Empam Management Journal Vol. 11, No. 2, pp. 139-149, 1993.
Prrnted in Great Britain.
ContinuousStrategic
Alignment:
ExploitingInformation
TechnologyCapabilitiesfor
CompetitiveSuccess
N. VENKATRAMAN, Associate Professor of Management, MIT Sloan School of Management,
Massachusetts Institute of Technology, USA; JOHN C. HENDERSON, Professor of Management
Information Systems, School of Management, Boston University, USA; SCOTT OLDACH,
IBM Corporation, Brussels
There is widespread acceptance that information
technology (IT) and information systems (IS) have
evolved from a traditional administrative, back-
office support orientation towards a more strategic,
central role within organizations. In this paper,
N. Venkatraman, John Henderson and Scott Oldach
discuss analytical and administrative approaches for
conceptualizing and managing the emerging nexus
between strategic management and information
technology. They discuss the analytical approach
through their Strategic Alignment Model - defined
in terms of four basic domains of strategic choice:
business strategy, information technology strategy;
organization infrastructure and processes, and
information technology infrastructure and pro-
cesses. Subsequently, the administrative approach
for achieving strategic alignment is discussed in
terms of a set of alignment mechanisms: governance
process, technology capabilities, human resource
capabilities and value management. The power of
this two-pronged model is highlighted through
illustrations from the authors’ research and
professional experience.
Introduction
Across a wide spectrum of markets and countries,
information technology (IT) is transcending its tradi-
tional ‘back office’ role and is evolving to a ‘strategic’
role. The implication is that such a shift has the potential
not only to support chosen business strategies but also
to shape new business strategies (Keen 1991; Konsynski
EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
0263-2373193 $6.00 + 0.00.
Pergamon Press Ltd.
and McFarlan 1990; Scott Morton 1991; Venkatraman
1991). Yet there is an increasing concern that the antici-
pated value of IT investment is not being achieved
(Roach 1991; Strassman 1990) with a growing number
of firms outsourcing their IT operations (Venkatraman
and Loh 1993). How do we reconcile the seemingly
conflicting view of strategic benefits from IT with the
evidence of minimal productivity gains at an aggregate
level of the economy as well as increased incidence of
IT outsourcing?
In this article, it is argued that the inability to realize
value from IT investments is first due to the lack of
alignment between the business and IT strategies of the
organizations that are making the investments. Further,
it is asserted that the organization’s ability to leverage
IT functionality to obtain differential advantage in the
marketplace requires a dynamic administrative process to
ensure continuous alignment between the business and IT
domains.
Accordingly, a two-pronged framework of continuous
strategic alignment is developed that is derived from
systematic field research over the last five years and the
authors’ professional experience in applying the frame-
work across a large array of organizations both in the
USA and Europe. This framework (see Figure 1) has an
analytical component that we term as strategic alignment
and an administrative component that we term as
achieving alignment. As Table 1 highlights, neither
component alone is sufficient as both are required to
create and sustain the dynamic link between business
and IT domains.
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CONTINUOUS STRATEGIC ALIGNMENT

their superior information processing capabilities

Continuous Alignment derived from their now-famous Analytical System
for Automated Purchasing (ASAP) information
systems (see Short and Venkatraman 1992 for an
elaboration of this example).
. Procter and Gamble and Walmart have built upon
new, integrated information systems to redesign
key business processes that affect their ability to
manage the movement of products through their
North American distribution channels. As a result,
both firms achieve sign~icant improvements in
operating costs and, more importantly, increased
Figure 1 Two Components of Continuous Strategic ability to respond quickly to local market conditions
Alignment and requirements.

What do these examples have in common? They high-

Analytical Component: Strategic
Alignment
As a prelude to discussing the analytical component,
let us consider some cases where organizations are
leveraging IT capabilities to shape and support their
business strategies:
Eastman Kodak and IBM announced an ‘unusual
agreement under which IBM will take over the
work done by four data centers, and 300 Kodak
workers will become IBM employees’ (Wall Street
Journal, 26 July 1989). Kodak expects to cut their
operating costs by as much as 50%. In addition,
Kodak turned over the management of its telecom-
munications network to Digital Equipment Cor-
poration and the maintenance of its personal
computers to Computerland. (See Venkatraman
and Loh 1993 for an executive summary of senior
management views on IT outsourcing.)
Baxter Healthcare has launched a new business
programme, ValueLink, whereby it takes over the
materials management function of its customers
and hospitals on a partnership basis with stringent
performance clauses; the critical business com-
petence for offering this programme is rooted in
light different facets of an organization’s IT strategy and
its link with business strategy.
The Importance of Articulating IT Strategy
Along an External Orientation
Although there is widespread acceptance that IT is a
powerful and underexploited source of strategic advan-
tage, many managers - both business and IS managers
alike - continue to view IT strategy as a functional
strategy that responds to the chosen business strategy.
In other words, the management focus is still on the
activities and skills within the internal IS function
dealing with the following:
. IS architecture - choices that define the portfolio
of applications, the configuration of hardware,
software and communicaiion, and the data archi-
tecture that collectively define the technical infra-
structure; this is analogous to the choices within
the internal business strategy arena to articulate
the administrative structure of the firm dealing with
roles, responsibilities and authority;
l IS processes - choices that define the work
processes central to the operations of the IS

