Aligning IS with Business Strategy

1. Aligning IS with Business Strategy Presented by: Natalie Campbell March 8, 2005

2. Overview • Key concepts of strategic IS alignment • Evolution of strategic IS alignment • Key researchers • IS alignment models • Challenges of today • Recommendations for further research

3. Strategy Exercise • Define strategy • Long range planning • Business guidance • Business plan • Identifying goals and determining plans to meet goals over a long time period • Operationalizing the mission

4. Strategy • Greek translation - the art of the general • Luftman • Business decisions taken at particular points in time by different people in response to sets of perceived environmental factors. • Strategy is about making choices that include: • Selection of business goals • Choice of products and services to offer • Design and configuration of policies that determine how the firm positions itself to compete in its markets • Appropriate level of scope and diversity • Design of organization structure, administrative systems, and policies used to define and coordinate work Luftman et al, 2004

5. Alignment • Consequence of sound practices and evolving human relationships that have mutual understandings of goals, values, culture and capabilities that leverage the development of strategies that can ultimately co-adapt Luftman et al., 2004

6. Strategic IS Alignment - Exercise • Define strategic IS alignment • Mutual understanding between IS and business • To achieve goals in long-term for companies overall objectives • Matching processes for achieving goals

7. Strategic IS Alignment • Describes an environment in which the business strategy and business infrastructure of an organization are aligned with the Information Technology strategy and infrastructures • Stresses harmonization of goals and implementation plans of IT with goals and organizational structure of business • Refers specifically to coordination of an organization’s external business and IT goals and its internal business as IT organizational infrastructures Luftman et al., 2004

8. Competitive Goals • Competitive advantage – Luftman et al., 2004 • Unsurpassed relationships with one’s customers and suppliers • Unique and adaptable business processes • Ability to harness information and knowledge of firm’s employees to continuously create new, hard to duplicate products and services • King, 1978 • Talks about controversy of firms using IT as a comparative advantage • American and United Airlines – reservation system • Merrill Lynch – cash management account • Foremost-McKesson –processing insurance payments

9. Enablers Senior executive support for IT IT involved in strategy development IT understand the business Business – IT partnership Well-prioritized IT projects IT demonstrates leadership Inhibitors IT/business lack close relationships IT does not prioritize well IT fails to meet commitments IT does not understand business Senior executives do not support IT IT management lacks leadership Enablers and Inhibitors Luftman & Brier, 1999

10. Formulation of IS Strategy • 3 key elements • Vision • Where do we want to go? • Big Hairy Audacious Goals (BHAG) • Strategy • How will we achieve this vision? • Aligned with company mission and core values • Mission • What are we? • Purpose and function of IT Luftman et al., 2004

11. IT Roles in Strategy • Transformation driver • Create and exploit new markets • Link customers to firm • Enabler of transformation • Interconnect people and processes • Span organization boundaries • Bridge geographical distances • IT as inhibitor • IT strategy not aligned with business strategy • Over-emphasis on technology Luftman et al., 2004

12. William R. King • University of Pittsburg • Founding president of AIS • President of TIMS (INFORMS) – 1989-90 • Chair of ICIS – 1988, 2005 • Editor-in-chief of MIS Quarterly • One of the founders of ISR -1989 • Editorial roles • ISR • Journal of MIS • OMEGA: The International Journal of Management Science

13. MIS Strategic Planning • Strategic planning • Feasible and necessary • Efficiency verses effectiveness • Efficiency – often shown through cost savings • Effectiveness – must be of paramount importance in design of MIS • MIS strategic planning • Transforms an organizational strategy set into an MIS strategy set • Focuses on the direct relationship King, 1978

14. Organizational Strategy Set MIS Strategy Set Mission Objectives Strategy Other Strategic Organizational Attributes System Objectives System Constraints System Design Strategies MIS Strategic Planning Process Overall MIS Strategic Planning Process King, 1978

