Strategic Business IT alignment

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This article was published in the annual book of the CTO Forum magazine. A year they publish 10 articles and mine was one of them.

Published in: Business, Economy & Finance

Strategic Business IT alignment

  1. 1. The alignment between business and IT is one of the most important aspects of IT governance. IT governance generally helps firms defining who is responsible for what and how IT decisions are made. IT-business alignment enables firms to adhere to business objectives, and to maximize the value from investments. The IT business balance survey was conducted by Deloitte in 2008 on about 300 Business and IT decision makers. One of the key findings of the survey was that alignment of corporate and IT strategies remains a topic rarely discussed at top level. It appeared that only in 33% of the organizations strategic alignment sessions are regularly being held. Both business and IT representatives indicate that the primary focus is on financial alignment of the investment portfolio and to a lesser extent evolution activities and IT changes. How frequently is the IT strategy aligned with company strategy? Concerns Organizations that lack Business-IT alignment often have the following concerns: • IT-driven projects do not meet time & budget constraints; • IT investments do not pay off; • Uncertainty whether IT strategy and principles are appropriate; • IT organization is not able to meet the business requirements; • Struggling with the various compliance requirements; • Financial reports are not available in a timely and accurate manner; • Unclear (out)sourcing strategy; • No satisfaction with the service levels provided by the IT service providers; • Insufficient implementation of security controls; • Not able to optimize the IT budget utilization. Never Ad-hoc during Annually Half Yearly Quarterly Monthly 0% 10% 20% 30% 40%
  2. 2. Tactics& Solution The framework for the business-IT alignment needs to be developed. The framework for the alignment would contain mostly the framework for IT Governance, that covers the different building blocks of good IT Governance, and that links those to Shareholder Value. In this model, Business-IT alignment is represented as the coherence between the business requirements and the different domains of IT Governance. It is important to have all these IT-domains aligned with the business objectives. The framework that’s been presented here is mostly based on the value IT methodology. The developed framework is an approach to sheds light on the misalignment between business objectives and IT domains. Using the Strategic framework model, we determine the key issues and their root causes, as well as their relevance to the business and IT. The deliverable of this Strategic framework model is an assessment report. The report covers an overview of the proposed improvements. By identifying the key issues and root causes, the report enables you to prioritize improvements, create a roadmap and implement the improvements in order to bridge the gaps. Shareholder Value Revenue Growth Operating Margin Asset Efficiency Expectations Supply & Demand: Alignment & Value Delivery Value management Governance Performance management Governance Information Governance Application Functionality Governance IT Infrastructure Governance Security Continuity Ethics Risk Sustainability IT Service Processes Governance Quality Compliance IT Principles & Strategy Governance IT Organization, R&R Governance Project Portfolio Governance Architecture Governance Talent and Sourcing Governance
  3. 3. Value The added value of having the IT environment aligned to the business requirements: • IT supports the business strategy, aims and objectives, adds value to the business and drives business success. • Demands on IT are managed and met in an efficient and consistent manner. • Appropriate and effective processes are in place to deliver quality efficiently; • IT Risk management is in place, turning risks into opportunities, through our “Risk Intelligent Enterprise” approach; • IT is compliant with relevant laws and regulations; • Performance is measured to keep improving the way IT creates business value. • Having an aligned architecture in place, this will enable the agility of the organization to react on changes in the organizational environment; Competitive advantage in the banking & financial services industry depends on a company’s ability to transform information and knowledge into market products (i.e., financial services products). The modern banking & financial services industry is highly information-intensive and information technology (IT) is a critical enabler for competitive advantage. Without IT, the modern banking & financial services industry would be impossible. With such high interdependence between business and IT required to generate new knowledge, new services and new products, harmonization of business and IT goals are essential to meaningfully enhance a banking & financial services company’s competitive position. The harmonization of business and IT goals is commonly referred to as “strategic alignment” and its importance — 1. Diagnose current situation 2. Prioritise the improvements 3. Create the vision and roadmap 4. Implement the required changes 5. Improve continually
