Strategic Alignment Model:

Transcription

1 Strategic Alignment Model: Updating using theory and practice Master Business Studies Programme Strategy & Organization University of Amsterdam Faculty of Economics & Business November 25, 2008 Assessor: Dr. H.M.J.H. Banens Second assessor: Dr. Ir. J.W. Stoelhorst Name: Stefan Krauth Student number:

2 Acknowledgements This thesis is the result of over six months of research. In these months I have explored what probably is one of the more interesting but also controversial subjects in Information Sciences: strategic alignment. Using insights from the field of Business Studies I tried to contribute to getting grip on it in practice. I travelled to Hilversum, Amsterdam, Amersfoort and Schiphol Rijk to interview experts in the field, who I d first like to thank for their time and interest. Second, I would like to thank my parents Peter and Alice who have supported me during writing this thesis. Third, thanks to all my friends and fellow students who had to put up with talking about the difficulties I have run into during writing this thesis. You have been of great help, especially for motivating me. The guidance and help by Dr. Banens was also greatly appreciated. His tips and response were of great help for this thesis. Thank you for your support. I hope that reading this thesis will be just as much of a learning experience for you as writing it was for me. Stefan Krauth November 25th 2008 Strategic Alignment Model: Updating using theory and practice 2

3 Abstract Over the last decade the alignment of information strategy to business strategy has been a major concern in the field of information management and for CIOs in practice. In literature it is suggested that the dominant model in the field (Henderson & Venkatraman s Strategic Alignment Model) does not support the characteristics of modern business strategy. For example, Avison et al. (2004) state that the Strategic Alignment Model must be transformed to present a dynamic process to be practically relevant. This would allow the information strategy to take advantage of opportunistic developments in a changing business environment (such as new technologies or competitors). In the field of business strategy the dynamics of strategy have been discussed extensively (Pisano, Teece & Shuen, 1997; Daft & Lengel, 1986; Shapiro, 1989; Ketokivi, 2006). Also, strategy is seen as changing and influenced by both external (environmental) factors and internal factors (the organization s own strengths). This thesis contributes to the field of information systems strategic alignment by analyzing alignment from both the business and the information perspective to find out how business strategy is aligned in both types of strategic alignment. It uses literature from both information management and business studies and insights from expert interviews to provide an updated version of the Strategic Alignment Model that provides a better fit with reality as it is perceived today. This updated model uses insights from the field of business strategy to help place IS strategic alignment in a dynamic environment influenced by internal and external factors. Some of these factors are particularly important for information technology, such as legacy (restrictions caused by older systems). Other concepts are well known in business literature, such as commitment (investments or change limit the available options or raise switching costs). Research on the future of strategic alignment and the influence of the development of new dynamic information systems is useful. Keywords: strategic alignment, Strategic Alignment Model, information systems, business strategy, strategy influences Strategic Alignment Model: Updating using theory and practice 3

4 Index Acknowledgements... 2 Abstract... 3 Index Introduction Introduction to the subject Research design Research objective Research questions Research model Relevance Research Type Research method Literature study Expert interviews Research material Strategic Alignment Models Alignment Models Strategic Alignment Model Luftman et al. (1993) Maes (1999) generic framework Other alignment models Assessment Models Business strategy & Modelling Business models & strategy Business models Summary Analysis Introduction Results of the interviews Relationship between business and information strategy Influences on strategy and the alignment process (Unexpected) Changes in strategy Future trends Strategic Alignment Model: Updating using theory and practice 4

5 4.3 Summary Aligning strategy Introduction Alignment in business studies Purpose based strategy Aligning the business in practice Balanced scorecard & Strategy maps Synthesis of insights Introduction Combining & applying Summary of synthesis Reflecting on combined insights from (business) strategy literature Introduction Results Suggested Strategic Alignment Model updates Conclusions Introduction Conclusions Further research References Appendix Appendix A Graphical represention of suggested business insights Strategic Alignment Model: Updating using theory and practice 5

