California Management Review Rudy Hirschheim and Rajiv Sabherwal

Strategic Alignment
Attaining the appropriate structure and capabilities to

execute strategic decisions Organizational Performance IT-Business Alignment is a two-way street

Business Strategy Drives IT Strategy IT Strategy Drives Business Strategy

IT-Business Alignment is: NOT an event A process of continuous adaptation and change

Why Is Strategic IS Alignment Important?

Alignment Information systems are targeted on areas

that are critical to successful business performance

Alignment A firm can better use IS towards realizing its

business objectives

The Proposed Framework for Alignment

Business Strategy Lens
Defenders, Prospectors, and Analyzers

IS Strategy Lens
IS Role

Efficient, Comprehensive, Opportunistic Outsourcing, In-sourcing, Selective Sourcing Centralized, Shared, Decentralized

IS Sourcing

IS Structure

Strategic IS Alignment Profiles

Utility Profile Alignment through Low-Cost Delivery
Alliance Profile Alignment through Partnering Infusion Profile Alignment through Business Leadership

The Three Strategic IS Alignment Profiles

Trajectories of Strategic IS Alignment

Paradoxical decisions Excessive transformations Uncertain turnarounds

Alpha
Started in 1976 as an equipment sales company
Became independent equipment leaser in 1983 Net worth: $25 Million (1986) to $100 Million (1996) Low level of Alignment to start with Trajectories:
Prospector Defender (Paradoxical Decision) Defender Prospector (Uncertain Turnaround)

Consequence:
Still groping (at the time of the case); senior managers seriously

worried!

Alpha - Analysis
Operated in a decentralized fashion
IS personnel isolated from the business functions Ignored the impact of the Tax Reform Act Failed to recognize the decline in mainframes

Conclusions: Failed due to oscillating IS strategies Partial alignment achieved over years Still Struggling (at the time of the case)

Beta
Diversified Australian company

Annual Revenue: $2 Billion, After-tax Profits: $250 Million

Business: Financial services, property services, capital services

and investments, group services Started as prospector

Grew considerably from 1980 1993

Reasonable alignment to start with Trajectories:

Prospector Analyzer (Excessive Transformation)
Realigned IS strategy to Analyzer

Consequence: Net Earnings Per Share increased by 20% from 1996 to 1997

Beta - Analysis
Recognized the competitive threats and switched the business

strategy Aimed at:

Global competitiveness, a 35 to 40 percent reduction in business

expenses and entry into the high-growth IS industry (comprehensive IS Role)

Corrected the IS Strategy by:

Acquiring 35% stake in an IS company (selective sourcing) Sharing IS decisions between CEO and CIO

Business divisions starting to manage their own vendors and contracts

(shared structure)

Conclusion: Started winning major outsourcing deals in Australia!

Gamma
US subsidiary of a multinational corporation

Business: Petroleum Products

Revenue > $20 B, Net Income > $1 B, Employment > 15000 Started as Defender, Efficient, in-sourced, centralized IS 1980s 1990s: Industry became more competitive
Financial performance dipped

Trajectories:
Defender Analyzer (Paradoxical Decision and Excessive Transform.) Realigned IS strategy to Analyzer

Consequence:
Uncertain turnaround in Period 3 towards the IS strategy of Period 1 caused

perfect alignment with the Analyzer strategy!

Gamma - Analysis
Increased competition and dipping financials led to hiring a

new CEO Shifting to analyzer in early part of 1990s :

Greater attention paid to markets and growth opportunities Major corporate transformations in 1995

Each subsidiary became independent and made their own decisions

A CIO was appointed to each business unit Business units started following IS outsourcing

Continuing onto the latter part of 1990s:

IS became more important than just an opportunistic tool Business units gravitated towards a balanced in- and outsourcing Consequently, the IS structure became more shared

Pragmatics of Alignment