Strategic alignment

Introduction
The trend toward globalization and virtualization of the business environment remains unabated and has spawned profound transformations, both internal and external, as most enterprises must recreate or update their value chain and strive for closer relationship with their customers and business partners. In response to or anticipation of changes in their environment, most enterprises are deploying information technology at an increasing rate. This again raises many fundamental questions; how can enterprises translate their IT investments into increased business performance? This could bee seen in terms of increased productivity, market share, profitability and so forth.

Further, achieving strategic alignment (alignment between IT/IS and business strategy) could bee seen as a continuous job. There will always be shifting conditions in an enterprise’s environment, which implies that what is strategic alignment or “fit” today necessarily isn’t tomorrow. This supports the fact that achieving and sustaining strategic alignment is difficult and costly, but the importancy of aligning IT and business should not be underestimated.

Different types of alignment are becoming more and more important to control. Most early research on alignment is heavily focused on internal alignment. This type of alignment is mainly engaged in how IT and business in single enterprises work together; how IT is used by the enterprise, how well IT supports business strategies and so forth. As we’re in an information intensive era and information is flowing both upstream and downstream an enterprise’s value chain, we see a growing need for inter-organizational alignment. This implies that enterprises should focus more of their resources on how IT could support their strategies in alliances.

One question that may come to mind is why the IT function is viewed as being unique compared to other business functions? Why are we only focusing on strategic alignment and not alignment between manufacturing and business or marketing and business? According to Luftman (2004) all of these functions need to be aligned with each other in order to create a competitive organization. The main differentiator of IT from the other functions lies in the fact that IT activities encompass the entire enterprise. Luftman (2004) claims that IT has grown in pervasiveness and that the impact has expanded beyond the support activities in Porter’s value chain (1985). In today’s business environment IT encompasses every part of the value chain as well as activities that include customers and suppliers (Luftman, 2004). IT may therefore play a great role in the profitability of an organization if it is embraced as an instrument of business strategy, and can therefore provide a strategic advantage.

Billions of dollars have been invested into IT over the past three decades, but the macroeconomic evidence of the effects of IT on business productivity and business transformation is mixed at best and pessimistic at worst (Luftman, 2004). This is better known as the productivity paradox (Brynulfsson & Hitt, 1998), and there are several explanations to why this paradox occurs. One explanation is that the methods used to measure productivity have a focus on production of tangible goods rather than the production of services. Another more relevant explanation is that business investments in IT have not been sufficiently aligned with the strategic business goals (Henderson & Venkatraman, 1993). This fact contributes to the importance of strategic alignment.

“The alignment of IT and corporate strategies has consistently been among the top 10 key issues for IS managers during the past two decades.”
Pollalis, 2003, p. 470

In the field of strategic alignment there have been developed several frameworks in which all are trying to describe the best way to Rome. As told, there are many different ways, but all of them are complex and enterprises will need to “climb” several mountains and cross deep lakes to reach their destination. When the destination finally is reached, the frameworks promise increased revenue, efficiency, profitability, visibility and better information flow.

Strategic alignment
IT/IS
Information technology or IT is today seen and used as a very common word, but the understanding of this word often differs from person to person. In light of this, we feel obligated to state a definition that is aligned with our own perception (The Ministry of Education, 2004);” Information Technology is the combination of telecommunications and computing to obtain, process, store, transmit and output information in the form of voice, pictures, words and numbers.” Further, the United Nations Educational Scientific and Cultural Organization’s (UNESCO, 2004) definition of this term is "the scientific, technological and engineering disciplines and the management techniques used in information handling and processing; their applications; computers and their interaction with men and machines; and associated social, economic and cultural matters."

So, based on our knowledge of IT, we find it relevant to describe the close and related word; Information Systems (IS). Information Systems could be seen as the systems within an enterprise that in some way provide its inhabitants with information. The semantic lexicon WordNet describes an information system as a system consisting of the network of all communication channels used within an organization. An information system is comprised of all the components that collect, manipulate, and disseminate data or information.

