Business IT Alignment

Business-IT Alignment is a discipline that matches IT strategy with business strategy with the goal of maximizing value created by the enterprise:

Business-IT Alignment is a process, not a point in time event
Business-IT Alignment gap is the degree to which IT initiatives deviate from business requirements
The aim of Business-IT Alignment is to reduce this gap, and eliminate it over time. Business-IT Alignment is achieved when this gap is completely eliminated
Business-IT Alignment happens in stages, or phases with each increment resulting in higher value generated by the company
An enterprise that achieves Business IT Alignment is generating the maximum value from its IT investments aka “getting the biggest bang for the IT buck”^[1]

An enterprise has achieved Business-IT Alignment when all its IT initiatives are completely in line with the requirements set by its business functions. Business-IT Alignment results in every penny spent on IT is in support of a business objective. Even though common literature implies that Business-IT Alignment concerns itself with strategy, the following is a more accurate definition of the term: Business-IT Alignment matches IT vision, mission, goals, objectives, and capability (strategy, process, organization, and infrastructure) with business vision, mission, goals, objectives, and capability (strategy, process, organization, and infrastructure)

Business-IT Alignment Assumptions
1. Business functions create value with the help of support functions
2. IT function does not create value it supports value creation
3. Therefore, every IT investment must be in support of business objective(s)

Primacy of Business

The underlying premise is that value is created by business functions in the enterprise. IT Function, in and of itself, does not create value but supports the business functions in their value creating initiatives. In other words, IT is a support function that exists to enable the business functions in the organization. Consequently, everything that IT does must be in line with the initiatives of one or more business function.

Business Drives IT

Business create a strategy whose requirements set the agenda for IT actions. Business strategy drives IT strategy planning. This model provides for adjustments based upon IT limitations such as, lack of IT capability, and/or delay in IT project implementation. Business strategy is adjusted to account for IT to the extent of these limitations. However, IT capability does not drive business strategy. The sequential origin of the IT function has a lot to do with this mindset - IT came after business so IT must follow the business!

Business IT Alignment Implications
The key implication of business IT alignment is that there is a hierarchical relationship in the enterprise - business functions are superior to the IT function which is subordinate to them. "IT exists to support the business" is a euphemism that clearly establishes this hierarchy, and all that it implies, without spelling it out explicitly.

Primacy of business functions

Business drives IT IT function supports the business functions IT function must cooperate with the business functions IT function must arrange its activities to adjust to changing business requirements IT organization must line up behind the business functions IT function follows the business functions IT Organization's position is inferior to that the business functions' organization

Business IT Alignment Issues
This hierarchical positioning of the IT functions with respect to the business functions has limited, not enhanced the value delivered by the enterprise using its information technology assets, and capability. Over time, business IT alignment is being replaced with business IT fusion - a model where the IT function allies with the business functions are united in purpose and have a working relationship based upon collaboration, cooperation, and team-work.

IT Drives Business

The advent of the internet and the subsequent sidelining of businesses demonstrated the severe limitations in this model which is being corrected to have IT drive the business using an e-strategy^[2]

Business-IT alignment is a dynamic state in which a business organization is able to use information technology (IT) effectively to achieve business objectives - typically improved financial performance or marketplace competitiveness. Some definitions focus more on outcomes (the ability of IT to produce business value) than means (the harmony between IT and business decision-makers within the organizations) ^[3]

Areas of IT Alignment^[4]
Each organization has its own unique IT alignment needs—its unique IT alignment fingerprint. Just like a hand has five fingers, not all hands are the same. Each has its own unique set of fingerprints. So it is with IT alignment. There are five fingers or areas where IT is susceptible to misalignment. And depending on the company and situation the feeling of “misalignment” can come from one or more of these areas. Here are the five areas of IT alignment, along with a practical perspective for identifying alignment problems and opportunities.