15. Information as a Strategic Resource • Information as a strategic resource • IRM views information as a resource to be “well-managed” – inadequate • Sole IM role to satisfy end users – inadequate • SPIS process that closely ties in IS strategy with business strategy – inadequate • “Information and IS has the potential to be a primary source of comparative business advantage in the marketplace, rather than merely a resource to be efficiently managed, or a service that is periodically turned on and off as needed.” King, 1983

16. Assessing IT • Need to assess the role of strategic technology, the impact of IT on competitive advantage • Develop a set of measures for the construct CAPITA – key dimensions • Efficiency • Functionality • Threat • Preemptiveness • Synergy • Divide efficiency: primary and support activity efficiency • Divide functionality: resource management and acquisition Sethi & King, 1994

17. Facilitators and Inhibitors • Identify a set of parsimonious factors use to strategically employ IT • Surveys and factor analysis • IT application defined as strategic: • One that has a profound effect on a company’s success and destiny, by (a) influencing or shaping the company’s strategy, or (b) playing a direct role in the implementation or support of the company’s strategy – (Sabherwal & King, 1991) • Organizational facilitators • Factors that positively influence the ability of an organization to exploit information resources • Factors that positively influence an organization’s decision to use IT applications for strategic purposes • Organizational inhibitors • Factors that negatively influence the ability of an organization to exploit information resources • Factors that negatively influence an organization’s decision to use IT applications for strategic purposes King & Teo, 1996

18. Robert W. Zmud • Professor, University of Oklahoma • PhD, University of Arizona • Research interests • Organizational impacts of information technology • Management, implementation and diffusion of information technology • Senior editor with • Information Systems Research • Journal of AIS • MISQ Executive • Executive board • Management Science • Academy of Management Review • Information and Organization

19. Information Economy • Information business • Any business unit that produces a deliverable information product or service in which the unit itself owns and manages the information resources required to produce the product or service • IS department is one of many information businesses • Successful IS management • Ensure integration of IT deployed throughout enterprise • Design new applications within constraints that exist due to current portfolio of application systems • Plan for an influx of successive generations of new technologies Zmud et al., 1986

20. Strategic Variables Application Map IS Management Process Architecture Investment Architecture Coalition Architecture Information Technology Vision Data Architecture Transportation Architecture Zmud et al., 1986

21. Varun Grover • Professor Clemson University • PhD University of Pittsburgh, 1990 • Ranked 1st, 2nd, 3rd in research productivity in past decade • Published over 130 publications • Board of Editors/Associate Editor for • Journal of MIS • MIS Quarterly • MISQ Executive • Journal of Information Technology Management • International Journal of Electronic Commerce • Journal of Strategic IS • Journal of Operations Management • Decision Sciences • Journal of Market Focused Management • Business Process Management Journal

22. Sustainability and Performance • Identify factors important to establishing a competitive advantage • Competitive advantage – dependent upon unique characteristics that enable a firm to maintain a dominant position within its respective industry • Sustainability factors • Content • Process • Factors observed • Environmental strategies • Foundation strategies • Action strategies Kettinger et al., 1994

23. Model of Sustainability Foundation Factors Action Strategies • Size • Geographical • scope • Product scope • Organizational • base • Learning Curve • Technological • resources • Information • resources • Preempting • Creating • switching costs • Exploiting • flexibility • Developing • response • strategies • Managing risk • Industry • Competitor • Restrictions • Unique Situations • ENVIRONMENT Sustainability PERFORMANCE FIRM Kettinger et al., 1994

24. Grover S. Kearns • Professor, University of South Florida • PhD, University of Kentucky • Research interests • MIS strategic planning • Electronic and global commerce • Presentations • Decision Sciences Institute Conference • International Conference on Information Systems • Publications • Decision Sciences • Journal of Strategic Information Systems • Computer Personnel

25. Albert L. Lederer • Professor, University of Kentucky • PhD, Ohio State University • Research interests • Information systems planning • Publications • Decision Sciences • MIS Quarterly • Journal of MIS • Information Systems Research • Communications of the ACM

