Lecture 6 Strategic Alignment Techniques

BIS3000 Information Systems & Strategic Management

BIS3000

Information Systems and

Strategic Management

Dr Matthew Montebello

matthew.montebello@um.edu.mt

Lecture ScheduleLecture

6. Strategic Alignment Techniques 2nd June 09

7. eBusiness 9th June 09

8. Knowledge Management 16th June 09

CW1 Deadline - Presentations

9. Change Management 23rd June 09

CW2 Deadline - Report

10. Protecting IT Assets (Wed)1st July 09

11. Review 7th July 09

Lecture 6Strategic Alignment Techniques

1. What is Strategic Alignment

2. Important of Alignment

3. Strategic Alignment Maturity Levels (5)

4. Maturity Level Criteria

5. Strategic Alignment Model

6. Alignment Interaction Process (6)

7. Execution / Assessment

Business Strategy Choices

Role of IT Managers in Strategy

Business Environment

Balanced Scorecard

1. What is Strategic Alignment

• The matching up of two or more organisational strategies in order to ensure the overall objectives of the organisation are met.

Example:– If a systems administrator is providing a given

manager with the information they need in order that they can take the decisions they have to take then the two are aligned in terms of information delivery

• What brought about the need for Strategic Alignment?– At strategic level the linkages can appear very

complicated

– Importance of IT and Business Environment

Two Meanings of ‘Alignment’

Making sure that:

1. The IS is a good fit for the business strategy

– (i.e. business strategy leads IS strategy)

2. The different functional elements (i.e. separate

departments) are each integrated with each other -

including their individual IS - and jointly serving the

overall business needs.

Note that some organisations may have developed separate IS strategies for each

department

Information Strategy Alignment

Information

Strategy

Business

Strategy

Organizational

Strategy

Strategy Alignment Teaser …

Today’s Business Environment

• Increased globalization

• Increased competitive pressure

• Frequent mergers

• Rapidly changing technology

• Evolving patterns of consumer demand

Competitive Advantage Today

• Unsurpassed relationships with one’s customers and suppliers

• Unique and adaptable business processes

• Ability to harness information and knowledge of employees

• Must become “Change Leaders”

IT Management Should:

• Be knowledgeable about how new IT technologies can be integrated into business

• Be privy to senior management's tactical and strategic plans

• Be present when corporate strategies are discussed

• Understand strengths and weaknesses of technologies and implications

So what is Alignment so important?

2. Importance of Alignment

• Effectiveness

• Efficiency

• Link Technology and Business

• Optimise the Business model

• Ensure success

There exist different levels of Strategic Alignment … different maturity levels …

IT as Architects of Alignment

• Knowledgeable about new technologies

• Privy to tactical and strategical plans

• Be present in corporate strategy discussions

• Understand technology strengths and weaknesses

Six Key Enablers to Alignment

• Senior executive support for IT

• IT involved in strategy development

• IT understands the business

• Business-IT partnership

• Well-prioritized IT projects

• IT demonstrated leadership

Six Inhibitors to Alignment

• IT/business lack close relationships

• IT does not prioritize well

• IT fails to meet commitments

• IT does not understand business

• Senior executives do not support IT

• IT management lacks leadership

Business Strategy Choices

• Selection of business goals

• Choice of products and services to offer

• Design and configuration of policies

• Appropriate level of scope and diversity

• Design and organization structure and administrative systems

Three Business Strategy Elements

Business Strategy Elements : Vision

• Where the company wants to go

• What the company aspires to be

• Clear, compelling, exciting

• Big Hairy Audacious Goals (BHAG)

Business Strategy Elements : Strategy

• How vision will be accomplished over specified time period

• Use of checkpoints• Benchmarks to check strategy effectiveness• Aligned with company mission and core values• Provides architectural bridge between mission and

vision

Business Strategy Elements : Mission

• Reasons the IT function exists

• Concise statement of what business the group is in

• Purpose and function of IT

• Review to identify for themes and ideas

• Identify core values

3. Strategic Alignment Maturity Levels

1. Initial/Ad Hoc Process– Business and IT not aligned

2. Committed Process– Organization commits to becoming aligned

3. Established Focused Process– Established and Focused on business objectives

4. Improved/Managed Process– Reinforcing concept of IT as “Value Center”

5. Optimized Process– Integrated/Co-adaptive business and IT strategic

planning

Level 1 – Initial/Ad Hoc Process

• Lowest level of strategic alignment

• Understanding of IT by business is low

• Investment in IT is underleveraged

Level 1

Level 2 – Committed Process

• Committed to begin process for Strategic Alignment Maturity

• View IT as an asset to the organization

• Directed at local situations or functional organizations

• Alignment at the level is difficult to achieve

• Potential opportunities are recognized

Level 2

Level 3 – Established Focused Process

• Concentrates on governance, processes, and communications toward specific business objectives

