Strategic Business And It Alignment Business Essay

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(Reich & Benbasat, 1996) define Strategic IT Alignment as the "degree to which the Information Technology (IT) mission, objectives, and plans support and are supported by the business mission, objectives, and plans".

In his definition, (Luftmann, 2003) described the operational scope of IT alignment as key activities which need to be planned and implemented, such as: the setting of goals and establishing a team to carry operations towards such goals, with the effect that the link between business and IT needs to be fully analysed and understood through a GAP analysis. Only then can specific actions be designed and implemented to sustain alignment of IT with the business.

IT alignment has been on the agenda since it entered the academic field in the mid-80s. Despite the alignment of business strategy with IT being perceived as a priority concern for management, leading to increased performance of business and management, such alignment processes have been lacking in that organisations persistently fail to implement alignment (Chan & Reich, 2007).

This paper is to discuss strategic IT alignment in view of the tasks and procedures involved, and how such alignment can lead to superior business performance.

Keywords: IT alignment, strategy, IT governance, complexity

Introduction

The table in below shows clearly that business process management is remaining at top three concerns of Chief Information Officers (CIO) worldwide. IT governance is not a new concept, referring to the fusion between business processes and IT processes in order to achieve congruence necessary for leveraging synergies of both. The terms of IT governance and enterprise governance are to be explained and brought into relationship in order to exemplify the processes, mechanisms and relational interactions that sustain the objectives and strategies of each.

2009

2010

2013

Business process improvement

1

1

2

Reducing enterprise costs

2

2

12

Increasing the use of information/analytics

3

6

3

Improving enterprise workforce effectiveness

4

4

7

Attracting and retaining new customers

5

3

4

Managing change initiatives

6

9

-

Creating new products or services (innovation)

7

5

1

Targeting customers and markets more effectively

8

-

-

Consolidating business operations

9

10

-

Expanding current customer relationships

10

8

8

Source: © Gartner Top Ten CIO Management Priorities

Figure

Discussion

"Governance is the term used to describe how the processes and authority for resources, risk, conflict resolution, and responsibility for is shared among business partners, management, and service providers" (Luftmann, 2003)

IT Governance

IT governance is part of the concept of enterprise governance and is defined as "the leadership and organizational structures and processes that ensure that the organisation's IT sustains and extends the organisation's strategy and objectives" (IT Governance Institute). It is thus the capacity of the business to formulate and implement a strategy which approximates complete congruence of business process with IT processes.

However, IT governance and IT management refer to different aspects. Where IT governance refers to the performance of the entire IT system and the shaping thereof to meet current and projected demands for the business, IT management refers to the operational side of providing an effective and efficient supply of IT services and products to sustain the operations of the organization.

IT governance itself depends on a fluent combination of internal and external factors, the complexity of which lies in the fact that every organization might need a different mix of structures and processes which govern and model the communities of practice present in the respective organization (Chan & Reich, 2007).

Roles and Responsibilities

Effective IT governance depends on an unambiguous definition of the respective roles and responsibilities of all parties involved in the deployment of the framework. This is a non-negotiable task of executive management and needs to be communicated throughout the entire organization in order to be understood and addressable by all (Luftman, 2004).

Organisational Structures

Organizational structures have an enabling or disabling effect on IT governance in that they support or hamper either the deployment of IT services and products, or in determining the locus of control for IT decisions to be made in the organization. The approach taken by many organisations is hybrid, in that they often maintain centralised infrastructure control while at the same time allowing for a more decentralized model of application control. This allows for standardization on the one hand, and flexible local IT management of services and products on the other hand.

IT Strategy and IT Steering Committee

Part and parcel of the due diligence responsibilities of corporate governance should be the due formulation and implementation of a respective strategy on IT governance. While strategy is primarily the domain of the board of directors (or similar level), the implementation of the IT strategy is normally part of the tasks and responsibilities of the executive management. In most instances, executive management is assisted by at least one IT steering committee responsible for managing IT priorities, resource allocations and costs, while also overseeing major IT projects which go beyond the scope of smaller managerial IT tasks. The IT strategy committee again operates at the level of the board of directors, thus implying different authority, and different membership than the IT steering committee(s).

Strategic Information Systems Planning (SISP)

Various models have been designed to elucidate the intricate relationships of IT governance and its alignment with the organization. Termed differently, researchers such as (Henderson & Venkatraman, 1992) et al. refer to strategic alignment as 'fit', as IT is seen as pervasive throughout the entire organization, thus affecting not only business strategy, but also the infrastructure of both business and IT, as well as the social and cultural dimensions brought into the organization by the people who work in or for the business/organization.

