ALIGNING IT WITH TIE BUSINESS STRATEGY 7 ASSESSING IT/BUSINESS ALIGNMENT Jerry Luftman Alignment is the perennial business chart-topper on top-ten lists of IT issues. What foliows is a methodology developed by the author for assessing a companys alignment. Modeled after the Capability Maturity Model developed by Carnegie Mellons Software Engineering Institute, but focused on a more strategic set of business practices, this tool has been successfully tested at more than 50 Global 2000 companies and is currently the subject of a benchmaricing study sponsored by the Society for Information Management and The Conference Board. The primary objective of the assessment is to identify specific recommendations for improving the alignment of IT and the business. I LIGN1MENT IS THE PERENNIAL BtJSLNESS U chart-topper on top-ten lists of IT issues. Educating line management on technolo- ALIGNMENT CATEGORIES The tool has sLx IT-business alignment crit:eria, or maturity categories, that are included in gys possibilities and limitations is diffi- each assessment: cult; so is setting IT priorities for projects, developing resources and skills, and integrat- L Communications Maturity ing systems with corporate strategy. It is even 2. Competency/Value Measurements Maturity tougher to keep business and IT aligned as 3. Covernance Maturity business strategies and technology evolve. 4. Partnership Maturity There is no silver-bullet solution, but achieving 5. Technology Scope Maturity alignment is possible. A decade of research has 6. Skills Maturitv found that the key is building the right relation- Each maturity category is discussed below. A ships and processes, and pioviding the neces- tist of specific practices for each of the six sary trainiing. alignment criteria can be found in Exhibit 1. What follows is a methodology developed by the author for assessing a companys align- ment. Modeled after the Capability Maturity Communications Maturity Model® developed by Carnegie Mellons Soft- Effective exchange of ideas and a clear under- ware Engineering Institute, but focused on a standing of what it takes to ensure successful more strategic set of business practices, this strategies are high on the list of enablers antd in- tool has been successfully tested at more than hibitors to alignment. Too often there is little 50 G;lobal 2000 companies and is currently the business awareness on the part of IT or little IT ,JERRY LUFTMAIN is subject of a benchmarking study sponsored by a professorat the Howe appreciation on the part of the business. (iiven School of Technology the Society for Information Management and the dynamic environment in which most orga- Management at The Conference Board. The primary objective of the assessment is to identify specific recom- nizations find themselves, ensuring ongoing Stevens Institute of Technology in mendations for improving the alignment of IT knowledge sharing across organizations is par- hIoboken, New Jersey. and the business. amount. :N FO RM AT; O N SY ST E MY S MAN AG FM EN 2003 9 FAlL
ALIGNING IT WITH THE BUSINESS STRATEGYEXHIBIT I Alignment CriteriaAlignment Level 5:CrIterion. Level 1: Level 2: Level 3: Level 4: Optimal ProcessCommunications With Process Beginning Establishing Improved (CompleteMaturity (No Alignment) Process Process Process Alignment)Understanding ot IT management Limitea Good understanding Understanding Understancling Business by IT lacks understanding by by IT management encouraged among required of ali IT understanding IT management IT staff staffUnderstanding of IT Managers lack Limited Good understanding Understanding Understanding by Business understanding understanding by by managers encouraged among required of staff rmanagers staffOrganizational Casual conversation Newsletters, reports, Training, Formal methods Learning mon:tored Learning and meetings group e-mail departmental sponsored by for effectiveness meetings senior managementStyle and Ease of Business to IT only; One-way, somewhat Two-way, forrnal Two-way, somewhat Two-way, informal Access formal informal informal, and flexibleLeveraging Ad hoc Some structured Structured around Formal sharing at all Formal sharing with Intellectual Assets sharing emerging key processes levels partners.T-Business Liaison None or use only as Primary IT-Business Facilitate knowledge Facilitate Building relationsnip Staff needed iink transfer relationship with building partnersIT Metrics Technical only Technical cost; Review, act on Also measure Also measure metrics rarely technical, ROI effectiveness business ops. HR, reviewed mnetrics partnersBusiness Metrcs IT investments Costlunit; rareiy Review, act on ROI, Also measure Baianced scorecard, rneasured rarely, if reviewed cost customer value incIudes partners everLink between IT and Value of IT Business, IT metrics Business, IT metrins Formally linked; Balanced Business Metrics investments rarely not linked becoming linked reviewed and acted scorecard, includes measured upon partnersService Level Use sporadically With units for With units; becoming Enterprisewide Includes partners Agreements technology enterprisewide performanceBenchmarking Seldom or never Sometimes May benchmark Routinely Routinely benchmark formaily, seldom benchmark, usually bench mark, act on, informally act act and measure resultsFormally Assess IT Do not assess Only when there is a Becoming a routine Routinety assess Routinely assess, Investrnents problem occurrence and act on findings act on, and measure resultsContinuous None Few; effectivenessFew; starting to Many; frequently Practices and Improvement not measured measure