Strategy-Driven Alignment: This is the area most commonly associated with alignment. And it’s also the most misunderstood. Strategy-driven alignment refers to three things:
- (1) that the IT project portfolio directly meets the wants and needs of the business community;
- (2) that IT projects and budget can be directly tied to the company strategy; and
- (3) that IT investment (where appropriate) forms part of the core strategy of the company.
Operational Alignment: Central to this element is the IT group’s adoption of an operating model for delivering services and support that meshes with the way the company works as a whole. Plainly put, if strategy-driven alignment is about what is getting done, operational alignment is all about how it gets done. In particular, how IT services are delivered.
Calendar Alignment: Calendar alignment is about getting “in sync” with the recurring calendar, pace and timing of the organization overall. Simply stated, calendar alignment means dovetailing three interrelated areas of organizational activity:
- (a) The IT vision, strategy and budget calendar
- (b) the “big event” corporate calendar; and
- (c) the operational calendars of the key areas of your organization.
Economic Alignment: Economic alignment refers to the set of budget allocation, tracking and reporting activities and how they mesh with the understanding and presentation of costs within your organization. Since IT is forever presenting projects and budgets—many of which are allocated to a number of groups—economic alignment is required to ensure that everyone is speaking the same cost language. Sounds simple, but it’s not. IT often needs to track and manage costs differently than other areas and this need can cause profound disconnect.
Cultural Alignment: Companies have personalities, and so do the departments within them. Corporate personalities arise from combinations of so many soft qualities that it’s difficult to quantify or define them outright. But one thing’s for sure; you know it when you see it. Cultural alignment means being sensitive to
- (1) the big picture attitudes of the company to technology and technology-related issues; and
- (2) the personalities and fit of the IT personnel as members of a larger group.

Steps to Business-IT Alignment^[5]
The fact that business and IT alignment is a process is often ignored. This process does not have a starting point nor does it have an end. It is a series of “learn and do” cycles that incrementally get towards alignment.

Source: How to create a strategic plan for IT - CIO Index

Identify Business Drivers

In this step, we identify the business needs that are driving IT. In other words, what are the business needs that require IT enablement? Is the company launching a new product that requires, say, a new fulfillment system? Is the company acquiring another company that requires rationalizing the systems of the two? These business needs are continuously changing. Periodically, they should be identified so action can be taken in response.

Create IT Vision

Now that we know our business’ needs, how can IT help? This step identifies the IT Capability – strategy, process, infrastructure and organization – required to meet business priorities. The starting point? A vision for IT. This vision lays the general guidelines or policy that drive the creation of this IT Capability. Remember, two people might react differently to the same requirements depending on their underlying beliefs. It is very important to articulate these underlying attitudes and beliefs into a vision before attempting to answer the IT Capability question.

Assess Current Alignment

This step answers the question: How does the current IT Capability compare to the envisioned IT Capability? There are three dimensions of alignment – investment, asset and organization. By answering this question for all three, this step assesses the alignment along these three dimensions.

Identify Alignment Gaps

Comparing the desired or “to-be” IT Capability with the current or “as is” IT Capability, one can identify gaps that are causing misalignment. Again, this comparison is made along the three dimensions – investment, asset and organization to precisely identify the root cause of misalignment. Once we have the root causes, we can identify the potential fixes. One “fix” can potentially address multiple gaps!

Prioritize IT Initiatives

The previous step gives us a list of “fixes” that can get business and IT aligned. However, we might not be able to act on them – all organizations are capacity constrained. More importantly, we should not act on all of them. Some fixes are easier than others. Some provide a bigger “bang for the buck”. There are other reasons why we should not attack the entire list all at once. Consequently, this list must be prioritized. This step does just that.

Evaluate Implementation Options

A prioritized list of “fixes” or IT Initiatives is the starting point for implementation planning. This is a critical step to ensure success. Often, organizations forget to plan for implementation and pay the price in terms of over budget or delayed or failed projects. This step takes the list of initiatives and creates a roadmap for IT. This roadmap is a result of careful planning that takes is driven by one primary consideration - risk.

Create Migration Plan

This step creates a migration plan for the IT roadmap – steps, deliverables, responsibility, timing etc. This is a plan. It needs these key elements in some detail. However, trying to button this down beyond a certain point is an exercise in futility. No plan stands the test of time. Hence, this plan should also be modified as we learn new things after implementation begins.

