This paper examines whether an IT (Information Technology) strategy emphasizing the use of latest technology is the best way to support an overall business strategy. It will answer this question by drawing on five highly relevant sources. The above quotes suggest that IT plays a major role in corporate accomplishments, but this relationship is problematic.
Back in the 1960s, when technology was not so refined, IT people spent a lot of their work time just attempting to make the computers work, and did not have much time for thinking about business goals. Yet today, IT executives have long been preoccupied with alignment, which means how closely the IT strategy of an organization is integrated with and drives its business strategy. (Berkman, 2001) A survey found that one of CIOs’ (Chief Information Officers’) greatest challenges is to align IT with company goals. According to another survey, almost half of CFOs (Chief Financial Officers) rate the alignment between business goals and IT processes as weak. (Jahnke, 2004) A third survey indicated that no fewer than four out of five CIOs are out of alignment with the strategic goals of their enterprise. (Holmes, 2007) A fourth survey discovered that IT executives reckon alignment as very important, but largely unachieved. Although most companies try to do it, very few do it well. (Deloitte, 2004).
Lodahl and Redditt have developed an alignment improvement model consisting of four areas: “functionality and quality of IT, customer satisfaction, the organization's culture, and planning and interaction between IT and business” (cited in Baker, 2005). Since the literature chosen for this paper predominantly talks about the first and last areas, I will focus on those here.
The engineering perspective would probably maintain that IT performance and IT strategy as such are pivotal for the company’s success. Courtway views investments in IT as falling into three progressive categories, which reflect levels of alignment:
- Keeping the lights on [i.e., maintaining the standard of IT at present level].
- Providing incremental improvements toward business goals.
- Radically changing [IT] processes and their subsequent metrics through transformational investments. (Cited in Jahnke, 2004)
The implication seems to be that the more IT is aligned toward business goals, the more useful it becomes for the company. For instance, Berkman mentions that the Web has tightened competition between companies: their presence, functionality and image on the Web has become important. There are huge stakes involved, and failure in this regard can be ruinous. (Berkman, 2001) Technology is deemed a worthy contributor to business strategy and business operations. Almost all of the respondents in the Deloitte survey predicted that if the IT strategy is developed to serve the company strategy, a moderate or significant favorable bottom-line impact can be achieved by the business. (Deloitte, 2004) One survey of CIOs confirms that “Alignment brings the money”. Aligned IT more often enabled obtaining new revenue streams and creating a competitive advantage than non-aligned IT. (Holmes, 2007; see also Baker, 2005) Berkman (2001) adds that IT initiatives can be used to attract customers and beat the company’s competitors.
There are dissenting voices as well. Michini states that many business managers who have little knowledge of technology nevertheless rely on technology to drive the business. Their belief is that enterprise resource planning, software configuration management, knowledge management, data mining, and an assortment of software will boost revenue via increased efficiency or new customers. He maintains that this happens sometimes, but in most cases, the costs are too high in relation to the benefits. (Cited in Jahnke, 2004) Holmes (2007) writes that even aligning IT processes and projects with the business strategy has its risks, because it places the IT department in the midst of market battle where it is quite common to fail.
Michini continues his criticism by saying that many IT executives base their choice of a particular technology on its performance per se, without considering its business relevance. In a similar vein, Courtway claims that the problem with most IT plans is that they are written in IT terms, when in fact they should be written in business terms — detailing how each aspect of IT benefits the company strategically or tactically. (Cited in Jahnke, 2004) According to another survey, IT executives regard a joint IT/business agenda as significantly benefiting productivity and profitability (Deloitte, 2004). It is less likely that this would be the case if the IT agenda was separate from the business strategy.
Although not a prominent issue, the organizational culture also has some bearing on IT supporting the company strategy. According to Holmes, aligned CIOs often work in an organization which highly values innovation. This is not enough, however. The top executives should also create an encouraging environment in which the IT and other executives swiftly “recognize what isn’t working, learn from it and recover”. (Holmes, 2007)
Another central aspect to consider is the human factor. Berkman (2001) points out that many companies do not comprehend the challenge and salience of recruiting and keeping gifted IT employees. This also applies to IT executives. If CIOs match their activities with the goals of the firm — such as building brand loyalty, entering new markets, or ‘just’ growth — they will certainly increase their chances for success (Holmes, 2007) — and also the company’s chances for success. CIOs are more and more viewed as business leaders, because their position in executive committees allows them to drive business strategy and attain business goals (Berkman, 2001). Those CIOs who have managed to align IT with the strategic goals of their organization commonly have a strong business background (Holmes, 2007). Indeed, the best CIOs are strong persons knowledgeable about both technology and business (cited in Jahnke, 2004).
However, the Deloitte survey revealed that it is difficult for organizations to achieve alignment and success if the corporate executives are unable to agree on the role of CIOs and technology. Likewise, alignment can be impeded if the IT executives are confused about how the desired roles of IT are different from its actual roles. (Deloitte, 2004). Sometimes, there is even disagreement between those who lead the technology and those who lead the business as to what alignment means. The utilization of technology could greatly enhance some companies, but they believe they are already perfectly aligned. On the other hand, some other companies possess the most advantageous technology, but do not even know it. (Cited in Jahnke, 2004) Reaching a mutual agreement can thus be of great significance.
It is Holmes who makes it explicit that alignment is more of a social than technical phenomenon, since the fit between IT processes and company strategy hinges on how well the CIOs communicate with their colleagues. They should be able to fully explain what IT does and why it is salient for the business strategy. (Holmes, 2007) This is echoed by Courtway, who says that the CIO needs to make sure that there is a high return on the other executives’ investment, and to report to them how the IT department has contributed to their goals (cited in Jahnke, 2004). Alignment thus requires collaboration between the IT department and other departments within the corporation; otherwise the firm may even outsource e-business due to the slowness of internal service (Berkman, 2001).
The concept of IT efficiency is now outdated; the concept of IT effectiveness is more relevant today — meaning that IT should not be managed on the basis of cost, but on the basis of what kind of a contribution it can make in the business. This is directly related to how well IT aligns with business objectives. (Baker, 2005) The paper at hand looked at whether a business strategy is most effectively supported by an IT strategy stressing the use of latest technology. According to the literature reviewed, having cutting-edge technology in a company is certainly a plus; it is hard to imagine that an organization using old technology could be very competitive in the modern marketplace. The more closely IT is aligned with business goals, the more likely the company is to reap the benefits of technology. This will not happen if the IT department is not in touch with the corporate reality.
Overall, however, the literature suggests that the human side of the equation is more important than technology: IT and an IT strategy are most beneficial when communication and collaboration between the IT department and other departments in the corporation function properly. This — along with the Chief Information Officers’ expertise in both technology and business — is what best ensures alignment and thus best contributes to the achievement of company goals. In terms of Lodahl’s and Redditt’s model, research has demonstrated that for improving the business contribution of information systems, planning interaction is more important than customer satisfaction, the organizational culture, or the quality of IT. The crux of the matter is to get IT and business executives together to jointly decide on IT projects as well as their prioritization and resourcing. (Cited in Baker, 2005)