measure measures well- Practices effectiveness effectiveness establishedFormai Business Not done, or done as At unit functional Some IT input and At unit and With IT and Strategy Planning needed level, slight IT input cross-functional enterprise, with IT partners planningFormal IT Strategy Not done, or done as At unit functional Sorne business input At unit and With partners Planning needed level, light business and cross- enterprise, with input functionai planning businessOrganizational Centralized or Central/decentral: Central/decentral Federai Federal Structure decentralized some collocation or FederalReporting CIO reports to OF0 CtO reports to CFO CIO reports to COO CIO reports to CiO reports to CEO Relationships COO or CEOHow IT Is Budgeted Cost center, Cost center by unit Some projects IT treated as Profit center spending is treated as investment unpredictable investmentsRationale for iT Reduce costs Productivity, Also a process Process drnver, Competitive Spending efficiency enabler strategy enabler advantage, profit N F<RP M A r )N SY S TE M S M A N A (2 E M F N FA1 20 003
ALIGNING ITWITH THE BUSINESS STRATEGYEXHIBIT I Alignment Criteria (Continued)Alignment Level 5:Criterion: Level 1: Level 2: Level 3: Level 4: Optimal ProcessCommunications With Process Beginning Establishing Improved (CompleteMaturity (No Alignment) Process Process Process Alignment)Senior-Level IT Do not have Meet informally as Formal committees Proven to be Also includes Steering needed meet regularly effective external partner3 ComrmitteeHow Projects Are React to business Determined by IT Determined by Mutually determined Partners priorities Prioritized or IT need function business function are consideredBusiness Perception Cost of doing Becoming an asset Enables future Drives future Partner with of IT business business activity business activity business in creating value.Ts Role in Strategic Not invoived Enables business Drives business Enables or drives IT, business adapt Business Planning processes processes business strategy quickly to changeShared Risks and IT takes ail the risks, IT takes most risks IT, business start Risks, rewards Managers incenteJ Rewards receives no with little reward sharing risks, always shared to take risks rewards rewardsManaging the IT-business Managed on an ad Processes exist but Processes exist and Processes are IT-Business relationship is not hoc basis not always complied with continuously Relationship managed followed improvedRelationship/Trust Conflict and mistrust Transactional IT becoming a Long-term Partner, trusted Style relationship valued service partnership vendor or IT provider servicesBusiness Usually none Often have a senior IT and business Business sponsor or CEO is the business Sponsors/ IT sponsor or sponsor or champion at sponsor or Champions champion champion at unit corporate level champion levelPrimary Systems Cost of doing Becoming an asset Enabies future Drives future Partner with business business activity business activity business in creating valueStandards Not involved Enables business Drives business Enables or drives IT, business adapi processes processes business strategy quickly to changeArchitectural IT takes all the IT takes most risks IT, business start Risks, rewards Managers incented Integration risks, receives no with little reward sharing risks, aiways shared to take risks rewards rewardsHow IT IT-business Managed on an ad Processes exist but Processes exist and Processes are Infrastructure Is relationship is not hoc basis not always followed are complied with continuously Perceived managed improvedInnovative, Discouraged Somewhat Strongly encouraged Also at corporate Also with partners Entrepreneurial encouraged at unit at unit level level Environment levelKey IT HR Decisions Top business and iT Same, with emerging Top business and Top business and IT Top management Made by: management at functional influence unit management; management across firm and corporate IT advises across firm partnersChange Readiness Tend to resist Change readiness Programs in place at Programs in place at Also proactive an d change programs functional level corporate level anticipate change emergingCareer Crossover Job transfers rarely Occasionally occur Regularly occur for Regularly occurat all Also at corporate Opportunities occur within unit unit management unit levels levelCross-Functional No opportunities Decided by units Formal programs run Aiso across Also with partner; Training and Job by all units enterprise RotationSocial Interaction Minimal IT-business Strictly a business- Trust and confidence Trust and confidence Attained with interaction only relationship is starting achieved customers and partnersAttract and Retain No retention IT hiring focused on Technology and Formal program for Effective program for Top Talent program; poor technical skills business focus; hiring and hiring and retairning recruiting retention program retaining 11 SYLTEMS MANAGEMENT INFO RPM AT IO N INFORMAThON SYST E MS MAN A-G E M ENT 11 F A[.L L 2003O3
