Strategic Alignment Model Source: Henderson and Venkataraman V.T. Raja, Ph.D., College of Business Oregon State University

Strategic Alignment Model Framework for aligning IT with business strategy Framework for conceptualizing and directing strategic role/management of IT Framework for leveraging IT on a continuous basis to achieve sustainable competitive advantage No single IT application – however sophisticated and state of the art it may be – could deliver a sustained competitive advantage

Strategic Alignment Model External and Internal Domains Four Domains Two internal and two external domains External domains also referred to as Strategy Domains (Business Strategy Domain and IT Strategy Domain) Internal domains also known as Infrastructure Domains (Business Infrastructure and IT Infrastructure Domains) No single IT application – however sophisticated and state of the art it may be – could deliver a sustained competitive advantage

Strategic Alignment Model Four Domains of Strategic Choice Need to recognize how decisions in one domain affects the other domains Scope Competencies Governance Scope Competencies Governance Strategy (External) Strategic Fit Structure Processes Skills Infrastructure Processes Skills Infrastructure (Internal) Business Information Technology Functional Integration

Strategy Domains Business IT Scope: What business are you in? Distinctive Competencies: What do you do well to distinguish yourself from your competitors? Governance: What external business relationships do you depend on? IT Scope: What information technologies support or create strategic business opportunities? IT Competencies: What characteristics of IT create business advantage? IT Governance: What external relationships does IT depend on (outsourcing, vendors, etc.) IT Strategy: Example: Primis (McGraw-Hill Inc.) custom edition of textbooks IT Scope: Electronic Imaging Technology Systemic Competence: Superior level of clarity of imaging (an attribute of IT strategy) to guarantee high-quality printing (an attribute of business strategy) and flexible binding capability (IT strategy matches with Business Strategy); Overall – supports business need of offering customized textbook to interested customers IT Governance: Joint ventures and long-term agreements with Eastman Kodak and R.R. Donnelley & Sons Co., to obtain the requisite competencies.

Infrastructure Domains Business Structure: Organizational structure Processes: What are key business processes? Skills: What HR needed to accomplish specific competencies? IT Infrastructure: Hardware, Software, Database, Networks Processes: Development, Maintenance, Operations Skills: What skills required to maintain architecture and execute the processes?

How to use the Strategic Alignment Model Building Blocks: Strategic Fit Functional Integration and Cross-Domain Relationship Identify your strongest and weakest domain Need to develop communication with and increase understanding of weaker domains Understand relationship between domains when change in strategy occurs Building blocks: Strategic Fit (Between external business domain and internal business domain – same for IT domains); Functional Integration – Need to integrate business and IT domains. SAM calls for cross-domain relationships. (Effective management of IT requires a balance among the choices made across all four domains). Some examples of some dominant cross-domain relationships are discussed next.

Strategy Execution IT is an Expense Business Strategy is the driver of both Business and IT Infrastructures Priority is to improve business processes, which places focus on changing business infrastructure. IT focus is on application development, driven by need to support business infrastructure Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Top Mgmt’s Role: Strategy Formulator; IT Mgmt’s Role: Strategy Implementor; Performance measure based on financial parameters reflecting a cost center focus. Risk: IT reacts to support business processes – not viewed as a strategic resource E.g. Use automation – Marginal benefits for business due to IT Business Infrastructure Structure Processes Skills IT Infrastructure Infrastructure Processes Skills

Technology Transformation Business Strategy Drives Need to Develop IT Strategy Assume: Business strategy and infrastructure are aligned IT strategy needs to define technologies integral to business strategy Focus is aligning IT strategy and IT infrastructure Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Top Mgmt’s Role: Technology visionary; IT Mgmt’s Role: Technology Architect; Performance Metric: Based on technology leadership – often utilizing a bench-marking approach Risks: IT is not integrated – IT infrastructure lags and does not adequately support business infrastructure Example: American Express Travel Related Services Co., Inc. Bus Strategy: Provide quick approval of purchased made by charge card (w/o any preset spending limit) Provide copies of receipts to cardholders Technology Strategy: Scope/Competenices: Expert Systems, Optical Scanning, Storage and Laser-Printing System; Governance: Make vs. Build (Build expert systems; Purchase Optical Scanning, Storage and Printing Systems) Business Infrastructure Structure Processes Skills IT Infrastructure Infrastructure Processes Skills ?

Service Level Providing IT services Information is a core product or service Business strategy and IT strategy may be aligned Focus is to enable business infrastructure by fitting IT infrastructure to IT strategy Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? ? Top Mgmt’s Role – Prioritizer (Articulate how best to allocate the scarce resources both within the firm and the IT marketplace) IT Mgmt’s Role – Leadership – Make the internal service business succeed within the operating guidelines from top management. Performance Measure – Based on customer satisfaction obtained with qualitative and quantitative measurements using internal and external benchmarking (end-user-needs surveying, service-level contracting) Risks: May lose sight of business strategy; IT viewed as a service function independent of business strategy. Business Infrastructure Structure Processes Skills IT Infrastructure Infrastructure Processes Skills

Competitive Potential IT Enables Strategic Opportunities Assume: IT strategy and infrastructure are aligned IT strategy necessary to build distinctive core competency Business infrastructure needs to evolve to fit new business opportunities enabled by IT Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Top Mgmt’s Role: Business Visionary – How emerging IT would impact business strategy. IT Mgmt’s Role: Catalyst – Identifies and interprets trends in the IT environments to assist the business managers to understand potential effects of IT on business. Performance Criteria – Based on business leadership with qualitative and quantitative measurements pertaining to product leadership such as market share, growth, or new product introduction. Risk: Large IT investments; Change organizational structure to address info flow problems; Re-train employees with new IT. Examples: Nike – ERP – New product introduction (18 months before SAP; After SAP – expected to be around 3 months) Baxter Health Care – Exploitation of its IT position - Software service to healthcare marketplace – Joint venture with IBM (Spectrum project) Business Infrastructure Structure Processes Skills IT Infrastructure Infrastructure Processes Skills ?

Lessons from the Strategic Alignment Model Need for IT external and internal domains Understand strong/weak domains and cross-domain relationships Different roles of business and IT executives Re-conceptualize assessment of the performance of IT Which alignment perspective is best? If there is one universally superior perspective – would the strategic benefit be sustainable? Maintaining alignment is a process (inherent dynamic nature) Focus of fit will change as strategies evolve

Environment Competitive Forces Model Business Strategy Scope Competencies Governance IT Strategy Scope Competencies Governance With the advent of Internet – Strategy and Competitive Advantage have given way to some new terminology at dot-coms; Porter says these terminology are destructive in some sense e.g., Business Models – Loose conception of how a company does business and generate revenue (Exceedingly low bar to set for building a company). Generating revenue is a far cry from true economic value, and no business model can be evaluated independently of industry structure. E-business and E-Strategy – such terms – encourage managers to view their Internet operations in isolation from the rest of the business – could lead to simplistic approaches to competing using the Internet – and increase the pressure for competitive imitation. Established companies fail to integrate the Internet into their proven strategies and thus never harness their most important advantages. Business Infrastructure Structure Processes Skills IT Infrastructure Infrastructure Processes Skills