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Aligning IS with Business Strategy

Presented by:

Natalie Campbell

March 8, 2005

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Overview

Key concepts of strategic IS alignment Evolution of strategic IS alignment Key researchers IS alignment models Challenges of today Recommendations for further research

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Strategy Exercise

Define strategy Long range planning Business guidance Business plan Identifying goals and determining plans to

meet goals over a long time period Operationalizing the mission

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Strategy

Greek translation - the art of the general Luftman

Business decisions taken at particular points in time by different people in response to sets of perceived environmental factors.

Strategy is about making choices that include:1. Selection of business goals2. Choice of products and services to offer3. Design and configuration of policies that determine how the firm

positions itself to compete in its markets4. Appropriate level of scope and diversity5. Design of organization structure, administrative systems, and

policies used to define and coordinate work

Luftman et al, 2004

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Alignment

Consequence of sound practices and evolving human relationships that have mutual understandings of goals, values, culture and capabilities that leverage the development of strategies that can ultimately co-adapt

Luftman et al., 2004

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Strategic IS Alignment - Exercise

Define strategic IS alignment Mutual understanding between IS and

business To achieve goals in long-term for companies

overall objectives Matching processes for achieving goals

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Strategic IS Alignment Describes an environment in which the business strategy

and business infrastructure of an organization are aligned with the Information Technology strategy and infrastructures

Stresses harmonization of goals and implementation plans of IT with goals and organizational structure of business

Refers specifically to coordination of an organization’s external business and IT goals and its internal business as IT organizational infrastructures

Luftman et al., 2004

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Competitive Goals

Competitive advantage – Luftman et al., 2004 Unsurpassed relationships with one’s customers and suppliers Unique and adaptable business processes Ability to harness information and knowledge of firm’s employees

to continuously create new, hard to duplicate products and services

King, 1978 Talks about controversy of firms using IT as a comparative

advantage American and United Airlines – reservation system Merrill Lynch – cash management account Foremost-McKesson –processing insurance payments

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Enablers and Inhibitors

Enablers Senior executive support

for IT IT involved in strategy

development IT understand the

business Business – IT partnership Well-prioritized IT projects IT demonstrates

leadership

Inhibitors IT/business lack close

relationships IT does not prioritize well IT fails to meet

commitments IT does not understand

business Senior executives do not

support IT IT management lacks

leadership

Luftman & Brier, 1999

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Formulation of IS Strategy

3 key elements Vision

Where do we want to go? Big Hairy Audacious Goals (BHAG)

Strategy How will we achieve this vision? Aligned with company mission and core values

Mission What are we? Purpose and function of IT

Luftman et al., 2004

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IT Roles in Strategy

Transformation driver Create and exploit new markets Link customers to firm

Enabler of transformation Interconnect people and processes Span organization boundaries Bridge geographical distances

IT as inhibitor IT strategy not aligned with business strategy Over-emphasis on technology

Luftman et al., 2004

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William R. King University of Pittsburg Founding president of AIS President of TIMS (INFORMS) – 1989-90 Chair of ICIS – 1988, 2005 Editor-in-chief of MIS Quarterly One of the founders of ISR -1989 Editorial roles

ISR Journal of MIS OMEGA: The International Journal of Management

Science

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MIS Strategic Planning

Strategic planning Feasible and necessary

Efficiency verses effectiveness Efficiency – often shown through cost savings Effectiveness – must be of paramount importance

in design of MIS MIS strategic planning

Transforms an organizational strategy set into an MIS strategy set

Focuses on the direct relationship

King, 1978

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MIS

Strategic

Planning

Process

System ObjectivesSystem ConstraintsSystem Design Strategies

MISStrategySet

MissionObjectivesStrategyOther Strategic Organizational Attributes

OrganizationalStrategySet

King, 1978

Overall MIS Strategic Planning Process

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Information as a Strategic Resource

Information as a strategic resource IRM views information as a resource to be “well-managed”

– inadequate Sole IM role to satisfy end users – inadequate SPIS process that closely ties in IS strategy with business

strategy – inadequate “Information and IS has the potential to be a primary

source of comparative business advantage in the marketplace, rather than merely a resource to be efficiently managed, or a service that is periodically turned on and off as needed.”

