ALIGNING BUSINESS AND IT STRATEGIES 27

entiate the firm from its competitors—and (3) governance decisions—i.e.,

choices that focus on partnerships and alliances.
In contrast, the internal domain is concerned with choices that define
(1) the administrative structure (functional or divisional or matrix organi-
zation), (2) the design or redesign of critical business processes (product
delivery, product development, customer service), and (3) the acquisition
and development of human resource skills.
Within the business strategy field, the fit between external positioning
and internal arrangement has long been argued as critical to economic
performance. The strategic alignment model proposes that an IT strategy
should also be defined in terms of an external domain—how the firm is
positioned in the IT marketplace—and an internal domain—how the IT
infrastructure should be configured and managed.
The two right-hand boxes in Figure 2.1 compare the external and in-
ternal choices facing IT strategy with those relating to business strategy. In
the external dimension, IT strategy is driven by:

1. Technology scope—those critical information technologies that sup-

port business strategy initiatives or shape new business strategy in-
itiatives for the firm. This is analogous to business scope, which
deals with choices pertaining to product—market offerings in the
output market.
2. Systemic competencies—those attributes of IT strategy (e.g., system
reliability, interconnectivity, flexibility) that contribute positively to
the creation of new business strategies or better support of existing
business strategy. This is analogous to the concept of distinctive
competencies that contribute to a unique, comparative advantage
for the firm over its competitors.
3. IT governance—selection and use of relationships such as strategic
alliances or joint ventures to obtain key IT competencies. This is
analogous to business governance, which involves make-vs.-buy
choices in business strategy. Such choices cover a complex array of
interfirm relationships, such as strategic alliances, joint ventures,
marketing exchange, and technology licensing.

The internal IS domain is dominated by three major issues:

1. IT architecture—choices that define the portfolio of applications;

the configuration of hardware, software, and communication; and
the data architectures that collectively define the technical infra-