Table 1 Contlnuous Strategic Alignment: Dynamic Interplay Between Analytical and Administrative Components

Charac~erisfics Anal~icai Co~~onefft Ad~jnjstrafj~e Component

Main Focus Understanding the nature and pattern of Developing the management processes
interrelationships between business and that ensure consistency between the
IT domains analytical logic of strategic alignment
and the operational domain responsible
for delivering IT products and services

~js~jncfi~e Emphasis Scanning; planning; thinking; Implementation; adaptation;

interpretations; scenario building, etc. prioritization; process-interdependencies;
monitoring and control

Key Concepts Business Strategy; IT Strategy: Governance Process; Human Capability;

Organization Infrastructure; and IT Technology Capability and Value
infrastructure Management

Primary ~esponsjbjlity Business and IT Strategists; Top Operating Management and IT/IS
Management Management

140 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993


infrastructure, such as: systems development,
maintenance, upgrading and migration, capital
allocation, as well as monitoring and control
systems; this is analogous to the need for design-
ing the business processes that support and shape
the firm’s ability to execute business strategies;
and
. IS skills - choices pertaining to the acquisition,
training and development of the knowledge and
capabilities of the individuals required to effec-
tively manage and operate the IS infrastructure
within the organization; this is analogous to the
organizational skills required within the business
domain to execute a given strategy.
\Z’econtend that such an internally-oriented view is
restrictive, myopic and potentially dysfunctional as it
does not deal with critical and emerging sources of
capabilities in the IT marketplace. We urge managers
to articulate their IT strategy along an external orienta-
tion with a particular focus on their position in the IT
marketplace. Let us review Kodak’s alliances with IBM,
Digital and Computerland. It highlights not their
approach to organizing their internal IS function but
their attempt to define their unique position in the IT
marketplace to obtain new competences. Traditionally,
the user organizations viewed the technology market-
place as a market for obtaining critical inputs, where the
dominant mode of positioning has been one of a
vendor-buyer relationship (namely, a standardized
transaction). Kodak’s alliances, on the other hand,
underscore a shift from a standard buyer-supplier
relationship to one of a partnership (see Henderson
1991 for an overview of the importance of partnerships
in the IT arena), with increased shift in the locus of
responsibility and authority for managing the user’s IT
infrastructure.
Clearly, the articulation of an organization’s IT strategy
is broader than its alliances and partnerships with
technology providers. We believe that there are three
important dimensions of IT strategy:
. lnformation Technology Scope: those specific infor-
mation technologies (examples: electronic imaging,
local- and wide-area networks, expert systems and
robotics) that support current business strategy
initiatives or could shape new business strategy
initiatives for the firm; this is analogous to business
scope which deals with choices pertaining to
product-market offerings in the output market.
. Systemic Competences: those attributes of IT strategy
(examples: system reliability, cost-performance
levels, interconnectivity, flexibility) that could con-
tribute positively to the creation of new business
strategies or better support existing business
strategy; this is analogous to the concept of business
distinctive competences which deal with those attri-
butes of strategy (e.g. pricing, quality, value-added
service, superior distribution channels) that contri-
bute to a distinctive, comparative advantage to a
firm over its competitors.
EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
CONTINUOUS STRATEGIC ALIGNMENT
. IT Governance: selection and use of mechanisms
(examples: joint ventures with vendors, strategic
alliances, joint R&D for new IT capabilities) for
obtaining the required IT competences; this is
analogous to business governance which involves
‘make-versus-buy’ choices in business strategy.
Such choices cover a complex array of inter-firm
relationships, such as: strategic alliances, joint
ventures, marketing exchange, joint R&D and
technology licensing.
Aligning External and Internal Orientations
Our call for articulating IT strategy in terms of an
external orientation does not in any way imply that the
internal orientation is unimportant or secondary.
Indeed, our field research over the last few years clearly
indicates that the inadequate fit between external and
internal orientations of IT is a major reason for failure
to derive benefits from IT investments. One has only
to scan the current business periodicals to recognize the
possibility for an IT strategy to fail due to the poor
supporting IS infrastructure. A vivid example is pro-
vided by Citibank’s strategy for point-of-sale (POS)
information services. It launched its POS Information
Services in 1985 with the explicit idea of linking store
purchase with electronic couponing, payment and
frequent-shopper point as well as the electronic capture
of important information on purchase patterns. While
the general idea of combining information and financial
transactions is still considered worthwhile, Citibank has
reportedly faced several significant technical problems
in the implementation of the concept that has resulted
in its inability to establish a clear leadership position.
Several similar initiatives undertaken by competitors,
although smaller in scale, are doing well and still others
are attempting to establish an important competency in
this arena.
Figure 2 is a schematic representation of our strategic
alignment model. It is based on four basic concepts:
business strategy and organizational infrastructure
representing the business domain; and IT strategy and
IT infrastructure and processes representing the IT
domain. Within this representation, we specify the link
between business strategy and IT strategy as reflecting
the capability to leverage IT strategy to both shape and
support business strategy. Correspondingly, the link
between Organizational Infrastructure and Processes,
and IT Infrastructure and Processes reflects the need to
ensure internal coherence between the organizational
requirements and expectations and the delivery capa-
bility within the IS function. For those interested in the
theoretical underpinnings of this model, please refer to
Henderson and Venkatraman (1991).
Four Dominant Alignment Perspectives
Figure 3 summarizes four dominant alignment perspec-
tives - each representing a ‘triangle’ of three concepts
covering both business and IT domains, as well as
internal and external domains. Each perspective is
141
CONTINUOUS STRATEGIC ALIGNMENT