King, 1983

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Assessing IT Need to assess the role of strategic technology, the

impact of IT on competitive advantage Develop a set of measures for the construct CAPITA

– key dimensions Efficiency Functionality Threat Preemptiveness Synergy

Divide efficiency: primary and support activity efficiency

Divide functionality: resource management and acquisition

Sethi & King, 1994

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Facilitators and Inhibitors Identify a set of parsimonious factors use to strategically employ IT Surveys and factor analysis IT application defined as strategic:

One that has a profound effect on a company’s success and destiny, by (a) influencing or shaping the company’s strategy, or (b) playing a direct role in the implementation or support of the company’s strategy – (Sabherwal & King, 1991)

Organizational facilitators Factors that positively influence the ability of an organization to exploit

information resources Factors that positively influence an organization’s decision to use IT

applications for strategic purposes Organizational inhibitors

Factors that negatively influence the ability of an organization to exploit information resources

Factors that negatively influence an organization’s decision to use IT applications for strategic purposes

King & Teo, 1996

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Robert W. Zmud Professor, University of Oklahoma PhD, University of Arizona Research interests

Organizational impacts of information technology Management, implementation and diffusion of information

technology Senior editor with

Information Systems Research Journal of AIS MISQ Executive

Executive board Management Science Academy of Management Review Information and Organization

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Information Economy

Information business Any business unit that produces a deliverable information

product or service in which the unit itself owns and manages the information resources required to produce the product or service

IS department is one of many information businesses Successful IS management

Ensure integration of IT deployed throughout enterprise Design new applications within constraints that exist due to

current portfolio of application systems Plan for an influx of successive generations of new

technologies

Zmud et al., 1986

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Strategic Variables

Data ArchitectureTransportation

Architecture

IS ManagementProcess Architecture

CoalitionArchitecture

InformationTechnology

Vision

Application Map

Investment Architecture

Zmud et al., 1986

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Varun Grover Professor Clemson University PhD University of Pittsburgh, 1990 Ranked 1st, 2nd, 3rd in research productivity in past decade Published over 130 publications Board of Editors/Associate Editor for

Journal of MIS MIS Quarterly MISQ Executive Journal of Information Technology Management International Journal of Electronic Commerce Journal of Strategic IS Journal of Operations Management Decision Sciences Journal of Market Focused Management Business Process Management Journal

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Sustainability and Performance Identify factors important to establishing a

competitive advantage Competitive advantage – dependent upon unique

characteristics that enable a firm to maintain a dominant position within its respective industry

Sustainability factors Content Process

Factors observed Environmental strategies Foundation strategies Action strategies

Kettinger et al., 1994

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FIRM

•Size•Geographical scope•Product scope•Organizational base•Learning Curve•Technological resources•Information resources

•Preempting•Creating switching costs•Exploiting flexibility•Developing response strategies•Managing risk

FoundationFactors

ActionStrategies

PERFORMANCE

Sustainability

•Industry

•Competitor

Restrictions

•Unique Situations

ENVIRONMENT

Model of Sustainability

Kettinger et al., 1994

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Grover S. Kearns Professor, University of South Florida PhD, University of Kentucky Research interests

MIS strategic planning Electronic and global commerce

Presentations Decision Sciences Institute Conference International Conference on Information Systems

Publications Decision Sciences Journal of Strategic Information Systems Computer Personnel

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Albert L. Lederer

Professor, University of Kentucky PhD, Ohio State University Research interests

Information systems planning

Publications Decision Sciences MIS Quarterly Journal of MIS Information Systems Research Communications of the ACM

