Alignment of Strategic Information System to Business Strategy
The alignment of Strategic Information System and Business Strategy has been a consistent topic in the academic and business literature for decades. It is a challenge to link business strategy in this dynamic business world with the fast pace of evolving technologies in information system. Hence, it has to be a continuous process because of continual changes is internal environment that affect the information requirement and the external environment that influences the technological, competitive and manpower availability parameter. This requires a full commitment from top management as it required continual investment to keep abreast with the evolving technology.
It is critical to choose the right technology because it will involve investment and the different between the right and wrong decision can be a pivoting point for the survival of the organization in long run.
The alignment of information technology (IT) and the business goals (hereafter referred to as alignment) is crucial to the success of organizations. Recent studies, however, show that organizations are struggling in addressing alignment challenges (Levy et al., 2003). According to a METAGroup survey of CIOs globally, alignment and value management were ranked as the top issues of concern to CIOs in 2005 (CRM Today, 2005). The Standish Chaos report of 2003 indicates that 71 per cent of all projects were challenged or delivered late and that US IT projects had a waste of $140 billion. Stanleigh (2005) also cites a report by Pricewaterhouse Coopers (2004), which indicated that only 2.5 per cent of global businesses achieve 100 per cent project success. The major reason for these failures has been attributed to poor alignment of projects with core strategies of the organizations (Stanleigh, 2005).
Understanding Strategic Information System.
Strategic information system is a strategy where information systems is used to assists in making timely business decisions and formulating feasible strategic plans. In other words, the synergies of the information systems to business strategy, so that the later will be further enhance with the application of correct information systems.
In 80’s and 90’s there has been a surge in the realization of strategic importance of information systems to an organization.
Strategic Information System comprises a number of modules including strategic prerequisites, competitive priorities, strategic directions, strategic decision areas, strategy choices, strategic options and business transformation, all of which are integrated together seamlessly to form a unified system (Henry C.W.L. et al., 2000). To facilitate the efficient function of the whole system, a free information flow among various modules of the system needs to be achieved.
According to Business Week article, ‘The Technology Payoff’ (Business Week, June 14, 1993), throughout the 1980s US businesses invested a staggering $1 trillion in the information technology. This huge investment did not result in a commensurate productivity gain - overall national productivity rose at a 1% annual rate compared with nearly 5% in Japan. Using the information technology merely to automate routine tasks without altering the business processes is identified as the cause of the above productivity paradox. As IT is used to support breakthrough ideas in business processes, essentially supporting direct value adding activities instead of merely cost saving, it has resulted in major productivity gains.
Strategic Information System Planning
A Strategic Information Systems Planning (SISP) is the blueprint that forms the basis for the initiation and development of information systems in any organization. Without a clearly defined SISP, computers would merely become an expense which does nothing to add value to an organization.
Strategic Information Systems Planning is the analysis of a corporation’s information and processes using business information models together with the evaluation of risk, current needs and requirements. The result is an action plan showing the desired course of events necessary to align information use and needs with the strategic direction of the company (Battaglia, 1991).
SISP thus is used to identify the best targets for purchasing and installing new management Information systems and help an organization maximize the return on its information technology investment. A portfolio of computer-based applications is identified that will assist an organization in executing its business plans and realize its business goals. There is a growing realization that the application of information technology (IT) to a firm’s strategic activities has been one of the most common and effective ways to improve business performance.
Information system has been evolved since the inaugural part of its implementation. It started as a basic data processing system and after time, several stages of realization of system’s utilization which lead to more specific and more business-focus nature of the system. According to the three-era model of John Ward, et al.(1990), there are three distinct, albeit overlapping, eras of information systems, dating back to the 60’s. The relationship over time of the three eras of information systems is shown below :
60’s - Data Processing (DP)
Standalone computers, remote from users, cost reduction function.
70’s & 80’s Management Information System (MIS)
Distributed process, interconnected, regulated by management service, supporting the business, user driven.
80’s & 90’s - Strategic Information System (SIS)
Networked, integrated systems, available and supportive to users, relate to business strategy, enable the business - business driven.
A portfolio model derived from McFarlan (1984) considers that the contribution of IS/IT to the business now and in the future are based on its impact to the industry it belong or in a simple word, to a certain extent, reflects by nature of the business it being involved. Based on this model applications are divided into four categories, as shown here:
Strategic - Applications which are critical for future success. Examples: computer-integrated manufacturing, links to suppliers, etc.
Turnaround - Applications which may be of future strategic importance. Examples: electronic
data interchange with wholesalers, electronic mail, etc.