• Needs better governance to invest in IT

• Focus on business processes that generate long-lasting competitive advantage

• Effectively communicate its vision and get “buy-in” from employees and management

Level 3

Level 4 – Improved/Managed Process

• Leverage IT assets on an enterprise-wide basis• Focus on driving business process enhancements to

gain competitive advantage• Views IT as an innovative and imaginative

strategic contributor• Capitalize on information and knowledge• Utilize IT assets by deploying enterprise-wide

architecture

Level 4

Level 5

Balanced Scorecard

A strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide.

Employed to align business activities to the:

• vision and strategy of the organization,

• improve internal and external communications,

• and monitor organization performance against strategic goals

Visual of Balanced Scorecard

Adapted from The Balanced Scorecard by Kaplan & Norton

Why a Balanced Scorecard ?

• Increase focus on strategy and results

• Improve organizational performance by measuring what matters

• Align organization strategy with the work people do on a day-to-day basis

• Focus on the drivers of future performance

• Improve communication of the organization’s Vision and Strategy

• Prioritize Projects / Initiatives

The Balanced Scorecard by K2 Performance Group

4. Strategic Alignment Maturity Criteria

a) Communications

b) Competency/value measurements

c) Governance

d) Partnerships

e) Scope and Architecture

f) Skills

a) Communications

• Ensure ongoing knowledge sharing

• Use people in formal inter-unit liaison roles

• Cooperation among business-IT partners

• Trust and openness between units and IT

b) Competency/Value Measurements

• Service levels that assess commitment of IT

• Tie service levels to criteria

• Take action based on measurements of performance factors

• Understand factors that lead to missing criteria

• Understand what can be learned to improve the environment continuously

c) Governance

• Clearly defined decision-making authority

• Integrated enterprise-wide strategic business plan

d) Partnership

• Relationship between business and IT organizations

• Give IT function equal role in defining business strategy

• Perception of contributions

• Partnership should enable and drive change

e) Scope and Architecture

• Go beyond back office and into front office• Assume role supporting flexible infrastructure• Evaluate and apply emerging technologies effectively• Enable or drive business processes and strategies• Provide solutions customizable to customer needs

f) Skills

• Include all human resource considerations for organization

• Consider cultural and social environment

Role of IT Managers

• Set of decisions made by IT and senior management

• Deployment of technology infrastructures

• Relationship of technology choices to business choices

• These involve:– Strategic (Develoment Policy)

– Tactical (Control Policy)

– Operational (Implementation Policy)

Aligned IT Strategy

• Intimate understanding of customers and evolving needs

• Managing knowledge- and information-based asset management

• Continuously innovate strategically relevant new processes

• Coordination of activities involving people, procedures, and technology

IT Roles in Strategy

• Transformation driver– Create and exploit new markets

– Link customers to firm

– Define new standards of excellence

• Enabler of transformation– Interconnect people and processes

– Span organization boundaries

– Bridge geographical distances

IT as Inhibitor

• IT strategy not aligned with business strategy

• Over-emphasis on technology

• Failure to recognize effective use of IT requires business process change

Three Management Subcultures

• Executive– Focused on maintaining financial health

• Engineering– Focus is outside organization

– Views humans as source of potential error

• Operator– Based on human interaction

– Frequently operate at cross-purposes

5. Strategic Alignment Model

Internal Business Domain

• Administrative Structure– Functional, matrix, decentralized, process-based,

geographic, or hybrid

• Critical Business Processes– Identification of salient processes

• Human Resource Skills– Acquisition and development of people skills

Strategic Fit

• Scope of Firm’s Business– Customers, products, markets, and competitors

• Distinctive Competencies– Core competencies– Critical success factors that provide competitive

advantage

• Governance of the Firm– Impact of regulatory agencies

Strategic Alignment Variables

• Scope of Firm’s Technology– Impact and support business strategy decisions

and initiatives

• Systemic Competencies– Technology capabilities

• IT Governance– Pursue relationships and alliances to obtain IT

competencies

Internal IT Strategy Domain

• IT Architecture– Selection of technology and infrastructure

– Models used to define data, information, networks, applications, and systems

• IT Organizational Processes– Critical to operation of IT organization

– Systems development, IT operations

• IT Skills– Acquisition and development of people

Components of Strategic Alignment Model (Henderson & Venkatraman)

