MN 5336 Aligning IT with the

Digital Business business

PROF G. ‘HARI’ HARINDRANATH
Learning Objectives

• What is IS strategy?
• Why is IS-business
alignment important?
• How can we use
alignment models to
conceptualise the link
between IT and
business?
Overview

• Adoption of IT in
organizations
unavoidably causes
changes and requires
alignment with the
business goals.
• IT alignment:
Continuous response to
and enhancement of
business strategy
IS Strategy and Alignment

• Achieving strategic
alignment a major
concern for business
executives.
Relationship between business and IT

Business
strategy

IT
investment
value
IS
strategy
Information Systems Strategy

• IS requirements
WHAT • Business
applications

• Hardware/Software
HOW • Communication
infrastructure
Digital business:
Fusion of business & IT strategies

Old school New school

IT strategy is functional- Digital business strategy is a
level, aligned & fusion between IT strategy &
subordinate to business business strategy
Bharadwaj et al 2013
Bharadwaj et al 2013
DBS is a strategy that
IT strategy often treated permeates an organisation,
tech in isolation and that is “formulated and
McDonald 2012 executed by leveraging digital
resources to create
differential value”
Mithas and Lucas in 2010
IS-Business Alignment

• Degree to which the IT group understands the

priorities of the business and expends its
resources, pursues projects and provides
information consistent with them.
• IT spending must be matched to the company’s
growth strategies.
• There must be shared ownership and shared
governance of IT projects.
Is alignment achievable?

• Ever changing • Tight coupling may make

business & global firms less agile?
context • Unrealistic as IT itself is
• Strategy is often constantly improvised
unclear & managers (Ciborra’s ‘drift vs
are left to muddle control’) and often has
through unexpected
outcomes(Orlikowski’s
work)
Ideal IT-Business Partnership versus Reality (1 of 2)

The “Ideal” IT-Business Partnership The IT-Business Partnership in

“Reality”

Clearly defined expectations, IT has to keep proving itself

governance models and accountability

Trust between the two groups The business is often disengaged from
IT work
Mutual recognition of IT value There are many “disconnects”
between the two groups

A blurred line between business and IT The partnership varies by individual,

(i.e. no “us vs. them”) process, and function at multiple levels

McKeen & Smith, 2022

9-10
Ideal IT-Business Partnership versus Reality (2 of 2)
The “Ideal” IT-Business The IT-Business Partnership in “Reality”
Partnership
IT is dedicated to business success Clarity is often lacking around expectations
and accountabilities
IT is a trusted advisor to the Business ‘assumptions’ of IT tend to cluster
business into patterns (IT: is a necessary evil; is a
support, not a partner; rules; business can
do IT better; business and
IT are equal partners)
Input from IT is not actively solicited for
strategic decisions

McKeen & Smith, 2022

9-11
 But IT permeates every functional activity
Functional How it relies on IT
Activity
Strategy Strategy execution, value chain design, decision making
Operations Supply chain mgmt., production mgmt., product mix, inventory optimisation
Finance Managing capital assets & investments (the largest of which today is IT!)
Accounting Connecting operational transactions to managerial accounting metrics,
bookkeeping
HR Optimising employee assignments, payroll, recruitment
Marketing Pricing, analytics, marketing planning, customer segmentation, channels mgmt.,
metrics for judging marketing effectiveness
Sales CRM, social media, tracking leads, prospecting, ordering, salesforce monitoring
Product Design & delivery of products & services, crowdsourced innovation
developme
nt
Customer After-sales support, remote diagnostics, self-service portals, online customer
service communities Tiwana, 2017
 Specialize in
So, Corporate IT is the Glue that Connects Business
different things
Historically
backstage Now:
•Functions’ backbone
•Glues firmwide operations
Business
processes Rigidity
crosscut Operations
IT
often a
functions roadblock

Marketing
Central to
How IT execution
dependent?
Customer
Service Finance

Accounting

Firm Tiwana, 2017

 IT Strategy as a Conversation

IT strategy = human activity ≠ technical

IT unit must first understand your goals to help accomplish them
Conversation requires shared language, empathy

No substitute for what either brings to the table

Just enough of their language matters

#1 reason IT disappoints: Absence of this conversation

Business speak Tech speak

Conversation Leads to…

Vision +Capability
From non-IT From IT
Alignment in action: Disruption
- Zara Fast Fashion

• Exclusivity on trendy fashion design

Goal • Fast response to customers’ demand/needs
• Low costs
• Real time information about sales
trends and what customers want
What • Real time information about orders,
start production when needed,
reduce inventory
• RFID, POS (track sales) & PDA
(input customers’ wish-list)
How • Central database to match
information from stores
• JIT, CAD-CAM
• Empowered teams
Alignment in action: Edge Strategy

• Products/services customers need to use what they

Complements purchase from your firm
• E.g., Apple’s iCloud

• Use IT to create a service tied to your products

to help customers create a result they value and
Services for which they buy your firm’s offerings
• E.g., Ikea’s online assembly videos; Caterpillar’s
paid-for monthly performance metrics

• Extract value from underutilised

assets, often via IT
Underproductive • Paid-for services using data you
assets routinely capture from your
business-client interactions (e.g.,
Cargill agricultural analytics)
IT Alignment Models
‘Strategic Elements’ Framework

• Rockart and Morton

developed a conceptual
model of five organizational
components.
- Technology
- Corporate strategy
- Organizational structure
- Managerial processes
- Individuals and their roles
• They must be kept in balance
when introducing
change to an organization. Rockart & Morton’s Strategic Elements Model
‘Strategic Elements’ Framework
• Changes in one aspect must be
balanced by changes in other aspects
so as organization remains effective.
• Management processes are the core of
the model and play the central role in
organizational operations.
• Technology affects
management strategy both
directly and indirectly, while
simultaneously influencing
other operational elements.
• It became an important theoretical
basis for IT-organization impact models.
‘Strategic Elements’ Framework

