Aligning IS with Business Strategy Presented by Natalie

Aligning IS with Business Strategy Presented by: Natalie Campbell March 8, 2005 1

Overview l l l Key concepts of strategic IS alignment Evolution of strategic IS alignment Key researchers IS alignment models Challenges of today Recommendations for further research 2

Strategy Exercise l l l Define strategy Long range planning Business guidance Business plan Identifying goals and determining plans to meet goals over a long time period Operationalizing the mission 3

Strategy l l Greek translation - the art of the general Luftman l l Business decisions taken at particular points in time by different people in response to sets of perceived environmental factors. Strategy is about making choices that include: 1. 2. 3. 4. 5. Selection of business goals Choice of products and services to offer Design and configuration of policies that determine how the firm positions itself to compete in its markets Appropriate level of scope and diversity Design of organization structure, administrative systems, and policies used to define and coordinate work Luftman et al, 2004 4

Alignment l Consequence of sound practices and evolving human relationships that have mutual understandings of goals, values, culture and capabilities that leverage the development of strategies that can ultimately co-adapt Luftman et al. , 2004 5

Strategic IS Alignment Exercise l l Define strategic IS alignment Mutual understanding between IS and business To achieve goals in long-term for companies overall objectives Matching processes for achieving goals 6

Strategic IS Alignment l Describes an environment in which the business strategy and business infrastructure of an organization are aligned with the Information Technology strategy and infrastructures l Stresses harmonization of goals and implementation plans of IT with goals and organizational structure of business l Refers specifically to coordination of an organization’s external business and IT goals and its internal business as IT organizational infrastructures Luftman et al. , 2004 7

Competitive Goals l Competitive advantage – Luftman et al. , 2004 l l Unsurpassed relationships with one’s customers and suppliers Unique and adaptable business processes Ability to harness information and knowledge of firm’s employees to continuously create new, hard to duplicate products and services King, 1978 l l Talks about controversy of firms using IT as a comparative advantage American and United Airlines – reservation system Merrill Lynch – cash management account Foremost-Mc. Kesson –processing insurance payments 8

Enablers and Inhibitors l l l Enablers Senior executive support for IT IT involved in strategy development IT understand the business Business – IT partnership Well-prioritized IT projects IT demonstrates leadership l l l Inhibitors 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 9 Luftman & Brier, 1999

Formulation of IS Strategy l 3 key elements l Vision l l l Strategy l l l Where do we want to go? Big Hairy Audacious Goals (BHAG) How will we achieve this vision? Aligned with company mission and core values Mission l l What are we? Purpose and function of IT 10 Luftman et al. , 2004

IT Roles in Strategy l Transformation driver l l l Enabler of transformation l l Create and exploit new markets Link customers to firm Interconnect people and processes Span organization boundaries Bridge geographical distances IT as inhibitor l l IT strategy not aligned with business strategy Over-emphasis on technology 11 Luftman et al. , 2004

William R. King l l l l University of Pittsburg Founding president of AIS President of TIMS (INFORMS) – 1989 -90 Chair of ICIS – 1988, 2005 Editor-in-chief of MIS Quarterly One of the founders of ISR -1989 Editorial roles l l l ISR Journal of MIS OMEGA: The International Journal of Management Science 12

MIS Strategic Planning l Strategic planning l l Efficiency verses effectiveness l l l Feasible and necessary Efficiency – often shown through cost savings Effectiveness – must be of paramount importance in design of MIS strategic planning l l Transforms an organizational strategy set into an MIS strategy set Focuses on the direct relationship King, 1978 13

Overall MIS Strategic Planning Process MIS Strategy Set Organizational Strategy Set Mission Objectives Strategy Other Strategic Organizational Attributes MIS Strategic Planning System Objectives System Constraints System Design Strategies Process King, 1978 14

