Executive Summary

Information Technology (IT) must play a transformative role in the 21st century corporation. For this to happen, the IT department must evolve from reactively aligning with the latest business strategy to proactively creating business value using IT. This paper proposes a business/IT strategy integration framework for generating business value using IT and communicating that value using business terms instead of IT terms. The fundamental insights are:

1. The goal of IT is to generate business value through the application of information technology2. To achieve this goal, the IT department must work proactively to integrate business and IT

strategy development, simply aligning IT with business strategy is not sufficient3. CIO should be able to generate a business strategy, not just ask for one4. The complexity of integrating business and IT strategy development requires a framework that

supports both analysis and synthesis of these efforts5. business strategies evolve (sometimes radically) over the lifetime of the business6. some IT decisions can be independent of business strategies (mainly around choice of

technology and service model)7. significant literature exists in the areas of business strategy, IT strategy, and applications of

technology to business needs, this literature should be leveraged8. business strategy and IT strategy should be linked explicitly through a business model9. The proposed Business/IT Strategy Integration Framework meets the requirements above by

a. Providing for the generation of business strategyb. Providing for the generation of IT strategyc. integrating business and IT strategy via the business modeld. allowing for both top-down (business-driven IT strategy) and bottom-up (IT-driven

business strategy) strategy generation

Abstract

Information Technology (IT) must play a transformative role in the 21st century corporation. For this to happen, the IT department must evolve from reactively aligning with the latest business strategy to proactively creating business value using IT. This paper proposes a business/IT strategy integration framework for generating business value using IT and communicating that value using in business terms, rather than IT terms. We instantiate the framework from the existing extensive literature on business strategy, business models, and IT services. We demonstrate the use of the instantiated framework using case studies. We also use the instantiated framework to synthesize an integrated business and IT strategy. Finally, we outline areas for further development of the framework.

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1 Background

1.1 The evolution of the CIO role and the goal of the Information Technology function

There is a consensus building that the role of the CIO must evolve if it is to survive. In the Electronic Data Systems whitepaper, “The Future Multidimensional CIO” (EDS, 2007), the authors make the case for several roles that go beyond the traditional technology caretaker role. Deloitte (2007) uses survey results to identify a gap between the traditional CIO role and what the CEO wants and needs from the IT department. McKinsey (Bloch and Hoyos-Gomez, 2009) presents the results of a survey conducted to identify how companies gained competitive advantage through IT. Other authors (Lovelace, Soat) have identified as critical the need to use IT to drive revenue enhancement in addition to cost savings. The 2008 European CIO conference included a number of presentations on leveraging IT for business benefit. The conclusion of these authors is that the role of the CIO must evolve to meet the new goal for the IT function:

creating value through the application of information technology

Creating value via information technology is different from the traditional IT goal of running the IT assets in support of the business. Creating value requires an integrated approach to analyzing and synthesizing business and IT strategy. The approach must include these criteria:

1. an ability to appreciate and influence business strategyTo create value, the existing business strategy must be understood. However, IT must be ready to go beyond appreciation of strategy and influence strategy in two cases: (1) where strategy does not exist, or (2) an IT capability has the potential to create a new strategy. If a business strategy does not exist, IT must proactively work with the business to generate one. There is also the potential for a new or existing IT-driven capability to create a new opportunity that was not a part of the original business strategy. In these cases, IT must influence the business strategy.

2. encapsulation of IT strategyNote that the generation of IT strategy raises the question of how and how much of the strategy to expose to the business. Most business people are not interested in the difference between Windows Hypervisor and EMCs VMWare, yet the decision to pursue a virtualization strategy and which vendor(s) products to implement are major components of an IT strategy. There are then two reasons for encapsulation of IT strategy: (1) separate technology choices from the business needs, where possible and (2) improve robustness to changes in business strategy. The nature of technology is that it evolves rapidly. Today’s hot technology can be tomorrow’s obsolete one. Vendors appear, disappear, merge, and split with bewildering rapidity. Ideally, the business value being created by an IT capability should be independent of these inevitable changes. Encapsulation attempts to meet this need. In addition to technology changes, the reality is that business strategies change for a number of reasons:

competitor actions: the competitive landscape will change, sometimes as a result of strategic moves, sometimes regardless of strategy moves, forcing strategy to change

customer evolution: customer needs change, so the business strategy may as well leadership change: a new leadership team is often hired to create a new strategy. regulatory issues: governmental actions can force changes to business strategy economic issues: unforeseen macroeconomic factors can force changes to business strategy the strategy succeeds: a successfully executed strategy may make that strategy obsolete the strategy fails: a failed strategy must be replaced with a new strategy

There is literature emerging on the topic of “strategic agility”—the idea that strategy development and execution must be nimble for any and all of the reasons above (REFERENCE). Recognizing

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this reality, a reasonable approach would be to generate value-creating IT strategies that are robust across a range of anticipated business strategies.

