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Relationship between Business Strategy and IT Strategy

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Published: Wed, 28 Feb 2018

BUSINESS-IT ALIGNMENT (BITA)

The relationship between Business strategy and IT strategy and the influence of organisation culture on this strategic alignment in Saudi firms will form the basis of the research in this research. As such, the literature reviewed here will survey major research and practice in the business-IT strategic alignment domain for the purpose of deriving a research framework, or model, of business-IT strategic alignment that will unite the key principles contained within the literature. The intention is to develop a model simple enough for application that will provide a practical tool both for management and IT practitioners.

2.1 BITA – A CHRONLOGICAL HISTORY

Study on the strategic alignment concept will soon be reaching a quarter of a decade’s worth of knowledge. Henderson & Sifonis (1988) began studying this notion during the late 80’s when ”alignment emerged from a focus on strategic business planning and long-range IT planning… where IT plans were created in support of corporate strategies” Chan & Reich (2007, p. 298). Nevertheless, strategic alignment has retained its interest and value in the business and IT communities and is still a popular topic today for organisations; perhaps even more so as technological advancement continues to dominate the exchange of information. Not surprisingly, its evolution has followed closely the developmental progress of IT itself which began with the operational era continuing through the re-engineering viewpoint and the new economy as figure 2.1 illustrates:

The initial phase, the operational era, was concerned primarily with the operations that an organisation performed and focused on setting up mainframes, managing networks of PCs, and backing up organisational data. IT provided the nuts and bolts to facilitate automation of back-office functions through the development of software and had only a supportive role. Strategic alignment was thus viewed merely as a supporting act for every-day operations with its software applications.

The second phase, re-engineering, arose from the increasing trend toward dependency on the automation of business processes by IT which not only offered back-office functions support but the promise of total automation within an organization as a whole through IT software applications. At this stage, IT was still viewed only as a supportive tool with no representation in the business end of an organisation. For example, business managers expressed their system needs which the IT department embraced and went on to develop and deploy a new software application – in isolation. These early strategic alignment projects were not always successful. It was discovered that the development of software (with embedded processes) for automation of a business function was no guarantee of improvement over its earlier manual operation, indeed it could end up being more time-consuming and therefore less efficient as operators were not necessarily au fait with the application. There was not a full understanding of what IT could do and how it could enhance a company’s position beyond speeding up communications and thereby creating more ‘time’ for production or interfacing. A ‘Them and Us’ atmosphere prevailed with the ‘techies’ in a separate world to the mangers or drivers of the business, neither fully understanding the others needs [elements that are also considered further in the organisation culture aspect of this research and dealt with in the next chapter]. In the 1990s, Baets’ study of European banks (Baets, 1996) supported the findings of Vitale and colleagues ten years earlier (Vitale et al., 1986) that knowledge of IT had to be on a par with expert business knowledge for the two to create any comprehension and thereby effective application of strategic alignment in organisations.

The third phase, new economy, saw IT commanding greater importance and status as organisations began to emerge that were embracing e-commerce. The demands of the new e-business projects required involvement of IT representatives in their management and strategic planning. The implementation of Internet technologies to augment business processes for productivity or profitability improvements brought the role of IT into the spotlight, according it recognition and strategic responsibility. Along with the newly elevated status of the old IT department there was a greater familiarity with technology and its capabilities and the prejudice that had previously scorned the ‘nerds’ dissipated somewhat as managers and personnel became more knowledgeable and the IT personnel more essential beyond a lab coat and a screwdriver [cf: artifacts causing division, Schein (1992) and Trompenaars (1997) in chapter 3]. Despite the current global economic crisis and the demise of the new economy IT continues to assume new responsibilities and organisations have even more need for strategic alignment projects. An IT department in 2010 must manage relations with partners and bear business responsibilities concerned with the development and customisation of software that will improve how a business functions; practice effective project management to control costs and maximise efficiency and ensure that the introduction of any new hardware or software support operations and infrastructure, “… maintaining the crucial corporate data that helps managers throughout the enterprise to make intelligent and informed decisions” Hoque (2002, p. 31). Kearns & Lederer, (2003) and Seggie et al. (2006) agree that strategic alignment is a means to gain competitive advantage and Sabherwal & Chan (2001), Wagner et al. (2005) and Zhou et al. (2008) further add that it improves organisational performance.

