Business-IT alignment is by far the “mother of all reasons” why IT organizations fail to deliver. However, when asked about “alignment” in more detail, CIOs as well as business stakeholders fail to provide a succinct interpretation of what it is in the “real” world. A macro-level definition – the most frequently used one is around IT – is projects not aimed to realize the business goals such as increase in revenue, reduction in costs and achievement of a 25% increase in the EBITDA.
So is alignment the root cause of failure or a symptom of the probability of failure?
Let’s look at three states of alignment:
While executives define business goals as increase in revenue, reduction in cost, etc., business stakeholders have their interpretation of that goal. In other words, what the executives define are the “end” goals – for instance, an increase in revenue that translates to increase in sales for the sales and marketing group, or better product quality for the product engineering group. A reduction in cost, meanwhile, would translate to a reduction in cost of goods sold (COGS) for the sales and marketing group, or better inventory management for the product engineering group.
The role of IT is to be a catalytic for these groups to achieve their respective goals. This is the most basic form of alignment for IT, where it plays a “lagging role” to other business groups by re-organizing and re-prioritizing their priorities to help them increase revenue or reduce cost or maybe both.
Here, IT organization are treated as “cost centers” since they do not have a direct impact to the primary constituents of the corporation’s value chain. This is mostly true for mediocre-growing companies that are satisfied with increase in profitability rather than increase in “enterprise value” or “growth. Metrics needed to analyze profitability become the key goal for business units. Alignment in this case shifts from a “lagging role” to a “analyze role” for IT. In other words, the CIO diverts his budget to more business intelligence, business activity monitoring activities. IT organizations in these corporations are not under the constant threat of proving their existence. However, they are under the spotlight to provide “information” rather than “data” to help business make decisions – hence elevate to a decision support advisory role rather than a plain management information systems provider.
Corporations that thrive on their information technology prowess have the tendency to experiment with technology and technology organizations. Here, the IT organizations are expected to be innovators – someone who can identify new value chains for the business rather than help business profit from existing value chains. Since the corporation is willing to take risks with technology, the returns are usually very high. In these corporations, information technology is often responsible for coming-up with disruptive innovations that breaks or changes the “rules of the game” for that business. One of the greatest examples in this category is the invention of “Internet retail banking” that used the “reduction in transaction cost” business driver to “eliminate the transaction cost” for consumer retail banks.
Growth or Sustain…
Before using the clichéd excuse to execute the CIO because of the failure to align IT to business, business must evaluate its own focus. These are namely its long-term business goals i.e. sustain or grow. Once that is clear, it must empower the CIO with the ability to calibrate his/her organization to select the best form of alignment to meet the business goals. Sometimes, the CIO may choose to use a combination of more than one form of alignment depending on the IT initiative. CIOs have a latent ability to impact the cash-flow (stock price) of the company. Business must allow CIOs to contribute to the “value” of the corporation. They must hold CIOs accountable for their contribution to the cash-flow and enterprise value – not to a symptom (alignment) that may not be the terminal one.
Sumitro Sarkar has 20 years of experience in technology consulting and product strategy. He has served in management and leadership positions in big- five management consulting firms, financial information services and technology product companies. His areas of interest are redefining technology value propositions, resolving bleeding-edge technology myths, using technology to change the rules of business. He holds a BA in Economics and Mathematics (with honors) and an MBA from Delhi, India. He also holds an MBA from the Johnson Graduate School of Management at Cornell University. He also writes the “Is IT Worth It” blog.
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