Information as a Strategic Resource l Information as a strategic resource l l IRM views information as a resource to be “well-managed” – inadequate Sole IM role to satisfy end users – inadequate SPIS process that closely ties in IS strategy with business strategy – inadequate “Information and IS has the potential to be a primary source of comparative business advantage in the marketplace, rather than merely a resource to be efficiently managed, or a service that is periodically turned on and off as needed. ” King, 1983 15

Assessing IT l l Need to assess the role of strategic technology, the impact of IT on competitive advantage Develop a set of measures for the construct CAPITA – key dimensions l l l l Efficiency Functionality Threat Preemptiveness Synergy Divide efficiency: primary and support activity efficiency Divide functionality: resource management and acquisition 16 Sethi & King, 1994

Facilitators and Inhibitors l l l Identify a set of parsimonious factors use to strategically employ IT Surveys and factor analysis IT application defined as strategic: l l Organizational facilitators l l l One that has a profound effect on a company’s success and destiny, by (a) influencing or shaping the company’s strategy, or (b) playing a direct role in the implementation or support of the company’s strategy – (Sabherwal & King, 1991) Factors that positively influence the ability of an organization to exploit information resources Factors that positively influence an organization’s decision to use IT applications for strategic purposes Organizational inhibitors l l Factors that negatively influence the ability of an organization to exploit information resources Factors that negatively influence an organization’s decision to use IT applications for strategic purposes 17 King & Teo, 1996

Robert W. Zmud l l l Professor, University of Oklahoma Ph. D, University of Arizona Research interests l Organizational impacts of information technology l Management, implementation and diffusion of information technology Senior editor with l Information Systems Research l Journal of AIS l MISQ Executive board l Management Science l Academy of Management Review l Information and Organization 18

Information Economy l Information business l l l Any business unit that produces a deliverable information product or service in which the unit itself owns and manages the information resources required to produce the product or service IS department is one of many information businesses Successful IS management l l l Ensure integration of IT deployed throughout enterprise Design new applications within constraints that exist due to current portfolio of application systems Plan for an influx of successive generations of new technologies Zmud et al. , 1986 19

Strategic Variables Application Map IS Management Process Architecture Investment Architecture Coalition Architecture Information Technology Vision Transportation Architecture Data Architecture Zmud et al. , 1986 20

Varun Grover l l l Professor Clemson University Ph. D University of Pittsburgh, 1990 Ranked 1 st, 2 nd, 3 rd in research productivity in past decade Published over 130 publications Board of Editors/Associate Editor for l l l l l Journal of MIS Quarterly MISQ Executive Journal of Information Technology Management International Journal of Electronic Commerce Journal of Strategic IS Journal of Operations Management Decision Sciences Journal of Market Focused Management Business Process Management Journal 21

Sustainability and Performance l Identify factors important to establishing a competitive advantage l l Sustainability factors l l l Competitive advantage – dependent upon unique characteristics that enable a firm to maintain a dominant position within its respective industry Content Process Factors observed l l l Environmental strategies Foundation strategies Action strategies Kettinger et al. , 1994 22

Model of Sustainability Foundation Factors • Industry • Competitor Restrictions • Unique Situations Action Strategies • Size • Geographical scope • Product scope • Organizational base • Learning Curve • Technological resources • Information resources • Preempting • Creating switching costs • Exploiting flexibility • Developing response strategies • Managing risk FIRM Sustainability PERFORMANCE ENVIRONMENT 23 Kettinger et al. , 1994

Grover S. Kearns l l l Professor, University of South Florida Ph. D, University of Kentucky Research interests l l l Presentations l l l MIS strategic planning Electronic and global commerce Decision Sciences Institute Conference International Conference on Information Systems Publications l l l Decision Sciences Journal of Strategic Information Systems Computer Personnel 24

Albert L. Lederer l l l Professor, University of Kentucky Ph. D, Ohio State University Research interests l l Information systems planning Publications l l l Decision Sciences MIS Quarterly Journal of MIS Information Systems Research Communications of the ACM 25

