MODULE 2: MANAGING TECHNOLOGY
TOPIC 3 ALIGNING IT GOALS AND BUSINESS STRATEGY
Managers today make decisions involving information technology (IT); these decisions
often intend to achieve the firm's competitive advantage and bring business value to the
firm. The decisions involve choosing an appropriate type of IT that can serve business
needs. Sometimes the decisions include whether the firm should invest in technology for
commercial applications. Furthermore, the managers decide whether to buy or build an
information systems application system and how the system will be implemented. In
summary, technology is the cornerstone of many strategic decisions made by managers
nowadays.
Readings:



This lecture
Chapter 2: Technology Strategy
Case 18: Telstra’s National Telemarketing Center
Learning Objectives: At the end of this week, you will be able to
1. Explain what the term 'strategy' is?
2. Describe the driving forces to obtain IT capability
3. Understand factors affecting successful implementation of an IT strategy
4. Understand different types of IT strategies and explain which strategy needs to be
deployed in what situation
5. Explain a strategic alignment process and its domains
6. Understand and apply a strategic alignment model to a real-world case
Lecture Outline
WHAT IS INFORMATION TECHNOLOGY STRATEGY?
REASONS FOR ACQUIRING IT CAPABILITY
SUCCESSFUL INFORMATION TECHNOLOGY STRATEGY
IMPLEMENTATION
TYPE OF IT STRATEGY
WHEN TO USE WHAT IT STRATEGY
STRATEGIC ALIGNMENT PROCESS
1. INFORMATION TECHNOLOGY STRATEGY
2. BUSINESS STRATEGY
3. ORGANIZATIONAL INFRASTRUCTURE AND PROCESS
4. IS INFRASTRUCTURE AND PROCESS
ADDITIONAL READINGS
REFERENCES
Vignette
HARVARD, Ill. (Reuters) - Motorola Inc. (NYSE:MOT), which makes mobile phones
and computer chips, said that it plans to cease manufacturing operations at its Harvard,
Ill., campus, resulting in the elimination of 2,500 jobs.
Motorola makes cellular telephones at the plant, but the high tech sector has not been
immune to layoff announcements, as shown by personal computer maker Gateway Inc.'s
(NYSE:GTW) plan to lay off 10 percent of its global workforce as well as a wave of job
cuts at dot-com companies.
About 2,500 jobs will remain at Harvard, Ill., but the emphasis will shift to customer
order fulfillment and new product sourcing. Competitive severance and comprehensive
outplacement benefits will be provided to eligible employees. The shutdown is part of a
long-term, company-wide strategy to improve supply chain efficiencies, consolidate
manufacturing, improve financial performance and build on company strengths, said
Motorola, which employs 130,000 worldwide.
"In 2000, the Harvard manufacturing team lowered production costs and, improved
quality,'' said Mike Zafirovski, president of Motorola PCS. ``But we cannot competitively
manufacture products when there is surplus global capacity at Motorola's lower cost
sites.'' On Jan 11, Motorola, a company with $37.6 billion in 2000 sales, said that
weakening economic conditions would hurt its business during the first half of 2001, but
that it would cut costs to improve the company's performance.
Motorola's fourth quarter operating profits fell to $335 million or 15 cents a share,
compared with $$564 million or 25 cents a share. Total fourth-quarter sales rose to $10.1
billion from $9.1 billion in the fourth quarter of 1999.
Source: http://dailynews.yahoo.com/h/nm/20010115/tc/motorola_jobs_dc_2.html
There are a number of questions emerged after reading the Motorola's story. What went
wrong with Motorola? Why did the profits fall, while the sales increased? Is closing
down the plant a short-term remedy?
What is Information Technology Strategy?
Information technology (IT) strategy refers to the mission critical, long-term IT choices
made by a firm. IT strategy encompasses all computer hardware, software,
telecommunication, and networks components. Managers develop IT strategy to respond
to the rapid change in business environment. The choices of IT made influence the firm's
current and future competitive position within the industry. These choices involve the
commitment of resources for the appropriation, maintenance, deployment, and
abandonment of technological capabilities (Narayanan 2000). These choices also
determine the characteristic and extent of the firm's major technical capabilities and the
set of available product and process platforms. Simply speaking, IT not only constitutes
the firm's value chain, but also embeds in the firm's products and services.
Reasons for Acquiring IT Capability
One of the focuses of IT strategy is a commitment to build IT capability (Narayanan
2000). This commitment affects the ability to create new businesses, to expand an
existing market, and to discern new strategic directions. As we learned from the previous
week that IT capabilities are not necessarily sources of competitive advantages, managers
still need to make appropriate decisions on IT capabilities because of three reasons. First,
the acquisition of certain IT capabilities is necessary for survival. A classic example for
this is an ATM machine that every bank today must have, otherwise customers may not
use their services. Second, the acquisition can enable a company to incrementally
improve its performance and stay competitive. IT can be used to add value to each and
every activity in the value chain of a company. For example, transforming a manual
process into an automate one helps reduce cycle time and operating costs. Finally, the
acquisition can enable the firm to distinguish itself in the marketplace by redesigning
existing products/services or creating new products/services. For example, adoption of
the Internet has created a new form of course offered, which is so called an on-line
course.