3. explicit coupling of business and IT strategyEven if a business strategy exists, it may or may not be straightforward to align the IT strategy with it. If, for example, the business strategy states that “electronic commerce will be the primary means of interaction with our customer base”. The IT strategy would therefore focus on delivering an e-commerce capability. Note that even in this example, there is still no clear answer for IT organization trying to decide between building a datacenter or leveraging cloud computing, or which vendor’s virtualization solution to pick, or whether and how to deploy a social networking capability. Worse business strategy often consists of much more generic statements: “be the best in customer satisfaction”, “create products that differentiate us in the marketplace”, “be lowest cost, relative to the competition”, etc. Contrast these statements with the language of IT which is in terms of technologies (CDMA, SATA, Java, etc) and capabilities (hosting, application development, deskside, and network services, etc). Integration of business and IT strategy requires something that can relate the two.

1.2 Related work

Several sources address aspects of the value creation via IT concern. In Benson (2004), the authors present a “Strategy to Bottom Line Value Chain” which consists of a set of processes to map business strategy to IT strategy and IT projects. Their approach addresses both top-down business-driven IT strategy and bottom-up IT-driven business strategy. However, it provides only one method for capturing business strategy: strategic intentions. Their approach does not address the issue of encapsulating IT strategy. Finally, the coupling mechanism between business and IT strategy is implicit. As an example, they give a business strategic intent as “”Ensure that customer service is the best in the industry”. The matching IT strategy is “Collect and maintain complete information on every customer action”. What’s lost in this implicit mapping is the context— there are several criteria for having the best customer service, without more information, it is not clear how tracking every customer interaction was selected as opposed to, say, “provide improved analytical capability on customer warranty claims”. Our approach emphasizes the use of a business model to explicitly create the coupling.

Weill and Broadbent (1998) use an top-down approach to match business and IT strategies. Like Benson (2004), they start with strategic intent. However, they further analyze these intents to develop “business maxims” which are more implementation-oriented statements. These business maxims are then used to the develop supporting IT maxims which then lead to IT strategy. This approach does not address bottom-up opportunities for IT to drive business strategy. As with Benson (2004), this approach uses only one method for capturing business strategy via strategic intent. Encapsulation of IT strategy is not discussed, however, a services model, which is the encapsulation mechanism we advocate , is used. The coupling between business and IT strategy is implict via the mapping of business and IT maxims. The research at MIT, on which this work was based, has continued. More recent publications, such as Broadbent and Kitzis (2005), provide refinements, but the overall approach remains essentially the same.

Cliff Berg (2008) emphasizes the need for a business model to connect business value with IT implementation efforts. His model consists of the income from the investment, the cost of the investment, as well as the value of unforeseen opportunities enabled by the investment and the cost of enabling those unforeseen opportunities. He also emphasizes the notion that the goal of IT projects is to create a business capability, not just a piece of IT.

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Martin Curley (2004) describes the approach used at Intel to manage IT for business value. The main artifact is a 3x3x3 cube with axes for “IT efficiency”, “Business Value”, and “Financial Attractiveness”. A proposed project is rated against each of these axes using a set of criteria. Coupling of business and IT strategy is implicit in the scoring criteria used for the 3x3x3 cube. This work does not discuss how business strategy is captured. Encapsulation of IT strategy is not addressed.

CIO Magazine (www.cio.com) offers an annual “Top 100” list of IT projects that have generated business value. The CIO 100 project descriptions provide a rich source of data on IT technology options. The projects are classified in terms of the type of technology (mobile, collaboration, CRM, SOA, etc.), the business function impacted (R&D, manufacturing, customer service, etc.), and the business goal for doing the project (operational, customer, financial, strategic/competitive advantage). The classification scheme addresses our criteria around understanding business strategy, IT strategy, and the coupling between the two. However, the categories are not defined and are not consistent from year to year.

1.3 The need for a Business/IT Strategy Integration Framework

The goal of IT is to create value through the application of information technology. To achieve this goal, the IT department must work proactively to integrate business and IT strategy development, simply aligning IT with business strategy is not sufficient. The complexity of integrating business and IT strategy development requires a Business/IT Strategy Integration framework with the following properties:

a. a way to capture, create, and/or modify business strategyb. a way to capture, create, and/or modify IT strategyc. a way to integrate business and IT strategy top-down (i.e., driving IT strategy from business

strategy) and bottom-up (i.e., driving business strategy from IT capabilities)d. support for a variety of business and IT strategy approaches (which we call instantiations)

1.4 Summary and Overview

To create business value, the CIO must accomplish 3 things:1. proactively engage in the analysis and synthesis of business strategy2. continue to develop and execute the IT strategy3. link the two strategies into an integrated strategy

In the next section we present a framework, the Business/IT Strategy Integration Framework, that meets these needs. We demonstrate the framework using several case studies. While the case studies were not created specifically for the framework, the fact that we can use the framework to analyze them demonstrates its power.