• They acknowledge that Culture

pervades all other components.
o Culture as “basic assumptions
and beliefs shared by members
of an organization”.
o Traditional IS culture is strongly
technical oriented, so does not
facilitate organizational change.
• Major cultural changes:
either by charismatic
leadership, or new key
personnel.
Strategic Alignment Model (SAM)

• Proposed by Henderson and Venkatraman: is

one of the most cited strategic alignment
models.
• Conceptual model to understand strategic
alignment from the perspective of Business
Strategy, IT Strategy, Business Process and
IT Process.
Strategic Alignment Model (SAM)

• SAM is composed of
two main dimensions:
- strategic fit and
- functional integration.
• Strategic fit refers to
the concordance
between internal
(processes) and
external (strategy) Ideally, business processes
domains. and IT apps must be designed
CONCURRENTLY
SAM: strategy domains

Business strategy IT strategy

• Business scope (customers,
markets, products, • Technology scope (which
competitors) critical technologies? e.g.
CRM, mobile apps)
• Business competences (e.g.,
• Systemic competencies (e.g.
price, quality, added-value)
“big data” or business
• Business governance (make analytics)
vs. buy choices, strategic
alliances, joint ventures, • IT governance (which IT
etc.) capabilities and resources?,
e.g. strategic alliances,
outsourcing vs. in-house,
cloud computing)
SAM: infrastructure domains

Business process IT process

• Organizational structure • IT architecture (e.g. HW/SW

(roles, responsibilities, etc.) configuration)
• Design business process for • IT process (systems
business strategy development/maintenance)
• HR skills • IT skills (e.g. Data analytics
skills)
 McFarlan’s Strategic Grid

• It is a tool that can be used

to assess the current
operational dependence on
information systems (low,
high) versus the future
potential/ strategic impact
of information systems
(low, high).
Strategic grid explained

Support
IT has little relevance and
simply supports some
processes.
Least amount of emphasis on
IT planning.
Applications used to achieve
incremental costs saving but
low impact on ops and strategy
Strategic grid explained

Factory
IT is important in terms of day-to-day
operations, but it is not felt that there
are any major IT developments on
the horizon that will fundamentally
alter the nature of the business.
The level of senior management
involvement is decreasing.
Applications reduce costs
and improve performance of
core operations
Strategic grid explained

Turnaround
IT will be a key feature of
future strategic planning.
Significant top management
involvement in IT (planning)
must be established.
Exploit emerging strategic
opportunities from new IT
Strategic grid explained

Strategic

• IT Strategy is very important

ands plays a critical role in the
formulation of the overall
business strategy.
• High level of involvement of top
management in IT strategy.
• Applications crucial for
operational and strategic
success
Strategic grid: Caveats

• Every organisation
is likely to have Support
some applications
in each category
• Positioning of
applications will
Strategic Factory
vary from firm to
firm
• E.g., online training –
may be operational
application for a
Turnaround
software vendor but
strategic for a user
organisation
Weill & Aral’s
IT Savvy Investment Portfolio Approach

• Reframes the discussion of IT

alignment in terms of outcomes,
i.e. business value.
• “IT savvy: planned, ongoing use of
interlocking business practices and
competencies that collectively derive
superior value from IT investments”.
• High IT savvy companies = higher
net profits in the year after the
investment.
Weill & Aral’s ‘IT Savvy'
7-11’s network of 70,000
Characteristics computers help collaborate
with partners, share sales
Mutually reinforcing: info, know-how on OM &
quality control
Practices
•Extensive
digitalisation within firm
& with partners
Competencies 7-11’s 200,000+
staff all match
•Firm-wide IT skills sales info with info
on product,
•Significant business weather, sales
pattern
management
involvement
 IT Savvy: IT investment portfolio

• To match IT
investments to
strategic objectives
• Focus on how
organizations use IT
instead of focusing
on the IT itself
 7-11 Japan's store
ordering systems;

Weill & Aral’s IT Investment Portfolio UPS/FedEx’s free

online tracking
systems for parcels
cut tracking costs

• Cut costs & improve

Transactional productivity by automating
repetitive processes
7-11 Japan’s sales • Provide info to account,
analysis systems;
Amazon’s sales Informational manage, control, analyse,
etc.
analysis systems

7-11 Japan’s bill

payment systems;
Amazon’s
Strategic • Competitive advantage,
growth and innovation
recommended
books service
• Shared IT services used by
increase sales
many applications
Infrastructure • Reduce long term IT costs
via data consolidation

7-11 Japan’s extensive digital network

links stores, HQ & suppliers
Synchronising Vs Aligning
• Alignment may be perceived as too
static a concept
• Synchronizing: Dynamic relationship
between IT strategy and operational
strategy
Watch my Industry Viewpoint interview with Gerry
Grant on ‘IT business value’ (Session 1 on Moodle,
look under ADDITIONAL MATERIALS)
Tiwana, 2017
 Syncing, not Alignment? Synchronizing:
Dynamic relationship
Where it
between IT strategy
seeks to go and operational
strategy
Strategic
aspiration Choices defining
how you'll use IT
Tactical to beat archrivals
implementation of
business strategy

•org structure
•control drives drives
•incentives

Operational Sync IT
strategy strategy
Harder to copy! Both moving
Breaks red queen race!
Tiwana, 2017 Flat-tire problem
Summary / Learning Objectives

• What is IS strategy?
• Why is IS-business alignment
important?
• How can we use alignment models
to conceptualise the link between
IT and business?