The Alignment of Business and IT: Integrating Opposing Forces
Chris Novak
November 29, 2006
Organizational and Strategic Changes
The evolution of an information technology (IT) department’s role in a business organization has been an ever-changing operation. In its infancy there were great claims of competitive advantages that could be created through an organization’s IT department alone. Mostly due to a lack of understanding, this viewpoint was short-lived once the initial mystique had worn off, and the technology became more affordable to all. IT was then viewed by business executives as a way to process information more quickly, and thus cut costs. However, even this line of thought failed to live up to expectations as it was too short-sighted, acting as more of a reaction to business needs rather than a proactive mover that could facilitate organizational change. Currently many organizations have seen the importance of the alignment of the business and IT departments in providing a positive, concurrently driven force where both areas work together rather than as separate entities for the advancement of the organization. Yet, this strategic alignment cannot be achieved easily. If an organization desires to operate with much greater collaboration and efficiency the alignment of business and IT is essential to achieving this goal.
The current state of information technology is a far cry for the optimism expressed by Rosabeth Moss Kanter in her article from 1987. In it she said that, “The lengthening menu of ways information technology can help companies gain competitive advantage is positively mouth-watering. On all competitive fronts- price advantages through lower costs, product differentiation, entry into new businesses, keeping customers captive by raising switching costs-information technology applications seem possible” (Kanter). Yet, nearly twenty years later, the economic reality of these statements have caused this sort of exuberant optimism to cease. In Nicholas Carr’s paper entitled “IT Doesn’t Matter” the author declares,
By now, the core functions of IT- data
storage, data processing, and data transport- have become available and
affordable to all. Their very power and
presence have begun to transform them from strategic resources into commodity
factors of production. They are becoming
costs of doing business that must be paid by all but provide distinction to
none… (Carr).
Viewpoints such as those expressed in Carr’s infamous paper clearly stress the need for greater innovation and better use of existing resources and processes, and less reliance on technology solely to drive a business.
In 2006 the Society for Information
Management (SIM) in
Furthermore, in late 2004 a study
was conducted by Harris Interactive for A.T. Kearney which consisted of 200
business and technology leaders, VP or higher, from the United States, Canada,
and Europe. They found that most IT
departments can’t effectively explore innovative uses of technology because
they are stuck in daily operational tasks, afar from exploring technological
innovation. It was also concluded that
business leaders viewed IT as a tactical department focused on cost-cutting and
daily maintenance, not as an integral resource for achieving strategic business
goals. This lack of integration between
business and IT is further evident in the perception of IT organizations as
being unresponsive and inefficient.
Currently, only 20% of IT investment is allocated toward innovation, a
30% drop since a previous study in 2002.
This could tie into another survey finding that more than 30% of business
leaders versus 17% of technology executives believe that 1/5 or more of the IT
budget is “wasted” each year (A.T.
It is widely held that approximately 70% of IT projects fail (Lewis). The true definition of what determines a failing project is a topic of debate, but regardless, this number is too high, and changes must be made. As firms strive for a competitive advantage in a diverse and changing marketplace the importance of aligning IT and business strategy has increased. Alignment enables a firm to maximize its IT investments and achieve harmony with its business strategies and plans, which will hopefully in turn lead to greater profitability (Papp). The importance of alignment may have increased, but the clarity of the issue has not. Furthermore, the alignment of business and IT may be the most important issue on the minds of CIOs in 2006, but if you ask ten different IT or business leaders how best to measure the value of IT investments you will likely get ten different responses (Luftman 2003: 8).
The alignment of these two business units calls for the breaking down of walls that may exist between departments. It is intriguing these two areas are known for the lack of communication amongst each other, but the myths that fly between units of what can and cannot be changed (Luftman 1996: 8) seem to flow unscathed.
Organizational and Strategic Changes
If an organization desires to improve alignment it must inevitably reexamine how it works and sometimes how it could work even better (Pratt). John N. Younker, Senior Vice President of The Institute, Inc., observes that, “Employees will invest more creative effort and have more personal commitment if they understand the objectives of their organization and if they are allowed some individual choice on how to contribute to them.” This can be exemplified through a basic direction statement that is shared with all employees. This statement will include such things as “where we are now” (current state) to “where we are going” (future state). In the midst of this link are such factors as vision, mission/purpose statement, strategic priorities, objectives, guiding principles, leadership practices, and business expectations (Band 167-8). This practice may appear elementary, yet one may be surprised by how many businesses fail to share this information with their employees or simply do not have this information at all. If employees are not first and foremost aware of a company or department’s vision then alignment between divisions becomes an even greater obstacle.
The strategic alignment maturity assessment model below allows a firm to initially see where it stands and how it can improve (Luftman 2003: 6).
