Information Technology and Business Alignment: Why it is Important
Introduction: What is IT Business Alignment and Why it is Important
The saying about the Blind Men and the Elephant in which three blind men touch the Elephant and state different things without knowing that it is an Elephant, firms and organizations must ensure that their IT and business strategies are complementary and supplementary to each other and not like the blind men in the parable quoted above.
IT Business alignment is defined as the dynamic actualization of organizational goals and objectives and the Operationalization of the IT strategies according to those objectives. Typically, the organizational objectives are expressed in terms of improved financial performance and sustained market competitiveness.
For instance, organizations can state that using IT, they hope to increase sales and revenues by 20% and reduce costs by 10% and increase profits by 15% and achieve profitability.
Further, organizations might also want to state their market based objectives such as increased market share wherein they hope to penetrate into newer segments and extend their reach in established segments with IT.
Thus, IT business alignment is the organizational capacity to leverage the former for the success of the latter. This means that for an organization to claim that its IT and business strategies are aligned, there must be harmony between them and little or no friction between the decision makers in corporate/business departments and the IT department.
IT business alignment is also defined as the organizational imperative to actualize a positive relationship between the use of information technologies and stated and accepted measures of financial and business performance.
However, IT business alignment is easier said than done in practice as there exist significant gaps between what the business wants and what the IT systems deliver. This is mainly due to an inadequate understanding of how IT systems work and how they deliver value as well as due to cultural aspects in addition to a lack of coordination and cooperation between the business and IT departments.
Often, one hears the complaint that IT staff talks in arcane terms, which is the refrain among the business and corporate executives. On the other hand the IT staff point to how the business and corporate departments expect the moon from an IT system when in reality an IT system delivers more or less what the realistic requirements state.
Many CIOs also complain that CEOs, CFOs, and COOs often think of the CIOs as Magicians who can help the organizations reach the stars. Further, they also are frustrated because in practice, IT systems and their Operationalization are according to the mutually accepted requirements and not something, that manifests from thin air.
The Six Steps to Actualize IT Business Alignment
IT business alignment is usually referred to as the Holy Grail which the organizations must strive for as there are substantial benefits of aligning IT and business strategies in terms of the significant value that can be added to the organizations provided they leverage IT strategically, efficiently, and efficaciously. To do this, organizations can do six things or six characteristics that would ensure that IT and business are aligned with each other.
- The first step is to recognize and realize that IT can be used as a transformative tool in organizations. To do this, businesses have to realize the potential of IT to integrate disparate and discreet business functions and processes into a holistic business stream as can be achieved when the entire sales and marketing cycle starting with cold calling customers and including the bidding and finalization of the contract and ending with the post sales customer service are automated in a single value chain that would result in eliminating redundancies, reducing duplication, and simplifying complex steps.
- The second step follows from the above wherein organizations must use IT to target customers both from within and externally using IT.
- The third aspect is related to the manner in which the IT and business staff must talk to each other in a manner that is mutually comprehensible. We have already described how there exist significant communication gaps between these staff.
Therefore, to actualize tighter IT business alignment, the organization must rotate staff between these functions so that they have a working knowledge and a personal experience of how it feels to be on the other side. This is the reason why many organizations prefer IT professionals who have specialized in business management as well as business management graduates who have specialized in IT to staff the roles of CIOs and to some extent, in the corporate and business executive functions.
- The next aspect is to do with defining the goals and objectives for the IT department in a clear and coherent manner. This entails management by objectives wherein the IT department is given the financial, operational, and strategic objectives that are expressed in the SMART (Specific, Measurable, Achievable, Realistic, and Time Bound) model.
- The fifth and perhaps the most important aspect in the road to actualizing closer IT business alignment is to devise foolproof and near accurate as well as reliable and measurable Returns on Investment (ROI) from the IT systems. Often, organizations fail to devise as well as define the ROI from the IT investment, which results in a lack of clarity on whether the IT spends, is worth the time and the effort. This is the reason why many organizations resort to expressing the ROI in terms of every dollar spent on the IT systems.
- Finally, the sixth aspect is to get all these aspects together into a (preferably) written document that enumerates the IT and business strategies and how they are expected to work together.
At the risk of sounding repetitive, we want to emphasize that unless the IT staff are given a requirements and a specifications document wherein the former is couched in business terminology (developed by the business departments) and the latter in technical terminology (developed by the higher level IT staff for the use of the programmers), the resultant IT systems usually resemble a chaotic and wasted effort.
It is often the case that the CIO and the CEO or the COO sit together and come up with the business requirements, which are then signed off by both the parties, and then the technical specifications are prepared by the IT staff, which is again signed off by the CIO.
Further, the key imperative here is the existence of a single source of truth which is the artifact describing the IT business alignment and how the organization wishes to actualize the same.
IT Business Alignment, Governance, and Transformation
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.
In real world organizations, it is often the case that there are ego clashes, turf battles, resistance from vested interests, and pushback from established power centers for any new initiative.
Considering the fact that IT is seen as a positive force for change, it is in the interests of the organization to avoid these friction points and instead align their IT and business strategies for the continued success of the organization.
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