6 1 Introduction The importance of business and IT alignment has been discussed since the 1980s. Now that the use of information technology has evolved to a point where it is virtually impossible to do business and maintain a strong market position without, the discussion is that are more relevant than ever before. A study by IBM in 2007 (IBM, 2007) suggests that the job of a Chief Information Officer in a role where technology and computing supports strategy creation and the business strategy is changing. The IBM Global CEO Study of CEOs explains that many companies have to deal with a gap in the integration of business and technology, which could lead to lower customer satisfaction, adaptation speed and process flexibility. Another study performed by CIO Magazine in early 2008 (CIO Magazine, 2008) concludes that 82 percent of the respondents claim that "aligning IT initiatives with business goals is an activity in which they spend the majority of focus and time", which would mean creating alignment is far from an effortless task. In annual studies the alignment of business and IT was considered the number one priority by CIOs in the study from 2004 until the most recent study in The IBM study states that the IT strategy should be tightly coupled with business strategy in order to make sure that the information strategy supports a modern responsive organization by providing the flexible infrastructure that it needs. However, in literature it is suggested that the dominant model in the field (Henderson & Venkatraman s Strategic Alignment Model) does not support the characteristics of modern business strategy (Avison et al., 2004). This thesis tries to update Henderson & Venkatraman s (1993) Strategic Alignment Model by combining insights from the field of information management and business studies. The latter should provide new insights that support the current views on business strategy. This introduction chapter consists of two parts: the conceptual design and the research technical design. The conceptual design consists of the research goal, the research model, the research questions and the definitions of important concepts; these can be found in sections The research technical design consists of the research methodology, the research material and the research planning; these can be found in sections However, this research design starts by giving an introduction to the subject. Strategic Alignment Model: Updating using theory and practice 6

7 1.1 Introduction to the subject This chapter is focused on providing an introduction to the subject. This introduction consists of an overview of the situation. The concept of strategic alignment is not new, it actually has been used in a number of different domains (see table 1). However, the concept of strategic alignment became popular when Henderson & Venkatraman published their study on strategic alignment in information systems in Their 2x2 framework on business/it alignment became a fundamental reference for a substantial body of related research (de Bruin & Rosemann, 2006). Domain Model Dimensions Developer / Key Reference Organizational Universal Alignment Model Action Capabilities Molden, D. & Symes, J. (1999) Attitudes Business/IT Strategic Alignment Model Business strategy IT strategy Henderson, J. C. & Venkatraman, N. (1993) Organizational infrastructure and processes I/S infrastructure and processes Business/IS Alignment Model Organizational structure & accountabilities Broadbent, M. & Weill, P. (1993) Firm wide strategyformation processes Technology strategy Information systems responsibilities & policies Business/Process Enterprise Model Customers Functions Hatten, K. J. & Rosenthal, S. R. (1999) Processes Capabilities Competencies BPM Projects Project Alignment Model Environment Box, S. & Platts, K. (2005) Leadership Management Table 1 Types of alignment (adapted from de Bruin & Rosemann, 2006) Strategic Alignment Model: Updating using theory and practice 7

8 The need to continually align areas of the business which are of strategic importance with strategy and the execution of such strategy remains vital (Hatten & Rosenthal, 1999). The need for comprehensive frameworks to assist in this is well evidenced in the Information Systems field where researchers have tried to identify the aspects of organizational practice that contribute to the alignment of business and IT (Broadbent & Weill, 1993; Burn & Szeto, 1999). Henderson & Venkatraman (1993) argue that a lack of alignment has resulted in an inability for businesses to realise value from their IT investments. The strategic alignment that this thesis focuses on is defined as concerning the fit between external and internal domains, such as the product/market, strategy, administrative structures, business processes and IT (Henderson & Venkatraman, 1993). The main line of reasoning behind the importance of strategic alignment is based on Chandler (1962) who argues that economic performance can be enhanced by finding the right fit between the afore mentioned external and internal arrangements. The importance of strategic alignment is discussed by Broadbent & Weill (1996), who argue that IT infrastructure can be critical to firm competitiveness in modern organizations. This notion increases the importance of how organizations link their business strategy and information strategy formation process. Figure 1 Strategic Alignment Model (Henderson & Venkatraman, 1993) The best known model in strategic alignment is Henderson & Venkatraman s (1993) Strategic Alignment Model (SAM). This model was developed after the authors found a lacking in literature of Strategic Alignment Model: Updating using theory and practice 8

