Avoiding The Alignment Trap In Information Technology Case Study

Only 15 % of the respondents placed themselves on the highly effective side. Even companies that did not consider themselves as highly aligned with business were spending 15 % less on IT than average, and their growth rates were 11 % higher. In other words, high effectiveness of delivering IT alone made a substantial difference. But the companies that viewed themselves as both highly aligned and highly effective exhibited growth rate that was 35 % higher than the survey average, while they were spending 6 % less on IT than other respondents.

Figure 1. Effectiveness is more decisive than business-IT alignment (Shpilberg et al. 2007).

At the outset, these survey findings appear to be somewhat at odds with the classical article "Strategic alignment: Leveraging information technology for transforming organizations" (1993), in which Henderson and Venkatraman argue that the inability to realize value from IT investments is due to the lack of alignment between business and IT strategies of organizations. However, in closer scrutiny, the Strategic Alignment Model (SAM) seems to be in perfect line with the idea of "Alignment Trap".

SAM makes distinction between business and IT domains on one dimension, and between external positioning and internal arrangement of both domains on the other. The model specifies two types of functional integration between business and IT domains: strategic integration that links business strategy and IT strategy reflecting the external component, and operational integration that links organizational infrastructure and processes to IS infrastructure and processes. Also, they specify strategic fit between external and internal components of both business and IT.

Figure 2. Strategic Alignment Model by Henderson and Venkatraman (1993).

By alignment, Shpilberg et al. mean "the degree to which the IT group understands the priorities of the business and expends its resources, pursues projects and provides information consistent with them". This is about functional integration in SAM lingo and essentially at the operational level. However, SAM suggests that holistic business-IT alignment calls for both functional integration (integration between business and IT at strategic and operational level), and strategic fit (the interrelationships between external and internal components) within business strategy as well as that of IT.

Business and IT may be functionally integrated at both levels, but if the external and internal components of IT strategy are out of sync, investments in IT do not bring about the intended results. IT may satisfy all the idiosyncratic and sometimes conflicting business requirements, but extensive customization, patched legacy systems and one-off integrations eventually erode the infrastructure and render IT prohibitively complex, slow and expensive -- hardly any strategic goal.

Shpilberg et al. concluded that the position of both high business-IT alignment and high effectiveness -- "IT-Enabled Growth" -- can be best achieved by focusing on increasing the effectiveness of the IT organization and temporarily forgetting about enhancing alignment (i.e. functional integration).

Don't fall in the alignment trap! If IT seems to be a bottleneck for growth in your company, try to change the alignment perspective from that of traditional strategy execution (formulation of business strategy and subsequent implementation of organizational and IS infrastructure) to an appropriate alternative perspective, e.g. service level perspective that takes IT strategy as the starting point. This may call for clearer articulation of the external domain of IT strategy -- how the company is positioned in the IT marketplace in terms of technology scope, systemic competencies and IT governance. If you see your IT function as a mere cost center, you may also want to broaden your vision on its role and scope.

References

Shpilberg, D., S. Berez, R. Puryear & S. Shah (2007). "Avoiding the Alignment Trap in Information Technology", MIT Sloan Management Review, Vol. 49, No. 1.

Henderson, J.C. & N. Venkatraman (1993). "Strategic alignment: Leveraging information technology for transforming organizations", IBM Systems Journal, Vol. 32, No. 1.

Information technology remains a terrible bottleneck to growth in most companies, mainly because executives focus on the wrong remedy for their IT problems

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Charles Schwab & Co., the big financial services company, grew up around its information technology capabilities. IT was the key factor that allowed the young discount-brokerage house to offer customers lower prices on trades than traditional brokers. Later, as discount brokerage became more of a commodity business, Schwab transformed itself into a full-service, online broker, and by 1998 it was earning a significant share of its profits in the online trading business. But in the next few years competitors caught up to Schwab, and some surpassed it. Several brokerage houses, both discount and full service, were frequently able to beat Schwab on price.

Surprising as it seems, given the company’s strategy of using technology to distance itself from competitors, IT had become part of Schwab’s problem. By the company’s own reckoning, IT staffers’ responses to business requests had become slow and expensive. IT engineers had to spend more time than ever fixing bugs in the systems. Meanwhile, several big, ambitious projects were overdue — including the tax-lot accounting system Schwab had envisioned to serve its most profitable customers — and the slow progress of these projects was preventing the company from responding effectively to competition. Still, the company kept throwing money at projects because it didn’t see an alternative. “We said, we have to keep spending money because we’re half pregnant and you can’t be half pregnant,” recalls Deborah McWhinney, president of Schwab Institutional. A red flag went up when Schwab found itself spending 18% of revenue on IT while three of its leading competitors were spending 13% or less, a cost disadvantage amounting to hundreds of millions of dollars annually.

The fact that a company as tech savvy as Schwab could find itself in this predicament is instructive. It underscores a growing realization we have found among the companies we work with that the usual diagnoses of IT’s troubles — and the usual prescriptions for fixing those troubles — are often misguided. For many years now, companies seeking to deliver higher business performance by harnessing IT have focused on alignment. By alignment, we mean the degree to which the IT group understands the priorities of the business and expends its resources, pursues projects and provides information consistent with them. Almost every company we have worked with recognizes that IT and business priorities must be tightly linked.

About the Authors

David Shpilberg is a senior adviser to Bain & Company.Steve Berez is a partner with Bain in Boston.Rudy Puryear is a Bain partner in Chicago and leader of Bain’s Global IT Practice.Sachin Shah is a Bain partner in London. Comment on this article or contact the authors through smrfeedback@mit.edu.

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