Factory - Applications which are critical to sustaining existing business. Examples: employee database, maintenance scheduling, etc.
Support - Applications which improve management
and performance but are not critical to the business. Examples: time recording, payroll, etc.
Some characteristics of strategic IS planning are:
• Main task: strategic/competitive advantage, linkage to business strategy.
• Key objective: pursuing opportunities, integrating IS and business strategies
• Direction from: executives/senior management and users, coalition of users/management and information systems.
• Main approach: entrepreneurial (user innovation), multiple (bottom-up development, top down analysis, etc.) at the same time.
Method of Strategic Information Planning.
A number of strategic issues need to be addressed to build an SIS model that will support the realization of business goals.
Michael J.E et. al., (1993) recommends that SISP should target the following area:
Aligning investment in IS with business goal
Exploiting IT for competitive advantage
Directing effective and efficient management of IS resources
Developing technology policies and architecture.
One of the major obstacles to achieving strategy alignment is that many organizations do a poor job of communicating their strategy. When people who are key to executing strategy don’t know what the strategy is or understand how their day-to-day activities contribute to strategy execution, it’s highly likely overall enterprise performance is going to suffer. Strategy maps are one way to shore up communication about strategy with a visual representation.
Strategy maps are:
· Derived from the Balanced Scorecard. Strategy maps emerged as part of Robert Kaplan’s and David Norton’s seminal work with the Balanced Scorecard.1 At their simplest, strategy maps describe how the organization creates value — the missing link between strategy formulation and strategy execution. Using the four balanced scorecard perspectives as a starting point, the strategy map shows the cause and effect linkages between the four perspectives:
Financial — to succeed financially how should we appear to our shareholders?
Customer — to achieve our vision, how should we appear to our customers?
Learning and growth — to achieve our vision, how will we sustain our ability to change and improve?
Internal business process — to satisfy our shareholders and customers, at what business process must we excel?
A strategy map is a generic architecture for describing strategy that helps organizations develop a holistic, integrated, and systematic way of viewing their strategy. The strategy map forces an organization to think about its strategy from the four perspectives, to develop the outcomes and drivers of the strategy, and to draw the linkages between them.
· Developed within a top-down process. Strategy map development is a top-down process beginning with the financial (value) perspective and ending with the learning and growth (future orientation) perspective. Developing a strategy map is a forcing function that drives an organization to first reach a consensus on its strategy and related objectives, and then to develop expected outcomes and their dependent drivers. Financial and customer perspectives represent the expected outcomes of strategy (i.e., make money and have happy customers), while the internal process and learning and growth perspectives represent the drivers of those outcomes.
· A growth strategy drives revenue. Companies in new or emerging markets will be likely to pursue growth strategies. Developing new sources of revenue through new markets, new products, and/or new customers as well as increasing the “wallet share” of existing customers (i.e., expand the relationship through cross-selling, upselling, etc.) are central to a growth strategy. By growing top-line revenue faster than expenses, organizations can expand margins and improve their profitability — typically leading to stock appreciation.
· A productivity strategy focuses on cost and efficiency. Favored by companies in mature industries, productivity strategies work on the expense side to lower the costs of products and services and improve the utilization rate of assets. This too can also lead to improved margins and profits.
Environment for the Success of Strategic Information System Planning.
Rich communications in organizations reflect the intangible cultural traits and tangible strategic practices (Canessa and Riolo, 2003; Carmeli and Tishler, 2004). Effective information flows require high level of congruence between organizational culture and strategic practices (Leisen et al., 2002; Gallivan and Srite, 2005). Outstanding organizations integrate their organizational value architecture and strategic information system (Wagner, 2004; Avison et al., 2004). identifying styles of strategic information system as caretakers, defenders, analyzers and prospectors. This classification is adapted from the works of Miles and Snow (1978) and Apigian et al. (2006).
This integrative framework of organizational culture and Information System is further extended to identifying styles of strategic information system as caretakers, defenders, analyzers and prospectors which are briefly explained.
Caretakers have a consistent and stable internal focus that processes organizational routines with great efficiency.
Defenders try to protect their particular strategic resources and markets.
Analyzers are highly organized according to their goal-driven results.
Prospectors continue to seek and locate new market opportunities while sustain their current markets with resilience. The strategic information system has a profile in the context of integrative framework of Information System and organizational culture.
Information Management Environment IME refers to the organizational environment for IT/IS management. As observed by many, IT application in organizations generally goes through various stages, from inception to maturity. Nolan’s information systems development stage theory provides the theoretical foundation for evaluation of information management environment maturity (Nolan 1973, 1979). Some scholars further proposed the measurement techniques and parameters based on Nolan’s model. For example, Benbasat (1984) summarized and proposed 19 criteria for measuring maturity. They include such criteria as the degree and the scope of IS application in business, level of senior management knowledge and involvement in IS.