• Business Strategy– Business Scope

– Distinctive Competencies

– Business Governance

• Organization Infrastructure and Processes– Administrative Structure

– Processes

– Skills

• Strategy– Technology Scope

– Systemic Competencies

– IT Governance

• IT Infrastructure and Processes– Architecture

– Processes

– Skills

Functional Integration

• Linkage between the IT strategy domain and business strategy domain

• Support requirements and expectations of business’ organizational structure and processes

Planning IT Strategy

• Sequence of activities that transforms current alignment state to future alignment state

• Actively involve IT staff in development of vision and strategies

• Strengthen degree of strategic alignment

Forming the Team

• Senior decision makers from corporate IT, business IT, and senior business management

• Include systems architect and CIO

• Establish join understanding

• Commitment to goals and objectives

“As-Is” State Description

• Specify both business strategy and organizational infrastructure

• Baseline for senior management and IT• Understand firm’s strategic positioning in IT

marketplace• IT governance• Facilitated interactive workshop sessions• 10-12 participants

SWOT Analysis

• Strengths

• Weaknesses

• Opportunities

• Threats

• Recommend strategies that ensure best alignment between external and internal environments

Strengths

• Distinctive Competencies– Critical success factors

– Core competencies

– Brand, research, manufacturing, product development, cost and pricing structure, sales and distribution channels

• Systemic Competencies– Capabilities and success factors important to

strategies

Weaknesses

• Observation of existing business and IT problems

• Weaknesses will emerge from observation

• Effect on firm’s strategic positioning

Opportunities – Ansoff Matrix

Ansoff Matrix Positioning Strategies

Delta Model

Threats

• Rivalry Between Existing Firms

• Risk of New Entrants

• Power of Buyers

• Power of Suppliers

• Threat of Substitutes

Environmental Factors

• Political and Legal Environment

• Macroeconomic Environment

• Social Environment

• Technical Environment

• Demographic Environment

Strategy Alternatives Analysis

Scenario Planning Grid

6. Strategic Alignment Process

This ‘good fit’ does not happen automatically.

Alignment is hard work and requires systematic

evaluation. In this lecture we look at two different

approaches that can help:

• Customer Orientation

• Contingency Approach

Such a process requires initial assessment

Customer Orientation

Lockamy and Smith (1997) advise managers to ensure that:

• Strategy is driven by customer needs and

expectations;

• Processes selected for redesign by IS create value

for the customer;

• IS supports those processes in a way that supports

the strategy.

Contingency Approach

This is based on the idea that information systems should reflect the organisation characteristics and business type in which they are used. The variables are:

primary tasks of the organisation

– routine or non-routine

degree of interdependency between those doing the tasks

– high or low

environment of the organisation

– stable or unstable

Primary Objective of Assessment:

• Agree that criterion needs to be improved

• Agree that a criterion is good, but can be better

• Disagree with how good/bad a criterion is

Six Step Process

• Set the Goals and Establish a Team

• Understand the Business-IT Logic

• Analyze and Prioritize Gaps

• Specify the Actions (Project Management)

• Choose and Evaluate Success Criteria

• Sustain Alignment

7. Execution / Assessment

• Execute the strategy• Commitment and engagement of senior business

management– Must occur prior to implementation planning

• Strategic Alignment Maturity– Ability to adapt in harmonious fashion

• Adoption of Measurement Criteria– Measure effects in several different dimensions

Periodic Review

• Ensure initial assumptions are correct

• Ensure implementation of plans are on schedule

• Measurements are captured and reported

Identifying Industry Key Success Factors

• Answers to three questions pinpoint KSF’s– On what basis do customers choose between

competing brands of sellers?

– What resources and competitive capabilities does a seller need to have to be competitively successful?

– What does it take for sellers to achieve a sustainable competitive advantage?

• KSF’s consist of the 3 - 5 really major determinants of financial and competitive success in an industry

Examples of Key Success Factors

• Design talent

• Fast concept-to-production cycle

• Low-cost manufacturing efficiency

Assessing Strategic Alignment Maturity

• This does not fit the organization, or the organization is not very effective

• Low level of fit for the organization• Moderate fit for the organization, or the

organization is moderately effective• Fits most of the organization• Strong level of fit throughout the organization, or

the organization is effective

Next Lecture

eBusiness impact on strategy

In preparation you should all read……

Chaffey & Wood pages 93-103

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