Business Domain LT. Domain

External Business Information Technology

Strategy Strategy

Organization
Internal Infrastructure and
Processes

Figure 2 The Strategic Alignment Model

unique in terms of the driver - either business strategy Two examples illustrate this perspective: USAA, :
or IT strategy and represents distinct management leading US insurance company, decided that the bes
implications. strategic option involved the development of a superio
document handling system based on state-of-the-ar
Perspective One: strategy execution electronic imaging technology. This was accomplishec
This perspective reflects a notion that the business through a joint development venture with a key vendor
strategy is the driver of both organization design choices IBM, with subsequent changes to the internal IS infra
and the logic of IS infrastructure. This is, perhaps, the structure: data, applications and configurations. Anothe
most common and widely understood alignment example is given by American Express Travel Relatec
perspective as it corresponds to the classic, hierarchical Services, whose business strategy is anchored on twc
view of strategic management. Thus, it is not surprising technology-based competences: quick approval of pur
that several different analytical methodologies are avail- chases and providing copies of receipts to the card
able to operationalize this perspective, where the more holders. Approval process on a charge card (i.e., withou
popular approaches include critical success factors any pre-set spending limit) typically has a longer lead,
(Rockart 1979), business systems planning (IBM Cor- time than a corresponding transaction involving thei]
poration 1981) and enterprise modelling (Martin 1982). competitors’ credit card (with a pre-set spending limit)
I’he top management should play the role of the strategy It was imperative that American Express at least matchec
Formulator to articulate the logic and choices pertaining the response time of the leading competitors, failing
to business strategy, while the role of the IS manage- which the cardholder may switch to an alternative,
ment should be that of the strategy implementor - for faster-transacting card. This business strategy requirec
efficiently and effectively designing and implementing a systemic competence involving expert-systems (Auth,
the required IS support to the chosen business strategy. orizer’s Assistant) as well as corresponding changes ir
The performance criterion in this perspective is based the internal IS organization for developing, maintaining
.m financial parameters reflecting a cost centre focus. and controlling the systems. The second component,
termed ECCB (Enhanced Country Club Billing) refer:
Perspective Two: technology potential to their business competence of providing copies of al
rhis alignment perspective involves the articulation of charge slips with the monthly statement. While card
IT strategy to support the chosen business strategy and holders expressed satisfaction with this service, the cos
the corresponding specification of the required IS infra- of maintaining and distributing the slips was becoming
structure and processes. In contrast to the strategy prohibitive in the traditional mode. However, an optica
execution logic, this perspective is not constrained by scanning, storage and laser-printing system allowed thl
the current organization design, but instead seeks to delivery of the same level of service more efficiently
identify the best possible IT competences through
appropriate positioning in the IT marketplace as well These examples highlight the impact of business strateg]
as identifying the corresponding internal IS architecture. (especially distinctive competence) on IT strategy (I1

