Summary Report: Strategic Alignment: Leveraging Information Technology for Transforming Organizations

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Strategic Alignment: Leveraging Information Technology for transforming Organizations

Based on the paper of J.C. Henderson, N. Venkatraman (1993)

by
Philipp Maderthaner

A. Summary
Henderson and Venkatraman proposed a model for business – IT alignment; it was intended to support the integration of information technology (IT) into business strategy by advocating alignment between and within four domains (see figure 1). The inter-domain alignment is pursued along two dimensions: strategic fit (between the external and internal domain) and functional integration (between the business domain and the IT domain). The objective of this model was to provide a way to align information technology with business objectives in order to realise value from IT investments. The authors argued that the potential strategic impact of information technology requires both an understanding of the critical components of IT strategy and its role in supporting and shaping business strategy decisions and a process of continuous adaptation and change. Hence, they presented a model that defines the range of strategic choices facing managers.

Figure 1 Strategic Alignment Model

Two main imperatives for managers are pointed out by Venkatraman and Henderson: First, similar to business strategy, IT strategy has to consider both internal as well as external aspects. Second, both internal/external alignment as well as functional integration must be taken into account. Only one of them is not sufficient.

Overview about the four dominant alignment perspectives:

1. Strategy execution
This strategy assumes that an articulated business strategy is the driver of both organizational design choices and the design of IT infrastructure. The alignment is said to be the most common and widely understood perspective, as it corresponds to the classic, hierarchical view of strategic management.

Driver:Business Strategy
Role of Top Management:Strategy Formulator
Role of IT Management: Strategy Implementer
Performance Criteria: Cost/Service Center

2. Technology transformation
This alignment involves the assessment of implementing the chosen business strategy through appropriate IT strategy and the articulation of the required IT infrastructure and processes. This strategy is not constrained by the current organization design, but instead seeks to identify the best possible IT competencies through appropriate positioning in IT marketplaces.

Driver:Business Strategy
Role of Top Management:Technology Visionary
Role of IT Management: Technology Architect
Performance Criteria: Technology Leadership

3. Competitive Potential
This perspective is concerned with the exploitation of emerging IT capabilities to impact new products and services (business scope), influence the key attributes of strategy (distinctive competencies) and develop new forms of relationships (business governance).

Driver:IT Strategy
Role of Top Management:Business Visionary
Role of IT Management: Catalyst
Performance Criteria: Business Leadership

4. Service Level
The service level alignment perspective focuses – as the name shows – on how to build a world-class IT service organization. In this perspective the role of business strategy is indirect and is viewed as necessary to ensure the effective use of IT.

Driver:IT Strategy
Role of Top Management:Prioritizer
Role of IT Management: Executive Leadership
Performance Criteria: Customer Satisfaction

B. Questions

When one considers the fit between strategy and organizational structure, one talks about a fit between the external environment and internal factors. Why consider Venkatraman/Henderson IT both at the external and internal level, and not just as another internal factor like organizational structure?

Within the business domain Venkatraman/Henderson argue, that the fit between external positioning and internal arrangement is necessary for maximizing economic performance. This is...
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