9 systematic frameworks to conceptualize the logic, scope, and patterns of organizational transformation that depend on IT (Henderson & Venkatraman in Kochan & Useem, 1992, p.102). When looking at organizational transformation from a voluntaristic perspective then business strategy is a central concept. The Strategic Alignment Model deals with three central questions regarding business strategy: 1. Business scope: choices pertaining to product market offerings 2. Distinctive competencies: those attributes of strategy (e.g. pricing, quality, value added service, superior distribution channel) that contribute to a distinctive comparative advantage over other competitors. 3. Business governance: choices of structural mechanisms to organize the business operations (e.g. strategic alliances, joint ventures, and licensing) that recognizes the continuum between markets and hierarchy. Ciborra (1997) states that: while strategic alignment may be close to a truism conceptually, in the everyday business it is far from being implemented. He emphasizes that strategy often ends up in tinkering (Ciborra, 1994) and thus strategic alignment is not yet the ideal bridge connecting two key variables that it is often assumed to be. Zuboff (1996) argues that leadership is missing when it comes to alignment in large multinationals, which can be caused by taking the concept for granted. Especially when alignment concerns technology, the lack of leadership can cause technology to drift out of control. When considering the general lack of consensus on what constitutes information strategy, a feature of the SAM is its distinction between business and information strategy by separating the firm s external alignment (positioning the firm in the external product market space) and internal alignment (design of organizational structure, processes, and systems). Truijens (2000) researched the use of the SAM by consultants in the field of information systems and found that the model is used as an awareness tool instead of a conceptual model. This means the model is currently not used to its full potential. The author suggests phasing the consultancy method to avoid focusing on the hierarchy that is implied by the model, but he also notes that business decisions are guiding for IT decisions. Following this notion, the current use of business strategy in the model may be the reason that the alignment model currently is failing. Avison et al. (2004) state that although the Strategic Alignment Model has a technical bias the underlying theories are conceptually sound, but for a model to be practically relevant it should be implemented as a dynamic process to allow it to take advantage of opportunistic developments. However, the authors stress that the direct practical applications of the model are limited (Cap Strategic Alignment Model: Updating using theory and practice 9

10 Gemini have used it), the model is more often used as a conceptual model to guide the thinking process. Since strategic alignment is a somewhat problematic concept, with its current most important model not being used as intended, it can be interesting to look at how business strategy is used in the field of strategic management (business strategy development). In the field of business strategy it is often stated that strategy cannot be considered static (Pisano, Teece & Shuen, 1997; Daft & Lengel, 1986; Shapiro, 1989; Ketokivi, 2006). This notion is confirmed by the influence of external/environmental factors on strategy and the continuing adaptations on changes that are required to create or maintain competitive advantage. In strategic alignment, where business strategy is aligned with information strategy, the models generally require a well developed strategic planning process that delivers clear and consistent objectives (Parker, 1985 in Broadbent & Weill, 1993). The importance of clarity when trying to obtain strategic alignment is confirmed by Hirschheim & Sabherwal (2001). Broadbent & Weill (1993) argue that a consistent strategic orientation over a longer period of time provides better opportunities for strategic alignment. This implies that a somewhat static strategic orientation is better to promote strategic alignment. However, Hamel & Prahalad (1990) already warn for the rigidity that this strategic process causes. A static strategic orientation combined with the hierarchy of the SAM can cause an organization to be unable to respond to threats and opportunity from their environment. More recently some authors have already indicated that dynamic alignment may be more suitable in the current changing business environment (Ciborra, 1997, Venkatraman, 2000). Other authors argue that the fundamental problem of strategic alignment is the assumption that management has full control over the organization (Maes, 1999, Ciborra, 1997). This assumption leads to solutions that are impractical or even impossible to implement, as well as not testing the business strategy for potential problems. The previous discussion shows that strategic alignment is still a developing field (this is confirmed in Luftman & Papp, 1995 and Papp, 1999). This research will focus on how business strategy is dealt with in Business Studies to contribute to solving to problems in the field of IS. Business strategy is the logical choice to be investigating, since it is the hierarchical start of the Strategic Alignment Model. A practical perspective is taken by focusing on solutions that can be used in real life (by consultants), since a manager can put any amount of information into predefined boxes, but when it comes to putting a measure into the real world, they find it difficult to translate (Avison et al., 2004). Strategic Alignment Model: Updating using theory and practice 10

11 This thesis consists of several chapters, from this introduction to the final conclusions through a number of topics that are needed to answer the research questions: The thesis starts with the introduction & research design (this chapter). This chapter describes what this thesis is about and what questions are going to be answered. Chapter 2 is named Strategic Alignment Models and is meant to provide an overview of the most important alignment models and models that are used to assess alignment in organization. Chapter 3 discusses business models and how they are used in organizations. This chapter also briefly discusses the main business strategy theories. This chapter is called Business Strategy & Modeling. Chapter 4 provides an overview of the results of the interviews that were held to gain expert opinions on strategic alignment (and the Strategic Alignment Model). This chapter is titled Analysis & results of the interviews. Chapter 5 discusses strategic alignment from a business perspective, thus how strategy is aligned with the organization and its environment. This chapter is called Aligning business strategy. Chapter 6 uses combined insights from the previous chapters to come to a better understanding of strategic alignment, based on literature and practice. Suggestions based on ideas from business strategy literature to be applied to strategic alignment are made to be tested in a second set of interviews. Chapter 7 provides the results of a first test of these new insights in practice by (again) using expert interviews. This chapter uses the outcomes of both the interviews and the suggestions made in chapter 6 to update the Strategic Alignment Model. Chapter 8 draws the conclusions for this thesis and provides some opportunities for further research. Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Introduction & research design Strategic Alignment Models Business Strategy & Modeling Analysis & results of the interviews Aligning business strategy Synthesis of insights Reflecting on the updated model Conclusion & further research Table 2 Overview of chapters Strategic Alignment Model: Updating using theory and practice 11