We have organized the remainder of the paper as follows:Section : We present the Business/IT Strategy Integration Framework and give an example of how the framework can be used to analyze a business case study.Section : We discuss the elements of the framework and different ways that the elements can be instantiated.Section : We provide mappings to a critical element of the framework, the business modelSection : We use the framework to analyze several case studiesSection : We use the framework to synthesize an integrated business/IT strategySection : We propose some extensions for future work

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2 The Business/IT Strategy Integration Framework

2.1 Framework overview

In the previous section we made the case for integrating business and IT strategy, as opposed to simply aligning them. We have created the Business/IT Strategy Integration Framework to meet this need. Figure 2.1 shows the framework, which contains the following elements:Element 1: capture the capabilities of the companyElement 2: capture the environmental stresses impacting the companyElement 3: capture the strategic move(s) that is/are being taken or likely to be taken by the companyInput/Output: capture the initiatives that support the strategyElement 4: capture as changes to the business model (via initiatives) required to support the strategyElement 5: capture the IT Services strategy to support the initiatives, including accommodating new technology directions that are transparent to the business as well as technologies that can innovate the business model and create new strategies

Capture/alter environmental conditions

Create or modify strategy

Create or modify the Business Model

Capture/alter business capabilities

Create or modify IT Services

Technology options

Deployment options

initiatives

Analyze/ Synthesize IT Strategy

Analyze/ Synthesize Business Strategy

Couple Business and IT Strategies

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In the previous section, we identified three critical issues with integrating business and IT strategy: developing business strategy, developing IT strategy, and relating the two. The table below shows how the elements of the framework address these issues.

Issue Framework Element1. Analyze/synthesize business strategy Element 1: capture/alter environmental conditions

Element 2: capture/alter business capabilitiesElement 3: create or modify business strategy

2. Analyze/synthesize IT strategy Element 5: create or modify IT Services strategy3. Couple business and IT strategy Element 4: capture changes to the business model

Note that the framework operates bi-directionally, not just top-down. That’s because the IT strategy can impact the business model, which then impacts the strategies, which alters the external landscape as well as the need for internal capabilities. One author refers to this as having IT generate “digital options” which are then available to the firm.

3 The Business/IT Strategy Integration Framework in practice

We demonstrate the framework by analyzing a case study on Aetna Insurance. For now, we will rely on an intuitive understanding of the various elements of the framework, their relationships, and how they can be instantiated. More detail on the elements, instantiations, and mappings between them will be provided later.

3.1 Case Study: Aetna (Gibson, 2006)

Aetna completed a turnaround that started in 2001 and achieved most of its objectives by 2005. The CEO who was brought in for the turnaround identified the environmental conditions affecting the business (poor relationships with physicians and patients, inadequate segmentation of the customer base) and lack of capabilities (slow operating processes and unprofitable pricing). Given that the company was in no position to proactively move against the competition, we classify their strategy as holding ground—keep the business that they had. The strategy was supported by some key initiatives:

The operating process issues were addressed by integrating and upgrading the internal systems, partly through acquisition and partly through the deployment of a services-oriented architecture.

The customer segmentation issue was addressed via a new management information system. In terms of the business model, these initiatives made improvements in fulfillment & support, core processes, and information & insight. In IT Service terms, two services were provisioned: applications service and electronic management of information. The CEO also called on IT to provide a “Holy Grail”—something to differentiate Aetna in the marketplace. IT achieved this quest with an online diagnostic tool, the Aetna Navigator. This tool also helped the relationship issue with doctors and patients. The Aetna Navigator was profiled in BusinessWeek (Weintraub, 2006). Aetna continues to build on this tool (NYTimes, 2009).

A summary of the case using Business/IT Strategy Integration Framework terminology is given in Table 2.1. In summary, the business and IT strategies of the Aetna turnaround were more than just aligned, they were integrated, one impacting and reinforcing the other. The Business/IT Strategy Integration Framework captures the essential elements and interrelationships of this story.

Case Study: Aetna (Gibson, 2006)Timeframe: 2001-2005Environmental threats: poor relationships with physicians, customers, members;

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Internal weaknesses: inadequate operational processes; weak customer segmentation, lack of pride in the cultureStrategy: Defense, holding ground--improve services, price profitablyInitiatives: create executive management information system, acquisitionsBusiness model changes: Fulfillment & Support (Aetna Navigator online medical advisory tool) Core Processes (order processing) Information & Insight (customer segmentation)IT Service changes: 1.10 Application Service Provision (deployment of service-oriented architecture) 3.4 Electronic provision of management information ?.? Web-based service, portal

Table 3.1 Case Study Summary: Aetna (Gibson, 2006)

4 Analysis and Synthesis of Business Strategy

In this section, we define each element of the framework and provide one or more examples of how that element can be instantiated.

4.1 Environmental conditions Element

Purpose: Environmental conditions are things outside the business that affect it. Types of environmental stress are:1. Change in customer (demographics, taste, etc)2. New competition3. Economic meltdown

Instantiation: A typical way to capture environmental conditions is as Opportunities and Threats as part of a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis (REFERENCE).

Other instantiations: Another option is to use a scenario planning approach that identifies trends and uncertainties (REFERENCE).