IT Alignment

What is alignment? Can alignment be contained in a single definition? The problem with alignment is, that many definitions exist which exemplify the complexity of management science and the effect the multitude of influential factors has on any attempt of achieving alignment.

Researchers such as (Henderson & Venkatraman, 1992) et al. refer to strategic alignment as 'fit', as IT is seen as pervasive throughout the entire organization, thus affecting not only business strategy, but also the infrastructure of both business and IT, as well as the social and cultural dimensions brought into the organization by the people who work in or for the business/organization.

While (Luftmann, 2003) refers to alignment as the ability of the organization to applying IT to its processes in such a timely and effective way, that congruence between those processes and the strategy, goals and needs of the organization is achieved, other researchers such as (Campbell, Kay, & Avison, 2005) see alignment as "the business and IT working together to reach a common goal".

(Reich & Benbasat, 1996) refer to alignment as a state "in which a high-quality set of interrelated IT and business plans exist", and it should be noted that alignment primarily refers to the intellectual effort to join strategies in such a way that a concerted effort to the benefit and guidance of the entire system is emerging. Structural alignment refers to the decision by the organization to centralize, decentralize, or employ a hybrid solution to control over IT (Brown & Magill, 1994), generally reflecting the extent to which organizational strategy could be described as conservative or entrepreneurial.

It should be noted, though, that irrespective of whether the IT function reflects on the simplicity or complexity of the organization, that as soon as complexity grows beyond a certain point, strong management is needed to achieve a competitive advantage.

Another dimension of alignment exemplifies the informal structure of a lose connectivity between management and IT, referring to environments of scarce resources, where it would be detrimental to formally align structures, and an informal setting of strengthening interpersonal connections is of more value to the process of alignment (Chan & Reich, 2007).

IT personnel and organization staff need to cooperate and collaborate at all levels of the organization for alignment to be successful. Notwithstanding such insight, the success of alignment is often hindered and sabotaged by deficiencies in leadership, communication, attitudes, etc. which refer to the social dimension of alignment (Campbell, Kay, & Avison, 2005). The embeddedness of all decision in cognitive, social and cultural frameworks makes it difficult to just choose one set of technologies over another, disregarding the organizational change which goes with such decisions. Behavioural and cultural changes which are the silent companions of IT alignment are among the most difficult and resilient change areas to achieve effective alignment in (Burn & Szeto, 2000).

Where IT alignment is to generate competitive advantages, two basic principles apply. For one, IT can mirror the business processes, management and strategy of the business, thus supporting the organization internally and externally (Henderson & Venkatraman, 1992). The other approach would be for IT to challenge business processes to evolve and change if necessary. The advantages here are that social processes are opposing strong engineering-based processes of IT, leading to an optimization of the business process based on the assumption that IT is the shorter way to success (Galliers, 2004).

The Strategic Alignment Model

The development of the Strategic Alignment Model (SAM) by (Henderson & Venkatraman, 1992) is a result of the research conducted at MIT in the mid-80s. The model is based on four key areas of strategy, namely business strategy, organizational infrastructure and processes, IT strategy, and IT infrastructure and processes. The SAM model was the first to describe the interrelatedness of business and IT strategies and recognizes two dimensions of strategic fit and functional integration.

For both key areas (IT and business), the researchers refer to the strategic fit, and how the organization is positioned in the external environment (IT and business), as well as the way the organization is positioned internally in terms of its IT and business infrastructure (and the configuration and management thereof). What needs to be achieved in terms of alignment is the functional integration of IT and business by either strategic of operational means. The strategic integration for most part reflects on the positioning of the company in its macro environment, highlighting competitive edge and strategic advantage, both in terms of IT and business. For example, if the business strategy would be to have cellphone coverage at a certain location, and thereby gaining a competitive advantage over its competitors, it would be counter-productive for the IT strategy to focus on issues not relating to such a business goal. Likewise, the internal integration of IT and business refers to business process management and how such processes can be supported and/or optimized by IT.

The Strategic Alignment Model could be regarded as the most widely cited alignment model, and although it states clearly the need for continued cycles of optimization and improvement, the model does not provide a framework on how to implement and achieve alignment.