Theory of alignment
When looking at an organization, a myriad of different elements appear; people, departments, strategies, business processes etc. As a senior officer, one is usually more interested in getting a holistic view of the organization or its partners, as opposed to seeing separate pieces. Also, a senior officer should strive to make sure there is connection between the various elements of an organization and/or its partners. This interconnection among different elements can be seen as alignment. Take the example of an organization’s business strategy. In short, it describes what the organization wants to achieve and how they are going to achieve it. What’s important is making sure that this strategy is aligned with other elements in the organization, e.g. the organizational structure or information systems (Bergeron et al., 2004).

Alignment is a common term in information systems literature, and is often referred to as; Strategic alignment. This concept stresses the harmonization of the goals and implementation plans of IT with the goals and organizational structure of the business. Today’s IT executives must concern themselves not just with technology, but must also understand the strategic goals of the business in a dynamic and uncertain environment. Further, IT executives must understand how their organizations are positioned within an equally dynamic and uncertain technology marketplace so that their choices of technology support the delivery of services and products to support the strategic choices of the business that will enhance competitive advantage. According to Luftman (2004), strategic alignment refers specifically to the coordination of an organization’s external business and IT goals and its internal business and IT organizational infrastructures. Strategic alignment does also specifically address the processes of coordination among internal and external domains of business and IT.

Different types of alignment
In the quest for understanding alignment, we’ve found that many different types of alignment are present, and that not all of them are equally important. Delery and Doty (1996) talk about the coherence between HR practices, strategy and organizational performance. They argue that HR practices always have a positive effect on organizational performance. This is again being seen as an important part to align. So, clearly there are several types of alignment in organizations, and IT/IS-business alignment (strategic alignment) is just one of them.

Sabherwal et al. (2001) are talking about several types of alignment in their article. They describe alignment between business and IS strategies as “strategic alignment”. Furthermore they describe the alignment between business strategy and structure as “business alignment” and between IS strategy and structure as “IS alignment”. Ein-Dor et al. (1982) describe the alignment between business and IS structures as “structural alignment”. And finally, Henderson and Venkatraman (1993) are describing the (1) alignment between business structure and IS strategy, and (2) business strategy and IS structure as “cross-dimensional alignment”. We do notice that most of these types of alignment could be drawn out from Henderson and Venkatraman’s work in 1993, and that this paper is often used as basis for other papers concerning IS/Business alignment.

Further, we’ve found that alignment in general could be separated into two main categories.
Firstly, we have the internal alignment which concerns the alliance between IT strategy or structure and business strategy or structure internally in an enterprise. This is a field of study where lots of work has been done (Kulatilaka & Henderson, 2003; Bergeron et al., 2004; Sabherwal et al., 2001.) Secondly, we’ve found evidence that there is a growing need to capture and develop alignment externally and beyond enterprise borders (Eikebrokk et al., 2004). The latter could be well exemplified with Norwegian hospitals as well as similar institutions abroad. These kinds of institutions have a growing need for exchanging information, like x-rays etc, beyond their institutional borders and could be seen as aligning the enterprise’s environment (Kith rapport 2/02). This demonstrates that aligning business and information technology (IT) strategies is a major and continuing challenge for information-intensive organizations and managers, especially when it comes to inter-organizational exchange of information.

“ making such distributed resources work together effectively through inter-organizational alignment processes is a challenge.”

Eikebrokk et al., 2004, p. 5

The alignment discussed above is being referred to as inter–organizational alignment. (Eikebrokk et al., 2004.) In short, we have inter–organizational alignment when companies cooperate and form alliances. Eikebrokk et al. (2004) also define competence in alignment as the ability to combine and actively use competences inside or outside the company.

To succeed with this, companies must decide where to utilize resources, competences and capabilities in their network. This sourcing process represents an increased challenge compared with traditional business.

The importance of having an aligned IT strategy
The main goal of the IT strategy is to make sure that the decisions made by IT management either enables or drives the business strategy (Luftman, 2004). Therefore it is important that the senior management identifies the fact that it is the business processes that are changed by leveraging IT that provide business value. According to Luftman (2004) neither IT nor the business can provide business value alone, and their strategies therefore need to be aligned. He also claims that there are four major reasons for why it is critical to develop an aligned IT strategy:
# Most organizations in today’s business environment are information based. Information is the glue that keeps the whole organization together and enables close contact with customers and suppliers. Changes in the business strategy imply changes to the organization’s information environment. According to Davenport (1997) technology provides the best tool for enabling change to these information environments.
# In today’s markets the value of knowledge is higher than ever before. Competitors can relatively easy copy products and processes, and therefore the focus is often on the knowledge and information embedded in them. This is known as dematerialization and is an increasing concern to organizations. According to Gottschalk (2002) IT can contribute to creating, sharing, distributing and storage of knowledge, and therefore create business value.
# Organizations need to continuously innovate strategically relevant new processes, and IT is the primary enabler of process innovation because all business processes have information content (Davenport, 1993).
# Organizations need to make choices about which parts of their operations (e.g. processes) they will handle themselves internally and which processes they will outsource (Davenport, 1993). IT can contribute to reduced costs regarding internal activities because of its ability to bridge large distances and to reduce the number of process steps and personnel.