2.2 DEFINING BITA

Determining a conclusive definition for alignment is as challenging as its function and application. There are many perspectives and multiple definitions including in chronological order: strategic alignment (Henderson and Venkatraman, 1993); harmony (Luftman, 1996); fit (Porter, 1996); bridge (Ciborra, 1997); integration (Weill and Broadbend, 1988); fusion (Smaczny, 2001); IS alignment (Chan et al., 2006; Benbya and McKelvey, 2006) business-IT alignment (Luftman, 2007); and IT alignment (Chan, 2007). It is understandable that there is such diversity as definitions depend on our understanding of language. The semantics involved are precarious because the new technologies are often described in technical terms and applying simplistic synonyms to explain the intention of alignment in the context of business IT in terminology that is understood without associated jargon is very difficult. Overall, the definitions offered, though they have nuances of difference between them, do relate to the improvement of organisational capability through technology.

Broadbent and Weill’s (1993) early definition, purports that it is the degree to which information strategies support, stimulate and/or enable any business strategies. A later definition offered by Reich and Benbasat (1996) asserts much the same but frames it in terms of the missions of the IT and business objectives and plans on both sides. Luftman (2000) was the first to introduce the element of evolution into the definition and argued that it required strength [as the key element] from leadership, senior management and working relationships, combined with a complete understanding of the business and technical environments, fitting prioritisation, mutual trust, and of course, effective communication. Hirschheim and Sabherwal’s (2001) definition included the idea of a reciprocal arrangement as fundamental to its meaning and stated that alignment was the achieved between strategy and supporting structures that allowed both IS (information systems) and business to function and communicate responsively each way to one another.

Most accepted definitions do highlight the alignment dichotomy described by Kearns and Lederer, (2000), where the argument is that the IS plan ought to align with the business plan (ISP-BP) and vice versa (BP-ISP) the business plan ought to align with the IS plan. Each perspective serves to increase the understanding of IT at organisational level and assist the prioritisation of IT projects. Reich and Benbasat (1996) were protagonists of the ISP-BP model, which they declared signified, IS management’s comprehension of the business strategy. Whereas Bensaou and Earl (1998) contrarily preferred the BP-ISP alignment model as they believed it assumed a greater understanding on the part of the business’ comprehension of the IT aspects and thus the plan and the resources would ally more effectively together as a result of this knowledge, understanding and commitment. These elements are believed to be enablers of alignment (Luftman et al., 1999). In the definitions offered some view alignment as a specific happening or event and others regard it is an ongoing process.

Duffy (2001) saw BITA as a process of achieving competitive advantage through a developed and sustained business and IT symbiosis. Maes et al. (2000) claimed BITA to be a continuous and continual process that involved management and design sub-processes with conscious and coherent interrelation of all elements and mechanisms within the business/IT relationship offering contribution to the ongoing performance of the organisation. Moody’s (2003) definition saw BITA as a form of comprehensive resources management (people/ technology/ outside resources) that provides a set of IT services and capabilities that are in line with the business needs and priorities. And Senn (2003) was assured that each action executed by IT individuals was to focus on the creation and delivery of shareholder/stakeholder value through supporting business operations and/or achieving business goals.

2.3 BITA PERSPECTIVES AND DIMENSIONS

With the diversity of definitions offered to explain the meaning of the strategic alignment concept, as outlined in the previous section, there is a need to further explore the differences to discover why there is such variety. Part of the explanation may be that as the concept has evolved it has been closely linked to the evolution of technological capabilities. Attitudes have changed as organisations have adopted new technologies and personnel have become more familiar with their potential and their operation. These dynamics and the evolution of strategic alignment are reflected in the number of conceptualisations and their definitions will be analysed in the context of the differing perspectives afforded to them. BITA with regard to its perception as a strategy, an event, a continuous process, a performance indicator, an assessment tool, a social influence and as an operation will be briefly outlined below to expand on the definitions in the literature from their different dimensions.