Adjust IT Strategy

This is the key step to ensure connection between the changing business needs while we are implementing IT solutions in response. If we keep going without looking back, by the time we are done the world might have moved away and made our solution irrelevant! It is essential that we keep track of the changing business world – both internal and external – and make sure our solutions are in line. If they are not, then senior leadership has the responsibility to ensure that we do not continue those initiatives that are not. Putting good money after bad is never a good idea. CIOs are paid to make these tough decisions. This is the science of IT Strategy. However, there is also an art of IT Strategy that comes from doing it a few times. This art or instinct plays an equally important role in getting business and IT aligned as these 8 steps.

Phases of Business-IT Alignment^[6]
One commonly used methodology is the "IT/Business Alignment Cycle", which introduces a simple framework that the IT organization can adopt to manage a broad range of activities. The four phases of the cycle are: plan, model, manage, and measure. The four phases of the cycle are: plan, model, manage, and measure. Following this cycle fosters organization-wide shared expectations between business and IT managers, and defines a common framework for a broad range of activities that together serve to align IT and business objectives. The cycle also identifies best practices and common processes within and between IT functional groups to make IT/business alignment sustainable and scalable. This framework functions best when integrated and automated with software applications and monitoring tools.

Plan: Translating business objectives into measurable IT services. The plan phase helps close the gap between what business managers need and expect and what IT delivers. According to Giga Research, IT leaders in poorly aligned organizations are still attempting to explain technology management issues to their business colleagues and have not made the leap to understanding business issues and communicating with business managers on their terms. To close the gap between what business expects and what IT delivers, IT needs an ongoing dialogue to clarify business needs in business terms. Without an ongoing dialogue, IT may not be able to determine which IT services to offer or how to effectively allocate IT resources to maximize business value. Furthermore, when business needs change, IT should adapt and modify the service offering and IT resources appropriately. CIOs should mandate the use of a disciplined service level management process that will lead to agreement on specific IT services and service levels needed to support business objectives. IT management can then translate service definitions and service levels into underlying rules and priorities that empower and guide IT resources. Finally, IT needs a way to measure and track both business level services and the underlying capabilities that support the services.
Model: Design infrastructure to optimize business value The model phase identifies resources needed to deliver IT services at committed service levels. This phase involves mapping IT assets, processes, and resources back to IT services, then prioritizing and planning resources that support those business critical services. The bottom line in measuring the success of alignment is the degree to which IT is working on the things about which business managers care. That means IT must have processes in place for prioritizing projects, tasks, and support. To successfully prioritize resources, IT needs a service impact model and a centralized configuration and asset management repository to tie the infrastructure components back to specific IT services. This combination is essential if IT is to effectively plan, prioritize, and consistently deliver services at agreed-upon service levels while also reducing costs.
Manage: Drive results through consolidated service support The manage phase enables the IT staff to deliver promised levels of service. CIOs can ensure that their organization meets expectations by providing a single location for business users to submit all service requests, and by prioritizing those requests based on pre-defined business priorities. Without a single point-of-service request, it is difficult to manage resources to meet agreed-upon service levels. Moreover, without a method for effectively managing the IT infrastructure and all changes, the IT staff faces the risk of causing failures. To ensure the effectiveness of the service desk, the IT staff needs to provide:
- A method for prioritizing service requests based on business impact.
- A disciplined change management process to minimize the risk of negatively affecting service level commitments.
- An IT event management system to monitor and manage components that support business critical services.
- The underlying operational metrics that enable service delivery at promised levels, as well as the means for measuring and tracking the progress of service level commitments using these metrics.
Measure: Verify commitments and improve operations The measure phase improves cross-organization visibility into operations and service level commitments. Traditional IT management tools operate in functional silos that confine data collection and operational metrics to focused areas of functionality. They typically relate more to technology than to business objectives. Component-level metrics and measures are certainly important for ongoing service availability. However, to support real-time resource allocation decisions, these measures must be interpreted in a broader business context, including their relationship to business-critical services. Without a business context for interpreting measures and metrics, isolated functional groups can't get a holistic view of IT services that support business objectives. By committing to the cycle and integrating and automating activities using software solutions, CIOs can align their whole organization to make systematic improvements that overcome obstacles.

