1. BA572 – Week # 4 Strategic Alignment of IT with Business Strategy
Jim Coakley, Ph.D.,
V.T. Raja, Ph.D.,
Oregon State University

2. Review

3. Transcending/Evolving Role of IT
Individual/Multiple Silos (Week # 1)
Operational Systems (e.g., ?)
Administrative Support Systems (e.g., ?)
Integration of Systems (Week # 2)
Seamless information flow across systems (e.g.,?)
Strategic role of IT (Weeks 3 and 4)
Enable/Support/Enhance chosen business strategies
Help shape new business strategies
Operational Systems (e.g., TPS)
Admin. Support Systems (MIS, ES, DSS)
Integration - ERP

4. Productivity Paradox
Is the evidence of evolving role of IT consistent with productivity gains at an aggregate level of the economy?
IT Productivity Paradox
75% of large-scale IT projects failed (e.g.,?)
Reasons?
Productivity Paradox: Failed large-scale IT projects: (e.g., Bank of America – Trust Accounting System; Greyhound Reservatioin/Scheduling system; Denver International Airport Baggage Tracking System)

5. “Implementation” failures
System:
Lack of user involvement!!!!!
Insufficient training of end-users
Inadequate infrastructure in place
Run over time and budget
Inadequate systems integration testing
Conversion problems -- data
People: natural resistance to change
Politics: IT can change basis of power

6. IT Project Success Key factors for successful project?
End-user involvement
Involvement does not guarantee success, but lack of involvement guarantees failure
User-designer communication gap
Top management support
Ensures funding and management support
Appropriate level of complexity and risk
Management of the implementation process
Alignment of IT with business strategy

7. Strategy? Strategy Formulation Strategy Implementation
Decisions pertaining to competitive, product-market choices
Strategy Implementation
Choices that pertain to the structure and capabilities of the organization to execute its product-market choices
Strategy - Decisions pertaining to different components of business model (Afuah – Tucci) and the relationship across components

8. Conceptual Framework from Afuah-Tucci
Key Drivers of Value? Who are Customers? What Activities Needed to Deliver Value? Distinctiveness?
Key
Environment
Internet IT
Performance
Business Model
What Profit Site? What Customer Value? Which Customers? How Price Value? Who to Charge for Value? How Provide Value? How Sustain Value?

9. Components of a Business Model
Profit Site
Location in a value configuration vis-à-vis customers, suppliers, rivals, potential new entrants, complementors and substitutes
Look at value configuration, competitive forces, complementary assets model

10. Components of a Business Model – cont’d
Value & Scope
Cost vs Differentiation
Broad vs Focus
Commerce Strategy
B2C
B2B
C2B
C2C or P2P
B2E

11. Components of a Business Model – cont’d
Pricing Strategy
Menu/Fixed
1v1 Bargaining
1vM Auction
Mv1 Reverse Auction
Barter – exchange good and services

12. Components of a Business Model – cont’d
Source of Revenue
Commission
Advertising
Markup
Production (direct to consumer)
Software
Referral
Subscription
Fee-for-Service

13. Strategic Fit Assumptions: Strategic fit is inherently dynamic
Economic performance is directly related to:
the ability of management to create a strategic fit
between the position of an organization in the competitive product-market arena and
the design of an appropriate administrative structure to support its execution
Strategic fit is inherently dynamic
Strategic Alignment is not an event – but a process of continuous adaptation and change
Strategic choices in the external and internal domains should be consistent
The choices made by one organization (if fundamentally strategic), will over time evoke imitative actions, which necessitate subsequent responses.