2.3.1 BITA AS A STRATEGY

It has been a tradition for literature to refer to Business-IT alignment as ‘strategic alignment’. Considering it in these terms frames it as an intellectual notion rather than something more concrete or practical and as such it can be high-jacked to represent whatever strategy suits the organisation that is considering alignment. There is no harm in referencing alignment in this manner for it allows debate and therefore change, essential for evolution and adopting a ‘strategy’ suitable to the structure, culture and level of alignment required. By referring to it in this way however, the literature suggests that strategic alignment is dependent on the fit between IT strategy and business strategy, and on how the IS plans are established to support such a fit (Teo and King, 1997). Many authors in the strategic alignment field approach alignment purely at the strategic level, e.g. Baets (1992), Broadbent and Weill (1993), Chan et al. (1997), and Luftman (2003). At the core of their conceptualisations is the notion that business strategy itself must first be analysed and only thereafter be used to determine a complementary IT strategy. In this scenario the business strategy is paramount and the IT strategy contribution secondary, it is a means to an end rather than a means in its own right. However, despite the alignment between business strategy and IT strategy – where emphasis is laid on defining IS strategy plans (Benbya and Mckelvey, 2006) – strategic alignment continues to be problematical in many organisations. Thus, reaching an agreed definition that details IS strategic plans is important for strategic alignment; however, is it not enough on its own for the achievement of such alignment (van der Zee and de Jong, 1999).

2.3.2 STRUCTURAL TOPOLOGY AFFECTING BITA

The literature often takes for granted the strategic element of the concept and delves further into its implications for organisations, concentrating on the behaviour and nature of BITA – what it does when you introduce it [and also is a strong feature of the organisational culture types discussed in the following chapter]. This depends largely on what type of a structure into which it is introduced. A formal structure, an informal structure or a hybrid structure, each having its own merits and each being capable of effective function when the circumstances and environment are conducive to the choice made (Brown and Magill, 1994). Against their three identified structures, Earl (1989) identified five potentially suitable structures: centralized, business unit, business venture, decentralised, and federal. Tavakolian (1989) found a direct correlation between competitive and conservative strategies within an environment and the corresponding decentralised or centralised IT structures evident in an organisation and this finding is supported to some extent by Bergeron et al. (2001) with the caveat that it is not solely the complexity of structure that impacts performance but that other factors are influential too. Chan’s (2001) view is that informal structure, “…relationship-based structures that transcend the formal division of labour and coordination of tasks…” (Chan, 2001, p67) can be just as effective as formal structure with the human element rather than intellectualised models and processes driving alignment, often with more impact and success than a formal arrangement.

Structure, therefore can add a new dimension to the perspective of alignment as it places it in a setting that will impose its own constraints on the practice and execution of alignment exercises and ideals.

2.3.3 BITA AS AN END IN ITSELF

For some authors it alignment doesn’t seem to ‘do’ anything rather it is a business unit that lacks the dynamics others see in it. The implication is that it is something that is ‘brought in’ like an object concrete and physical and recognised by its static end state where some sort of equilibrium is achieved between the IT and business sides in an organisation. In the previous section, some of the definitions only present strategic alignment as an outcome achieved through the employment and adoption of different models, techniques and processes (Ortiz, 2003). Broadbent and Weill (1993), Chan et al. (1997), Luftman (2003) and Reich and Benbasat (1996), also see strategic alignment as something to be arrived at, a destination that is terminated when an optimal situation has been achieved. This may be a misunderstanding of the full meaning as the attitude that having strategic alignment – the business married with the technology required for effective fulfillment of objectives – cannot stand alone and it would be naïve to believe that BITA was a panacea for all business problems so perhaps the authors see it as an optimal achievement when all the other factors, or perspectives, also come into play to make BITA a worthwhile ‘thing’ in itself.

2.3.4 BITA AS A CONTINUING PROCESS

If a business is static it will stagnate and if a business wishes to grow, like IT, it must always continue to evolve through a naturally occurring dynamics that are integral to the implementation of policies such as strategic alignment. Baets (1996), Luftman et al. (1999), and Rondinelli (2001) agree that these dynamics require constant monitoring and appropriate adjustment. Therefore, strategic alignment is not something attainable but something constantly in development, as it is variously described by Henderson and Venkatraman (1993), Baets 1996, Maes et al. (2000), Duffy (2001), Moody (2003), and Senn (2004). “An issue that has remained relatively unchallenged and unquestioned is how to align IT that is relatively fixed once implemented in an organization, with a business strategy and associated information requirements that are constantly in need of adjustment” Galliers (2007, p. 228).