26. Alignment that Leads to Competitive Advantage • Strategic applications Applications which change a firm’s product or the way it competes in its industry – (King, 1978) • Strategic alignment Necessary for superior financial performance – (Das et al., 1991) • Value chain A series of activities used by the firm in the process of acquiring raw materials, and processing delivering or services to the customer – (Porter, 1985) • Competitive advantage • Use of IS to leverage core resources – (Clemons, 1991) • Ability of IS to add economic value – (McFarlon, 1984) Kearns & Lederer, 1997

27. Causal Relationships between Constructs of Interest .506 ISPART ISALIGN .615 .350 .335 COMPADV VCHAIN .158 CEOPART BPALIGN .141 .342 .385 Kearns & Lederer, 1997

28. Strategic IT Alignment and Competitive Advantage • Strategic IT alignment • An organizational learning process that combines business and IT knowledge in order to support business objectives (Reich and Benbasat, 1996) • Defined as two sets of outcomes: • Alignment of IT plan with business plan • Alignment of Business plan with IT plan • Organizational knowledge • Allows firms to achieve competitive advantage • Explains why firms treat organizational learning processes as valuable assets (Hunt, 1999, 2000) Kearns & Lederer, 2001

29. Model of Strategic IS Alignment F4 Alignment of the IT Plan with the Business Plan F2 CIO participates in Business Planning H3: .51 HI:.35 H7: .62 H4:.34 F1 Information Intensity of the Value Chain F6 IT is Used for Competitive Advantage H5: .158 F3 The CEO Participates in IT Planning F5 Alignment of the Business Plan with the IT Plan H8:.14 H2:.34 H6: .39 Kearns & Lederer, 2001

30. Alignment between Business and IS Strategies • Content - What strategy is the organization pursuing? • Important to distinguish between three strategies • IS strategy – business applications • IT strategy – technology policies • IM strategy – structures and roles for management • IS strategy – should be aligned with business strategy (Das et al., 1991) • Process -How does the organization develop its strategy? • Business strategy types (Miles and Snow, 1978) • Defenders • Analyzers • Prospectors Sabherwal and Chan

31. Business Strategy Attributes Defensiveness Risk aversion Aggressiveness Proactiveness Analysis Futurity Business Strategy Types Defenders Analyzers Prospectors Business Strategy Hypotheses 1-4 Business Performance Alignment Perceived business performance IS Strategy IS Strategy Attributes Operational support systems Market information systems Interorganizational systems Strategic decision support systems IS Strategy Types IS for efficiency IS for flexibility IS for comprehensiveness Sabherwal and Chan, 2001

32. Jerry Luftman • Professor, Stevens Institute of Technology • PhD, Stevens Institute of Technology • Research interests • Information Technology Strategy • Alignment of Business and Information Technology • Emerging Technologies • Value of Information Technology • Information Technology Governance • Published books including Managing the Information Technology Resource: Leadership in the Information Age • Published articles in SLOAN Management Review, California Management Review, Computer World, InfoWeek, CIO, MISQ, CAIS

33. Strategic Alignment Model • Business strategy • Business Scope • Distinctive competencies • Business governance • Organizational infrastructure and processes • Administrative • Processes • Skills • IT strategy • Technology scope • Systemic competencies • IT governance • IT infrastucture and processes • Architecture • Processes • Skills Luftman et al., 2004

34. IT Strategy Formulation Process Luftman et al., 2004

35. Challenges • Senior executive support • CIO chain of command • Common goals between IT and business • How IT is viewed • Cost • Enabler • Driver • Shared domain knowledge • IT understands business • Business understands IT • IT/business relationships • Alignment sustainability

36. Future Research • Still in search of the “silver bullet” • Role of CIO in alignment process • Interaction of CIO and senior business executives • Relationship management and successful IT history • Relationship management and the Balanced Scorecard

37. Questions?? Comments??