4.2 Business capabilities Element

Purpose: Business capabilities are the resources that can be leveraged in the pursuit of business goals.

Instantiation: A typical way to instantiate these are via a list of Strengths and Weaknesses, as part of a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis (REFERENCE). The list may leverage the subelements of the business model (SECTION REFERENCE).

Other instantiations: Another alternative is as a list of core competencies (REFERENCE). Strengths can also be captured as Driving Forces (REFERENCE).

4.3 Strategy Element

Purpose: The strategy element captures the process of creating or modifying strategy. The output classifies the essential features of current and potential business strategies.

Instantiation: We use a model from the book Strategy Moves by (Vasconcellos). The author classifies the business strategies as follows:

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Attack Strategies:Guerilla: attack where there is no competitionBy-pass: attack where competition is not, but could beFlanking: attack where the competition as some presenceFrontal: attack where the competition has a major presenceUndifferentiated circle: attack in multiple segments with synergistic offeringsDifferentiated circle: attack in multiple segments with distinct offerings

Defense Strategies:Signaling: warn off the competition before they enter the marketBarriers: establish obstacles for competitionGlobal service: enlarge the offering to include more support as required by the customerPre-emptive strike: in response to a competitors planned move, enter a segment that threatens the competitorBlocking: in response to a competitor entering a segment, enter that segment as wellCounter-attack: in response to a competitor entering a segment, enter a different segment that still threatens the competitorHolding the ground: fight the competition in your segmentWithdrawal: choose to leave the segment

This paper provides some examples (SECTION) of the various strategies in the case studies. The book also provides several examples of each strategy and guidance on when and how to use them. The interested reader is referred to the book for more information.

Other instantiations: The literature in the area of business strategy is vast and growing. Some other strategy models are given in Appendix (STRATEGY). One example is Porter who identifies three strategies: cost leadership, differentiation, and focus (REFERENCE).

4.3.1 strategy moves create initiatives which are changes to the business model

5 Analysis and Synthesis of IT Strategy

5.1 IT Services Element

Purpose: The IT Services element is required because separates the details of technology and support from the business. The business should see a set of offerings with a service level(s) and price(s). Inherent in this model is the recognition that business strategy can guide, but not drive, IT strategy.

1. same reasons as why alignment isn’t enough (section 1)Bad Strategy #1: Believe the Illusion of Forever. In your computer science studies, the focus was on building industrial strength systems that would stand the test of time. This perspective is totally inappropriate for a CRM system and leads to a series of progressively expensive mistakes. The reason: the business requirements for a CRM system are likely to change so radically over time that the system design life will be less than 5 years. In some industries, the tenure of a VP of Sales or a CMO is only 18 months, and even a CEO change is likely every few years. With each new leadership change will come shifts in market strategy, sales tactics, and product line emphasis. New regulations come into play, and new partnerships become important (or not). Everything you "designed in" the system at the outset is likely to become irrelevant or counterproductive years later. Even if you were to stay with the same CRM platform over time, there are good reasons to re-

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implement the system from scratch after 5 years. This short design life means you need to get the business payoff out of the system quickly. The payback for the investment should be less than 18 months in most cases—and any benefits projected beyond 5 years should be discounted almost entirely. Of course, you don't want to have a throw-away system that is too fragile to survive the inevitable revisions. But it's a big mistake to over-engineer your CRM system, the scope of data to be imported, and the range of external system integrations. Perfectionism doesn't pay. CRM On The Cheap: 5 Strategies That Backfirei

2. the largest gaps in the business model may or may not relate to the largest gaps in IT Services3. some choices are independent of business strategy (C++ vs Java, IBM vs HP, etc.)4. IT strategy can suffer from too many “targets of opportunity”, integrating business strategy can

focus the effort5. IT strategy can innovate the business model, therefore IT strategy can drive business strategy.

Example: This use of technology to drive innovation and growth can be seen at UK television station Channel 4. The channel, which must support itself without public funding (in contrast to the BBC), has been able to grow its business through new media. In addition to sustaining its strong core television channel, it has created new genre-focused digital channels and a broader portfolio of content. This has required building a diverse set of new and old technologies, including television, print, blogs, and social networking. Channel 4 has changed its revenue models in some areas, from traditional broadcast advertising to paying for downloads, for example.

Instantiation: We use the MIT Service Clusters (REFERENCE)Researchers at MIT have identified 70 services grouped in 10 clusters (REFERENCE). The clusters are:

1. channel management services: point-of-sale devices, kiosks, websites, call centers, mobile phones, mobile computing as well as

2. R&D services: identification of new technologies3. communications and services: network, broadband, intranet, extranet, EDI, 4. data management services: data warehouses, management information (dashboards), and

knowledge management services5. IT management and: project management, supplier agreements, portfolio planning, 6. security services: security policies and disaster recovery7. architecture and standards services: data, application, and communication architecture

specification and enforcement8. applications infrastructure services: internet policy establishment and enforcement, email,

centralized management of applications, enterprise resource planning tools, mobile and wireless apps, workflow applications

9. IT Education: training and management of IT personnel 10. Infrastructure Facilities: installation and maintenance of data processing facilities

Other instantiations: Gartner has one (REFERENCE?)