In a rapidly changing business environment, although the formation of networks is important, the cultural patterns are less clear and more undistinguishable. Firms may not easily grasp the complexity that exists between organizational culture and Information System. However, a successful formulation and implementation of Information System may need to consider deeply-held cultural traits and intangible behavioral response patterns of supply chain participants. In this sense, this paper clarifies how a particular type of organizational culture may fit better to a particular Information System and furthermore suggests an appropriate style of strategic information system.
However, the consistent challenge for researchers is how to connect organizational culture in the implementation level of business goals and practices (Denison and Mishra, 1995; Flamholtz, 2001). Here lies the need for rigorous examination of organization culture in the context of ever expanding strategic business reality. In particular, as firms interact and align with the diverse network of suppliers and customers as their supply chain partners, rich dynamics of organizational culture become more illusive and less understandable. In this sense, organizational culture in the context of Strategic Information Systems deserves a careful research
Critical Success Factor
Due to the importance of aligning IS plans with business plans, it is useful to examine the critical success factors (CSFs) for such alignment. Briefly, CSFs are those factors that management need to pay special attention to (Rockart, 1975) in order to enhance the chances of successful IS planning alignment. Past research has investigated CSFs in manufacturing resource planning (MRP) implementation (Ang et al., 1995; Burns et al., 1991), quality management (Black & Porter, 1996; Saraph et al., 1989), strategic alliances (Rai et al., 1996), data management (Guynes & Vancecek, 1996) and strategic IS planning (Ang & Teo, 1997). However, none of the existing research has examined CSFs in IS planning alignment and this paper is an initial attempt to do so. The results should prove useful in enhancing our existing knowledge on how to better align IS plans with business plans, thereby facilitating successful IS planning efforts.
A survey done by Thompson S.H.T et. al., (1998) conclude the rank of critical success factors below. It is a result of response from senior IS executives from 169 firms. It rates the degree of importance of each item on a five-point Likert scale ranging from 1 (not important) to 5 (very important). The results are shown below:
CSF#1: Top management is committed to the strategic use of IT (mean"4.34)
The importance of top management commitment to IT is emphasized by an IT director who commented that it is difficult to use IT strategically because top management do not view IT as a strategic tool for competitive advantage. Consequently, alignment between business and IT is weak.
CSF#2: Information Systems (IS) management is knowledgeable about business (mean"4.26)
Note that IS management knowledge about business is even more important than top management knowledge about IT (which is ranked CSF#10). CIOs with high strategic IT and business-related knowledge were found to enjoy significantly greater participation in top management teams. Furthermore, such knowledge also significantly influenced the extent of IT deployment in business strategies and value chain activities. Note that business knowledge encompasses business strategies, organizational work processes, products and services, industry’s recipes for success, and competitors’ strengths, weaknesses and potential actions.
CSF#3: Top management has confidence in the IS department (mean"4.20).
This item is related to CSFd1 above since top management needs to have confidence in the IS department in order to be committed to the strategic use of IT. Without such confidence, it will be very difficult for top management to allocate appropriate resources (in terms of funds, personnel, etc.) for the planning and development of strategic IT applications.
CSF#4: The IS department provides efficient and reliable services to user departments
(mean"4.12)
CSF#5: There is frequent communication between user and IS departments (mean"4.07)
CSF#6: The IS staffs are able to keep up with advances in I¹ (mean"4.10)
CSF#7: Business and IS management work together in partnership in prioritizing applications development (mean"4.06)
CSF#8: Business goals and objectives are made known to IS management (mean"4.06)
CSF#9: The IS department is responsive to user needs (mean"4.03)
CSF#10: Top management is knowledgeable about IT (mean"4.00)
The list of CSFs enables practitioners to concentrate on a set of factors that will enhance the alignment of IS plans with business plans. By evaluating each CSF in the context of its organization, practitioners will be better able to design appropriate strategies for better IS planning alignment.
Researchers can investigate the reasons why there appears to be an emphasis on content linkage rather than personnel or timing linkages. Practitioners should realize that by placing less emphasis on timing and personnel linkages compared to content linkages, they could be missing out on other important or potentially effective mechanisms for aligning IS plans with business plans. This is especially relevant in cases where there is an absence of business plans, or lack of comprehensiveness of business plans, for such content alignment to take place. In such situations, both timing and (especially) personnel linkages may often serve as useful surrogates for content linkage.
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