These last 20 years, Information Technology (IT) reshaped the world : business, media, politics, government, defence,… Companies undertook great changes especially around 2000 before the internet bubble went burst. Even if the changes were visible and obvious, statistics didn’t demonstrate a clear link between IT investment and profitability. Several models have been build, (ex : Hytt and Bryjolfsson 1996), the results were not clear and they were too complex for being used by company management.
This brought forward the balanced scorecard (BSC) method from Norton and Kaplan and the IT BSC which simplifies the question. With BSC, it is up to company managers to identifying the links and the effective actions to settle for implementing company strategy. BSC requires that management shares point of views regarding strategic hypothesis, activities drivers, results and indicators. In this case, the model produced is specific to a company, its value is empirical and depends on managers experience.
But strategy is not bounded to produce directions for managing organisations, its goals are identifying and developing strategic capabilities which strengthen company position on its markets.
These are :
- resources, available factors that are owned or controlled by the firm,
- competencies, firm’s capacity to deploy resources, usually in combination, using organizational processes, to effect a desired end, capabilities,
- Organizational capability which refers to the strategic application of competencies
Special sets of resources which fit together are Infrastructures, for example Information system. They are long to build, difficult to copy, and then able to bring a competitive advantage for 5 à 7 years.
For more than 10 years, Information System (IS) professionals stressed that Strategic Alignment was the most important thing to achieve with IS and IT. They pointed out that it was critical for company strategy success.
This post will address the questions of :
- What is strategic alignment ?
- Is it really critical ?
- What are the trends ?
What is SA within balanced scorecard framework ?
When Norton and Kaplan created Balanced ScoreCard, they would like to provide an effective tool for helping companies to define their strategy and govern execution. Governance comes from agency theory which studies relationships between an agent and shareholders, Its main purpose is the delegation of an organisation management. therefore SA extent include also infrastructure management.
The process foundations are the shareholders or the sponsors giving directions to delegate and agreing on KPI to check how these directions have been followed. The alignment results also from the cascading process where Executive board scorecard becomes an entry to subordinated entities scorecard. This process insures that all entities of an organisation contribute to its strategy.
A special entity scorecard has been promoted by ITGI to support IT Governance : IT balanced scorecard. Along with cascading process, IT scorecard model IT contribution to company strategy, which is a view of strategic alignement. Moreover, it is supported by Cobit 4.1 which supplies a repository of goals and KPI.
What is SA within the Henderson and Venkatraman model ?
This is one of the most referenced model in organisational studies. Is it because it described SA as a process which fits exactly with current management culture or because it always gives explanation of operational links discovered between operations and IT ? Probably the first hypothesis since too few quantitative studies have been done to really challenge the model.
This model is interesting because it described SA as a top-down and a bottom up process. The top-down way is more or less equivalent to an IT BSC approach, when the bottom-up way is an innovation channel driven by technical progress.
This was a strong belief of 2000 years, but it didn’t meet expectations since most of innovations have come from outside of companies. Finally, this process flow carried more constraints than opportunities.
That’s why R&D activity changed radically and get outsourced the most of time.
What is SA in Enterprise Architecture frameworks ?
Main concern of Enterprise Architecture frameworks is SA which they defined as keeping business requirements and implemented solutions consistent. These frameworks depict process and organisation which are able to ensure consistency from local point of view, the projects, and from global point of view, the enterprise in order to managing reuse between projects.
They provide tools which make effective links between management views, business analysts views, architects views, production views, project views… The links are drawn from requirements : business, information, application, technical. Requirements fuel architecture work which leads to solutions decision and migration plans.
Design, solution and change management processes are directed by maxims or principles from top management and interoperability and technical issues are directed by standards repository.
In France, there is a practice of IS planning called ‘Urbanisme”. It try to establish links between business requirements and solutions by the way of information architecture. Less comprehensive than Enterprise Architecture, it tends to desappear.
What is SA in Portfolio Management ?
Portfolio management goal is to manage investment in IT and IS. Portfolio management could address projects, applications or services according to company perception of their IT and IS assets. Investment decision is taken when a balance is found between investment and gains.
The main question is to reconcile tangible and intangible gains in order to establish the balance. It appeared quickly that tangible gains are not obvious since cost control maturity is rather poor in IT and IS departments. Then intangible gains is even more complex to establish, especially links with tangible gains.
This is where SA is used. For example Val IT from ISACA use Cobit to establishing intangible gains. If investments improve IT or IS performance measured with Cobit KPI indicators, then it is worth to do, if tangible gains are green as well.
Strategic alignment concept thrived in a lot of theoretical studies which adopt different points of view. It was called integration (Weilland Broadbend, 1988), fit (Porter, 1996), linkage (Henderson and Venkatraman, 1993), harmony (Luftman, 1996), bridge (Ciborra, 1997) and fusion (Smaczny, 2001).
Michael Porter in “What is Strategy” (1996) define strategic alignment as a fit between company activities which could be of 3 types : simple consistency, reinforcement, optimisation of effort. This fit is important not only to get a competitive advantage, but to make it sustainable.
There is also Paul Strassman definition in his paper of 1998 : “alignment is the capacity to demonstrate a positive relationship between information technologies and the accepted financial measures of performance”. This is the Governance point of view applied to IT the same as IT BSC.
The Henderson and Venkatraman model provides another definition based on process which link company activities
related to strategy and organisation, in the field of business and IT.
In conclusion, when SA concept appeared several years ago, strategists thought that IS and IT was critical for a company to get a competitive advantage. Today, large chunks of IS and IT are outsourced, the same solutions have pervaded most of companies around the world. This lead Nicholas Car to write few years ago that “IT does not Matter”.
In the same time, SA concept remains theoretical and too much blurred. You could not say when you are aligned and when you are not. How could managers really use it ?. Then, it is time to say : “Strategic alignment does not matter”
One step forward
In today business context, CEO concerns focus beyond external enterprise environment, it addresse also internal topics such as scale economy, reuse of resource and know-how, organisational efficiency for which enterprise infrastructures management is a critical factor of success.
Instead of Strategic alignement, IT and IS needs to rely on comprehensive and practical management framework.
Business activities are viewing information systems like usage and services. If they need changes on services, business activities release requirements.
Usages and services are supported by an infarstructure which is a consistent collection of tangible and intagible resources and competencies.
I will detail this management framework in a next post.