5.1.1 IT Services Technology Options

Purpose: Technology options are the available solutions, current or future. Instantiation: There are many publications, websites, podcasts, video-casts, etc, that review these.

5.1.2 IT Services Deployment Options

Purpose: Once a technology-based service is created, there still remains the question of how to deploy it.

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Instantiation: The two obvious choices are in-house vs outsourcing. However, between these two endpoints lie at least one other option, which we call managed service. These three options are described in the table below.Deployment Option Description1. in-house Run the service using in-house infrastructure and personnel2. managed service Use outside support with in-house processes3. purchased service Use outside support along with their processes

6 Coupling business and IT strategies

6.1 Business Model Element

Purpose: The business model captures in a simple way, the essential features of a business. “The business model of a company is a simplified representation of its business logic. It describes whata company offers its customers, how it reaches them and relates to them, through which resources,activities and partners it achieves this and finally, how it earns money. The business model is usuallydistinguished from the business process model and the organization model.” (REFERENCE)

The model provides a way to identify areas that must adapt in support of a given strategy, or areas that, if innovated, could create opportunities for new strategies.

“A company within an industry that sees a major need or opportunity to transform itself will need to articulate those changes through a business model. That model in all these instances must provide a convincing logic of value-creation.” Organizational Transformation through Business Modelsii

In our framework, the business model plays a crucial role in linking business strategy with IT strategy. We believe this is the first framework to do so explicitly (it could be argued that the “business maxim” approach by Weill and Broadbent (REFERENCE), is an implicit form of a business model). Three examples of the power of using a business model in this role are given below. The first shows how the business model enables selection of the right IT strategy, given a business strategy. The second example demonstrates discovery of strategic business opportunities based on a new IT capability. The third set of examples show how business model innovation leads to new business and IT strategies.

Example 1: Suppose the business strategy is to attempt a guerilla move by introducing an existing product into a new space that currently has no competition. Coming from the other side, suppose the IT team is considering whether to deploy a new ERP system or mobile sales force hardware and software as major IT services. There is no obvious way to establish the linkage between the guerilla business strategy and the proposed IT strategies. The business model creates the necessary linkage by translating both strategies to their impact on model. If, for example, the guerilla strategy requires a significant increase in the agility of the sales force, that would be captured in the “customer interface” part of business model. Since the mobile sales force IT strategy also impacts the customer interface, we can see immediately that we have a proposed IT strategy that matches the business’ strategic need. Similarly, if the new business strategy requires an integrated set of “core processes” (which would be identified in the business model) then the ERP-based IT services strategy which also maps to improving core processes would be the right choice.

Example 2: Suppose a new business intelligence IT service has converted what used to be a days-long manual number-crunching exercise around sales and inventory data into real-time automated capability that can provide up-to-the-minute analysis of important trends. That capability translates into useful

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information for the members of the supply-chain (or “value network” in the business model). Improving relations in the value network can lead to a Barriers To Entry business strategy aimed at competitors attempting to leverage the same network.

Example 3a: Leveraging a strategic asset. Suppose your business is a local toy store, competing against online e-tailers who can offer more variety at lower cost because they have no physical stores. One answer is to think of your physical store as a “strategic asset” (in your business model) and develop innovative ways to leverage this asset. You could start hosting “play dates” for young families, with a specially created “play area” in the store where you allow hands-on activities with selected products. This creates a Holding the Ground defensive strategy. To further leverage this idea, you could create an online calendar for reserving slots. This creates the need for the associated IT web service strategy and implementation.

Example 3b: Leveraging an existing core competence: “The military contractors are now in the enviable position of turning what they learned out of necessity — protecting the sensitive Pentagon data that sits on their own computers — into a lucrative business that could replace some of the revenue lost from cancellations of conventional weapons systems.” (REFERENCE) Internal IT service around security becomes a business proposition. The business strategy is Flanking Attack or Counter-attack, depending on whether this is a proactive or reactive move.

Instantiation: The Hamel Business Model

One enhancement of the business model can be to include attributes. One set of attributes could be gaps with respect to capabilities required to support a given business strategy.

Other instantiations: There are several business models that exist, including Porter’s Value Chain (REFERENCE) and Osterwalder’s (REFERENCE). Appendix (APPENDIX) has more information.

6.2 Case studies: Coupling Business Strategy to the Business Model

The best way to understand the framework is to apply it to case studies. We created the case studies below from articles in the literature. We use the framework instantiation from Figure (FIGURE). We use the instantiated framework to identify and classify the various elements from the articles.

