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Strategic alignment model
1. Strategic Alignment Model
Source: Henderson and Venkataraman
V.T. Raja, Ph.D.,
College of Business
Oregon State University
2. Strategic Alignment Model
• Framework for aligning IT with business strategy
• Framework for conceptualizing and directing
strategic role/management of IT
• Framework for leveraging IT on a continuous
basis to achieve sustainable competitive
advantage
3. Strategic Alignment Model
External and Internal Domains
• Four Domains
• Two internal and two external domains
• External domains also referred to as Strategy Domains
(Business Strategy Domain and IT Strategy Domain)
• Internal domains also known as Infrastructure Domains
(Business Infrastructure and IT Infrastructure Domains)
4. Strategic Alignment Model
Four Domains of Strategic Choice
Need to recognize how decisions in one domain affects the other domains
Strategy Scope Scope
(External) Competencies Competencies
Governance Governance
Strategic
Fit
Structure Infrastructure
Infrastructure Processes Processes
(Internal) Skills Skills
Business Information Technology
Functional Integration
5. Strategy Domains
• Business
– Scope: What business are you in?
– Distinctive Competencies: What do you do well to
distinguish yourself from your competitors?
– Governance: What external business relationships do
you depend on?
• IT
– Scope: What information technologies support or create
strategic business opportunities?
– IT Competencies: What characteristics of IT create
business advantage?
– IT Governance: What external relationships does IT
depend on (outsourcing, vendors, etc.)
6. Infrastructure Domains
• Business
– Structure: Organizational structure
– Processes: What are key business processes?
– Skills: What HR needed to accomplish specific
competencies?
• IT
– Infrastructure: Hardware, Software, Database, Networks
– Processes: Development, Maintenance, Operations
– Skills: What skills required to maintain architecture and
execute the processes?
7. How to use the
Strategic Alignment Model
• Building Blocks:
– Strategic Fit
– Functional Integration and
– Cross-Domain Relationship
• Identify your strongest and
weakest domain
– Need to develop
communication with and
increase understanding of
weaker domains
• Understand relationship
between domains when
change in strategy occurs
8. Strategy Execution
IT is an Expense
• Business Strategy is the driver of both Business and IT Infrastructures
– Priority is to improve business processes, which places focus on
changing business infrastructure. IT focus is on application
development, driven by need to support business infrastructure
Business Strategy IT Strategy
Scope Scope Top Mgmt’s Role?
Competencies Competencies
Governance Governance IT Mgmt’s Role?
Performance Criteria
for assessing IT
Business Infrastructure IT Infrastructure based on ___?
Structure Infrastructure
Processes Processes Risk?
Skills Skills
9. Technology Transformation
Business Strategy Drives Need to Develop IT Strategy
• Assume: Business strategy and infrastructure are aligned
• IT strategy needs to define technologies integral to
business strategy
– Focus is aligning IT strategy and IT infrastructure
Business Strategy IT Strategy
Scope Scope Top Mgmt’s Role?
Competencies Competencies
Governance Governance IT Mgmt’s Role?
Performance Criteria
for assessing IT
Business Infrastructure IT Infrastructure based on ___?
Structure Infrastructure
Processes ? Processes Risk?
Skills Skills
10. Service Level
Providing IT services
• Information is a core product or service
– Business strategy and IT strategy may be aligned
• Focus is to enable business infrastructure by fitting IT
infrastructure to IT strategy
Business Strategy IT Strategy Top Mgmt’s Role?
Scope ? Scope
Competencies Competencies IT Mgmt’s Role?
Governance Governance
Performance Criteria
for assessing IT
based on ___?
Business Infrastructure IT Infrastructure
Structure Infrastructure Risk?
Processes Processes
Skills Skills
11. Competitive Potential
IT Enables Strategic Opportunities
• Assume: IT strategy and infrastructure are aligned
• IT strategy necessary to build distinctive core competency
– Business infrastructure needs to evolve to fit new
business opportunities enabled by IT
Business Strategy IT Strategy Top Mgmt’s Role?
Scope Scope
Competencies Competencies IT Mgmt’s Role?
Governance Governance
Performance Criteria
for assessing IT
based on ___?
Business Infrastructure IT Infrastructure
Structure Infrastructure Risk?
