For 20 years now, IT/business alignment has remained a leading CIO concern in those obligatory yearly surveys. This suggests we still haven't achieved it. Why is this so hard? Shouldn't we have figured it out by now?
Recent conversations with both business and IT leaders lead me to conclude that the central problem may be that we just don't have a good definition. If we can't define it, how can we ever hope to achieve it?
Certainly, alignment is a complicated subject. But if we slice through that complexity, I believe there are six core practices, or pillars, that accurately define it. Proper alignment produces an organization that's strong and durable, like a well-built vehicle. It won't crumple under load or shake apart at high speed because it's tightly integrated with the business and focused on exactly what it should be doing.
IT can do many things to increase its efficiency; but to be effective, it must build alignment atop these six foundations.
The Six Pillars of IT Alignment
Pillar #1: Strategy
Business strategy is very different from IT strategy. It's about products and markets, value propositions and differentiators. IT strategy is about architecting and delivering applications and services that support the business strategy. So IT must understand the business strategy, but it must also understand key issues and major thrusts. Some business leaders share this information openly; others force IT executives to intuit a great deal.
When I began consulting with a $30 billion, multi-divisional manufacturing firm to help develop its IT strategy, I discovered most business unit leaders didn't document or share their business strategy. Before we could proceed, I had to develop a tool for IT leaders to use to intuit the business strategy and then confirm their analysis with business leadership. The spreadsheet that resulted allowed them to analyze current business and IT activities in terms of Harvard business professor and author Michael Porter's fundamental strategic concepts, as well as several core financial objectives. Their analysis was revealing: a number of significant IT projects currently under way were not of strategic importance. Most of them were subsequently downgraded in importance or in resources utilized. Some were simply cancelled.
At a financial services firm where I worked, we first had to teach IT employees how their firm made money. The most effective method was to play a simulation game that let them make a series of basic operating decisions as if they were president of their own banks and then quickly see the results of those decisions. Competition among several teams of employees to become the most profitable or largest bank added to the experience and made it more challenging for the participants.
Understanding business strategy is hard enough, but once that is accomplished, the real challenge is building a supportive IT strategy. That's where the other pillars come in.
Pillar #2: Organization
Considering how the business is organized gives guidance to IT. Businesses with a single operating unit, for example, are usually best served by a central IT group, although a central group might also do well serving multiple units that are governed by strong, centralized management. Federated business units may require at least part of the IT organization (application development, some infrastructure) to operate inside them. Holding companies generally do best with decentralized IT groups. Remember that applications are IT's core deliverable. They're what the business uses, and everything we do supports delivering them. That's easier if it's organizational structure matches that of the business.
To get applications right, IT should also place relationship managers and key applications experts close to the business. While relationship management isn't new, an IT leader functioning as part of a business is still relatively rare. One utility I know of found that having relationship managers report to IT didn't generate enough respect with business leaders, so now those managers are part of the business senior management team. A $13+ billion insurance company found their relationship managers needed to be process experts. Regardless of industry, the common roles of relationship managers are to listen and understand business issues and concerns, identify potential IT contributions, build support for key projects and initiatives, and act as liaisons to facilitate getting things done.
Pillar #3: Applications
IT applications support business processes. So process requirements and business strategy should drive whether to install purchased packages right off-the-shelf, to customize them, or to develop applications internally. When the business is focused primarily on differentiation, extensive customization or internal development is usually necessary. The need for speed and flexibility suggests development of applications be decentralized. If multiple process models are involved, multiple applications may also be necessary. If the business is focused primarily on cost control, it's better to install purchased packages with few changes, standardize all processes, and support only a short list of applications. In this case, centralized application development is generally best.
Pillar #4: Infrastructure
Hardware, software and networks deliver applications to users. In maturing or cost-conscious organizations, the need for economies of scale and fewer applications make consolidation the frequent watchword. Simple, fast, and distributed can be important to companies pursing multiple target markets and differentiation strategies. Performance, quality of service, risk, and business continuity issues often lead to centralizing infrastructure and its support as much as possible. For all companies, a documented architecture and roadmap are critical to getting the right infrastructure in place. Companies like Toyota, International Paper, Dow Chemical, John Hancock and even the U.S. Navy have established dedicated teams to create and maintain architecture roadmaps. A regional financial services firm with revenues of just under $4 billion actually paid bonuses to executives whose efforts to achieve the target infrastructure created savings in excess of targets.
Pillar #5: Projects
Projects change things, and it is important to tackle those projects that offer the most strategic benefit. A 2001 survey of more than 400 IT professionals revealed a whopping 48% of them felt their largest IT initiatives were not directly linked to business strategy. Another survey of more than 1,000 IT leaders found that the majority believed project prioritization was overly politicized, subject to constant change, and not solidly justified. But if IT is to use its limited resources effectively, it must have an objective method of choosing among competing projects. This discipline is usually called value management or portfolio management. A related discipline, governance, determines who makes the decision, and that is equally important.
A large, but highly distributed consumer products manufacturer I know of uses quantitative weightings to score each project, measuring its alignment with business strategy, IT strategy and architecture. It also measures financial return, contributions to competitive positioning, and the legal or regulatory compliance impact. Executives at Guardian Insurance recently reported reducing applications expense by 20% thru effective portfolio management. Eli Lilly is one of the many companies that attempt to optimally apportion its IT investments among mandatory items, infrastructure maintenance, innovation, and business opportunities.. A large process manufacturer I've worked with insists senior business executives sponsor each project plus make a respected member of their team responsible for ensuring that the project delivers its expected business results. Having a disciplined approach to choosing the best of competing projects removes much of the emotion from the process. It can also help business leaders see projects beyond their own areas of responsibility and embrace those with high value to the entire enterprise.
Pillar #6: Governance
Business executives, not IT, should make the hard choices regarding IT priorities and funding levels, and they should use the kind of well-defined value management process described above to do it. When a centralized IT function serves multiple business units, the ability to rationally judge which projects are more valuable -- regardless of unit -- is especially important in optimally applying resources. This also eliminates underground projects that build animosity and create pockets of costly, non-standard infrastructure.
For example, a major package delivery firm reports that it formed an IT steering committee consisting of business unit leaders who meet regularly to review project proposals and make funding decisions. The bank where I worked did the same. A $1.5 billion restaurant chain formed a committee that meets monthly, while a $1.5 billion medical equipment manufacturer found that meeting twice a year was too infrequent and returned to a quarterly schedule.
IT usually sets up and provides the structure for these committees. The benefit is that IT is removed from making unpopular decisions about funding. Selling a project becomes the responsibility of business leaders. Plus, there's increased communication and understanding of how IT impacts the business, a shared understanding of the potential value of major projects, and a tendency to subordinate parochial interests.
In the end, IT alignment might best be defined as IT delivering the applications and services that satisfy the needs of the business. Achieving alignment, however, requires understanding what it takes to identify and deliver those applications and services. Perhaps if we in IT can get better at interpreting business strategy, developing supportive IT strategies, and constructing our own six pillars, we'll eventually see alignment disappear as a top IT concern.
John N. Oglesby is the Principal of Technology Planning Partners in Memphis, a firm specializing in helping executives develop IT strategy. He can be reached at ITPlanning@hotpop.com.