Even within this perspective there are two schools of thought; the classical school of thought with emphasis on contingency adaptations and the ‘processual’ approach (Whittington, 1993) that emphasises the importance of addressing internal and power issues, particularly how cultural elements influence the formal elements of rationality and the decision process in strategic alignment and rejects IT as merely an adaptation but gives it greater weight as a resource. Furthermore, practitioners are being advised to adopt a view of strategic alignment as a continual process. In Pearlman’s (2004) article advice to CIO’s, in summary, is that they should communicate, demonstrate, lead, collaborate, govern and build if they wish to achieve alignment.

2.3.5 BITA FOR PERFORMANCE INDICATION

It is the consideration of several authors that strategic alignment is not only a process but also a tool whereby they can reflect on the business value that organisations might possess, or not. In studies analysed the relationship between strategic alignment and competitive advantage or organisational performance were tracked, (Venkatraman, 1989; Sabherwal and Chan, 2001; Kearns and Lederer, 2003; Wagner, 2005; Seggie et al., 2006; Zhou, 2008). Tallon and Kraemer (2003) were responsible for the additional concept of business value being included as an element to the performance indication point of view of strategic alignment and analyse business value by relating it to organisational IT goals and measuring the IT return of investment from a strategic alignment viewpoint.

2.3.6 ASSESSMENT USING BITA

In response to the question: `how do organisations know how good their strategic alignment is?’ different authors have developed Maturity Models (MMs) (de Koning and der Mark, 2002; Duffy, 2001; Luftman, 2003; van der Raadt et al., 2005). MMs describe the development of a specific domain over time. This perspective is in itself a more mature outlook than other perspectives as it has to consider many of the dynamics before being able to construct an effective strategic alignment. Because of the in-built review and evaluation required for this perspective it has to look at all aspects that the alignment may affect. Researchwork and systems are subject to assessment and revision through these maturity models and their monitoring. On the basis of the assessments of those MMs, organisations can fine tune and calibrate their strategic alignment:

  • Identify any alignment-related aspects/processes improvements required to obtain a higher level of strategic alignment maturity.
  • Initiate any change processes to ensure that the identified improvements eventuate.

In much the same way, acceptance of the cyclical nature of strategic alignment as posited by Burn’s (1996) ‘lead-lag’ model implies assessment in response to intermittent predictable and unpredictable changes as does the ‘punctuated equilibrium’ model of Sabherwal et al. (2001) where interruptions to stability demand a fresh look at the long term plan and goals of strategic alignment.

2.3.7 BITA AS A SOCIAL INFLUENCE

If an organisation intends to work toward achieving strategic alignment it will necessitate communication that will involve negotiation, collaboration and mutual understanding – elements not always present a specific organisational structure or culture. This communication can blur the boundaries of traditional or conventional approaches and therefore becomes a driving force behind social attitudes and perceptions. Chan (2002) and Huang and Hu (2007) uphold this view that maintaining effective communication in an organisation will impact on corporate strategic alignment culture. Concord must be developed for effective channels of communication, transparency in the exchange of knowledge and sharing of learning (Hoque, 2002; Daneva and Hu, 2007), and the use of informal communication is just as important a factor for adjustment and control (Mintzberg, 1993; Chan, 2002; vander Raadt et al., 2005), to generate an atmosphere of trust and an effective response to business needs from an IT perspective. Reich and Benbasats (2000) study further confirms that strategic alignment is more likely to succeed when business and IT executives have an [importantly] expressed and [understood] shared common vision of IT’s contribution.