ALIGNING ITWITH THE BUSINESS STRATEGY Many finns choose to draw on liaisons to fa- ranks high among the enablers and iihibitors cilitate this knowledge sharing. The keyword of alignment. Giving the IT function the oppor- here is "facilitate. This author has often seen tuanity to have an eqLual role in defining business facilitators whose role becomes serving as the strategies is obviously important. However, sole conduit for interaction among the differ- how e-ach organization perceives the contribu- ent organizations.This approach tends to stifle, tion of the other, the trsust that develops among rather than foster, effective communications. the participanits, ensuring appropriate businiess olg Rigid protocols that impede discussions and sponsors and chamupions of IT endeavors, andbeyond the the sharing of ideas should be avoided. the sharing of risks and rewards are all majortraditional contributors to mature alignment.This partner- Competency/Value Measurements ship should evolve to a point wlhere IT both en-considerations ables and drives changes to both business Maturityaire factors Too many IT organizations cannot demonstrate processes and business strategies. Naturally,that include their value to the business in terms that the this demancds having a clearly defined vision business understands. Frequently, business and shared bv the CIO and CEO.the IT metrics of v-alue differ. A balanced dash-oreranizations board" that diemonstrates th-e value of If in Technolagy Scope Maturitycultural and terms of contribution to the business is needed. This set of criteria assesses the extent to which Service levels that assess Ifs commitmentsSocial IT is able to: to the business often help. However, the ser-environnment, vice levels must be expressed in terms that the ] Go beyotnd the back office and the front business understands and accepts.The service office of the organization levels should be tied to criteria that clearly de- LI Assunme a role suipporting a flexible infra- fine the rewards and penalties for suwpassing, structure that is transparent to all business or missing, the objectives. partners anid customers Frequently, organizations devote significant [: Evaluate and apply emerging technologies resotrces to measuring performance factors. effectively However, they spend miuch less of their re- i Enable or drive bulsiness processes and strat- sources on taking action based on these mea- egies as a true standard surements. For example, reqjuiring a return on L Provide solutions customizable to customier investmnent (ROD) before a project begins, but needs not reviewing hlow well objectives were met af- ter the project was deploved, provides little Skills Maturity value to the organization. It is important to This category encompasses all IT huaman re- continuously assess the performance metrics source considerations. such as how to hire and criteria to understand (1) the factors that lead fire, motivate, train and educate, and culture. to missing the criteria and (2) what can be (icing beyond the traditional c onsiderations learned to imaprove the environment. such as training, salary, performance feedback and career opportunities, there are factors that Governance Maturity include the organizations cultural andi social The considerations for IT governance include, environment. For example, is the organization how the authoritv for resoturces, risk, conflict readv for change in this dynamic environment? resolution, and responsibility for IT is shared Do individuals feel personally responsible for among businiess partners, IT inanagemnent, and business innovation? Can individuals and orga- service providers. Project selection and priori- nizations learn quickly from their experience? tization issues are includted here. Ensuring that Does the organization leverage innovative the appropriate business anid IT participants ideas and the spirit of entrepreneurshp? These formally discuss and review the priorities andJ are some of the important conditions of mature allocation of IT resources is aimong the most organizations. important enablers (or inlhbitors) of align- ment.This decision-making authority needs to LEVELS OF ALIGNMENT MATURITY be clearly defined, Eachi of the six criteria described anove has a set of attributes that allow particsular dimen- Partnership Maturity sions (orpractices) to be assessed using a rating The relationship that exists among the business schem-ne of five levels. For example, for the prac- and IT organizationis is another criterion that tice "Understanding of business by if uider the IN F C R NAA i I .) N S Y S I E MS NA A N A. (, F M f N T F A I 1 2 0 :0
ALIGNING ITWITH THE BUSINESS STRATEGY Communications Maturity criterion, the five Each description corresponds to a level of levels are: alignment, of which there are five: Level 1: IT management lacks understanding Level 1:Without Process (no alignment) Level 2: Lilnited understanding by IT1manage- Level 2 Beginning Process ment Level 3: Establishing Process Level 3: Good understanding by IT manage- Level 4: Improved ProcessWArganizations ment Level 5: Optimal Process (complete alignment)should seek to Level 4: Understanding encouraged among ITattain, and staff Level 1 companies lack the processes and com- Level 5: Understanding required of all IT staff munication needed to attain alignment. In Lev-sustain, the fifth el 5 companies, IT and other busi nessand highest level It is important to have both business and functions (marketing, finance, Rl&D, etc.) adaptof alignment. IT executives evaluate each of the practices for their strategies together, using fully developed the six maturity criteria.Typically, the initial re- processes that include extemal partners and view will produce divergent results, and this customers. Organizations should seek to attain, outcome is indicative of the organizations and sustain, the fifth and highest level of align- alignment problems and opportunities being ment. addressed. The objective is for the team of IT Conducting an assessment has the follow- and business executives to converge on a matu- ing four steps: rity level. 