Successful Information Technology Strategy Implementation
To succeed in implementing IT strategy, the following factors need to be in place.
Commitment to IT Strategy. Successful IT strategy requires commitment from everyone
in the organization because IT choices made will impact not only organizational structure
but also tasks and culture. In order to reduce a resistance to change, managers must
educate their people about the new technology that the company will adopt.
Alignment between IT and Business Strategies. A company needs to make sure that IT
strategy is in line with business strategy. A decision on IT choices should be part of
business strategic formulation process that aims at satisfying business needs.
Role of Chief Information Officer (CIO). Developing IT strategy is a major part of CIO's
responsibility. CIO together with top management determines the capabilities of IT in
their organization. CIO needs to provide technical information for senior executives and
convince them to support a proposed IT project.
Top management supports. As mentioned earlier, senior executives play a critical role in
formulating business strategy and making sure that IT strategy is aligned with the firm's
competitive position. Top management has to commit to IT strategy because they are
responsible for allocating resources. IT investment is often expensive; therefore, it needs
commitment from senior executives to ensure that it has sufficient budget to fund future
IT projects.
Keep in mind that IT is not an ultimate solution that solves all business problems.
Managers must approach IT choices carefully, and before they commit any resource to IT
decision and deployment, they must be sure that other alternatives are examined thru
roughly. Since IT choices compete with other alternatives for resources, IT strategy has
to focus on choices that are expected to gain significant competitive advantage based on
the firm's available, limited resources.
Read more about successful creation of IT strategy here.
Type of IT Strategy
The specific IT choices made by an organization may be deliberate or emergent
(Narayanan 2000). In some case, choices are selected after a careful examination of other
alternatives. On the other hand, the organization decides to follow the market leader who
has successfully implemented the same type of IT. Little (1981) classifies IT strategy
based on two dimensions: scope and leadership.
Scope refers to the extent to which the organization focuses on a specific range of IT that
they will deploy. For example, in the IT industry, IBM's IT strategy covers a broad range
of IT from mainframes to PCs, whereas, Dell's IT strategy emphasizes only PCs.
Leadership refers to the company's commitment to a pioneering goal in the development
or exploitation of IT as opposed to a more reactive goal. For instance, FedEx's goal of
leadership is center around package delivery services, and Cisco's intent is to remain a
leader in routers' businesses. Some companies choose to be followers in order to avoid
high costs of being the first mover.
Based on these two dimensions, Little (1981) classified four broad types of IT strategies.
IT Leader Strategy contains establishing and maintaining IT development and
deployment a preeminent position in the competitive domain in all technologies for a
dominant market position. IT is the primary tool for creating and maintaining
competitive advantage for these companies that pursue this strategy.
IT Follower Strategy focuses on maintaining technological adequacy in a broad set of IT.
Followers focus on deployment of IT and avoiding investing in an innovation. IT is not
their primary tool for seeking competitive advantage.
Niche Strategy focuses on a limited range of critical IT to seek leadership. IT
deployment is selective and oriented toward strengthen the competitive position of the
firm.
Technology Rationalization maintains technological adequacy in a selected range of IT.
Companies that pursue this strategy do not focus their primary strength on IT.
Scope
Full
Leadership
Selective
Technology
Leader
Niche
Leadership
Technology
Follower
Technology
Rationalizer
Followership
Figure 1. Types of Technology Strategy (Source. Little 1981)
When to use what IT strategy
Let's look at two different situations where a company can face. The first situation is
when the company is in a phase of continuous improvement that focuses on making
business processes more efficient. Technology leadership is suitable for companies that
have strong technological and market positions, whereas technology follower strategy
still requires a strong competitive position, but not technological superiority. Niche
strategy is used when companies have strength in IT development, but not a competitive
position. Lastly, technology rationalization is used when companies do not have a strong
market position but are forced to adopt IT.
The second situation is when companies are facing a discontinuity (e.g., business process
reengineering). Every player in this situation, no matter what IT strategy they pursue,
must be alert because they are more opportunities to gain advantage. Even firms in a
weak market position, they need to start looking at a chance to gain a better position by
using IT as leverage.
Strategic Alignment Process
Venkatraman (1991) argues that strategic alignment is a means, not an end. He develops
the strategic alignment model that can help managers identify future IS requirements.
Strategic alignment is treated as a process that involves four domains.
1. Information Technology Strategy
Information technology strategy is defined as 'choices pertaining to the
positioning of the business in the IT marketplace and is analogous to the business
strategy'. (Venkatraman 1991, p. 155) IT strategy contains three dimensions: technology
scope (range of IT capabilities of the organization, e.g., global networks, specialized
software technology), distinctive competencies (the salient characteristics in the IT arena
that distinguished the firm in the IT marketplace, e.g. connectivity capabilities, costperformance, reliability, and safety), and IT governance (the nature of cooperative
relationships, e.g., joint ventures and strategic alliances in the IT arena.)