2.3.8 BITA AND OPERATIONS

Strategic alignment [when it is all-encompassing and embraced by all as part of an organisational culture] necessarily involves organisational issues of communication, structure and, particularly, coordination processes that are operational to the business in specifically performed actions (Wieringa, 2008). Operational strategic alignment consists of aligning the operational activities of IT and business people with each other so that optimal IT support for business requirements is achieved. In this context, Peak and Guynes (2003) put the onus of success on the IT side of the equation, though it does imply some reciprocity in the initial communication of ‘quality’ requirements and they state that strategic alignment will only be attained when an organisation’s IT staff can deliver quality information and quality IT products and services to the business side.

2.4 BITA MODELS

2.4.1 MIT90S FRAMEWORK (1991)

During the 1980s, research conducted at the world renowned MIT (Massachusetts Institute of Technology) initiated interest in the academic community to the potential of the strategic power of IT. In the attempt to exploit the possibilities revealed in the model from the research it was suggested that radical innovation involving IT investment could carry substantial reward if key elements of strategy, structure, technology, management processes and individuals and their roles were kept in alignment (Morton, 1991).

Organisation can be visualised as a set of five forces in dynamic equilibrium subject to external influences from the technological environment and the socio-economic environment. In this view, a core task of general management is to ensure that all five ‘forces’ (represented by the boxes), can flow without restriction or impediment in order to achieve the organisation’s goals and objectives.

With management at the centre of the model its role is central too. Though some areas might not necessarily be in direct contact with each other they are connected via the management process which plays the principal role and ensures organisational response to shifts in demands from the external variables.

2.4.2 THE HENDERSON AND VENKATRAMAN STRATEGIC ALIGNMENT MODEL (1993)

Henderson & Venkatraman’s (1993) strategic model (Figure 2.3) is a widely used four-part illustration favoured by many researchers and organisations for the assessment of the level of alignment in a company.

Each of the four parts [quarters] contain three distinct and individuals elements which, when collectively analysed, can be used to define each quarter operationally. These twelve elements- further expanded in Table 1 are used to establish the level and type of alignment within a corporation (Henderson & Venkatraman, 1993; Papp, 1995).

Table 1 Components of the Strategic Alignment Model

Within the model it can be seen how external influences may affect change on either processes [lower sectors] or strategies [upper sectors]. A vertical link couples the upper and lowers sectors and shows the relationship between strategic fit to accommodate strategy with infrastructure. A horizontal link for functional integration shows how IT strategies must adapt as business strategies change, and displays the dependence and required response of each sector upon another’s adaptations particularly in relation to skills and operation. Giving focus to three of the four quarters of the model at a given time can permit a simultaneous address to both strategic fit and functional integration (Papp, 1995; Luftman et al., 1999).

The SAM (Strategic Alignment Model) model has proven empirical authenticity and has provided valid conceptual and practical value (Goedvolk et al,. 1997; Avison et al., 2004). Nevertheless, it is subject to confines, eg, the applicability of the SAM model may vary depending on the IT-intensity of an industry and the assumptions expounded might not be relevant to the circumstances (Burn and Szeto, 2000).

As mentioned, the model does have recognition and a number of scholars have further elaborated on it (e.g., Luftman et al., 1993). Goedvolk et al.’s (1997) extension of the SAM model gave greater focus to technical and architectural attributes. Avison et al.’s (2004) addition to the SAM model was able to provide practitioners and academics with further practical ways to attain alignment in their advocacy of examining projects retrospectively to determine alignment. This form of alignment monitoring, can allow pre-emption in a change in strategy and implementation of a new alignment perspective by re-allocation of project resources.

The SAM model inspired Maes et al. (2000) to produce a framework that incorporates even more layers pertinent to function and strategy where information providers are separated from the systems providing information in a new information domain representing knowledge, [and exchange of information through] communication and coordination. Their third dimension addresses specific sub-architecture areas.

2.4.3 IS CAPABILITY AND ORGANISATIONAL PERFORMANCE MODEL (2004)

Peppard and Ward’s model (2004) shows IS capability at the core of everything, inherently affecting competencies and emanating an influence on all areas that interrelate [business strategy/business operations/IT operations and services/IS/IT strategy] and impact upon the organisational performance. Such focus on the importance of this core element demonstrates the value IS capabilities can create and is therefore an organisation-wide responsibility that cannot be delegated to the IS function alone (Peppard et al., 2000). Peppard and Ward (2004) later asserted that though an organisation might envisage an IT based innovative strategy, it will be their IS capabilities that permit such a vision to come to fruition.