1. Form the assessment team. Create a team Further, the relative inportance of each of of IT and business executives to perform the attributes for each maturity criterion may the assessment.Ten to thirty executives typ- differ among organizations. For example, in ically participate, depending on whether a some organizations, the use of SLAs (service single business unit or the entire enterprise level agreements), which is a practice under is being assessed. the Competency/Value Measurements Maturity 2. Cather information. Team members criterion, may not be considered as important should assess each of the 38 alignmient to alignment as the effectiveness of IT-busi- practices and determine which level, i rom ness liaisons, which is a practice under the 1 to 5, best matches their organization (see Communications Matirity criterion. Assigning Exhibit 1).This can be done in three wrays: the SLA practice a low maturity assessment (1) in a facilitated group setting, (2) by hav- should not significantly impact the overall rat- ing each member complete a survey and ing. However, it is still valuable for the assess- then meeting to discuss the results, or (3) ment teanm to discuss why a particular attribute by combining the two approaches (e.g., in (in this example, SLAs) is less significant than situations where it is not possible fo,r all another attribute (liaisons). group members to meet). After each practice is assessed, an average 3. Decide on individual scores. The 1.eamn score for the evaluation team is calculated for agrees on a score for each practice. The each practice, and then an average category most valuable part of the assessment is not score is determined for each of the six criteria the score, but understanding its implica- (see Exhibit 2). The evaluation team then uses tions for the entire company and what these scores for each criterion to converge on needs to be done to improve it. An average an overall assessment of the IT alignment matu- of the practice scores is used to deter -nine rity level for the firm (see below). The next a category score for each of the six criteria higher level of maturity is then used as a road- (see Exhibit 2). map to identify what the firm should do next. 4. Decide on an ovlerall alignment score.The A trained facilitator is typically needed for team reaches consensus on what overall these sessions. level to assign the organization.Aver.ging the category scores accomplishes this, but ASSESSING YOUR ORGANIZATION having dialogue among the participants is This rating system will help you assess your extremely valuable. For example, some companys level of alignment. You will ulti- companies adjust the alignment score mately decide which of the following defini- because they give more weight to particu- tions best describes your business practices. lar practices. NFORMATI ON SYSTEZMS MANAGEMENT 13 13 F A *L 2 0 0 3
ALIGNING ITWITH THE BUSINESS STRATEGYEXHIBIT 2 Tally Sheet AverageIPractice Averaged Scores CatgoryCategories Practices 1 1.5 2 2.5 3 3.5 4 4.5 5 ScoreCommunications 1 Understanding of business by IT 2 Understanding of IT by business 3 Organizational learning 4 Style and ease of access 5 Leveraging intellectual assets 6 IT-business liaison sta-fCompetency/ 7 IT metrics Value 8 Business metrics Measurements 9 Link between iTand business metrics 10 Service level agreements 11 Benchmarking 12 Forrrmally assess IT investments 13 Continuous improvernent practicesGovernance 14 Formal business strategy planning is Formal iT strategy planning 16 Organizational structure 17 Reporting relationships 18 How IT is budgeted 19 Rationaie for IT spending 20 Senior-level IT steering committee 21 How projects are prioritizedPartnership 22 Business perception of IT 23 ITs role in strategic business planning 24 Shared risks and rewards 25 Managing the IT-business relationship 26 Relationship/trust style 27 Business sponsors/championsTechnoiogy Scope 28 Primary systems 29 Standards 30 Architectural integration 31 How IT infrastructure is perceivedSkills 32 Innovative, entrepreneurial environment 33 Key IT HR decisions made by: 34 Change readiness 35 Career crossover opportunities 36 Cross-functional training and job rotation 37 Social interaction 38 Attract and retain top talent Your Alignment Score. I N F OR M AT ,NC SYFS T EM S MVA NA G E M - N I FA L L 2 ()O 3
ALIGNING ITWITH THE BUSINESS STRATEGY The overall alignment score can be used as The strategic alignment maturity assess-a benchmarking aid to compare with other or- ment tool provides a vehicle to evaluate whlereganizations. Global 1000 executives who have an organization is, and where it needs to go, toused this tool for the first time have rated their attain and sustain business-IT alignment. Theorganizations, on average, at Level 2 (Begin- careful assessment of a firms IT-business align-ning Process), although they typically score at ment maturity is an important step in identify-Level 3 for a few alignment practices. ing the specific actions necessary to ensure that IT is being used to appropriately enable orCONCLUSION drive the business strategy.Achieving and sustaining IT-business align-ment continues to be a major issue. Experience Noteshows that no single activity will enable a firm 1. See also Jerry Lufftan, editor, Comnpeting ir theto attain and sustain alignment. There are too Information Age.Align in the Sand, Oxfor dmany variables. The technology and business University Press, 2003; and Jerry Luftman,environments are too dynamic. Managing tbe [T Resource, Prentice Hall, 2:003. IN FO PM AT IO N SYS T E MS MA N AC; E M EN ET 15 F A LL .2 0 0 3
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