12 1.2 Research design Research objective For my master thesis I would like to make a contribution to the field of strategic alignment. However, the objective of this research is two fold, since it involves two different types of strategic alignment. On the one hand I would like to analyze how alignment is obtained in the field of business strategy; on the other hand the purpose of this research is to understand how business strategy is used in the Strategic Alignment Model. After comparing these insights the model will be updated to improve the practical usability for consultants. This will be tested in practice using experts in the field, the consultants that use the model. To accomplish this, the field of strategic alignment must be analyzed from both the business and the information perspective to find out how business strategy is used in both types of strategic alignment Research questions The overall research question for this research is about finding out how the use of business strategy is different in the strategic alignment process of information systems compared to business strategy development itself (and how this could help improve the process). This research is based on the hypothesis that business strategy in strategic alignment is used more statically than is common in modern strategy development. This hypothesis is based on notions from literature on strategic alignment of IT strategy, as described in the introduction of this research design. Main research question: How could the use of insights from the field of business strategy formation add value to the field of strategic alignment (and the strategic alignment model) to improve practical usability? This main research question is divided into three sub research questions, focused on providing a complete answer to the main research question. The questions deal with the different aspects that need to be discussed in order to fully answer the question, such as the elements that are looked in business strategy development (strategy formation). Strategic Alignment Model: Updating using theory and practice 12

13 Sub research question 1: Which characteristics of business strategy can be found in the field of strategy formation? Sub research question 1 is divided in three sub sub research questions. These questions provide more detailed information to fully answer sub research question 1. Sub sub research question 1: What is business strategy? Sub sub research question 2: What influences business strategy? Sub sub research question 3: Which characteristics define business strategy (which elements are relevant for strategy consultants)? The second sub research question focuses on strategic alignment. It looks at the role business strategy has in this field and which elements are of interest to strategy consultants. Sub research question 2: Which characteristics of (the use of) business strategy can be found in the field of strategic alignment? Sub research question 2 is divided in three sub sub research questions. These questions provide more detailed information to fully answer sub research question 2. Sub sub research question 4: How is business strategy implemented in the Strategic Alignment Model? Sub sub research question 5: What influences business strategy in strategic alignment models? Sub sub research question 6: Which characteristics define business strategy (which elements are relevant for strategy consultants)? The third sub research question combines knowledge gathered from the previous sub research questions to answers the main question. Sub research question 3: Which elements of business strategy in the field of strategy formation can be used in strategic alignment (to extend the alignment model)? Research model Verschuren & Doorewaard (2000) use the concept of a research model as a graphic representation of as a way of providing a clear view on the research design. Strategic Alignment Model: Updating using theory and practice 13

14 The research model below shows what phases this research goes through. First, there is the data gathering phase to get all the necessary data to develop suggestions to update the model. The result is tested using feedback from experts. After this there is a phase in which the results must be analyzed and conclusions must be written. This means that this final phase is one of writing (the final paper) and processing (the results from the literature and field study). Figure 2 Research model Relevance The relevance for this research is divided in my own personal relevance, a scientific relevance and a social relevance. I became interested in strategic alignment during my previous Master in Business Information Systems, where the concept and its problems were introduced. Courses in the Master Business Studies such as Strategie & Organisatie and Strategy and Competitive Advantage introduced strategic alignment from a business perspective. Although similar in name and some elements, the way business strategy is looked at seemed different. Although this is a very complex subject that authors have been looking into for about a decade, I want to make a contribution to solving this problem as my master thesis. The scientific relevance is that this research combines insights from two disciplines. Strategic alignment in business strategy has a long history and developed a way of working that proves to be suitable for use in strategic alignment in IS. Social relevance is probably the most obvious type of relevance, as a clear understanding of the subject is interesting for consultants in the field. Since strategic alignment projects are proven to fail relatively often (Ciborra, 1997), the results may also have economic relevance (assuming that strategic alignment leads to better utilization of business opportunities). Strategic Alignment Model: Updating using theory and practice 14