Impact and Alignment Methodologies

As a reaction to the absence of implementation methodologies in SAM, many alignment mechanisms have been devised and tested, e.g. the business systems planning (BSP) mechanism by (IBM Corporation, 1975) and (Lederer & Sethi, 1988), the five competitive forces and value chain analysis mechanisms by (Porter, 1980), the critical success factors (CSF) mechanism by (Rockart, 1979) (Johnson & Friesen, 1995) et al, or the strategic systems planning (SSP) mechanism by (Holland, 1986), and business process reengineering.

The value chain analysis of (Porter, 1980) maintains, that "[…] information systems technology is particularly pervasive in the value chain, since every value activity creates and uses information […]". It is thus evident that IT is at least a necessary condition for such processes and chains to function in the first place - an organization that "can discover a better technology for performing an activity than its competitors thus gains competitive advantage" (Porter, 1980). On its own, the value chain analysis only refers to the impact a certain methodology has on the creation of value, it does not refer to a methodology of achieving alignment.

The critical success factor (CSF) analysis of (Rockart, 1979) takes Porter's value chain analysis a step further in maintaining that although many factors add value, only certain factors will be critical in eliciting and maintaining success. It is thus driven by the need to optimize a process or value chain and could span vertically and not just horizontally within the organization. The identification of critical success factors will ensure a permanent attending to by management; within a long value chain, the identification of such critical factors help to implement a control loop for quality control, feedback, performance measurement, and corrective action. Similar to the Porter's value chain, the CSF analysis mechanism focuses on the impact, and less on the alignment.

The business systems planning (BSP) methodology was developed by (IBM Corporation, 1975) and researched by (Lederer & Sethi, 1988) et al. BSP is an alignment methodology, and unlike its predecessors, focuses on business processes which are directly related and coupled to the mission statement, goals and objectives of the organization. As the business mission and strategy is rolled out top down, the design and implementation of the corresponding business processes are developed bottom up, thus requiring careful GAP analyses and a thorough understanding of IT technology and software in support of management strategies. The strategic systems planning (SSP) methodology of (Holland, 1986) and analysed by (Lederer & Sethi, 1988) takes BSP a step further in that it analysed functional areas of the organization, with focus on criticality of the processes involved.

The balanced scorecard (BSC) methodology by (Kaplan, 2005) et al. refers to the approach of evaluating an organization by also looking at customer satisfaction and how internal processes contribute to the ability of the organization to innovate. Customer satisfaction is seen as a direct consequence of efficient internal processes. Realising that the IT function is an internal process, the researchers maintain that the traditional balanced scorecard should be amended to include perspectives of operational excellence, future orientation, and user orientation. Thus, by using a cascade or waterfall of balanced scorecards, senior management is provided a method to join business processes and IT processes by defining an IT development scorecard and an IT operational scorecard, which act as enablers for the strategic IT balanced scorecard, which in turn serves as the enabler of a business balanced scorecard, hence cascade of balanced scorecards (van Grembergen & van Bruggen, 1997).

(Parker, Benson, & Trainor, 1988) developed the information economics method as an alignment technique. Here, business and IT prioritise and select projects by positively and negatively scoring these in terms of return on investment (ROI) and other factors such as empowerment, strategic match for business and IT, environmental quality, management information, etc. (listing not exhaustive). This scoring technique will eventually result in a weighted total score based on the factors listed.

Service Level Agreements (SLAs) are de facto the standard methodology in establishing levels of service and their corresponding metrics (e.g. response time from raising the incident to closing the support case), the monitoring and the reporting. Service Level Management refers to the governance challenge of firstly establishing such SLAs which are an adequate expression of business processes and their values, as well as maintaining an intricate alignment of business processes and IT processes as equated in the SLA.

The Control Objectives for Information and related Technology (COBIT) framework identifies 34 IT process and their respective control objectives and guidelines for management. The COBIT process attempts to "balance risk and control in a cost-effective manner" (Pederiva, 2003) by maintaining a systematic outline in which all necessary steps are outlined which will allow an organization to take corrective action in accordance with legislative and possibly corporate constraints. COBIT offers a best practices approach to measuring business processes.

IT Alignment & Governance Maturity Models

IT governance directly affects the decision-making processes of an organization on IT and business, as well as the coordination and communication processes among the various business and IT processes (Smits, Fairchild, Ribbers, Milis, & van Geel, 2009).