Key Characteristics of Business-IT Alignment^[7]
Business-IT alignment integrates the information technology to the strategy, mission, and goals of the organization. Key characteristics in order to achieve this alignment are:

The organization must view information technology as an instrument to transform the business. This includes exploring other revenue streams and integrating other facets of their business into each other. For example, using one central data warehouse to combine two separate, but partnering businesses.
An organization must hold customer service, both externally and internally, at the utmost importance. Communication between the organization and their customers must not be lost.
An organization must rotate both IT and business professionals across different departments and job functions. They must have the knowledge and experience of both sides of the business so that understanding and communication is achieved. Once those three characteristics are achieved,
an organization must provide clear and specific goals to both the IT and business employees. This will create the integration of both entities to achieve a common goal.
Ensure that IT and business employees understand how the company makes or loses money. This is important so that money is not carelessly poured into the IT department and there is no return on that investment.
Organizations must create a vibrant and inclusive company culture. There must not only be informational unity, but a company as whole.

Key Success Factors for Business-IT Alignment^[8]

Service Portfolio Management enables the business to make sound decisions about IT investments. Services should not be implemented because they are an industry standard but because there is a good business case demonstrating a clear return on investment. It is the responsibility of Service Portfolio Management to compare the outcomes that are expected by the customer with the investment required by the business to build and deliver the service.
Service Strategy, as defined by the ITIL® Service Strategy Book, defines the perspective, position, plans and patterns that a service provider needs to execute to meet an organization’s business outcomes. Service Strategy sets the broad direction for the design of services and the objectives that services need to achieve. Service Strategy also defines the specific outcomes that the designed services need to achieve when the service is operational.
Continual Service Improvement (“CSI”) takes its lead from Service Strategy using the defined strategies and desired outcomes as a basis for evaluating the successfulness of services. At the same time, CSI acts as an initiator of strategy. Through continual assessment and measurement, CSI assists in determining where a strategy needs to be changed and how it can be made more effective. CSI also detects changes in the use and outcomes of services and determines the ongoing relevance of services.
Business Relationship Management (“BRM”) enables links between the service provider and customers at the strategic and tactical levels. BRM establishes and maintains a business relationship between the service provider and the customer by understanding the customer and their business needs. BRM also aligns the objectives of the business with the activity of the service provider and achieves outcomes as required by the business.
Service Level Management (“SLM”) ensures that all current and planned IT services are delivered to agreed-upon and achievable targets. This is accomplished through a constant cycle of negotiating, agreeing, reporting on, monitoring and reviewing of IT service targets and achievements, and through the initiation of corrective actions or improvement of the level of service delivered.

Benefits of Business-IT Alignment^[9]
Research by Wagner and Weitzel (2006) concludes that strategic IT business alignment and operational alignment are both positive influencers of competitive advantage. The greatest benefits of alignment are the achievement of strategic business outcomes. With aligned business and IT/IS, an organisation is better placed to develop and supply market-leading products and services with more consistent levels of quality. Other main benefits include:

Customer Service – can be improved with more effective and consistent customer handling, increased customer knowledge and insight.
Organisational agility – Agility is much improved by managing systems alignment of business needs by standardizing and reusing mature components rather that iteratively developing alignment which can cause system diversity and scaling issues. Agility has pros and cons if not managed properly.
Operational efficiency – business relationships with suppliers, customers, service providers are complicated. IT/IS needs to be effectively aligned to the needs of these relationships to be efficient.
IT cost reduction – where IT/IS is developed iteratively without much ‘macro’ thought into the organization alignment needs will increase capital costs and produce fragmented solutions that are difficult to support. IT/IS Alignment will facilitate standardization and consolidation with subsequent reductions in cost.
Risk management – where alignment planning forces an organisation to consider the effectiveness of its systems against a diverse range of factors (legal, compliance, regulatory). By improving visibility, alignment also aids the ongoing management of risk.

Business-IT Alignment Stumbling Blocks^[10]
Business and IT leaders have talked about the need for IT/business alignment for well over a decade. They all want the benefits that successful alignment brings, like improved business efficiency, reduced costs, increased agility, etc… Yet, despite understanding the importance of IT/business alignment… it’s still an issue in many companies.

