Summary Report: Strategic Alignment: Leveraging Information Technology for transforming Organizations

Summary Report: Strategic Alignment: Leveraging Information Technology for transforming Organizations

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Strategic Alignment: Leveraging Information Technology for transforming Organizations

Based on the paper of J.C. Henderson, N. Venkatraman (1993)

by
Philipp Maderthaner


A. Summary
Henderson and Venkatraman proposed a model for business – IT alignment; it was intended to support the integration of information technology (IT) into business strategy by advocating alignment between and within four domains (see figure 1). The inter-domain alignment is pursued along two dimensions: strategic fit (between the external and internal domain) and functional integration (between the business domain and the IT domain). The objective of this model was to provide a way to align information technology with business objectives in order to realise value from IT investments. The authors argued that the potential strategic impact of information technology requires both an understanding of the critical components of IT strategy and its role in supporting and shaping business strategy decisions and a process of continuous adaptation and change. Hence, they presented a model that defines the range of strategic choices facing managers.

Figure 1 Strategic Alignment Model

Two main imperatives for managers are pointed out by Venkatraman and Henderson: First, similar to business strategy, IT strategy has to consider both internal as well as external aspects. Second, both internal/external alignment as well as functional integration must be taken into account. Only one of them is not sufficient.

Overview about the four dominant alignment perspectives:

1. Strategy execution
This strategy assumes that an articulated business strategy is the driver of both organizational design choices and the design of IT infrastructure. The alignment is said to be the most common and widely understood perspective, as it corresponds to the classic, hierarchical view of strategic management.

Driver:     Business Strategy
Role of Top Management:     Strategy Formulator
Role of IT Management: Strategy Implementer
Performance Criteria: Cost/Service Center

2. Technology transformation
This alignment involves the assessment of implementing the chosen business strategy through appropriate IT strategy and the articulation of the required IT infrastructure and processes. This strategy is not constrained by the current organization design, but instead seeks to identify the best possible IT competencies through appropriate positioning in IT marketplaces.

Driver:     Business Strategy
Role of Top Management:     Technology Visionary
Role of IT Management: Technology Architect
Performance Criteria: Technology Leadership


3. Competitive Potential
This perspective is concerned with the exploitation of emerging IT capabilities to impact new products and services (business scope), influence the key attributes of strategy (distinctive competencies) and develop new forms of relationships (business governance).

Driver:     IT Strategy
Role of Top Management:     Business Visionary
Role of IT Management: Catalyst
Performance Criteria: Business Leadership

4. Service Level
The service level alignment perspective focuses – as the name shows – on how to build a world-class IT service organization.

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In this perspective the role of business strategy is indirect and is viewed as necessary to ensure the effective use of IT.

Driver:     IT Strategy
Role of Top Management:     Prioritizer
Role of IT Management: Executive Leadership
Performance Criteria: Customer Satisfaction


B. Questions

When one considers the fit between strategy and organizational structure, one talks about a fit between the external environment and internal factors. Why consider Venkatraman/Henderson IT both at the external and internal level, and not just as another internal factor like organizational structure?

Within the business domain Venkatraman/Henderson argue, that the fit between external positioning and internal arrangement is necessary for maximizing economic performance. This is not a very surprising statement if you are familiar with organizational design theories, where the so called “organizational fit” is one of the basic efficiency criteria for organizations. What Venkatraman/Henderson do, is adopting this logic to the IT domain, where this “fit” is – as they argue – equally relevant.
The motivation for the differentiation leads back to the change from IT’s historical to its today’s function and the associated assumptions about managerial thinking. In the historical view, IT has been more or less constrained to a support role being not really essential for business success. The consequence reflected in the opinions of executives, who implied IT to be a “cost of doing business”. Since IT emerged as a critical enabler of business opportunities as well as a factor of comparative advantage it is imperative that firms also focus on the external perspective of IT strategy. So the role of IT changed - in contrast to the widespread feeling of executives, who have several problems with this new challenge. What the research of Venkatraman/Henderson showed is that managers are more often comfortable with their capability to understand positioning choices in the business marketplace than with their understanding of how to be strategically positioned in the IT marketplace.
Nevertheless IT strategy should be elevated from its traditional internal role to a more complex external issue of how well a firm is positioned in the fast changing IT marketplace. And – not to forget – managers should be able to follow this way.

The components of IT strategy and business strategy as well as of IT infrastructure and organizational infrastructure have the same names. But are they really comparable? What are their similarities, and what are their differences?