142 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993


Perspective One: Strategy Execution
DriWr:
Role of Top Management:
Roleof IS Management
Performance criteria:
Perspective Two: Technology Potential
Figure 3 Four Dominant Alignment Perspectives
governance and systemic competences, respectively)
and the corresponding implications for IS infrastructure
and processes. As this is a new alignment perspective,
analytical perspectives and methodologies are obviously
fcbw and limited. The more promising ones include
Gartner’s G/CUE, which examines an organization’s
business strategy and develops implications for IT
strategy with respect to key trends in the IT markets via
technology scanning, scenarios as well as identify
the implications for migrating from the current IT
infrastructure to the desired state.
For this alignment perspective to succeed, the top
management should provide the technology vision to
articulate the lgoic and choices pertaining to IT strategy
that would best support the chosen business strategy,
while the role of the IS manager should be that of the
technology architect - who efficiently and effectively
designs and implements the required IS infrastructure
that is consistent with the external component of IT
strategy (scope, competences and governance). The
performance criterion in this perspective is based on
technology leadership with qualitative but insightful
benchmarking along a set of critical measures pertaining
111the positioning in the IT marketplace.
Puspectiue Three: competitive potential
This alignment perspective is concerned
EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
CONTINUOUS STRATEGIC ALIGNMENT
Perspective Three: Competitive Potential
Business strategy
Stratey Formulator
Strategy Implementor
Cost/Service Center
IT Strategy
Perspective Four Service Level
DriWl: IT strategy
Role of Top Management Prioritizer
Role of IS Management: Executive Leadership
Performance criteria: Custome* Satisfaction
exploitation of emerging IT capabilities to impact new
products and services (i.e., business scope), influence
the key attributes of strategy (distinctive competences),
as well as develop new forms of relationships (i.e.,
business governance). Unlike the two previous perspec-
tives that considered business strategy as given (or a
constraint for organizational transformation), this per-
spective allows the modification of business strategy via
emerging IT capabilities. Beginning with the three
dimensions of IT strategy, this perspective seeks to iden-
tify the best set of strategic options for business strategy
and the corresponding set of decisions pertaining to
organizational infrastructure and processes.
Key examples of this perspective include: the exploita-
tion by Baxter Healthcare to leverage its IT strategy
(enhanced technology scope, greater systemic com-
petences and governance with IBM through the
Spectrum joint venture) to deliver superior, value-added
service to its hospital customers and the consequent
implications for redesigning the internal organizational
processes (for details, see Short and Venkatraman 1992);
the attempt by Federal Express to create a new standard
for overnight delivery through its COSMOS/PULSAR
system and the corresponding implications for redesign-
ing its internal processes; and the ability of American
Express, IDS division, to leverage its IT infrastructure
to develop capabilities for electronically filing income
with the tax returns as well as leveraging the information for
143
CONTINUOUS STRATEGIC ALIGNMENT
tailoring its financial products to the individual needs
(Venkatraman and Kambil 1991).
The specific role of the top management to make this
perspective succeed is that of the business visionary,
who articulates how the emerging IT competences and
functionality as well as changing governance patterns
in the IT marketplace would impact the business
strategy. The role of the IS manager, in contrast, is one
of the catalyst, who identifies and interprets the trends
in the IT environment to assist the business managers
to understand the potential opportunities and threats
from an IT perspective. The performance criterion in this
perspective is based on business leadership with quali-
tative and quantitative measurements pertaining to
product leadership (market share, growth, new product
introduction, etc.).
Perspective Four: service level
This alignment perspective focuses on how to build a
world class IT/IS organization within an organization.
This requires the articulation of the external dimensions
of IT strategy with corresponding internal logic for the
IS infrastructure and processes, with appropriate impli-
cations for the organizational infrastructure and pro-
cesses. In this perspective, the role of business strategy
is indirect. This perspective is often viewed as neces-
sary (but not sufficient) to ensure the effective use
of IT resources and be responsive to the growing
and fast-changing demands of the end-user popula-
tion. Analytical methodologies even partially reflecting
this perspective require a systematic analysis of the
IT markets as well as possible service contracting
approaches.
The specific role of the top management to make this
perspective succeed is that of the prioritizer, who
articulates how best to allocate the scarce resources both
within the organization as well as in the IT marketplace
(in terms of joint ventures, licensing, minority equity
investments, etc.). The role of the IS manager, in
contrast, is one of business leadership, with the specific
tasks of making the internai business succeed within the
operating guidelines from the top management. The
performance criterion in this perspective is based on
customer satisfaction with qualitative and quantitative
measurements with internal and external ~nchrn~~ng.
Administrative Component: Achieving
Strategic Alignment
The second component deals with the management
challenge of ~a~lating the strategic choices made with
reference to the four concepts of the strategic alignment
model (Figure 2) into administrative practice and opera-
tional decision-making. We believe that many companies
- while devoting considerable attention to the evalua-
tion of alternative choices within the four concepts of
the strategic alignment model - have not devoted as
much time or thinking to the administrative challenge
of ensuring that these four concepts would be in balance
in practice. This is akin to excellent strategy formulation
144 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
efforts without corresponding attention to the strategy
implementation issues.
To ensure adequate attention to the administrative
practice of achieving alignment, we introduce four
alignment mechanisms, as shown in Figure 4. These are
the governance process, which specifies the allocation of
decision-rights to the various decision makers within the
organization as well as outside vendors and partners as
may be appropriate; technological capability - the mech-
anism for specifying and modifying the various IT
products and services required to support and shape
business strategy; human capability - the mechanism for
specifying and modifying the various human skills
required to support and shape business strategy; and
z&ue managemenf - the mechanism for allocating the
required resources as well as ensuring that the maximal
benefits are realized from IT investments. Finally, we
specify strategic control as the ongoing strategic manage-
ment task that attempts to maintain internal consistency
among these four mechanisms.
~ove~i~~ce process
By governance we refer to the policies, procedures and
systems for the aIlocation of design-rights to the key
decision makers both within the organization as well as
external vendors and/or partners responsible for IT
management. Typically, the management challenges of
adminis~ation have been viewed in terms of ‘centraliza-
tion versus decentralization’. More recently, with
increased incidence of IT outsourcing, we see attention
given to ‘inside versus outside’ modes of IT governance.
Our belief is that effective governance involves balancing
along both sets of options: centralization versus decen-
tralization as well as inside versus outside. Some
decisions, for example, infrastructure standards, may
be more appropriately vested with a central body, while
other decisions pertaining to leveraging IS applications
for business purposes may be more suitably decentral-
ized to the business units. Similarly, in the wake of
managing the IT function using inter-organizational
alliances and partnerships (including outsourcing),
some decisions, such as operations and maintenance,
may be shifted outside the organizational boundary
while other decisions, design of the infrastructure or
migration plans, may be kept inside the organization,
I Governance
1Management
Figure 4 Four Alignment Mechanisms