Lack of Communication: “Simply put, the thing that keeps companies from having perfectly aligned IT and business goals is communication – or a lack of it,” says Mike Martin, Senior VP of Logicalis US. “Today, organizations live and breathe based on the information they harvest and use to make business-critical decisions, as well as the communication they have with customers and suppliers. That information is gathered, stored, processed and analyzed by the people in the IT department. And the company’s communications capabilities are tied into its compute infrastructure. So, without involving IT in strategic planning, the company’s business and IT goals won’t be aligned. They won’t even be on the same page.” Communication lies at the foundation of many business problems, and alignment is no exception. If the business makes technology decisions without IT’s input, or if the IT department makes business decisions without involving the business, alignment is impossible.
Lack of Agreement on IT’s Role: “A big stumbling block is the perception that IT is not part of the Business,” says Carlos Pardo, CEO of CapApex. “It just isn’t true. Once Business understands that IT is an integral part of the success of a company, the easier it will be to align to each other’s efforts.” Here we see the root of the communication problems. If the business doesn’t view IT as being on the same level, they won’t properly communicate (or align) with the IT department. Unfortunately, that’s the case all too often, as many businesses still view IT exclusively as a cost center. Patrick Burns, VP of Product Management at Autotask Corporation, explains how the problem of managing IT as a “cost-center” prohibits IT/business alignment: “This approach prevents accountability and results in IT being viewed as a “black box” of budget expense, or a necessary cost of doing business rather than a strategic investment that can improve business performance and outcomes.”
Lack of Long-Term Thinking: As technology constantly evolves, IT departments must constantly adapt. However, this requires regular investment on the part of the business–something that some business leaders don’t quite understand. “The biggest business/IT misalignment I’ve noticed in my last 12 years of software development is what Stephen Covey calls the ‘P/PC Balance’, which is the balance between production and production capability.” says Jason Swett, CEO of Snip Salon Software. “Another way to put it is the balance between the golden goose and the golden eggs.”

Swett explains the concept in more detail: “Often the person running the business is focused only on the golden eggs (e.g. sales, new features) and has a hard time understanding the importance of investing in the long-term sustainability of the business’s IT infrastructure (e.g. education/training, code refactoring, writing automated tests). The result is that eventually production capability slows to a crawl as the infrastructure grows less stable and changes/additions become exponentially more expensive. By neglecting the health of the golden goose, the ability to get more golden eggs disappears.”

Lack of Modern Technology: Oftentimes, technology itself hinders IT/business alignment. Tied to outdated enterprise software or applications, the IT department focuses most of its time and energy keeping the lights on. The maintenance requirements and inflexibility of the old system handcuffs the IT department, keeping them from providing the business with modern solutions. “The adoption of closed systems, proprietary environments and siloed organizational management,” says Burns. “Old technologies tethered to the on-premise delivery model are costly and burdensome to maintain, displacing higher value IT activities. Incompatibility with open data standards inhibits integration opportunities and business agility. The sequestration of IT from other departments inhibits alignment on business objectives.”
Lack of Resources: Many IT departments are simply understaffed or lack the necessary resources to succeed. With IT constantly overworked, they don’t have the time or energy to focus on strategic business issues. “A lack of resources and strategic plan are typically two major stumbling blocks to aligning IT more closely with its core business,” says Tyler Wassell, Software Development Manager at MRC. “To do this successfully, not only must IT dedicate scarce resources but it also must figure out how to deliver disparate solutions throughout the organisation with some degree of uniformity and ensure control over data assets.”

Business-IT Alignment Challenges^[11]
An organization can purchase, deploy and manage IT/IS successfully without detailed understanding of its future direction but without business strategy in the right format and at the right level of detail, there is a risk that the organisation may shape and steer its technology in such a way as to prevent future alignment. Carr (2003) lends some support for the ‘at drift’ view of the strategic use of IT/IS’. His views are:

IT is a commodity
Due to its ubiquity has matured and lost its strategic value
Calls on management to focus its attention on minimizing IT related risks.

However, he fails to acknowledge its strategic value is likely to be achieved in the long term and by its very nature is difficult to acknowledge and evaluate. He also ignores that business value can result from IT/IS in innovative form such a Facebook, Google and Blackberry. Carr’s recent work (2008) the big Switch: Rewiring the world, from Edison to Google seems to clearly state that IT is a strategic tool.