6.2.1 Examples

6.2.1.1 Case Study: American mid-sized car market (REFERENCE)Timeframe: early 1990s to 1999Environmental stress: crowded segmentsAttack Strategy: combination of guerrilla (for true 'white space') and bypassInitiatives: related to design and marketing of the new product (or realignment of existing product)Business model changes: NoneIT Service changes: noneiii

6.2.1.2 Case Study: Car market- shift to safety features

Timeframe: 1993 to 2001Environmental stress: changing customer tastes/requirements/desiresAttack Strategy: Flanking attack (competition had features but not considered to be important)

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Initiatives: customer needs analysis, R&D in the safety areaBusiness Model Changes:Information & Insight: confirm customer needs in safety areaCore Competencies: build R&D knowledgeIT Service Changes: unknowniv

6.2.1.3 Case Study: Sony Turnaround

Timeframe: 2008, 2009Environmental Stress: losing money, unable to come up with winning productsAttack Strategy: Differentiated circle (videogames, TVs, digital cameras), tied together with a networked devices approachInitiatives: following Gerstners gameplan:1. stop the red ink2. raise cash by selling non-core businesses3. realign the company's strategy4. decide not to break up the companyBusiness Model Changes:Core Processes: getting divisions to work togetherStrategic Assets: closing plantsv

IT Service Changes: unknown

6.2.1.4 Case Study: Jetstar (Quantas)

Timeframe: 2000-present, Jetstar launched in 2004Environmental Stress: attack from low-cost/no-frills carrier Virgin Blue in 2000Attack Strategy: BlockingInitiatives: 1. New work practices2. New pay rates3. Minimal customer fulfillment4. Fast turnaround times (asset utilization)5. Leverage parent airline's purchasing power and network schedulingBusiness Model Changes:All new business modelIT Services changes:

6.2.1.5 Case Study: Orica/ICI Australia Division

Timeframe: unknownEnvironmental Stress: price war caused by new competition in the business of delivering explosives for blasting stone quarriesAttack/Defense Strategy: Global ServiceInitiatives: 1. Supply explosives in bulk, mixed on-site2. Identify best places for drilling with laser profiling of rock face3. Provide broken rock instead of explosives (bill based on quantity of rock delivered)Business Model Changes:Core Processes: provide service instead of productCore Competencies: expertise gained from blasting experience across several customersFulfillment & Support: Pricing Structure: product price is buried in the service

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IT Services changes: unknown

6.2.1.6 Case Study: Harley-DavidsonTimeframe: 2004-2007Environmental stress: competitors earning higher premiums and appealing to younger customers.Attack Strategy: frontal attack (going after same customer base), possibly flankingInitiatives: ladies-only parties, line of women's jackets, motorbikes with custom seats for a smaller build, new Buell product line aimed at younger ridersBusiness model changes:Fulfillment & Support: oriented toward womenInformation & Insights: finding out what women need, translating into bike designRelationship Dynamics: ladies-only partiesIT Service changes: unknown

6.3 Case studies: Coupling IT Strategy to the Business Model

Per the framework, we must establish the linkage between IT Services and the Business Model. One approach is given in the Appendix (LETTER). We have taken a list of CIO 100 (http://www.cio.com/cio100/2008/1) award-winning ideas and used the descriptions of those ideas to map onto the MIT Service Clusters. We found cases where the implementations mapped to more than one service cluster. We accommodated this situation by mapping the technology to a “primary” and “secondary” Service Cluster based on our assessement of where the largest impact was. Then, based on the description of how the service was used by the business, we determined the part of the business model that was impacted by the implementation.

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Create or modify strategy

Create or modify the Business Model

Create or modify IT Services

Attack StrategiesGuerillaBypassFlankingFrontal AttackUndifferentiated CircleDifferentiated Circle

Defense StrategiesSignalingCreating entry barriersGlobal servicePre-emptive strikeBlockingCounter-attackHold groundWithdrawal

Attack StrategiesGuerillaBypassFlankingFrontal AttackUndifferentiated CircleDifferentiated Circle

Defense StrategiesSignalingCreating entry barriersGlobal servicePre-emptive strikeBlockingCounter-attackHold groundWithdrawal

Customer Interface

Strategic Resources

Value Network

Fulfillment & SupportInformation & InsightRelationship DynamicsPricing Structure

Core CompetenciesStrategic AssetsCore Processes

SuppliersPartnersCoalitions

Business Model

Cost Structure & Synergies

Customer Interface

Strategic Resources

Value Network

Fulfillment & SupportInformation & InsightRelationship DynamicsPricing Structure

Core CompetenciesStrategic AssetsCore Processes

SuppliersPartnersCoalitions

Business Model

Cost Structure & Synergies

Strategies

Technology options

Deployment options

IT Service Clusters

IT E

ducation

IT A

rchi

tect

ure

&

Sta

ndar

ds

IT F

acilities Managem

entChannel Management

Data Management

Communications

Security & Risk

Application Infrastructure

IT ManagementIT R&D

Strengths

Weaknesses

Threats

Opportunities

Capabilities Conditions

initiatives

Capture/alter environmental conditions

Capture/alter business capabilities

7 The Business/IT Strategy Integration Framework: Putting the Elements Together

7.1 End-to-End Strategy Integration Framework examples

7.1.1 Case Study: Seven Eleven Japan

Timeframe: 1977-2004Environmental Stress: establishing a new franchise retail business in a crowded sectorAttack Strategy: Frontal attack