15 1.2.5 Research Type Based on Verschuren & Doorewaard (2000) this thesis can be described as an explanatory theoryoriented, as its goal is to design (or at least extend) new theory on strategic alignment, based on existing literature combined with new knowledge from the field of business studies. However, the theory oriented approach will be done with practical usability in mind. Although this study is theory oriented, it uses an empirical analytical perception (Hart et al., 1998). This means that it uses a mind set based on the cycle described above from an empiricaloriented study. This way of working ensures higher levels of objectivity, replication, control and validity Research method Literature study The basis for this research is a literature study. The purpose of a literature review is to offer an overview of significant literature published on a topic. This study must provide a thorough understanding of what business strategy entails in both IS strategic alignment and strategic fit in business studies. This study also must provide information differences in how business strategy is looked and how the concept is used by consultants. These two ways of working can be compared and compiled into a list of differences Expert interviews The expert interview field study part of this research focuses mainly on how business strategy is used by experts that help organization with strategic alignment (of IS), as this is the specific element of uncertainty that can be found in this research. By interviewing at these people detailed information can be obtained on how are asking about specific abilities of the consultant. The questions in the interview must be designed to find out how a consultant uses business strategy in his job and whether or not he analyzes the strategy for possible errors (or just uses what is given to him). By asking questions about situations (in the form of small cases) in practice information can be obtained on how exactly the consultant looks at the business strategy side of strategic alignment. However, to obtain this information a consultant with several years of working experience is preferred. Interviews are about asking questions in order to find an answer to a specific question or goal (Hart et al., 1998). Interviews are generally used to acquire subjective information, information that Strategic Alignment Model: Updating using theory and practice 15

16 can t easily be translated into numbers. Interviews can be used to record attitudes, feelings, desires, thinking processes and knowledge. Expert interviews, as already explained in the name, are targeted at individuals who can be considered experts on a certain subject, and thus posses above average knowledge on the subject. A great advantage of using interviews as a research technique is that it is not restricted by location. Also, interviews can be used for fundamental and problem solving research questions. Three types of interviews can be identified (Hart et al., 1998): Structured: the interviewer uses a pre defined list of questions Semi structured: the interviewer uses a list of guidelines and helper questions, but not a fixed list of questions Unstructured interviews: the researcher does not use any pre defined questions or points of interests, but interacts with the expert to further the conversation For this thesis, the semi structured interview is used. Although I am trying to learn the consultant s methods and way of thinking, the focus in on some particular methods: the methods that handle business strategy and how the strategy as given is dealt with. It is likely that the expert needs to be steered in this direction, which is why an unstructured interview is not suitable Research material This section is divided in the same way as the research method section, starting with the research materials for literature review, followed by a short section on expert interviews. Literature Review In all cases this is the basis of my research. The literature review requires material from the libraries of the University of Amsterdam, as well as all major journals and reviews in the field of information systems. The following magazines are important (this list may not be complete): Information Systems Research Journal of Management Information Systems Management Science MIS Quarterly Strategic Management Journal ACM Transactions on Information Information and Management Information and Software Technology Information Systems Journal Journal of IS Journal of Strategic IS Sloan Management Review Strategic Alignment Model: Updating using theory and practice 16

17 Systems Harvard Business Review European Management Journal The previous list of journals and magazines are all related to the field of IS. However, for this research literature about business strategy is equally important. The following sources will be used (this list may not be complete): Strategic Management Journal Harvard Business Review Strategy and Leadership Academy of Management Journal The Journal of Business Strategy Expert Interview Expert interviews require at least two or three experts to be able to confront results (Berg, 2004). This thesis uses four experts with fast amount of experience in working with business strategy or information strategy. This means that both the business strategy aspect and the information strategy aspect can be opinionated. An advantage of interviews is that they can be held at a location of the expert s choice (in this particular case the offices of the experts), which makes materials to illustrate the expert s opinion easily available. Strategic Alignment Model: Updating using theory and practice 17

18 2 Strategic Alignment Models This chapter introduces the most important strategic alignment models or extensions that were based on the thinking of Henderson & Venkatraman s (1993) Strategic Alignment Model. These were introduced to present alignment thinking in a more practical way (the SAM is quite abstract) or are extensions of the SAM that try to eliminate some of the limitations of the model. The list of models presented here is far from complete in the sense that there are a lot of custom alignment models in use by consultancy firms all over the world (like Sogeti s Pronto or Cap Gemini s architecture focused CIBIT/SERC model). However, the logic behind these models is based on the well known scientific models presented in this chapter. The second and final part of the chapter describes the (two) major models for the assessment of strategic alignment. These models can be considered useful for successful alignment as they provide tools to measure strategic alignment and thus have operationalized the concept. Thinking in terms of measurement and practical use can help identify new ways to improve the Strategic Alignment Model. 2.1 Alignment Models Strategic Alignment Model Before 1993 (when the Strategic Alignment Model was introduced) business and IT were aligned from a business perspective, thus trying to match IT infrastructure to the business processes. Figure 3 Before 1993 view on business/it alignment Strategic Alignment Model: Updating using theory and practice 18