Processes ? Processes
Skills Skills
12. Lessons from the
Strategic Alignment Model
• Need for IT external and internal
domains
• Understand strong/weak domains
and cross-domain relationships
• Different roles of business and IT
executives
• Re-conceptualize assessment of
the performance of IT
• Which alignment perspective is
best?
– If there is one universally superior
perspective – would the strategic
benefit be sustainable?
13. Environment
Competitive Forces Model
Business Strategy IT Strategy
Scope Scope
Competencies Competencies
Governance Governance
Business Infrastructure IT Infrastructure
Structure Infrastructure
Processes Processes
Skills Skills
Editor's Notes
No single IT application – however sophisticated and state of the art it may be – could deliver a sustained competitive advantage
No single IT application – however sophisticated and state of the art it may be – could deliver a sustained competitive advantage
IT Strategy: Example: Primis (McGraw-Hill Inc.) custom edition of textbooks IT Scope: Electronic Imaging Technology Systemic Competence: Superior level of clarity of imaging (an attribute of IT strategy) to guarantee high-quality printing (an attribute of business strategy) and flexible binding capability (IT strategy matches with Business Strategy); Overall – supports business need of offering customized textbook to interested customers IT Governance: Joint ventures and long-term agreements with Eastman Kodak and R.R. Donnelley & Sons Co., to obtain the requisite competencies.
Building blocks: Strategic Fit (Between external business domain and internal business domain – same for IT domains); Functional Integration – Need to integrate business and IT domains. SAM calls for cross-domain relationships. (Effective management of IT requires a balance among the choices made across all four domains). Some examples of some dominant cross-domain relationships are discussed next.
Top Mgmt’s Role: Strategy Formulator; IT Mgmt’s Role: Strategy Implementor; Performance measure based on financial parameters reflecting a cost center focus. Risk: IT reacts to support business processes – not viewed as a strategic resource E.g. Use automation – Marginal benefits for business due to IT
Top Mgmt’s Role: Technology visionary; IT Mgmt’s Role: Technology Architect; Performance Metric: Based on technology leadership – often utilizing a bench-marking approach Risks: IT is not integrated – IT infrastructure lags and does not adequately support business infrastructure Example: American Express Travel Related Services Co., Inc. Bus Strategy: Provide quick approval of purchased made by charge card (w/o any preset spending limit) Provide copies of receipts to cardholders Technology Strategy: Scope/Competenices: Expert Systems, Optical Scanning, Storage and Laser-Printing System; Governance: Make vs. Build (Build expert systems; Purchase Optical Scanning, Storage and Printing Systems)
Top Mgmt’s Role – Prioritizer (Articulate how best to allocate the scarce resources both within the firm and the IT marketplace) IT Mgmt’s Role – Leadership – Make the internal service business succeed within the operating guidelines from top management. Performance Measure – Based on customer satisfaction obtained with qualitative and quantitative measurements using internal and external benchmarking (end-user-needs surveying, service-level contracting) Risks: May lose sight of business strategy; IT viewed as a service function independent of business strategy.
Top Mgmt’s Role: Business Visionary – How emerging IT would impact business strategy. IT Mgmt’s Role: Catalyst – Identifies and interprets trends in the IT environments to assist the business managers to understand potential effects of IT on business. Performance Criteria – Based on business leadership with qualitative and quantitative measurements pertaining to product leadership such as market share, growth, or new product introduction. Risk: Large IT investments; Change organizational structure to address info flow problems; Re-train employees with new IT. Examples: Nike – ERP – New product introduction (18 months before SAP; After SAP – expected to be around 3 months) Baxter Health Care – Exploitation of its IT position - Software service to healthcare marketplace – Joint venture with IBM (Spectrum project)
Maintaining alignment is a process (inherent dynamic nature) Focus of fit will change as strategies evolve
With the advent of Internet – Strategy and Competitive Advantage have given way to some new terminology at dot-coms; Porter says these terminology are destructive in some sense e.g., Business Models – Loose conception of how a company does business and generate revenue (Exceedingly low bar to set for building a company). Generating revenue is a far cry from true economic value, and no business model can be evaluated independently of industry structure. E-business and E-Strategy – such terms – encourage managers to view their Internet operations in isolation from the rest of the business – could lead to simplistic approaches to competing using the Internet – and increase the pressure for competitive imitation. Established companies fail to integrate the Internet into their proven strategies and thus never harness their most important advantages.