2. Business Strategy
Business strategy is defined as choices pertaining to the positioning of the
business in the competitive market. Business strategy consists of three dimensions:
business scope (e.g., what products and markets cover), distinctive competencies (e.g.,
superior services or product design), and business governance (e.g., joint ventures and
strategic alliances in the business arena)
3. Organizational Infrastructure and Process
Organizational infrastructure and process is defined as 'choices pertaining to the
particular internal arrangements and configurations that support the organization's chosen
position in the market.' (Venkatraman 1991, p.154). Three dimensions are administrative
infrastructure (e.g., organization structure, roles and responsibilities, and reporting
relationships), process (e.g., management processes and activities to implement strategy),
and skills (e.g., organizational skills)
4. IS Infrastructure and Process
IS Infrastructure and Process is defined as choices regarding the internal
arrangements that determine the hardware, software, data, telecommunications, and
networks infrastructure to deliver information products and services. Three dimensions
are applications infrastructure (e.g., hardware, software, and communications), processes
(e.g., systems design & development processes), and skills (e.g., technical skills)
The strategic alignment process forces managers to consider organizational issues
before IS applications are specified in any detail. After all, those applications should
support the desired way of doing businesses. This can also be argue that the means of
doing businesses can be determined to a significant extent by the possibilities opened up
by IT. It is for reasons such as this that the strategic alignment model considers each topic
in the context of the two adjacent topics (see figure 2). Also another important feature of
the strategic alignment process is that it strongly encourages senior managers and senior
IS/IT managers (e.g., CIO) to work together to determine the best strategy for the
organization in business, organizational, and IS terms.
Business
External
Information Technology
Business strategy
IT strategy
Business
Scope
Distinctive
Competence
IT Scope
Business
Governance
Distinctive
Competence
IT
Governance
Strategic
Integration
Organizational
Infrastructure
IT infrastructure
Application
Infra.
Admin.
Infra
Internal
Processes
Processes
Skills
Skills
Business Domain
IT Domain
Functional Integration
Figure 2. Strategic Alignment Model (Source. Venkatraman 1991)
The strategic alignment model implies that business success depends on the
synchronization of business strategy, information technology strategy, organizational
infrastructure and processes, and IT infrastructure and processes. It would be impossible
to change one of these four elements without affecting the other. Making sure that they
work in sync of each other can have a significant impact on competitiveness of the firm.
One of our optional readings in this topic, Luftman et al. (1993) has demonstrated how
managers can apply the strategic alignment model to a real problem.
Luftman et al. (1993) suggest four strategic perspectives: competitive potential,
technology potential, service level, and strategy execution. Organizations that employ
different perspectives will apply the strategic alignment model differently. In other word,
different emphasis will be placed on each of those four domains in strategic alignment
process. Many examples are also given in the article.
The second article is also written by Luftman and his colleague, Tom Brier
(1999). Having studied strategic alignment for over six years, Luftman and Brier have
collected data from 1993 till 1997 asking respondents to identify inhibitors and enablers
of strategic alignment. The study also identifies critical success factors of strategic
alignment initiative.
Additional Readings (Optional)
Algeo, D. 1999. Strategic Alignment Process.
http://www.cs.tcd.ie/courses/ism/smis/topics/org_bynd/org_bynd.htm#Strategic_alignme
nt_process
Business Strategy formulation
http://www.cs.tcd.ie/courses/ism/smis/topics/bus_str/bus_str.htm
Broadbent, M. and Weill, P. "Improving business and information strategy Alignment:
Learning from the Banking Industry." IBM Systems Journal, Vol. 32, No. 1, 1993, p.
162-179.
Luftman, J.N., Lewis, P.R., and Oldach, S.H. "Transforming the Enterprise: The
Alignment of Business and Information Technology Strategies." IBM Systems Journal
,Vol. 32, No. 1, 1993, p. 198- 221.
Luftman, J. and Brier, T. "Achieving and Systaining Business-IT Alignment." California
Management Review, 42(1), Fall 1999, p 109-122.
References
Deck, S. 2000. Crunch Time, CIO Magazine, September 15.
Evans, J. 2000. CRM Market to Grow. WebBusiness Magazine, August.
Hammer, M. and Champy, J. 1993. Reengineering the Corporation: A Manifesto for
Business Revolution, New York: Harper Business
Harreld, H. 2000. Pick-Up Artists. CIO Magazine, November 1st.
Little, A.D. 1981. The Strategic Management of Technology. In the Proceedings of
European Management Forum in Davos.
Narayanan, V.K. 2000. Managing Technology and Innovation for Competitive
Advantage. Prentice Hall, New Jersey.
Venkatraman, N. 1991. IT-Induced Business Reconfiguration. In The Corporation of the
1990s: Information Technology and Organizational Transformation, Scott-Morton, M.
(editor), Oxford University Press, New York. P. 123-158.