Organisations use a maturity model to gauge and measure the maturity level of their alignment and governance. The method entails grading the maturity level from zero (non-existent) to five (optimized), and offers and easy way to snapshot the current ist (as is) position as well as the soll (to be) position, and benchmark the status quo against standard guidelines or a best-practices approach. The resulting GAP analysis allows for corrective action to be implemented, thereby moving closer to the envisaged IT alignment (Luftmann, 2003). Similarly has the IT Governance Institute (www.itgi.org) developed a similar method, albeit with a differing variety of attributes than Luftman has been using.

Alignment maturity allows the organization to embark on a process of discovering deficiencies as well as opportunities with reference to an enhanced integration of business processes and IT and the business. This will be achieved through a set of well-planned initiatives to improve such processes in a systematic and structures way.

Strategic Alignment Maturity Model (SAMM)

(Luftmann, 2003) proposes five maturity levels which organisations have to comply with on a per-level basis, fulfilling all attributes of the respective maturity level (see ).

Luftman: SAMM

Luftman's Strategic Alignment Maturity Model (SAMM) does not make provision for how to achieve alignment, other than providing the parameters for the evaluation. However, the COBIT framework has been gaining increased acceptance in the IT world, and provides the practitioner with a maturity model which focuses on the operational side of IT alignment.

COBIT Maturity Model

The COBIT® Management Guidelines (IT Governance Institute, 2000) describe 34 IT processes together with their respective maturity models. To "define a strategic information technology plan" is the very first process identified by COBIT, and plays and important role in the process of strategic alignment in the COBIT® framework. According to their Maturity Level 1, which entails that IT management is at least aware of the need for IT strategic planning, but that no structured decision process is in place. In contrast thereto does Maturity Level 5 require a documented and actively revised process of IT strategic planning, thereby continuously being considered in the setting of business goals, eventually resulting in "discernable business value through investments in IT" (IT Governance Institute, 2000).

Likewise does the COBIT® Maturity Model make provision for organisations being rated on whether they include a recognisable IT governance process in their business governance procedures and management processes, ranging from Maturity Level 1 of acknowledging the importance of IT governance issues, to Maturity Level 5 which implies a forward-looking understanding of IT and related governance issues, supported by a documented and implemented mechanisms to mitigate IT governance deficiencies, or by actively pursuing IT governance best practices and relational mechanisms to foster an environment of pro-active structures, processes and solutions. Only then can the GAP analyses between the "as is" situation and the "to be" position be addressed in a culture-aware and socially adequate manner (IT Governance Institute, 2000).

Conclusion

"With the increasing interconnection and dependence on IT in our increasingly electronic global economy, overall risk management and assurance are dependent on specific management practices. In our complex environments, management is continuously searching for condensed and timely information in order to make difficult decisions on risk and control, fast and successfully" (IT Governance Institute, 2000)

The key element in IT governance is the alignment of the business and IT to lead to the achievement of business value. This high-level goal can be achieved by acknowledging IT governance as a part of enterprise governance and by setting up an IT governance framework with best practices. Such a framework and practices should be composed of a variety of structures, processes and relational mechanisms. What works for one organization may not work for other organizations (e.g. the balanced scorecard method can be successful in some organizations and not in others).

Relational mechanisms are very important. It is possible that an organization has all the IT governance structures and processes in place, but it does not work out because business and IT do not understand each other and/or are not working together. Or, it may be that there is little business awareness on the part of IT or little IT appreciation from the business. So, to reach effective IT governance, two-way communication and a good participation/collaboration relationship between the business and IT people are needed. Ensuring ongoing knowledge sharing across departments and organizations is paramount for attaining and sustaining business/IT alignment.

It is crucial to facilitate the sharing and the management of knowledge by using mechanisms such as career crossover (IT staff working in the business units and business people working in IT), continuous education, cross-training, etc.

The paper has attempted to show that there are significant difficulties inherent in the definition, and measurement of IT value that are related to what IT governance is considered to be. Other related arguments were that the concepts of alignment, performance, integration and coordination may be more related to concepts measured by qualitative techniques, while growth, performance and IT value as empirical concepts are what academic researchers appear to be focused on. The various relationships between the IT governance structure depend more on leadership skills than management technique and the attempt to speak of them as though they were quantitatively related in a misnomer. The problems encountered to date suggest that these are people to people communicative issues not undiscovered variables and unrealized relationships among them. The want of board, shareholders and executive teams to hear things discussed in term the suggest control and predictability obfuscate the reality of the problems that are generated by interpreting accountability and compliance to mean micro-managing. The players involved at the different level have different values, so why not expect different perspectives to generate lack of performance, in both the qualitative and the quantitative senses of the term.

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