14. IT as a Critical Lever
A critical lever for attaining this dynamic capability is the organizational capabilities to:
Conceptualize and direct strategic role/management of IT
Leverage 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
Need for a framework for conceptualizing and directing strategic role/management of IT
Strategic Alignment Model
(Henderson and Venkatraman)

15. Role of IT in Business Strategy
Jim Collins: “Good to Great: Why Some Companies Make the Leap … and Others Don’t”
Conducted 84 interviews across 11 companies that leaped from mediocrity to greatness (returns 3 times general stock market)
80% of executives did not mention technology as one of top five factors in the companies transformation
Yet every company was considered a pioneer in the use of information technology to support their business

16. Role of IT in Business Strategy
Great companies:
First build a culture of discipline (values)
Create a business model based on:
What they can be great at
A viable economic engine
Their core values
Then, use information technology to enhance those variables – not to replace them

17. Observed characteristics of well-aligned companies (2004 Survey by Deloitte Consulting LLP )
Executive agreement on the role of IT – where and how IT adds value
Executive agreement on the priorities and focus areas for IT
Follow through and delivery on IT expectations

18. 2004 Survey by Deloitte Consulting LLP (Advertising Supplement in CIO Magazine)

19. Deloitte Consulting measured alignment of:
IT operational goals to corporate business goals
IT spending with corporate priorities
IT operations to IT strategy
IT org/gov with corporate org/gov
Business Strategy Scope Competencies Governance
IT Strategy Scope Competencies Governance
Deloitte Consulting – 2004 Survey
Strategic Alignment Model (SAM)
Business Infrastructure Structure Processes Skills
IT Infrastructure Infrastructure Processes Skills

20. 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

21. 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.

22. 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?

23. 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.

24. 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

25. 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 ?

26. 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

27. 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 ?

28. How does Strategic Alignment model differ from Traditional Linkage?
Introduces IT external domain
Management challenge:
Selection of appropriate alignment perspectives
(not just ensuring IT is linked with business requirements)
Diverse roles of business and IT executives
Criteria for Performance Assessment
Business Executives
Business visionary, Technology visionary, Prioritizer
IT Executives
Resource optimizer, Technology architect, Change Catalyst, Executive Leadership
Criteria for Performance Assessment – Cost Center, Technology Leadership (Benchmarking Approach),
Profit Center (Market share, Growth, New Production), Investment/Service Center

29. Management Implications
Link between Business Strategy and IT Infrastructure can only derive its logic within the context of:
the two alignment perspectives that have business strategy as the driver (Strategy Execution and Technology Transformation)
Direct link between IT Strategy and IT Infrastructure has no straightforward logic
If direct link is forced – significant probability of failure of investments made to transfer business processes, because of an inability to provide the information necessary to execute the processes.

30. 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

31. Can we put these models together?
Profit Site Source of Revenue Commerce Model
Value/Scope
Pricing Strategy

32. Environment Competitive Forces & Complementary Assets
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

33. Mar, 2001 What was going on in the economy?
All time high of 11,723 in Jan 2000
Hovering above 11,000 in early 2001
What were the major IT issues?
Properties/Limitations of Transactions over the Internet
“Strategy and the Internet”
What was Porter’s major message?

34. Strategy and the Internet (Porter)
We need to “…see the internet for what it is: an enabling technology…” (pg 64)
The “…greatest impact [of the internet] has been to enable the reconfiguration of existing industries that had been constrained by high costs for communicating, gathering information, or accomplishing transactions.” (pg 66)
“The great paradox of the Internet is that its [benefits] also make it more difficult for companies to capture those benefits as profits.” (pg 66)

36. Principles for Internet Strategy (Porter) Strategic Positioning
Start with the right goal
Deliver a unique value proposition
Develop a distinctive value chain configuration
Make trade-offs for robust strategy
Fit all elements of company to the strategy
Maintain continuity of direction
Right goal: Superior long-term ROI. (Price > Cost); Volume and market share leadership do not necessarily imply profits.
Unique value proposition: Strategy is not a quest for the universally best way of competing (others would then copy); Strategy is not an effort to be all things to every customer.
Distinctive Value Configuration: Tailored to its unique value proposition.
Trade-offs: Abandon or forego some product features, services, or activities – maintain distinctiveness – do not be all things to all customers.
Fit – Internal and External Linkages (Company’s activities – mutually reinforcing); It is harder to imitate “fit”. Rivals can copy one activity or product feature fairly easily, but will have much more difficulty duplicating a whole system of competing.
Continuity of direction – Frequent corporate “reinvention” is usually a sign of poor strategic thinking and a route to mediocrity. Continuous improvement is a necessity, but it must always be guided by a strategic direction.