19 Henderson & Venkatraman (1993) introduce a model where information strategy is added to guide the translation of business strategy into IT competencies, governance and technology scope. This allows the organization to oversee the development of the different systems to support business and direct the used techniques and provide indications for future development based on predicted business needs. As said before in the introduction, in the Strategic Alignment Model strategic alignment is defined as concerning the fit between external and internal domains, such as the product/market, strategy, administrative structures, business processes and IT (Henderson & Venkatraman, 1993). This definition provides two important pieces of insight: 1. Similar to business strategy, IT strategy has to consider both internal as well as external aspects 2. Both internal/external alignment as well as functional integration must be taken into account. Only one of them is not sufficient. Figure 4 Strategic Alignment Model (Henderson & Venkatraman, 1993) When looking at organizational transformation from a voluntaristic perspective then business strategy is a central concept. The Strategic Alignment Model deals with three central questions regarding business strategy: 1. Business scope: choices pertaining to product market offerings. This refers to everything that might affect the business environment. This includes markets, products, services, customers/clients, and the location of the business as well as buyers, competitors, suppliers, and potential competitors. 2. Distinctive competencies: those attributes of strategy (e.g. pricing, quality, value added service, superior distribution channel) that contribute to a distinctive comparative advantage Strategic Alignment Model: Updating using theory and practice 19

20 over other competitors. The distinctive competencies component refers to all the things that make the business a success in the market place. This includes the core competencies of the business that allows it to compete with other businesses. This also includes the brand, research, manufacturing and product development, the cost and pricing structure, and the sales and distribution channels used by the business. 3. Business governance: choices of structural mechanisms to organize the business operations (e.g. strategic alliances, joint ventures, and licensing) that recognizes the continuum between markets and hierarchy. This component refers to the relationships that exist between the stockholders of the company and senior management, mainly the board of directors. This also includes any governmental regulations and relations between other strategic business partners (Papp, 2004) Luftman et al. (1993) Some authors have analyzed to potential shortcomings of the SAM model and provide additional information to improve to quality of strategic alignment projects. Luftman (1995) elaborates on the management problems that occur during projects, thus improving the managerial relevance and usability of the model. They add the core issues that the internal strategy dimension deals with: 1. Work processes needed for operations 2. The acquisition, training and development of skills required to manage and operate the processes 3. An administrative business infrastructure / IT architecture. Luftman et al. (1993) differentiate four alignment perspectives that are supposed to deal effectively with given situations. These are strategy execution, technology potential, competitive potential and service level. What makes these perspectives interesting is that they provide different approaches matching different performance criteria for managers to think about alignment using the Strategic Alignment Model. Their differentiation also implies a certain amount of dynamics. The technology potential and competitive potential perspective require the manager to think about optimizing the system for future possibilities (potential) and thus about the possibility to respond to opportunities that may arise. Strategic Alignment Model: Updating using theory and practice 20

21 Figure 5 Alignment perspectives (Luftman et al., 1993) Luftman et al. (1993) specify four different alignment perspectives, which provide different approaches for using the alignment model in different situations. Coleman (2006) shows that his analysis of alignment perspectives indicates that the most common perspectives are strategy execution, technology potential and IT infrastructure fusion. The importance of the different blocks of the model is emphasized when necessary: Strategy Execution: the first (and most common) perspective regards business strategy as the driver of both organization design choices and the logic of IS infrastructure (business strategy is thus leading, as it has been in literature for the last decades). The higher management functions can be seen as strategy formulators, IS management is strategy implementer. Technology Potential: the second perspective also views the business strategy as the driver of alignment, however it adds the formulation of an IT strategy to support the business strategy and the corresponding specification of the required IS infrastructure and processes. Top management must provide the (technical) vision to formulate the choices pertaining to IT strategy that would be the best to support the chosen business strategy. The IS manager should be a technology architect, who efficiently and effectively designs and implements the required IS infrastructure that is consistent with the external component of IT strategy (again, the three central questions: scope, competencies and governance). Competitive Potential: the third perspective takes a different approach, as it is concerned with the exploitation of emerging IT capabilities to impact new products and services or influence the key attributes of strategy (distinctive competencies). While the previous perspectives considered business strategy as given, this perspective considers business strategy modifiable when necessary because of emerging IT capabilities. Top management should focus on business vision to make this perspective succeed, to formulate how the emerging IT competencies and functionality as well as changes in the IT marketplace will impact the business strategy. The role of the IS manager is a Strategic Alignment Model: Updating using theory and practice 21