The main challenge in designing the governance process
is to articulate the rules by which the allocation of
decision-rights would be specified and modified, as well
as the process by which the conflicts would be resolved.
Mechanisms for dealing with conflict resolution play a
\rery efficient (and effective) role in ensuring that the
logic for allocation of decision-rights is maintained
through the decisions on a continuous basis. This is
particularly important as effective governance of the
IT function involves a myriad of decisions taken by
several different decision-makers across organizational
boundaries.
More specifically, the decision categories deal with the
development of technological and human capabilities,
and value management, as discussed below.
Technological capability
This alignment mechanism deals with the administrative
process for creating the required IT capability for
supporting and shaping the business strategy. This
involves three important and interconnected activities:
dc$nifion of IT products and services that collectively
define the capability; development of IT products and
services to harness the capability for business purposes;
and adaptation of IT products and services to dynamically
evolve the capabilities to the changing requirements.
Definition. This deals with the administrative processes
of scanning the technology environment to identify
those existing and potential IT-related capabilities that
could support and shape business strategy. It is impor-
t‘mt to recognize that the focus is not simply to identify
the set of technologies but in defining the totality of the
capabilities offered by the chosen set of technologies.
For example, in the case of a financial services organiza-
tion, an important technological capability is global,
seamless information access and analysis across different
data sources and distinct media. The specific set of
technologies selected may involve trade-offs along
several criteria, including the particular set of stan-
dards within the organization. This is analogous to the
customer needs satisfied by a set of products in the case
of business strategy.
Development. This deals with the principles, policies and
rules that will govern the development and implementa-
tion of these capabilities, For instance, an important
issue pertains to the articulation of the relationships
between the required technological capability for the
future and the current standards. What if they are
inconsistent? Similar to the analysis of the impact of a
new product introduction on the profitability of existing
products, this mechanism must assess the trade-off
between current standards and new functionality. One
example of this is found in the introduction of image
processing technology to support telemarketing service
b\r USAA, which instituted a careful management
review and monitoring programme directed at the
implementation of image processing. They did not
underestimate the impact of this technology on the
existing IT infrastructure and, hence, they were able to
EL ROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
CONTINUOUS STRATEGIC ALIGNMENT
design the necessary data standards, redesign and
implement integrated systems that support the indivi-
dual service manager providing customer service. The
resultant functionality was that the service manager
could not only obtain an image of the policy document
but could also access supporting financial records and
other relevant information.
Adaptation. This focuses on the adaptation and migration
issues associated with technological capability. The
importance of this activity can be easily appreciated
given the dynamic evolution in the price-performance
of IT as well as in the proliferation of multiple, com-
peting standards. In our research, this issue was most
commonly observed with reference to ‘legacy systems’
- those that have been in existence for some time and
cannot be easily changed without incurring significant
commitment of financial resources and time. Thus,
while such systems may be efficient (low cost, given that
the initial capital may be amortized), they restrict the
development of new capability for the organization. We
argue that this issue cannot be swept under the carpet
and should be attacked head-on through the institution
of an administrative process.
Human capability
This alignment mechanism deals with the administrative
process for creating the required human skills and capa-
bility for supporting and shaping the business strategy.
This involves three important and interconnected activi-
ties: definition of human skills and capability; development
of these skills and capability within the specific organi-
zational context; and adaptation of these capabilities to
cater to the changing requirements.
Definition. This deals with the definition of human
capabilities within the organizational context required
to shape and support the business requirements. The
reason for its importance stems from the argument that
the organizations of the future will seek to blend the
technological capabilities with appropriate human skills
and capabilities to develop the overall set of organiza-
tional capabilities. Neither technology nor human skills
alone would be effective as they fail to leverage impor-
tant complementary sources of capabilities. The defini-
tion of human skills, in our view, is more than the
specification of traditional job descriptions for hiring or
promotion but involves the articulation of how human
skills support and complement the available or potential
IT capabilities. For instance, the definition of the skills
of a customer service manager would be articulated not
merely in terms of the number of years of education and
experience but in terms of how the overall capability
of superior customer service would be delivered by
harnessing the required human and IT skills.
Development and Adaptation. This deals with the process
for developing the skills within the organizational
context. Our position is that organizations spend a lot
of resources to develop human skills, independent of
their investments in IT capabilities. More importantly,
the investments in training to leverage IT functionality
145
CONTINUOUS STRATEGIC ALIGNMENT

