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California Management Review

Rudy Hirschheim and Rajiv Sabherwal

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Strategic Alignment Attaining the appropriate structure and capabilities to

execute strategic decisions OrganizationalPerformance

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

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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

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The Proposed Framework for

Alignment

Business Strategy Lens

Defenders, Prospectors, and Analyzers 

IS Strategy Lens

IS Role

Efficient, Comprehensive, Opportunistic

IS Sourcing 

Outsourcing, In-sourcing, Selective Sourcing

IS Structure

Centralized, Shared, Decentralized

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Strategic IS Alignment Profiles Utility Profile

Alignment through Low-Cost Delivery

Alliance Profile

Alignment through Partnering

Infusion Profile

Alignment through Business Leadership

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The Three Strategic IS Alignment Profiles

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Trajectories of Strategic IS Alignment

Paradoxical decisions

Excessive transformations

Uncertain turnarounds

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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!

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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)

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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

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Beta - Analysis Recognized the competitive threats and switched the business

strategy

Aimed at:

Global competitiveness, a 35 to 40 percent reduction in businessexpenses 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!

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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!

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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

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Pragmatics of Alignment