Avoiding The Alignment Trap In Information Technology

Topics: Strategic management, Compound annual growth rate, Information technology Pages: 29 (2463 words) Published: February 28, 2015
Avoiding the Alignment
Trap in Information
Technology

1

About the Case
• Article in “MIT Sloan Management Review”
• Article is prepared based on survey of more than 500 senior •


business & technology executives and in-depth interview of
30 CIOs.
The principle findings of the study is that even at companies that were focused on alignment, business performance
dependent on IT sometimes went sideways, or even declined.
Article talks about two primary factors for success in IT:




Alignment between business goals and IT goals
Effectiveness & Efficiency of the IT department in delivering services on time and within budget

2

Inadequacy of IT-Business Alignment
•IT-Business alignment can be defined as the art and science

of formulating,
integrating, and implementing decisions between the business and IT, which enables an organization to achieve its objectives
•In response to Business objectives, IT-Business alignment has been traditionally viewed as an essential function of business , and as a necessary aspect of enabling sustained competitive advantage through coordinated planning between the business and IT.

•This is true to a large extent as IT-Business alignment continues to be one of the biggest concerns of management.
•Studies have shown that IT-Business alignment is inadequate because the business climate is in a state of dynamic change and innovation. In addition, studies have further shown that alignment attained is very temporal in 3

nature, and that it falters over time.

Inadequacy of IT-Business Alignment
(Contd..)
• Misalignment


A narrow focus on alignment of divisions with its needs instead of business as a whole



Misalignment resulting from restructuring activities like M&A, etc




Different divisions driving independent initiatives

• Complexity of the system, applications and infrastructure Divisions addressing their individual competitive needs
4

Alignment Trap
• IT Effectiveness (e.g.



increased IT flexibility)
provides improved
performance and sustainable
competitive advantage
Excess Focus on Alignment,
overlooking the need for
effectiveness, has pulled
many organizations into the
Alignment trap
5

Charles Schwab & Co.





Financial services company that grew up around its information technology capabilities from discount brokerage firm to full service online broker
Over the period IT turned from Schwab’s business driver to commodity to part of its problem
Even though IT and business goals were aligned – Schwab was loosing its competitive advantage and its business was not sustainable in long run Schwab management was forced to spend fortunes on maintenance rather than new projects required to be competitive in market 6

The Sloan matrix
To explain the relationship between the extent of alignment and efficacy of IT and its effect on the performance of the company based on responses from 452 companies.





Pattern 1: Maintenance Zone



IT at these companies is generally
underperforming, undervalued and kept largely
separate from core business functions of the
company



IT systems are kept running, but do not add
enough value to the business and is not
expected to.

Pattern 2: Well-Oiled IT



Highly focused on execution and made 15% less
than average spending on IT but with 11% more
than average annual growth rate over 3 years



All the projects weren’t thoughtfully tied to
business objectives.

7

The Sloan matrix
To explain the relationship between the extent of alignment and efficacy of IT and its effect on the performance of the company based on responses from 452 companies.
• Pattern 3: Alignment Trap






Where Schwab& Co found itself
Executives believed that IT systems are highly
aligned but lacking in effectiveness leading to
14% lower than average growth rate even
though IT spending is 13% higher than the
average spend....
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