BA572 – Week # 4 Strategic Alignment of IT with Business Strategy

1. BA572 – Week # 4Strategic 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

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?

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 • 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 Frameworkfrom Afuah-Tucci Key Drivers of Value?Who are Customers?What Activities Needed to Deliver Value?Distinctiveness? Key Environment InternetIT Performance BusinessModel 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: • 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

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 StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

20. Strategic Alignment ModelFour Domains of Strategic Choice Need to recognize how decisions in one domain affects the other domains ScopeCompetenciesGovernance ScopeCompetenciesGovernance Strategy(External) StrategicFit StructureProcessesSkills InfrastructureProcessesSkills Infrastructure(Internal) Business Information Technology Functional Integration

21. Strategy Domains • Business • 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.)

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

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 StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

25. Technology TransformationBusiness 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 StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills ?

26. Service LevelProviding 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 StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? ? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

27. Competitive PotentialIT 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 StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Top Mgmt’s Role? IT Mgmt’s Role? Performance Criteria for assessing IT based on ___? Risk? Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills ?

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

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

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?

31. Can we put these models together? Profit SiteSource of RevenueCommerce Model Value/Scope Pricing Strategy

32. EnvironmentCompetitive Forces & Complementary Assets Business StrategyScopeCompetenciesGovernance IT StrategyScopeCompetenciesGovernance Business InfrastructureStructureProcessesSkills IT InfrastructureInfrastructureProcessesSkills

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