2.4.4 CO-EVOLUTIONARY IS ALIGNMENT (2006)

By 2006 the model suggested by Benbya and McKelvey (2006) through its graphic presentation appears a more fluid representation suggesting, even visually, that there is more of a flow between relationships in alignment. It still addresses the need to analyse relationships between business and IT (horizontal IS alignment) but introduces a need to merge the views at different levels [strategic/operational/individual] of analysis (vertical IS alignment) through shared understanding and communication. The co-evolutionary IS alignment perspective conveys the necessity for mutual adaptation within a dynamic interplay of co-evolving elements. Co-evolution does not necessarily seek harmony between the elements but a respect for their position and the innovation that may result from the circumstances and environments in which they function.

2.5 ASSESSMENT APPROACHES OF BITA

In this section MMs (maturity models) are referred to that have been developed for the assessment of BITA.

2.5.1 DUFFY’S MM (2001)

Duffy’s (2001) MM is founded on the principle that a dependable, mutually compatible partnership between IT and business executives is elementary in order to achieve a worthwhile BITA. Without this premise there cannot be a successful desired outcome. Accepting that there is a level of interdependence between IT and business objectives, any schism or division between IT and non-IT areas would sabotage any efforts to establish alignment. This model is arranged about a series of key success drivers (the domains: human resources organisation and management/innovation and renewal strategy/IT/business architecture/IT/business partnership/operational excellence/ROI strategy management) which are operationalised in KPIs (key performance indicators) that each contain five contributory factors – aspects designed to address explicit and significant questions within the KPI where it is included. The six domains are briefly explained below:

  • Human resources organisation and management. In this domain reference is made to an organisation’s personnel and emphasis is given to the importance of workforce recruitment, retention and management by an organisation.
  • Innovation and renewal strategy. The focus here is how innovative an organisation is with an emphasis on currency and validity having a bearing upon understanding when renewal is required to processes and capabilities in an organisation.
  • IT/business architecture. This domain is concerned with the relationship and interaction of entities involved in the information and applications in the business environment of an organisation.
  • IT/business partnership. This domain reflects how the recent upgrading of the role of the IT function affects an organisation “Technology is critical to business success and this co-dependency drives the need for the IT and non-IT executives to pursue a win/win relationship” Duffy (2003, p. 4).
  • Operational excellence. This domain deals with the performance outcomes of the organisation. Duffy recognises that operational excellence can only be achieved if an organisation can recognise the value of ideals embedded in learning and partnerships, and can respond to market demands promptly.
  • ROI strategy and management. This domain investigates the importance of the metrics and processes required for efficient and effective financial management within organisations and accepting IT costs and benefits as having parity with business ones.

Duffy’s six domains address the “IT and non-IT” assertion as well as certain strategic elements within an organisation but there are no explicitly stated maturity levels for them. Instead, Duffy merges the six domains of the model into four BITA scenarios where organisations fall into the following categories: “uneasy alliance”, “supplier/consumer relationship”, “co-dependence/grudging respect”, and “united we succeed, divided we fail”. These layman’s terms are loose at best and though intended to be descriptive only serve to confuse in their interpretation. Such scenarios are the maturity levels in the model.

2.5.2 LUFTMAN’S MM (2003)

Luftman’s model (2003) was constructed on the basis of practical experience and research into enablers and inhibitors of alignment (Luftman et al, 1999), incorporating reference to various other models [here listed chronologically and not in order of importance or influence]: Nolan’s stages of growth model (Nolan, 1979), SAM (Henderson and Venkatraman, 1993) and CMM’s (Capability Maturity Model) reach and range concept of (Keen, 1996). Luftman’s MM is an endeavour based in six domains (skills/technology scope/partnership/governance/competency measurements/communications) to discover a specific organisation’s BITA profile. A brief description of each domain follows:

  • Skills: addresses practical human resources issues such as cross-training in IT and business issues regarding the cultural environment and its impact on innovation and organisational change.
  • Technology scope: refers to how much provision of comprehensible and flexible infrastructure comes from IT, the implementation of emergent technol

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