Especially in the internal domain the components are more ore less comparable. The design of an IT infrastructure and an organizational structure, a business process and an IT process as well as necessary skills for IT and business domains are comparable.
More difficult is the analysis external perspective. First the information technology scope, which are specific information technologies like electronic imaging or local-area-networks, play a supporting or shaping role for business strategies. Whereas the business scope itself does not support or shape a business strategy but rather enables it and offers the set of opportunities what from a strategy is created. Second, technology scope is hardly influenceable by a single firm in contrast to the business scope of a firm.
Concerning the competencies it is proximate to draw a relation between systemic and business distinctive competencies, because they both deal with comparable hard-facts like pricing, cost-performance and so on.

Why is the alignment of business strategy and IT strategy and between IT strategy and IT infrastructure important (according to Henderson /Venkatraman)? Can you think of other arguments for this alignment?

The so called “technology transformation alignment perspective” involves the implementation of a chosen business strategy through an appropriate IT strategy and the articulation of the required IT infrastructure and processes. One of the major advantages of this model is that it is not constrained by the current organization design, but instead seeks to identify the best possible IT competencies through appropriate positioning in the IT marketplace, as well as identifying the corresponding internal IT architecture.
There are several other arguments for this alignment. The first one is that the overall business strategy is not only the driver but also the constraint of the transformation process. This makes it easier for a company’s CEO to steer a certain course and also to explain transformation costs to shareholders or someone else.
A second advantage is that the model is not constrained by the organizational design and vice versa the design is not imminent affected by the transformation process – knowing the complexity of changes in organizational design. A third point might give a competitive edge to one while causing a drawback for another one. The fact that top management has to provide the technology vision implies top management to be skilled in technological issues.
All in all the “technology transformation alignment perspective” is the most appealing perspective to me, because it ensures that each organizational change fits into an overall strategy of the company. A similar relation is between IT and business governance. Both deal with make-or-buy decisions, both search the best way or partner to obtain required resources.

All four modes of alignment cover only three elements of the model, one is always missing. What happens to the missing element in these four modes? Could this lead to problems?

All four modes of alignment represent cross-domain-relationships, where the main focus is either on the business strategy or the IT strategy, which can both play a driving role. Connecting one of the driving strategies directly to a “goal” on internal, functional level would not make much sense (e.g. linking business strategy with IT infrastructure). It can only derive its logic by translating the implications of for example business strategy for the organizational infrastructure with subsequent demands for IT products. So in each case both internal and external perspective should be considered for attaining the best possible link between them. So the dominating question is what to influence on the internal level and which “driver” to use. Because of the impossibility – or ineffectiveness – of direct linkage they use a cross-relationship. The missing element can be either assumed as constant, not influenced (meaning not being a constraint) or just as not prior.
To my mind it does not cause any major problems if either the business or IT strategy is missing, because the respectively other one will compensate the missing element in his driving role. For example if there is no explicit IT strategy and the business strategy plays a driving role, as it does in the “strategy execution alignment perspective” it does not really matter, because IT infrastructure is directly influenced by the demand caused by organizational changes.
On the other hand side a missing element might cause several problems if it’s one of the internal perspectives. It is hardly imaginable that a change in organizational structure does not cause any change at all in IT infrastructure. But that’s what I meant before, when I wrote about non-prior-elements. In the example mentioned above it may be the case that changes in IT infrastructure happen automatically and therefore are not considered to be prior.
Summing up I would say, that every element is important for strategic alignment, but the model represents a more abstract and simple way to focus on the most important ones.

C. Comment
The evolving nature of IT and the ever increasing impact of industrial changes underscores the importance of strategic alignment. As organizations evolve and engender new forms of IT-enabled competitiveness, strategic alignment is likely to assume a greater degree of importance. With IT increasing IT spending business executives also need to be able to utilize IT resources in a most effective way. The strategic alignment model presented in this paper shows a rather rational and abstracted model which gives a brief overview of possible relationships and also introduces the first steps to optimize these relations.

D. General Comment to Strategic Alignment
Ciborra (1997) criticises the dominating IS literature for its rational, top-down approach to alignment and strategic information systems planning, claiming that the conceptual models developed are not useful within the domain of practical experience of managers and organisations. An approach with a strong focus on the uniquely human aspects of the people involved in the planning process (and beyond) would be expected to correlate better with real-world situations than a strictly rational model of Strategic Information Systems Planning.
Traditional approaches to alignment view it as a topdown planning process where upper management develops a set of strategic plans which when implemented result in information systems that fit well with the current business strategies. The alternative approach, supported by Ciborra (1997) is to proceed from the bottom-up where designers and users of the systems also contribute to the planning process.

E. Literature
Ciborra, C.U. (1997), “De Profundis ? Deconstructing the Concept of Strategic Alignment”, Scandinavian Journal of Information Systems 9(1), pp.67-82.

Henderson, J.C., Venkatraman, N. (1993), ”Strategic Alignment: Leveraging Information Technology for transforming Organizations”, IBM Systems Journal Vol. 32, pp 4-16

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