22 supportive one he identifies and translates the trends in the IT environment to assist the business managers. Service Level: The fourth and final perspective focuses on how to build the best IS organization within an organization. The role of business strategy is thus indirect. This perspective is often viewed as necessary (but not sufficient) to ensure the effective use of IT resources and be responsive to the growing and fast changing demands of the end user population. The specific role of the top management to make this perspective succeed one of setting priorities, who articulates how best to allocate the scarce resources both within the organization as well as in the IT marketplace. The role of the IS manager is one of business leadership, with the specific tasks of making the internal business succeed within the operating guidelines from the top management Maes (1999) generic framework A well known extension to Henderson & Venkatraman s (1993) Strategic Alignment Model is constructed by Maes et al. (2000). This generic framework provides two important additions the model, bringing more detail to both the horizontal and the vertical dimensions of the model. The first addition is the row (infra) structure between the internal and external domain. This forms the structural level between the strategic and operational level. The result of this is the appearance of the blocks Business structure, I/C structure and Technology structure. The blocks are divided in architecture and competencies. For example, the block Business structure is divided in Business Architecture and Business competencies in which the critical business processes and opportunities can be named. The second addition is the column Information and Communication, located between Business and IT. Maes points out that the relationship between Business and Technology is more complex than the SAM model would like the user to believe, since it does not entail the supply of strategic information, but the internal and external sharing of information throughout Business and IT. This follows the notion from the nineties that information can be seen as a separate asset with its own characteristics compared to the technology that enables the facilitation of information. Maes et al. (2000) goes as far as stating: It is appropriate to state that the use and the internal and external sharing of information and not its provision are of strategic nature. Strategic Alignment Model: Updating using theory and practice 22

23 Figure 6 Maes et al. (2000) Generic Alignment Framework Maes (1999) generic framework is focused on architecture and capacity at the structural level and on processes and skills at the operational level. Different roles can be constructed for the different rows and column, but especially the central roles on the middle row are very important, as these form the linkage between strategy and the operational level. Maes does appear to have one very different opinion compared to other authors when it comes to strategic alignment: he considers all roles to be (equally) important, while other authors like Henderson & Venkatraman state that all alignment perspectives start with the strategy blocks. Maes (1999) is thus an author that claims that there are no fixed alignment perspectives, but multiple possible sequences are possible depending on the situation Other alignment models Cap Gemini s Integrated Architecture Framework (presented in Maes et al., 2000) adds a fourth column to the model (Technology is split into Information Systems and Technology infrastructure). This emphasizes the difference of managing information systems and infrastructure. Instead of thinking in terms of Strategy, Structure and Operations it works in design phases, starting with the broad Contextual phase and going into more detail until the Physical phase. The Contextual aspect of the model is separate and can be considered a layer above all activity that oversees the relevance of the projects for business. Strategic Alignment Model: Updating using theory and practice 23

24 Figure 7 Cap Gemini's Integrated Architecture Framework Maes et al. (2000) concludes by constructing a unified framework from both Maes s nine square model and Cap Gemini s framework. This framework shows how the different design phases can be considered in the form of Strategy, Structure and Operations. The Contextual aspect is placed on the highest level of design, Strategy. Figure 8 Maes et al. (2000) Unified Framework Avison et al. (2004) attempted to validate the Strategic Alignment Model (and its more recent adaptations by Maes (1999) and Cap Gemini s IAF) by performing a case study in a global US firm that uses technology to leverage internal efficiencies. Although the authors find the results of the study to Strategic Alignment Model: Updating using theory and practice 24

25 be inconclusive to find an alignment perspective, but the identified alignment domains appear to support Henderson & Venkatraman s theories. What is interesting however is the appearance of project categories that describe the origin of the project: Operating efficiency (OE) Client demand (CD) Infrastructure upgrade (IU) Regulatory (R) Each of these categories can have an impact on different areas or have a different project nature. Avison et al. (2004) differentiates the following areas: competitive advantage (CA), health (H), ongoing maintenance and repositioning. The different projects in their case study are then mapped onto the model, which leads to alignment paths which show resemblance to the work of Luftman (1993). Figure 9 Alignment paths (Avison et al., 2004) Avison et al. (2004) conclude by stating that they recognize two dominant drivers for technology projects: being able to leverage technology and to facilitate organizational requirements. Although less dominant, proper implementation of technology is also considered important. These drivers align with organizational vision of the studied firm to be a technology firm delivering financial solutions. The final message is thus that strategic alignment can be illustrated by mapping projects onto the model and reflecting on this using the organization vision. Strategic Alignment Model: Updating using theory and practice 25