As we can see there are many reasons for why alignment is important and achieving and sustaining alignment will continue to be one of the most important concerns among business executives (Papp, 1995). Organizations will continue to strive to link technology and business, and alignment addresses two simple but still complex elements; doing the right things and doing things right.

Aligning IT with business strategy is a complex and demanding process, where there is no single solution or action that can achieve and sustain strategic alignment. In that matter several researchers have come up with different frameworks in order to make this complex process more comprehensible. The main focus of these frameworks is not to provide a “highway” to Rome, but more often to provide an overview of the issues involved in aligning IT with business strategy.

Assessment of Strategic Alignment
Strategic alignment models and frameworks
The main focus of this paper is to identify strengths and weaknesses in the strategic alignment. In the process of assessing strategic alignment we have used a framework developed by Luftman (2003). This framework aims to provide a roadmap on how to assess IT/IS and business alignment. Luftman (2003; & Brier 1999) has based his development of this framework on the early research made by Henderson & Venkatraman (1990; 1993). In the process of writing this paper we have found numerous articles within the field of strategic alignment that use Henderson & Venkatraman (1990; 1993) as a foundation for further research and development of frameworks (Luftman & Brier, 1999; Hirschheim & Sabherwal, 2001; Burn & Szeto, 2000; Chung et al., 2003; Bergeron et al., 2004). Their strategic alignment model appears to be a “de-facto” standard within this field of research.

The model was developed because of the inability of firms to realize value from IT investments. They argue that the reason for this is lack of strategic alignment or alignment between business and IT strategies of organizations. Further, Henderson and Venkatraman (1999) are emphasizing two fundamental assumptions for strategic alignment; One, 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. Two, they contend that this strategic fit is inherently dynamic.

Henderson and Venkatraman (1999) based their concept of strategic alignment on two building blocks; strategic fit and functional integration. The former recognizes the need for any strategy to address both external and internal domains. In the external domain, the authors address the business arena in which the firm competes and is concerned with decisions such as product-market offering and distinctive strategy attributes that differentiate the firm from its competitors. In contrast, the internal domain is concerned with choices pertaining to the logic of the administrative structure and the specific rationale for the design and redesign of critical business processes, as well as the acquisition and development of the human resource skills necessary for achieving the required organizational competencies.

Assessing strategic alignment between IT and the business
Another contribution to this field is a methodology for assessing a company’s strategic alignment made by Jerry Luftman (2003). This methodology differs from Henderson & Venkatraman (1999) in the focus of assessing strategic alignment today, rather than suggesting some general strategies for alignment. Luftman’s (2003) contribution is a tool that can be used by organizations in benchmarking their strategic alignment up against competitors. Further the Society of Information Management and The Conference Board are sponsoring an ongoing benchmarking study that uses Luftman’s (2003) methodology. He claims that one of the main objectives of the assessment is to identify specific recommendations for improving strategic alignment. Luftman (2003) operates with two dimensions in his tool; first he describes six IT-business maturity categories, then he describes the levels of alignment maturity within the six IT-business maturity categories. The six categories are; communications maturity, competency/value measurements maturity, governance maturity, partnership maturity, technology scope maturity and skills maturity. The second dimension of Luftman’s tool is the levels of alignment maturity. Each of the six criteria has a set of attributes that allows particular dimensions to be assessed using a rating scheme of five levels (for examples see Appendix B). The objective with this tool is to establish a team consisting of both IT and business participants within the organization. This team should use this tool to assess all six categories and converge on a maturity level. The next higher level of maturity should then be used as a roadmap for actions planned in the future.

Sveinunglarsen 22:18, 10 October 2007 (UTC)

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