  4. 4. documented since the 1970’s - is that strategic alignment enhances the likelihood that a transformational business strategy will be successful. Responding to Industry Challenges In my recent discussions with banking & financial services executives, the topic of improving alignment between business and IT has assumed new importance as threats to the banking & financial services industry’s sustainable double - digit profitability have multiplied (e.g., multi region & global presence vs. country specific data protection acts, declining R&D productivity, escalating regulatory delinquency costs, increased competition due to globalization and competitive alliances, heightened M&A activity, etc.) and the requirement to control or reduce operational costs has become paramount. The business side of the banking & financial services industry is responding to these challenges by undertaking or exploring strategies to transform current business processes and the way information is shared, created, stored, and used. For example: • Employing “personalized products & services,” which includes tactics that are tailored to an individual’s specific financial capabilities (individual’s industry, market, income group, investments, etc., resulting from workgroup). This transformational strategy would move the entire industry away from mass-products & services that act on entire populations to Products & services customized to individual customers (i.e., from a mass production business model to mass customization). • Changing the current business model for obtaining approval to market new products & services. This includes a change from filing individual applications, often many months apart, with the separate regional regulatory agencies, to a model where these filings are done almost simultaneously in all regions. A global submissions model would enable banking & financial services firms to more quickly generate revenue from products as well as enjoy longer periods of market exclusivity for their products. Each of these transformational business strategies will demand a high degree of strategic alignment among the business and IT functions of the company. However, an alarming fact according to recent industry research is that while more than 80 percent of companies employ some form of strategic business and IT planning, less than 10 percent of these strategies achieve their objectives. Why this huge disconnect? If strategic alignment is so important to the business and to the IT function, why is the execution of strategy so dismal? The principal reason for the strategy formulation-execution gap is that certain factors related to organizational structure and organizational behavior enable or inhibit the ability of a company to achieve strategic alignment.
  5. 5. Maturity Model In order to maximize strategic alignment, banking & financial services companies (I mean why only these, this could be valid for all, I haven’t validated these though) need some objective way of evaluating their current status. I believe that banking & financial services organizations can determine their current state of strategic alignment - and their potential for business transformation - by using a five level framework called the “Strategic Alignment Maturity Model,” which is been described below: 1. Initial/Ad Hoc Process - business and IT are not aligned or harmonized 2. Committed Process - the organization has committed to becoming aligned 3. Established Focused Process – there are established processes (such as a systems steering committee), and activities (such as portfolio management capabilities to evaluate IT investments) to realize strategic alignment 4. Improved/Managed Process - IT applications are leveraged across the enterprise to drive process enhancements that sustain competitive advantage 5. Optimized Process - the organization has integrated business and IT strategic planning Level 1 companies generally lack the processes and communication between business and the IT functions needed to attain strategic alignment. Within Level 5 companies, IT and other business functions integrate their strategies using fully developed processes that include external partners and customers. Therefore, the higher the maturity levels of strategic alignment, the higher the likelihood that a transformational strategy will be successful. Six Management Practices This sounds good, but how can we quantitatively determine which level might describe a company’s current state of strategic alignment? The answer is that each level can be determined by evaluating six management practices that extensive research has shown enable —or inhibit — strategic alignment: 1. Communications Maturity – practices that encourage knowledge sharing across the business and IT organizational communities 2. Competency/Value Measurement Maturity - practices that demonstrate the business value of IT 3. Governance Maturity - practices that ensure that the business and IT communities formally discuss and review the priorities and allocation of IT resources 4. Partnership Maturity - practices that address how the business and IT communities perceive the contribution of the other, as well as the level of trust between the communities and how risks and rewards are shared 5. Scope & Architecture Maturity – practices that address the extent to which IT is able to:  Move from the “back office” to the “front office”
  6. 6.  Design and implement IT infrastructures that are flexible and ensure transparency to internal and external customers  Effectively evaluate and apply emerging technologies to address current and potential business needs  Drive or enable changes to business processes for competitive advantage  Provide solutions that are customizable for each customer 6. Skills Maturity - practices beyond traditional HR activities that enhance and reward skills that align business and IT objectives Next Steps Against this theoretical background, two key questions arise:  How can understanding these concepts help make my company, or a division within it, better able to develop a transformational strategy that is enabled by IT?  What next steps should I consider to help clarify where my company falls on this scale of transformational potential? As a first step I recommend that you evaluate our organization at the divisional level rather than the enterprise level, using the summary descriptions of the five levels of Strategic Alignment Maturity Model (illustrated above). This provides help in understanding where our organization might be positioned in its transformational potential. The importance of this evaluation is not in the absolute number (i.e., 1-5) but in What the number implies about our organization’s likelihood of achieving a successful transformational strategy. To more deeply understand and close the specific gaps in each of the six dimensions of alignment maturity (i.e., critical management practices), we have to implement a more detailed assessment of senior business and IT management. This involves completing a survey questionnaire that more extensively explores each of the six dimensions and then holding a follow-up joint workshop.

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