26 2.2 Assessment Models While the strategic alignment models discussed earlier provide insight in the concept of alignment and which elements influence alignment, they do not provide a method to assess how aligned an organization actually is. Because of this a number of authors have started working on assessment theories which aim at developing measurement instrument for strategic alignment. There are two well known assessment theories, one proposed by Luftman (2000) and one by Papp (Papp & Fox, 2002), which basically is the same theory but with more detail on how to apply it in practice. Both models are the same in that they try to develop metrics that can be used across organizations. The obvious challenge in this case is the interpretation of the same factor in different organizations and the interpretation of the factors of alignment across different people in the same organization. Luftman s (2000) Strategic Alignment Maturity Model is a theory that describes alignment on the basis of empirical evidence, which is quite unique given the abstract nature of the subject. The model is based on a combination of twelve relationships between components of SA, the results of previous studies on enablers of alignment and results gathered from research in 60 organizations. The study found that there are six criteria (presented in the table below) that can be considered the most important for alignment (Luftman, 2000): Figure 10 Main criteria of strategic alignment assessment (Luftman, 2001) Luftman (2000) presents his maturity model as five levels of alignment, where higher levels equal a smaller alignment gap. In each level the six criteria need to be assessed, but the emphasis of the meaning of the criteria differs in each level. Strategic Alignment Model: Updating using theory and practice 26

27 For example, on level 1 IT is seen as a cost of doing business and based on reactive priorities, the scope is limited to the traditional meaning of IT (like accounting and e mail). On the second level IT is emerging as an asset, enabling processes that were not possible earlier. As this point there is limited business/it understanding and business management sees IT as a tool to achieve cost efficiency. When comparing these two visions with the fifth level, where there is a form of integration of IT across the organization and its organizational partners and there is a co adaptive and improvisational relationship between business and IT, it is clear that in the highest form of alignment maturity there is a close relationship between business and IT where information has become more than just a supporting tool. Figure 11 Luftman's (2000) Strategic Alignment Maturity Model Luftman (2005) shows that the large part of the organizations that assessed their alignment maturity are at levels two and three (resp. 30,6 & 39,4%). This basically means that organizations start to consider IT as an enabler of possibilities (and process improvement), but they are not ready to utilize the efficiency and opportunities that alignment has to offer. Luftman (2001) states that his assessment theory should be applied in the form of workshops to maintain a rich form of communication. Each criterion needs to be assessed through consensus between business and IT executives, which makes direct interaction effective. The authors claims that to his experience discussions help to ensure a clearer understanding of the addressed problem, where individual analysis of each component of analysis enables misunderstanding and confusion. Plazaola et al. (2006) state that the problem with assessments based on criteria can cause problems when an organization encourages management to relate their compensation structure to the implementation of processes across organizational boundaries (thus improving alignment). Managers may be tempted to artificially maintain a positive consensus on the category they are Strategic Alignment Model: Updating using theory and practice 27

28 responsible for by influencing colleagues or creating a false positive image of how things actually work. Clearly operationalized metrics can help reduce these influences, but are difficult to develop because of the intangible nature of alignment. Luftman (2001) explains that the benefit of the alignment maturity assessment process is creating awareness of alignment related issues among business and IT executives, including their implications and what needs to be done to overcome the problems. This could also be a risk as the assessment team consists of executives who may be biased, being too optimistic on achieving a consensus or misrepresenting the organization during the one or two days assessment session. The reason for this is the inevitable human factor. Plazaola et al. (2006) state that these assessment sessions can induce normalization, by discussing and reaching consensus around a delimited and predefined attribute and criterion under analysis. His method is fairly inexpensive; in total it costs no more than the summarized time for all included executives at each workshop or assessment session. The implementation of workshops also increases the knowledge shared among the participants. However, it is also important to give some thought on the credibility of the results of such assessment by the rest of organization. The assessment approach by Plazaola et al. (2006) starts out from Luftman s theory. This model requires an organization wide approach which would make the discussions on the uncertainties in the meaning of concepts and levels extremely complex and time consuming. Therefore the authors provide a more detailed operationalization of the concepts and descriptions of the levels of the Strategic Alignment Maturity Model to form a set of direct discrete questions. So, instead of estimating the level of maturity for an attribute (on the scale ranging from 1 to 5), the attribute is measured by obtaining yes or no answers. Plazaola et al. (2006) propose that the operationalizing of their assessment requires a number of steps in the organization. Note that all steps require an outside perspective, making the model usable for consultants or other external help. Each step takes information from the organization and goes into more detail, until a list of recommendation is the output. The followings actions need to be taken to assess strategy: In Depth Interview: The deliverables from this first step are an improved set of questions in terms of terminology used at the company, list of people to be interviewed, and the choice of documents. Short Interviews: interviews are held because validation depends on the given answer, which is better interpreted in interviews than written questionnaires. Strategic Alignment Model: Updating using theory and practice 28