There are many different approaches to IT/business alignment:
A.T. Kearney believes that current IT organization is not encouraged to meet organizational needs, stating that all assets are managed alike. Regardless of their technical maturity or incentive focus on lower cost A.T. Kearney believes IT must change both how it is governed and how it is organized. If technology is organized as a managed portfolio of assets, is based on maturity cycles which tie back to business value, and incentives that focus on that value then IT departments will focus more closely on what business cares about most. In addition, it is believed that further alignment will result in senior business leaders being more actively involved in soliciting the opinions of technology executives, and technology executives will be better positioned to deliver a realistic assessment of IT’s contribution the bottom line. A stronger boardroom presence that allows a company to implement valuable IT services more quickly could result. This study indicates that when board members are actives in setting IT direction and making key technology decisions, companies outperform their competitors in revenue growth (A.T. Kearney).
For example, FedEx has an IT committee working with its board. According to Information Week this committee focuses on strategic aspects of technology and reviews key IT-related aspects of corporate strategy, amongst other tasks. Robert Carter, FedEx’s CIO, and other senior IT managers meet with the committee quarterly, communicating with members one-on-one to stay abreast of current FedEx technology (A.T. Kearney).
Below is the A.T. Kearney model for the IT organizatin of today and tomorrow:
In an article by Robert Regis Hyle in the National Underwriter Company it was found that although each department has its own ideas on how to best run its business, companies have learned that these separate strategies rarely succeed. Amerisure has moved to a governance structure because they found that there were many projects that never met expectations, but that successful projects had a better split of IT and business staff working on them. Usually the initiatives that failed were driven solely by IT. To combat this issue Amerisure has developed eProject, a portfolio management system that prioritizes work and that will allow its investment decision board to be involved in all technology decisions (Hyle).
Selective Insurance has instituted both a formal and informal project management governance solution. The formal process is centered on an enterprise project management office, which takes a formal role in defining projects and approving projects. This allows them to create a consistent set of rules, guidelines, and procedures so that everyone knows the expectations from the beginning. In addition, every project has both a business and IT manager assigned to it to ensure joint accountability, while also creating a good commitment of resources. On the informal side, Jeffrey Kamrowski, senior vice president of the business services unit strongly encourages these managers to schedule fun activities between one another such as a Friday afternoon golf outing which gives them an opportunity to get to know each other (Hyle).
As managing director of PricewaterhouseCoopers David Holtzman believes the groups that are governed the best meet on a regular basis so that they are keenly aware of the business strategy. They will also set up a matrix to measure and score initiatives that have come into their governance group so they can make the best decisions (Hyle).
Employee benefits provider CIGNA leverages the alignment thought process through a group called Projects, Process, and Requirements (PPR). The function of this group is to define the details of the requirements underneath the capabilities. They are so engaged in the process that they are even looking at different streams of the business process before technology is fully prepared. Using the business modeling/business process perspective helps facilitate how a certain requirement will impact the entire process flow different project groups from overlapping on the same piece of code. Although rules and requirements are important to the governing process, Jeffrey Kamrowski notes that, “The biggest challenge is making sure you don’t create a rule-based process that interferes with the ability of two people to work together” (Hyle).
Raymond Papp of
1) Assessing the firm’s perspective using the alignment model.
2) Learning to recognize and leverage IT within your firm to maximize efficiency.
3) Incorporating financial measurements suitable for your particular industry when assessing alignment.
4) Giving everyone in the firm a clear and useful role to facilitate synergy between IT and the business.
5) Never stopping the assessment of alignment within the firm. It is a continuous, dynamic process requiring constant monitoring (Papp).
Immediately after being named global technology and fulfillment executive at Bank of America Barbara Desoer began applying her Six Sigma management expertise to the bank’s IT and fulfillment practices (Hoffman). Six Sigma focuses on continual process improvement (Turban 18). Together, the quality and productivity improvement teams use these new techniques to create a single applications development methodology. This greatly altered the IT organization’s system of applying multiple software development processes across its numerous businesses. Her long term plan is that the standardized methodology will reduce development time and help make development and project team members more transferable across business units. To put this plan into action Bank of America directed approximately 33,000 technology associates to work alongside business colleagues in the banking centers, call centers and other business units, to seek out improvement opportunities. This collaboration was evident in the reduction of screens necessary to open an online account from ten to four after listening to customers. The significance of this progress is exemplified even more in the fact that the banks 19.8 million online customers make more deposits and are 30% more profitable than its other customers. Jim Eckenrode, an analyst at Tower Group Inc., noted that other banks have applied Six Sigma to their IT operations but, “other banks don’t necessarily wed the technology and the processes together” like Bank of America does (Hoffman).
Mercury, through its BTO (business technology optimization) offers a technology solution to alignment. Recently purchased by Hewlett-Packard, Mercury uses a service-oriented architecture (SOA) and claims to accelerate time-to-market for new applications, drive down IT costs by making services highly reusable, and ensures business processes are built for change. In addition, Mercury states they are the only company that provides an integrated solution for SOA governance. The Garner Group has even estimated that by 2007 80% of IT initiatives will be service-oriented. Lastly, Mercury.com says, “To ensure SOA success, you need to take an integrated approach that increases the bonds between the stakeholders and leverages assets across the lifecycle” (Mercury). It must not be ignored that while a BTO system may prove extremely advantageous to a company, if it is not managed correctly, and if there is not a steady stream of communication concerning its operation then it can still fail in spite all the tools it may provide.
