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Michigan State University, 2005

Creating Value through IT and Business Alignment: How does IS Research Inform Practice?

Creating Value through IT and Business Alignment: How does IS Research Inform Practice?

Vallabh SambamurthyEli Broad Professor of Information TechnologyMichigan State University

Michigan State University, 2005- 2 -

The Promise of Information TechnologiesThe Promise of Information Technologies

• Enabler of superior performance– Productivity– Consumer welfare– Profitability

• Digital Options Platform– Transaction capital– Decision capital– Intellectual capital– Relational capital

© Vallabh Sambamurthy, 2008

Michigan State University, 2005- 3 - © Vallabh Sambamurthy, 2008

Yet, Dispersion in Success Across FirmsYet, Dispersion in Success Across Firms

• Significant differences across firms and industries• Exemplars in different industries

– Success with IT innovation– Repeat experiences of success

• Frustration with IT investments– Failed projects– Poor alignment


Organizational Leverage of IT ValueOrganizational Leverage of IT Value

• Three significant challenges– Building the right alignment model– Implementing the appropriate governance

model– Developing enterprise-wide IT savviness


What is Alignment?What is Alignment?

• The ability of a firm to convert its IT spending into business value and competitive advantage

• Results from the planned, ongoing use of a set of interlocking business practices that collectively derive superior value from IT investments

• An outcome of alignment is portfolios of IT investments, projects, and installed information systems that reflects a firm’s strategic priorities of the firm


IT Assets and Investments

Business Processes

Competitive Strategies


Three Modes of Alignment: SupportThree Modes of Alignment: Support

Business Business StrategyStrategy

IT IT StrategyStrategy

DrivinDrivingg

Targeting of IT Targeting of IT prioritiespriorities

• Business strategy drives IT strategy• Current business strategies and capabilities drive IT priorities,

investments and capabilities• Tools for specific business processes• Measures

– Extent to which IT capabilities have enhanced the efficiency of existing business processes (e.g., customer service, manufacturing)

– Extent to which IT capabilities have enhanced the effectiveness of existing business processes (e.g., improving the visibility of the logistics process, improving the accuracy and accessibility of customer information)



Three Modes of Alignment: SynchronizationThree Modes of Alignment: Synchronization

• IT strategy enables execution of current business strategy, but also anticipates and shapes future business models.

• IT investments are platforms for business process integration• IT leadership, thinking and investments are active in seeding new

business opportunities• As firms become aware of the capabilities of their IT investments,

assets, and applications, they focus on discovering new business strategies



EnablinEnablingg

DrivinDrivingg

Targeting of IT Targeting of IT prioritiespriorities

Enablement Enablement of Businessof Business

by ITby IT



Three Modes of Alignment: ConvergenceThree Modes of Alignment: Convergence

• Business strategy is shaped through digitized products, services, processes, and relationships

• IT strategy is embedded in the business strategy• Processes are created through digital solutions (e.g., online

auctions, keyword search)• A single leadership team operates across business and IT• Appropriate for media, banking, financial services, and

entertainment industries





The Three Modes of AlignmentThe Three Modes of Alignment

Support Synchronization Convergence

Key Objective Enhance efficiency and effectiveness of current business strategies

Discover, innovate, and implement new business strategies

Digitize, innovate, and create new products and services

Focus of IT Management

• Current business strategies• Significant business processes• Portfolio of IT solutions

• Capabilities of IT investments• Opportunities for creating new business strategies

• Opportunities for digital products and services

Role of Business Executives

• Articulate information needs of business

• Explore new IT-enabled business models

• Explore digital products and services

Role of IS Executives

• Develop IT portfolio to support current business needs

• Experiment with technologies to create new business opportunities

• Experiment with technologies to create new products and services



Facilitating Alignment through IT PortfoliosFacilitating Alignment through IT Portfolios

Type of IT Investment Support Synchronization Convergence

Infrastructure 55% 50% 45%

Transactional 30% 25% 20%

Informational 15% 15% 15%

Strategic 0% 10% 20%

Adapted from Weill and Aral, 2006


Implications for PracticeImplications for Practice

• Choose the appropriate mode of alignment for your firm– What view do the senior business executives have about the

mode of alignment?– Is there consensus about the alignment mode?

• Examine the portfolio of IT applications and investments – Does it reflect the alignment priorities?

• What will be the alignment mode in the future?– How is the business likely to change?– How is the industry likely to change?– What will be the likely business strategy?