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Initiatives: 1. Introduce original products with higher quality than competitors2. High density, clustered store openings3. Supply chain based on partners rather than the companyBusiness Model Changes:Core Processes: developing original products, managing the supply chain to ensure fresh, quality items, temperature-separated combined distribution systemPartners: "team merchandising"-- working with partners on original productsInformation & Insight: use point-of-sale data to identify hot selling and slow selling items, segment customer base, etc. Demand forecastingFulfillment & Support: online financial services, internet shopping site, in-store copy machines w/internet connection, meals on wheels ordered via internetIT Services changes:2.1 (first major use of ISDN to exchange POS information)1.11 weather forecasting system1.11 in-store inventory management2.4 common infrastructure with partners3.4 fifth generation business intelligence system7.3 various e-business initiativescompare to Store24 experience

7.1.2 Case Study: Coffee Market (Starbucks)

Timeframe 2008-2009Environmental Stress: dropping comparable store sales, stock price, over expansion, competition from Dunkin' Donuts and McDonaldsAttack Strategy: Guerilla (gourmet instant coffee), also "disciplined global expansion" which could be frontal or flanking or bypass depending on market.Initiatives: cutting $500M in expenses, improving operational efficiencies, making technology investments, Digital Ventures new LOB, product development, data-miningBusiness Model Changes:Core Competencies: Fulfillment & Support: Digital Ventures, loyalty cardsInformation & Insight: data mining + Starbucks ideas websitePricing Structure: changing prices on productCore processes: looking for operational efficienciesIT Service Changes:1.11 (tracking ethical origins of coffee)1.8 (continuing ERP rollout)3.4 (BI and loyalty card data)7.3 (digital ventures)

7.1.3 Case Study: Southwest Airlines

Timeframe: 2002-2007Environmental Stress: competition against other low-cost rivalsAttack/Defense Strategy: holding the ground defenseInitiatives:

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1. financial success2. operating efficiency (redefining excellence)3. customer satisfaction (customer relationship managment)4. firm foundation (empowered, happy employees)Business Model Changes:Core Competence: Knowing the Score (later)Core Processes: Redefining excellence (2004-2007)Fulfillment & Support: customer self-service (early), CRM project (later)IT Services changes:Architecture & Standards (starting in 2002)1.51.61.11 rewrite reservations system (2005-2007)1.11 updated call center systemNote: business model may change again as SWA looks at longer routes (food required, more checked bags) or smaller cities (need different airplanes), international flights.

7.1.4 Case Study: Blockbuster (Nash, 2009)Timeframe: 2007-2009Environmental Stress: losing customers to Netflix, video-on-demand (Apple, Amazon, Hulu, others), cut-rate DVD sellers (Walmart, Target), and movie vending machines in grocery stores (Redbox)Internal capabilities: Weakness: customers unable to find popular movies 75% of the time (company data)

i Taber, David. CRM on the Cheap: 5 Strategies that backfire.

ii Keen, Peter. Organizational Transformational through Business Models.

iii D'Aveni, Richard. "Mapping Your Competitive Position" Harvard Business Review November 2007. 110-120.

iv

v Meredith, Robyn. It take a Crisis.

Benson, Robert J., Thomas L. Bugnitz,and William B. Walton, From Business Strategy to IT Action: Right Decisions for a Better Bottom Line.

Weill, Peter and Marianne Broadbent, Leveraging the New Infrastructure.

Broadbent, Marianne and Ellen S. Kitzis, The New CIO Leader.

Curley, Martin, Managing Information Technology for Business Value.

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Strength: Physical stores that account for 85% of $26B industry salesAttack/Defense Strategy: Defense, Holding Ground, Blocking, and Counter-AttackInitiatives:

1. stabilize the business (Holding Ground)2. diversify sales—consumer electronics (Counter-attack)3. build online distribution system (Blocking)

Business Model Changes:Information & Insight: customer and competitor location informationCore Competence: sales knowledge for consumer electronicsStrategic Assets: store-within-a-store (consumer electronics)Core Processes: online distribution, consumer electronics salesFulfillment & Support: forecastingIT Services changes:New databases to track digital rights for movie downloads3.4 Business Intelligence (location of competitor stores) 1.11 Application: sales forecasting for inventory pull system1.11 Application: Total Access—Netflix-like online ordering system (bricks and clicks)

8 Synthesis exampleTimeframe: 2009Environmental threats: economic meltdown, resetting of customer desires, green movement, high-end luxury manufacturers on one side, mass market producers on the otherInternal weaknesses: capitalization, high fixed asset costsStrategy: (current) Attack: frontal attack (traditional segments, hybrids, etc.) (recommended) Defense: WithdrawalInitiatives: (current) reduce cost structure, capitalize via government loans, (recommended) reduce fixed assets, leverage vendor capabilities via improved linkages and partnershipsBusiness model changes: (current) Fulfillment & Support (recommended) Strategic Assets (prune) Information & Insight, Value NetworkIT Service changes: Employ virtualization or cloud computingLink to supplier ERPs with goal of inventory reductionCreate collaborative work environments, innovative partnershipsTable 7: Synthesis example: Jaguar Land Rover