Levy (2000), using a resource-based perspective, cautions that IT – even aligned IT – in and of itself is not strategic. In order for IT to be strategic, it must be valuable, unique, and difficult for competitors to imitate. Formal business strategies are often too ambiguous for business managers to understand (Campbell, 2005). The business environment is constantly changing, and thus there may be no such thing as a ‘state’ of alignment. Strategic choices made by one organization frequently result in imitation by other organizations. Thus, strategic alignment is a process of change over time and continuous adaptation (Henderson and Venkatraman, 1993). Van Der Zee and De Jong (1999) cite a main problem with alignment as the time lag between business and IT planning processes. That is, given that the business environment and technology change so quickly, once an IT plan is enacted, there is a high probability that the plan and the technology are already obsolete. Also the trouble with most plans is that they do not indicate what the business value us and what strategic or tactical business benefits the organisation is planning to achieve.

Criticism of Business/IT-Alignment^[12] Critics of Business/IT-Alignment research argue that in the world of work, alignment does not succeed because strategy is not a clear concept due to various turbulent, unpredictable circumstances that leave managers muddling through, betting and tinkering with their corporate strategies. (Chan and Reich, 2007). One of the challenges Chan and Reich see, is that Corporate Strategy is unknown, unclear or difficult to adapt. This poses a significant challenge, because most models of alignment presuppose an existing business strategy to which an IT organization can align itself. Managers may face ambiguity surrounding the differences between espoused strategies, strategies in use, and managerial actions, many of which may be in conflict with one another (Chan and Reich, 2007). Critics of Strategic planning and alignment maintain that the implicit dominance of a structured strategy process is questionable in an era where uncertainty and flexibility predominate and the articulation of the strategic intent is difficult (Ciborra,1997 in Avison et al, 2004). A warning on alignment is mentioned in a study of Bain & Company (Shpilberg et al, 2007). They come up with the conclusion that, contrary to conventional wisdom, the path to IT-powered growth lies first in building high effectiveness and only then ensuring that IT projects are highly aligned to the business. Good alignment alone is not enough, and even worse, can distract the IT department from a high IT performance. This is called the Alignment Trap. (see figure below)

source: Frank Coster

Business-IT Alignment, Governance, and Transformation^[13]
The key to successful IT business alignment is the creation of value at each step of the value chain of the organizations’ internal and external processes. This value is created through technology as well as process improvements. Since we are discussing the role of IT in creating value, we can think of IT as the enabler and transformer of organizational processes that lead to increased productivity and higher value at each chain of the internal and external value chain for the organizations. Further, IT is used by many organizations to automate, integrate, assimilate, and deliver real time information in the business processes. Thus, the business driver in these cases is the leveraging of synergies between these processes that were otherwise inefficient. Moreover, organizations also use IT to ramp up their operations which are known as actualization of the benefits from the economies of scale. Apart from that, IT is used to expand into newer geographical and virtual market segments as automating and using IT often results in an anywhere, anytime, everywhere, every time experience for the end users. For all these to happen, the IT and the business functions must work together as a team and in a synergistic manner. IT must become a tool of transformation as well as a source of sustained competitive advantage. For instance, if your bank offers 24/7 virtual banking as well as an extensive network of ATMs would you prefer a competitor whose banking hours are restricted and which forces you to visit the branch for even minor transactions? This is the power of IT and which can only be achieved if the business strategies and the IT strategies complement and supplement each other.

References

↑ Definition of Business-IT Alignment CIO Index
↑ Understanding Business-IT Alignment - CIO Index
↑ Definition of Business IT Alignment Wikipedia
↑ The 5 areas of IT alignment CIO Insight
↑ 7 Steps to Business and IT Alignment - CIO Index
↑ The Four Phases of IT/Business Alignment CIO Update
↑ What are the Key Characteristics of Business-IT Alignment? Wikipedia
↑ Key Success Factors for IT-Business Alignment Anil Dissanayake
↑ What are the Benefits of Business-IT Alignment Piush Vaish
↑ 5 major IT/Business alignment stumbling blocks MRC
↑ The Major Challenges in Achieving B/I Alignment A Data Analyst
↑ Criticism of Business/IT-Alignment Frank Coster
↑ IT Business Alignment, Governance, and Transformation Management Study Guide

Business IT Alignment

See Also

References

Further Reading