is minimal compared to the investments in technological ment in designing an appropriate measurement to

systems and applications. We highlight the importance ensure IT investments achieve desired benefits has
of an ongoing process that allows the human skills to increased significantly.
be continually updated to minimize the need for large-
scale layoffs that are invariably due to the mismatch Two factors are central to effective performance manage-
between existing human skills and the requirements. ment systems: focus and actionability (Curley and
Henderson 1989). Focus refers to both the number of
Value management measures in use as well as the underlying concepts they
This mechanism deals with those actions taken to (1) are intended to measure. Planning concepts such as
establish the means to select IT investments, (2) define Critical Success Factors (Rockart 1989) and others have
the performance management system that will maximize emphasized the need to identify a few critical issues that
the likelihood that these investments will achieve are central to organizational success. A performance
desired benefits, and (3) learn how to adapt this perfor- measurement system with too few or too many measures
mance management over time. We view this as being is argued to be ineffective. Of course, the challenge is
decoupled from the day-to-day operational control and to effectively identify and design this core measurement
the management of IT. Rather, it is the mechanism by system. Actionability is the second factor in effective
which the senior management team establishes the performance management systems. An outcome-based
principles, policies and rules that will guide individual measurement system can be used to create incentives
managers in their efforts to continually align IT and and to identify potential problems. But such a system
business strategies. does not enable the manager to diagnose’causes of the
problems and to use this insight to take actin. Current
Three interrelated activities comprise value management: thinking in total quality and service quality eFphasizes
(1) investment decisions; (2) performance management; the need for a causal approach to performance manage-
and (3) evaluation. Traditionally, the IT investment ment. In a service intensive system, it is not sufficient
decision falls within the capital budgeting process where to rely on only outcome measures (e.g., profit or
the potential IT impacts are described in productivity customer satisfaction), and one must identify the critical
terms. There is widespread dissatisfaction with this view processes that contribute to these outcomes and pro-
of value management. First, as the impact of IT invest- vide measures of these processes as well. Curley and
ments has begun to reshape the work environment Henderson (1992) have argued that this process-outcome
(business process re-engineering), the productivity/ perspective must also be extended to explicitly reflect
financial orientation of most capital budgeting processes individual, functional and business unit issues. The
has proven too limited, both to reflect the true value of concept of Value Management requires both horizontal
the investment and to adequately represent the risks (i.e., process to outcome) and vertical (individual to
(radical change) associated with the investment. While functional to business) linkage.
the technical component of risk may be recognized (i.e.,
the risk that the system may not deliver the required We observed the operational implications of this logic
technical features), the true risk associated with the in the performance management system of a large US
radical change in the organization is often significantly agricultural products company. The company’s objec-
underestimated. tive for a major IT initiative was to increase profitability
by reducing the level of inventory prestaged in the
Second, the value of many capital investments is asso- distribution channel by 50%. While the economic out-
ciated with the future flexibility provided by the resulting come measure was clear, the management team also
infrastructure. For example, the value of a project to identified those processes that most affected the inven-
provide access to all corporate data lies, in large part, tory levels and established measures for these processes.
in the follow-on projects that produce direct productivity They then developed a direct relationship between these
gains. Unfortunately, the traditional capital budgeting processes and the proposed IT investment. This causal
process will systematically undervalue this opportunity linkage, i.e. IT enables specific process changes which
to create future options. Perhaps more importantly, the delivers specific economic impacts, formed the core of
application of this net present value (NPV) oriented their performance management system. They extended
approach to most IT investments tends to further their measurement system to the individual level,
obscure the true risks of the IT investment. As Kambil, identifying those activities required by each individual
Henderson and Mosidan (1992) argue, it results in a role. Again, performance measures were developed and
single-point investment decision-making process rather the role of IT in improving this performance specified.
than a multi-phased process required to manage both Finally, the potential for developing strategic impacts
the risks and opportunities associated with an options such as increased market share was evaluated and
creating investment. incorporated into their measurement system. As a result
of this effort, the management team deployed the
Performance Management. This deals with the design of system of measures which helped to ensure that the IT
the measurement system that will be used to guide the investment actually achieved expected benefits.
operational activities of the firm with a particular focus
on the logic for the design of measures. With the current Evaluation. We view the evaluation capability in terms
emphasis on total quality, the involvement of manage- different from the traditional IT audit. To maximize