The Differentiating Role of IT GovernanceThe Differentiating Role of IT Governance

• Allocation of decision rights

• Good governance enhances the leverage of IT value

• Poor governance dissipates organizational resources and energy



What are the critical governance decisions?• Demand side• Supply side

Who makes the decisions?• Senior management• Business management• IT management• External partners

How are the decisions made?• Unilaterally • Shared

Designing IT GovernanceDesigning IT Governance


Source: Gartner, 2006

Ope

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nal

Excel

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Customer Intimacy

Inno

vatio

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lead

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ip

Building the Right Governance ModelBuilding the Right Governance Model



Emerging IS RolesEmerging IS Roles

Source: Gartner, 2006

Ope

ratio

nal

Excel

lenc

e

Customer Intimacy

Inno

vatio

n

lead

ersh

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• Innovation catalyst

• Technology advisor

• Project lead

• Services liaison

• Infrastructure architect

• Vendor relationship manager

• Portfolio manager



Changing Face of the IS OrganizationChanging Face of the IS Organization

Driving innovation

Delivering change

Supporting infrastructure

Outsourced to external services providers

Business aligned

1

2

3

4

5

IT leadership

Architecture development

Business enhancement

Technology enhancement

Vendor management

1

2

3

4

5

Source: Broadbent and Kitzis, 2005

Increasingly driven by IT savvy Business leaders

Enabled by Business savvy IS leaders



An Emerging Organizational Model for IT GovernanceAn Emerging Organizational Model for IT Governance

Business TechnologyCouncil

– Project Managers– Business Analysts– Technical Analysts

IT Investment Board

Office of Architecture& Standards

– Head of Enterprise Architecture– Business Architects– Technical Architects– CIO– CTO

– Head of IT Finance(e.g. CFO of IT)

– CIO– CFO– Selected Business

SVPs

– Developers– Trainers

– Head of IT Strategy– CIO– Selected Business SVPs– Head of IT Applications– Functional Area Leads– Client Relationship

Managers

Project TeamsFunctional Groups

– IT Director– IT Strategists– Business Analysts

Office of the CIO

– Head of IT HR– Head of Vendor Management– Head of IT Application Areas– Head of Portfolio & Program Mgt.– Head of Enterprise Architecture– Head of IT Communications

– Chief Information Officer (CIO)– Chief Technology Officer (CTO)– Head of IT Security– Head of IT Risk– Head of IT Finance– Head of IT Strategy

Corporate Project Approval Committee

– Head of Portfolio &Program Mgt.

– Head of EnterpriseArchitecture

– Head of IT Strategy – Business Strategy Analyst – Finance Representative

Divisional Project Approval Committee

– Divisional Functional Heads– Divisional CFO– Divisional PMO and Finance rep.– Divisional CIO, Divisional CTO– Enterprise Functional Leads– IT Directors



Implications for PracticeImplications for Practice

• Organizational governance is less likely to be centralized or decentralized– Hybrid, federal, or dispersed allocation of decision rights– Focus on demand side and supply side governance– Management of risk, finance, and outsourcing will become

significant• Emerging models for governance

– Emergence/proliferation of new organizational roles• CIOs will have to balance their roles between

– Managing the “IT business of the business”– Seeding, stimulating, influencing, and driving IT-enabled business

innovation



Building Enterprise-wide IT SavvinessBuilding Enterprise-wide IT Savviness

• Digitizing internal and external communication

• Extensive internet use

• Digitized routine transactions

• Enterprise-wide IT skills

• Senior management commitment to IT Investment and use

• Human Assets• Senior Management Leadership

• Enable IT Potential & Options • Relationship Building• Change mindsets


Source, Weill and Aral, 2006


Savviness in Business ExecutivesSavviness in Business Executives

• T-shaped business managers– Grounded in processes– Thinking of services– Conceptualizing as systems thinkers– Driven by metrics and analytics– Fearless about change – Quest for globalization– Diligent about governance – Savvy about the role and value of information

technologies



Savviness in IS ExecutivesSavviness in IS Executives

• IS managers– Technically knowledgeable– Business savvy (process, strategy)– Articulate, persuasive, influence builders– Innovation catalysts– Change agents– Relationship managers (business partners, external

vendors)– Financially astute– Diligent about governance



ConclusionConclusion• Consistent success in leveraging IT value is achievable!• Requires attention to effective approaches to IT management

– Alignment– Governance– Building of enterprise-wide savviness

• IT management practice is in a state of transformation– Building applications to managing services delivery– Buying technologies to multi-capability integration– One-off outsourcing to multivendor strategic partnerships– Cost-benefit justification to astute financial and risk management

• IS research and educational programs have an important role to play in assisting this transformation


Further Interest?Further Interest?

www.btminstitute.org

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