Alignment that Leads to Competitive Advantage l l Strategic applications Applications which change a firm’s product or the way it competes in its industry – (King, 1978) Strategic alignment Necessary for superior financial performance – (Das et al. , 1991) Value chain A series of activities used by the firm in the process of acquiring raw materials, and processing delivering or services to the customer – (Porter, 1985) Competitive advantage l Use of IS to leverage core resources – (Clemons, 1991) l Ability of IS to add economic value – (Mc. Farlon, 1984) 26 Kearns & Lederer, 1997

Causal Relationships between Constructs of Interest . 506. 350 ISPART ISALIGN . 615 . 335 COMPADV VCHAIN. 158. 342 CEOPART BPALIGN . 141 . 385 Kearns & Lederer, 1997 27

Strategic IT Alignment and Competitive Advantage l Strategic IT alignment l l l An organizational learning process that combines business and IT knowledge in order to support business objectives (Reich and Benbasat, 1996) Defined as two sets of outcomes: l Alignment of IT plan with business plan l Alignment of Business plan with IT plan Organizational knowledge l l Allows firms to achieve competitive advantage Explains why firms treat organizational learning processes as valuable assets (Hunt, 1999, 2000) Kearns & Lederer, 2001 28

Model of Strategic IS Alignment HI: . 35 F 2 CIO participates in Business Planning H 3: . 51 F 4 Alignment of the IT Plan with the Business Plan H 4: . 34 F 1 Information Intensity of the Value Chain H 5: . 158 H 2: . 34 F 3 The CEO Participates in IT Planning F 5 Alignment of the Business Plan with H 6: . 39 the IT Plan H 7: . 62 F 6 IT is Used for Competitive Advantage H 8: . 14 29 Kearns & Lederer, 2001

Alignment between Business and IS Strategies l Content - What strategy is the organization pursuing? l l Important to distinguish between three strategies l IS strategy – business applications l IT strategy – technology policies l IM strategy – structures and roles for management IS strategy – should be aligned with business strategy (Das et al. , 1991) Process -How does the organization develop its strategy? Business strategy types (Miles and Snow, 1978) l l l Defenders Analyzers Prospectors Sabherwal and Chan 30

Business Strategy Attributes Defensiveness Risk aversion Aggressiveness Proactiveness Analysis Futurity Business Strategy Types Defenders Analyzers Prospectors Business Strategy Hypotheses 1 -4 Alignment Business Performance Perceived business performance IS Strategy Attributes Operational support systems Market information systems Interorganizational systems Strategic decision support systems IS Strategy Types IS for efficiency IS for flexibility IS for comprehensiveness Sabherwal and Chan, 2001 31

Jerry Luftman l l l Professor, Stevens Institute of Technology Ph. D, Stevens Institute of Technology Research interests l Information Technology Strategy l Alignment of Business and Information Technology l Emerging Technologies l Value of Information Technology l Information Technology Governance Published books including Managing the Information Technology Resource: Leadership in the Information Age Published articles in SLOAN Management Review, California Management Review, Computer World, Info. Week, CIO, MISQ, CAIS 32

Strategic Alignment Model Business strategy l l Business Scope Distinctive competencies Business governance Organizational infrastructure and processes l l Administrative Processes Skills IT strategy l l Technology scope Systemic competencies IT governance IT infrastucture and processes l l Architecture Processes Skills 33 Luftman et al. , 2004

IT Strategy Formulation Process Luftman et al. , 2004 34

Challenges l l Senior executive support CIO chain of command Common goals between IT and business How IT is viewed l l Shared domain knowledge l l Cost Enabler Driver IT understands business Business understands IT IT/business relationships Alignment sustainability 35

Future Research l l l Still in search of the “silver bullet” Role of CIO in alignment process Interaction of CIO and senior business executives Relationship management and successful IT history Relationship management and the Balanced Scorecard 36

Questions? ? Comments? ? 37