146 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993


organizational learning, evaluation must be considered
at the initiation of any project. This is akin to an experi-
mental design approach that asks the question: ‘how
can we design the next phase of this project to maximize
the amount of learning from this effort?‘. As we consider
IT initiatives that fundamentally change the nature of
work, this experimental, continuous improvement
perspective is critical. While most managers recognize
the value of this activity, the tactical demands of day-
to-day operations sidetrack efforts in this area. As a
result we see the same mistake made over and over
and, perhaps worse, the inability of one part of the
organization to learn from another.
Management Implications
We believe that a major reason for the current dissatis-
faction with the level of integration between the business
and IS domains and possibly the absence of value
derived from IT investments lies in the lack of under-
standing of the enabling strategic choices that bind a
business strategy with the IS infrastructure. Viewed
within our Strategic Alignment Model (Figure 2), the
direct link between business strategy (top left) and IS
infrastructure (bottom right) can only derive its logic
within the context of the two alignment perspectives
that have business strategy as the driver: strategy execu-
tlcln and technology potential. In the former case, the link
derives its meaning from translating the implications of
business strategy for the organizational infrastructure
with subsequent demands for IS products and services.
In the latter case, the link is achieved through the
effective positioning of the firm in the IT marketplace;
namely, the specification of the three components of
IT strategy and the consequent implications for the
three internal components of the IS infrastructure and
processes.
Similarly, the direct link between an IT strategy (top
right) and organizational infrastructure (bottom left) has
no direct meaning. One cannot and should not simply
seek to identify and adopt the best available technologies
to restructure organization or streamline the business
processes without due consideration to the two relevant
alignment perspectives that have IT strategy as the
driver: competitive potential and service level. The former
identifies the potential impact of IT strategy on business
strategy with consequent implications for organizational
infrastructure. The latter seeks to provide the best
possible service to the internal client by developing the
appropriate basis for the redesign of the IS infrastruc-
ture. We would expect that in the absence of such under-
standing there would be a significant probability that
investments made to transfer business processes may
\j,ell fail due to an inability to provide the information
necessary to execute the processes.
The specification of individual dimensions of the four
concepts of the strategic alignment model as well as the
selection of one or more alignment perspectives is only
a part of the overall management challenge to realize
EL’ROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
CONTINUOUS STRATEGIC ALIGNMENT
benefits from IT investments. We emphasize the impor-
tance of the alignment mechanisms (Figure 4) that
ensure that the appropriate logic for allocating decision-
rights has been put in place as well as that the required
technological and human capabilities are being harnessed
on a continuous basis within the overall scheme of
value management. These alignment mechanisms over
time create the dynamic organizational capabilities to
transform the corporation effectively.
We underscore that the use of our approach and the
underlying models requires an understanding of its
intrinsic dynamic nature. Much of the strategic planning
techniques popularized in the 1970s and 1980s have
gone out of favour - not because of the weakness in
their logic but due to their failure to recognize the
dynamic nature of strategy. Managers are painfully
aware that the real business challenge is not static align-
ment among the four domains at any one point in time
(when the strategic planning exercise is carried out!),
but ensuring continual assessment of the trends across
these four domains to allow them to reposition the firm
in the external environment and rearrange their internal
infrastructure. We urge managers to seriously recognize
the need to evolve from one perspective to another
based on the shifts in the business environment - both
internal and external. This is consistent with the current
emphasis on the centrality of learning and adaptation
for achieving successful organizational transformation.
As one senior manager who is in the midst of adopting
the strategic alignment model said: ‘the most important
lesson to keep in mind is that strategic alignment is a
journey and not an event’.
We have been asked on numerous occasions: ‘Which
alignment perspective is the best?‘. As researchers and
observers of strategic management phenomena, we do
not believe that there is one universally-superior mode
to formulate and implement strategy. If there were, it
would not be strategic as all firms would adopt it. The
four dominant alignment perspectives that use the two
strategies as the driver are equally useful and powerful
in thinking about the role of IT in organizational trans-
formation. Indeed, we urge managers not to consider
IT as a panacea and consequently focus only on those
two perspectives with IT strategy as the starting point
(namely, business transformation and service level). Nor
do we want to argue that business strategy should
always be the starting point and adopt only the other
two perspectives on strategic alignment. The potential
for IT impact is so varied and complex that the executive
must consider these perspectives as alternative concep-
tual lenses and institutionalize the appropriate set of
alignment mechanisms.
Note
Professors Venkatraman and Henderson thank the IBM
Corporation’s Advanced Business Institute (ABI) for research
support. Further, we thank several managers who participated
in our research project on strategic alignment over the last five
years.
CONTINUOUS STRATEGIC ALIGNMENT