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Alignment that Leads to Competitive Advantage Strategic applications

Applications which change a firm’s product or the way itcompetes in its industry – (King, 1978)

Strategic alignmentNecessary for superior financial performance – (Das et al., 1991)

Value chainA series of activities used by the firm in the process of acquiring raw materials, and processing delivering orservices to the customer – (Porter, 1985)

Competitive advantage Use of IS to leverage core resources – (Clemons, 1991) Ability of IS to add economic value – (McFarlon, 1984)

Kearns & Lederer, 1997

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Causal Relationships between Constructs of Interest

ISPART ISALIGN

BPALIGNCEOPART

COMPADVVCHAIN

.350

.342

.506.615

.141

.385

.158

.335

Kearns & Lederer, 1997

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Strategic IT Alignment and Competitive Advantage

Strategic IT alignment An organizational learning process that combines business

and IT knowledge in order to support business objectives (Reich and Benbasat, 1996)

Defined as two sets of outcomes: Alignment of IT plan with business plan Alignment of Business plan with IT plan

Organizational knowledge Allows firms to achieve competitive advantage Explains why firms treat organizational learning processes

as valuable assets (Hunt, 1999, 2000)

Kearns & Lederer, 2001

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Model of Strategic IS Alignment

Kearns & Lederer, 2001

F1Information

Intensity of theValue Chain

F3The CEO

Participates in ITPlanning

F2CIO participates in Business Planning

F5Alignment of the

Business Plan withthe IT Plan

F4Alignment of theIT Plan with theBusiness Plan

F6IT is Used forCompetitiveAdvantage

HI:.35

H2:.34

H3: .51

H4:.34

H5: .158

H6: .39

H7: .62

H8:.14

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Alignment between Business and IS Strategies Content - What strategy is the organization

pursuing? Important to distinguish between three strategies

IS strategy – business applications IT strategy – technology policies IM strategy – structures and roles for management

IS strategy – should be aligned with business strategy (Das et al., 1991)

Process -How does the organization develop its strategy?

Business strategy types (Miles and Snow, 1978) Defenders Analyzers Prospectors

Sabherwal and Chan

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Sabherwal and Chan, 2001

Business Strategy AttributesDefensivenessRisk aversionAggressivenessProactivenessAnalysisFuturity

Business Strategy

Business Strategy TypesDefendersAnalyzersProspectors

IS Strategy TypesIS for efficiencyIS for flexibilityIS for comprehensiveness

IS Strategy AttributesOperational support systemsMarket information systemsInterorganizational systemsStrategic decision support systems

IS Strategy

AlignmentBusiness

Performance

Hypotheses 1-4

Perceived business performance

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Jerry Luftman Professor, Stevens Institute of Technology PhD, Stevens Institute of Technology Research interests

Information Technology Strategy Alignment of Business and Information Technology Emerging Technologies Value of Information Technology Information Technology Governance

Published books including Managing the Information Technology Resource: Leadership in the Information Age

Published articles in SLOAN Management Review, California Management Review, Computer World, InfoWeek, CIO, MISQ, CAIS

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Strategic Alignment Model Business strategy

Business Scope Distinctive competencies Business governance

Organizational infrastructure and processes Administrative Processes Skills

IT strategy Technology scope Systemic competencies IT governance

IT infrastucture and processes Architecture Processes Skills

Luftman et al., 2004

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IT Strategy Formulation Process

Luftman et al., 2004

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Challenges Senior executive support CIO chain of command Common goals between IT and business How IT is viewed

Cost Enabler Driver

Shared domain knowledge IT understands business Business understands IT

IT/business relationships Alignment sustainability

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Future Research

Still in search of the “silver bullet” Role of CIO in alignment process Interaction of CIO and senior business

executives Relationship management and successful IT

history Relationship management and the Balanced

Scorecard

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Questions?? Comments??