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9 Extension to the Enterprise (optional, may be an appendix)

10 Mergers and acquisitions

11 Zachman

12 Business/IT Strategy Integration Framework and the Balanced Scorecard

13 Business/IT strategy integration framework key assumptions (see Appendix A)

14 Next Steps for the CIO (or Office of the CIO), using the framework

A. Find a strategy modelB. Find a business modelC. Find an IT Service modelD. Find examples of technology deployments that yield business valueE. Find examples of strategy choices and how they delivered business valueF. Build a library of mappings between A-EG. Apply to your companyPer The Sun Tzu, from a finite number of choices come a infinity of combinations

15 Future Work

Once the strategy integration framework is built, the next step is to develop an Business/IT Strategic Innovation Framework. We want to identify “strong” technology deployments—ones that have a quantum effect on business performance. By understanding the relationship between these deployments, the business model, the strategy, and the SWOT of the business, we can understand when and how to apply them to maximum effect in our business. Another opportunity is a qualitative score indicating whether or not the parts of the business model are leading, competitive, or uncompetitive compared to the competition. Important point: the goal is not necessarily to be leading in all categories, rather, use the data to look for opportunities within the business model for new attack and defense strategies, or places where IT services could innovate the model. Business model innovation should be focused on finding new ways to resolve the core dilemmas of business (ex: centralization/decentralization, etc).

16 Bibliography

EDS, “The Future Multidimensional CIO”, http://www.eds.com/insights/whitepapers/multidimensional_cio.aspx, 2007.

Deloitte, “CIO 2.0: The Changing Role of the Chief Information Officer”. http://www.deloitte.com/dtt/cda/doc/content/nl_eng_cio20_changing_role_cio_270405x.pdf, 2007.

Lovelace, Herbert, W. “Secret CIO: Business Savvy is the key to IT Success”, InformationWeek.

Soat, John. “The CIO is dead; long live the CIO”. InformationWeek.

Welch, Jack

Kaplan & Norton, Alignment.

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Doz, Yves, and Mikko Kosonen. Fast Strategy: How strategic agility will help you stay ahead of the game. Wharton School Publishing. 2008.Vasconcellos, Jorge A. Strategy Moves.

Nash, Kim S. “Blockbuster’s Cliffhanger”, CIO Magazine. March 1, 2009. pp 30-39.

17 Appendix A. Business/IT Strategy Integration Framework: Key Assumptions

1. Doesn't claim that the strategy is correct (i.e., will get results)2. Aimed at CIOs who want to proactively translate business strategy into IT Initiatives, but also to innovate using technology-enabled business strategies3.IT organization is past the "disabler" and "efficient" stages4. The business entity is a private sector organization (i.e. Not government agencies, unless they are facing competition for services from the private sector)5. Organization is capable of delivering on projects to deliver business value (program and project management + governance)

Most of the literature on IT strategy assumes alignment with business strategy as the ultimate aim of the IT strategy effort. A search on “IT Alignment” in Google results in hundreds of thousands of hits. In fact, there is an online journal devoted to the topic of aligning IT with the business (http://www.alignjournal.com/). A similar search for other support functions (ex: finance, human resources, legal, procurement), yields far fewer results. We postulate the reason for the difference is that the other functions assume alignment, their question is how to create value. IT, perhaps because it is immature relative to the other functions, seems mired in the alignment question.

We suggest a different approach—recognize that strategies change, so as part of integrating business and IT strategy, develop an IT strategy that is robust to potential changes in business strategy. For the reasons above, we reject alignment as the goal of IT strategy development. Instead, we advocate the integration of business and IT strategy. Unlike alignment, integration requires the IT organization to

know the answer to the question: “how does the company make money?”, as opposed to “where is a copy of the business strategy?”

identify opportunities to create business value proactively engage in the development of business strategy introduce IT innovations that can create new strategies or new options for existing strategies anticipate the impact that strategy will have on the business model link the IT strategy to business model changes in support of the overall strategy build agility into the IT strategy, whether or not agility is seen as key to the business strategy

There is a growing body of opinion that is consistent with this view (REFERENCES).

18 Appendix B: Strategy frameworks

Include the Welch 5 question modelInclude the strategic intent model

19 Appendix C: Business Model Frameworks

Porter Value ChainMIT, Peter WeillStrategy, Pure and Simple IIBossidy and Charan

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Dr. Alexander Osterwalder (http://business-model-design.blogspot.com/)Clayton Christensen CVP, Profit Formula, Resources, ProcessesHamels http://business-model-design.blogspot.com/

20 Appendix D: MIT CISR IT Services and Clusters

21 Appendix E: Technology Deployment Examples: The CIO 100 List

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