It must not be forgotten that although business and IT will work together in all aspects, it is the business objectives that should be identified first, and then both sides will consequently work of the project together (Dayasindhu). Everyone performing their own function exclusively and meeting in the middle will have no place in this new organizational structure. Although 90% of core business processes are automated through the power of technology, (HP) the IT department must not forget that business came long before the need for IT, and as stated before, without business IT would prove meaningless.
In his article entitled Crossing the Great IT/Business Divide, Anthony O’Donnell draws on his experience in the insurance industry to conclude that business analysts are perhaps the most integral resource in closing the gap between business and IT. There is a huge demand for these individuals who are in business, yet are also knowledgeable about technology and project disciplines. Complicating this matter even more is determining where these individuals fit within an organization. Internal factors such as a company’s culture and size must be brought into consideration, as well as external factors connected with the continuing evolution of technology (O'Donnell). If an individual devotes too much time and attention on business then the opportunity to learn about new technology may pass them by.
Paul McDonnell, senior vice
president and
Business analysts often evolve as former programmers who understand the technical side, but are interested in a new challenge. Serving as the link between technology and business, they can offer many viewpoints that those in business may not have being that their thought process often differs from that of less technical users. Thus, they can garner the respect of business people with their insight, but also gain the legitimacy of the IT staff being that they have worked in this environment and have already been exposed to many challenging issues.
Despite many studies and statistics stressing the importance of business and IT alignment many organizations still operate as separate entities. The majority of this paper focuses on this strategic alignment, but the authors of Principles and Models for Organizing the IT Function believe co-evolution is an even better goal. Believing that alignment is too static for todays fast pace, co-evolution allows IT functions and the rest of the business to develop iteratively over time. This is exemplified through firms that have invested in information technologies that allow customer access to their databases, as well as the capability to configure their orders, and observe the progress on their orders through the manufacturing and logistics process. Likewise, personalization through IT enables companies to develop better business capabilities to customize their relationship with customers. Thus, IT and business capabilities intertwine for effective customer relationship management. Thus, this relationship extends beyond the alignment model by emphasizing a two-way relationship between the development of business and IT capabilities (Agarwal). The suggestion of co-evolution may appear intriguing. However, it seems too open for interpretation. This is how business and IT became separate entities in the first place; business went its way and IT went the other way. Believing that they will simply evolve together would be great in a perfect world, but not the business world.
Whereas business and IT co-evolution could prove to be too unstructured, it is also important to be aware of becoming too structured by alignment. If outside business conditions change many are unable to adjust to these conditions because they do not fall within the alignment structure. A recent study of 238 midsize companies conducted by the Boston College's Carroll School of Management and the Center for Research on IT and Organizations at the University of California at Irvine, found that although in 70% of cases companies reduce costs or improve sales and customer service after increasing strategic alignment, the other 30% saw no improvement or even regressed further. Companies that face increasing competition, price wars, or frequent government regulation proved to be the most affected by alignment inflexibility. To be most effective the culture of a company has to be wired inflexibly to garner the best results when dealing with business change (Tallon). When a task is performed with a process it was designed for it will likely function efficiently. However, a completely different task will perform extremely ineffectively if not joined with its intended process (Digital 177).
Most importantly, members of both
business and IT need to remove their preconceived notions concerning the other
department. The following statement will
have no place in an aligned system. “There
will always be some level of dissatisfaction among business leaders because
they want things faster, better, and cheaper,” notes Bernard Tubiana, a
principle with Deloitte Consulting (Hyle). Old habits die hard, but it is
surprising, even shocking at how the smallest things can turn extremely
negative very quickly simply based on a remembrance of a past event or
experience. Business and IT alignment
will not only require a change in organizational structure, but also a change
in attitude. Instead of having a culture
of finger-pointing or responsibility fleeing a “culture of accountability”
(Tennant) must be established where a greater sense of pride is taken in
responsibility than ever before.
The need for the alignment of the business and IT departments through collaboration is necessary now more than ever. As the landscape has become more competitive, companies must be more responsive to change. There are many different methodologies and models to use as a guide for alignment. A company must consider the culture in which its workforce is comprised before making alignment moves, as some models allow for more flexibility than others. In addition, the attitudes of employees must be reevaluated as to not hamper further collaborative progress. Having a thorough understanding of both business and IT, business analysts are best equipped to facilitate alignment. The alignment of business and IT is necessary for departmental harmony, effective and efficient company operations, and a company’s future growth.
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*Title page picture from Performance Measurement Associates, Inc. http://www.performancemeasures.com/images/alignment.jpg
Organizational and Strategic Changes
