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Aligning IT with Business Strategy

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Is it smart for companies to invest heavily in information technology (IT)? Numerous studies indicate that excessive IT spending will usually reduce company profits and slow productivity. According to an article in the MIT Sloan Management Review, “Avoiding the Alignment Trap in Information Technology,” IT can become a huge bottleneck to growth in companies if they focus on the wrong remedies for their IT problems (Shpilberg, Berez, Puryear, & Shah, 2007). The article first focuses on Charles Schwab and its IT struggles during the early 2000’s. Then, it presents a study on 504 companies, and IT’s effect on their revenue growth. Lastly, it covers the steps to ensure success in IT’s effectiveness.

Charles Schwab is a Fortune 500 Company that manages nearly $2 trillion in assets for a wide range of clients (Hoovers, Inc., 2014). The mega-broker has obviously done something right. However, as Charles Schwab grew, it’s not surprising that its IT problems grew as well. Charles Schwab approached the situation by spending loads of money on new IT projects rather than fixing the existing systems or starting fresh altogether. Eventually, the company found itself smothered in an over-complicated system that was eating 18% of revenue annually (Shpilberg et al., 2007). “IT’s effort to satisfy its various (and sometimes conflicting) business constituencies created a set of Byzantine, overlapping systems that might satisfy individual units for a while but did not advance the company’s business as a whole (Shpilberg et al., 2007, p. 52).”

The article refers to Charles Schwab’s problem as the “Alignment Trap,” and 11% of the 504 surveyed companies were struggling with it. Despite the group spending 13% above average on IT, their revenue growt...

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...me to execute trades went down by 80%, and as a result, clients increased their trades exponentially (Shpilberg et al., 2007).

Creating an effective IT system, and then aligning it to business objectives, reignited Charles Schwab’s growth. It’s important that other companies do the same to ensure IT success. To do so, companies must emphasize simplicity in the IT plan, outsource capabilities when needed, and then create end-to-end accountability for the system.

Works Cited

Hoovers, Inc. (2014). The Charles Schwab Corporation Company Information. Retrieved from Hoovers: A D&B Company: http://www.hoovers.com/company-information/cs/company-profile.The_Charles_Schwab_Corporation.26727649f435940e.html

Shpilberg, D., Berez, S., Puryear, R., & Shah, S. (2007). Avoiding the Alignment Trap in Information Techonology. MIT Sloan Management Review, 49(1), 51-58.
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