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148 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993


N. VENKATRAMAN, MIT
Sloan School of Management,
Massachusetts, lnstitute of
Technology, Cambridge, MA
02239, USA
N. Venkatraman is Associate
Professor of Management in the
Sloan School of Management at
Massachusetts Institute of Tech-
nology. His current research
interests intersect strategic
management and information technology. At Sloan, he
teaches a course on Strategic Management and Informa-
tion Technology and his research projects deal with (2)
the causes and effects of electronic integration - the role
of information technology to restructure business rela-
tionships, and (2) information technology strategy,
especially information technology outsourcing and
governance. He wrote an influential chapter on the role
of IT in the strategic transformation for the book, The
Corporation of the 1990s based on the MIT Research
Program, Management in the 1990s. His doctoral thesis
was awarded the 1986 AT Kearney Award for Out-
standing Research in General Management by the
Academy of Management and his research papers have
appeared in several professional journals such as
Management Science, Strategic Management
Journal, Academy of Management Journal, Infor-
mation Systems Research, Sloan Management
Review and others. He holds a PhD Degree in Business
Administration from the University of Pittsburgh, MBA
and Bachelor of Technology degrees from India.
SCOTT OLDACH, IBM,
Brussels, Belgium
Scott Oldach is a Vice President
of the IBM Consulting Group,
where he leads the Global Infor-
mation Technology Strategy and
Planning Practice. This consult-
ing practice aligns business and
information technology both
strategically and operationally to
deliver superior shareholder
value. Mr Oldach’s clients are largely dependent on
information technology to deliver their competitive posi-
tioning. His interests include: competitive systems,
value of IT infrastructure, systems support of business
flexibility. He has led assignments in over 40 clients
covering a variety of industries, including consumer
manufacturing, retail, telecommunications, airline,
energy, insurance and financial services.
EIJKOPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993
CONTINUOUS STRATEGIC ALIGNMENT
JOHN C. HENDERSON,
School of Management, Boston
University, Boston, MA 02215,
USA
John C. Henderson is Professor
of Management information
Systems and Director of the
Systems Research Center at the
Boston University School of
Management. He earned his
PhD, MS and BS degrees from
the University of Texas at Austin. His early work
focused on decision support systems and the development
of prototyping as an approach to developing both deci-
sion support systems and the more traditional manage-
ment information systems. Presently, his research is
focused in three areas: the alignment of business and
information technology strategies; the role of information
technology in building and managing strategic partner-
ships; and the use of information technology to support
software development teams. Professor Henderson is
currently the Departmental Editor, lnformation Systems
& Decision Support Systems for Management Science.
He has held faculty appointments at Florida State Uni-
versity and Ohio State University as well as having
served as staff director for the Joint Committee on
Electronic Data Processing at the Florida legislature.
Prior to coming to Boston University, Professor
Henderson was on the faculty of the Sloan School of
Management at MIT. His articles have appeared in
many journals, including Management Science, MIS
Quarterly, IBM Systems Journal, Information
Systems Research, Sloan Management Review,
Journal of Management Information Systems,
Decision Sciences, and IEEE Transactions on
Engineering Management.