences that they may have. Team developments, joint training of user and IT professionals: In order to facilitate alignment, team-building exercises should be done between business and IT together. It should also include joint training (not the technical ones!). This helps in bringing them on a common platform and also enables them to seek answers to common problems. Encourage cross transfer of IT and business users at managerial level: This practice, though looks simpler and can help the organization immensely, needs to be done with caution. There could be career growth issues, and the acceptance of the new person in the new function and also the learning curve. The suggested approach is to pick and choose probables form the earlier exercises, such as sabbatical, task force, joint innovation so that the new incumbent can build on the already established relationship. IT systems essentially bring about changes in the organization and, if used properly, can dramatically impact performance. However, they also alter power equations and impinge on the authority of the user managers. It is the CEO’s job to ensure that the change management issues are tackled in right earnest before it starts impacting performance of the organization. We discuss the ways to address this in Chapter 10.Chapter 2 Business and IT Alignment e 25 2.6 SUMMARY Figure 2.4 is an attempt to show the relationship of all the schools and the hierarchy of alignment required to ensure business and IT alignment at all levels of the organization. Porspective:. planning ‘Tool; Communication ‘Targot: Foous top management ‘Communication School Perspective: People ‘Tool: Motivation/skills Target: IT professionals Technology School Perspective: Process: Tool: Architecture Target Middle management Perspective: Performance Tool: Technology Target: User community FIGURE 24 Interconnectivity of all the four planning approaches. Each corner of the triangle is connected with all the remaining three triangles showing their interdependency. Who would provide the overall lead to this initiative? There is only one answer and only one level at which this alignment can be driven and that is of the CEO, supported and guided by CIO. Various roles played by IT strategy, depending upon the maturity of the business, are shown in Figure 2.5.26 © IT Strategy and Management | Customer- contrie role Business- Business maturity levels i centric role a a Process automation through solution Technology provider role Differentiate Partner with Solve IT service business culture problem <—_______ Role of IT strategy ————__+ FIGURE 2.5 Role played by IT strategy at various stages of business maturity. Definitions and References of some of the Acronyms used in this Chapter e QFD (Quality Function Deployment) is 2 methodology to align business requirements with design, development, manufacturing and service functions such as IT towards achieving a common goal. (Source: QFD institute, www.qfdi.org) e DEMO (Design & Engineering Methodology for Organizations) is a methodology developed by Jan Dietz for transaction modelling, and analyzing and representing business processes. (Source: http://wapedia.mobi/en/Jan_Dietz) © IE (information Engineering Methodology), developed by James Martin, is an architectural approach to planning, analyzing, designing, and implementing applications within an enterprise. IE is defined as “an integrated and evolutionary set of tasks and techniques that enhance business communication throughout an enterprise enabling it to develop people, procedures and systems to achieve its vision”. Information Engineering also helps in organization planning, businessChapter 2. Business and IT Alignment e 27 2 4. re-engineering, application development, information systems planning and systems re-engineering. (Source: http://en.wikipedia.org/wiki Information_engineering#Overview) IAF (Integrated Architecture Framework) (developed by Capgemini) is an architecture approach that covers business, information and technology. IAF is also a recognized architecture method in the Open Group’s IT Architecture Certification (ITAC) program. (Source: http://en.wikipedia.org/wiki Integrated_Architecture_Framework) ITIL (Information Technology Infrastructure Library) is a set of concepts and policies for managing IT infrastructure, development and operations. ITIL gives a detailed description of IT practices with comprehensive checklists, tasks and procedures. (Source: http://en.wikipedia.org/wikV/ITIL) What is the need and advantage of business and IT alignment? Explain it using Henderson and Venkatraman model of alignment. Answer: Section 2.1 What are the challenges and inhibitors of IT and business strategy alignment? Answer: Section 2.2 Which are the building blocks of the IT alignment framework (tick any four applicable): (a) Business vision (b) IT infrastructure (c) Business strategy (a) Technology domains (©) Intemet infrastructure ( ClO (g) IT strategy (h) Marketing strategy (i) Operational excellence @ Business infrastructure What is the three-D framework for business and IT alignment? Answer: Section 23 What are the different schools of thoughts for achieving business and IT alignment? Answer: Section 2.428 ¢ IT Strategy and Management 6. What are the new emerging roles of IT professionals? 7. Explain some of the prominent business IT alignment tools, tips and traps. 8. Read the following case and explain what went wrong with the Bank of Hindustan in terms of business and IT alignment, and how could a good alignment have helped the bank to retain its leadership position. Bank of Hindustan I used to visit the branch of the Bank of Hindustan almost daily when I was doing my engineering course from an institute situated in a remote part of Jharkhand. It was a pleasure as well as a pastime. The services at the bank were good. The office was air-conditioned unlike our classroom which was hot and humid. So, waiting for the “ting tong” call from the cash counter was in fact a respite after the sweaty workshop class during the long lunch breaks. Not that the visit was a must for everybody. If the postman kept showing at regular intervals, bringing moneyorders from home, it was not the place to frequent. But for some of us, who were surviving on the grants of National Scholarship, there was no option but to be its development customer. Our accounts department would give us cheque only, and the only way to encash it was to open an account in the neighbourhood branch of the Bank of Hindustan. ‘The branch was situated in the institute campus—a clear 10 km away from the nearest tum on the highway, where all the long distance buses would come. The bank would remain open even after 5.00 p.m. as the chief cashier calculated the daily balances. They had even kept a generator in case there was a power cut. Believe me, I have not thrown away the passbook that carries entries depicting the state of affairs of those days! It has an emotional value. The Bank of Hindustan, with over 30,000 plus branches in the remotest parts of the country, is the oldest. But if you ask me to open an account for myself yet again, I would hesitate. I do have the old account, but getting the passbook updated is an uphill task because of the apathy of the staff. After several years, they have provided ATM card, but to get it, you have to go to the bank’s branch office. But as a customer of the Bank of Hindustan, I still love you. The Bank of Hindustan would have had perhaps the largest customer base, and generations must have banked with them. So, what if we are loyal to them? They scem to be unconcerned of my association. I am yet to receive any letter, whatsoever, for any sales promotion, any new offerings in the last 20 years of my association. If I am loyal, I will be loyal. Perhaps, this is what they think! They have launched a successful credit card (despite their cultural