Business Strategy must drive IS strategy
Business Strategy must drive IS strategy and not the other way around an essay presented to the Information Systems Department University of Cape Town in partial fulfilment of the requirements for the Introduction to Business Computing Course (INF400F) 1. Introduction The statement that ‘business strategy must drive IS strategy and not the other way around’ is supported by a substantial body of theoretical research within the academic field of Information Systems. This is turn, is supported strongly by evidence derived from close study of the implications and results of Information Systems decisions that have been carried out in practice in this rapidly evolving field of management within the international business environment. By strategic alignment of a company’s IS strategy with its overall business strategy, the potential of its core competencies can be maximised, its primary sources of competitive advantage can be focused on, and the chances that its profit targets will be met, can be significantly increased.
2. Business Strategy A Definition Pearlson and Saunders define a business strategy as, “a well articulated vision of where a business seeks to go and how it seeks to get there” (p. 21, 2004.) With this definition in mind, a business strategy can be
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The role of Information Systems and the role of the CIO (Central Information Officer) within an organisation are to a large extent, the least generally understood practices in the modern organisation. All of the traditional departments in an organisation; marketing, finance manufacturing sales and engineering etc, have by now established a commonly used and broadly understood vocabulary. The field of Information Systems, by contrast, is only 40 years old, having started with the advent of the IBM360 in 1964. (Field and Stoddard, 2004) This has translated into a generation gap in many organisations today, which often leads to a situation in which senior management is intimidated by the complex and rapidly developing field of information systems so that they simply, “hand the kid a fat allowance,” and turn a blind eye. (Field and Stoddard, 2004) This approach can lead to a solely technical Information Systems department that feels separate and independent from the organisation and is motivated to excite change with each exciting new technological development, without properly considering the social and financial implications that these decisions will have on the organisation.
Given the fact that Information System decisions will inevitably affect the organisation throughout, and given the nature of globalised world business with its heavy reliance on technology, this kind of organisational approach is has become inexcusable. “There is no longer any reason why non technical executives should allow themselves to be befuddled by IT discussions or bedazzled by three letter acronyms.” (Field and Stoddard, 2002, p.74) Despite this, it is still a problem in too many organisations today. 4.1 Strategy, Architecture, Infrastructure Strategy can be seen as an abstract concept that serves as an all encompassing guide as to what a business stands for and intends to achieve. This is translated by management by into a blueprint of the manner into an implementation plan, the architecture of a company. The company’s architecture is created by defining the specific goals implied by the strategy and then by fleshing these out further to define the business requirements that are associated with each goal.
This architecture is then translated into practice by means of the company’s infrastructure. Infrastructure refers to the internal and external organization of, and communication between, the various components of a company and its relationships with customers, suppliers and various stakeholders. (Pearlson and Saunders, 2004.) 4.2 Implementation of Strategy: Silo and Process Perspectives. Which is better suited to the strategic use of Information Systems? A distinction can be made between two different perspectives adopted by organisations to translate their strategy into architecture and finally, into infrastructure. A traditional Silo or Functional Perspective organises a company into very clearly defined Departmental Silo’s within a hierarchical structure, each centred on its own core competency and concentrated on those tasks that fall within the scope of this expertise. A Business Process Perspective organises the company’s infrastructure to focus on processes so that they are carried out by the organisation as a whole. Communication between departments facilitates a system by which a process is carried out from start to finish, cross – functionally and across departmental divides (Pearlson and Saunders, 2004.)
Due the complex and ever changing nature of the Information Systems field, and given the significant impact that the field has had on business processes, there has been a movement towards process oriented strategy. It allows for cross-functional teams to effectively carry out a process with the business’s core strategy at the centre of it. This minimises the risk inherent in a functional strategy that departments will define strategy according to contradictory goals across departments. This is especially relevant to the field of Information systems because change is very costly and the risk that failure implies is very high. Before change is implemented, perceived benefits, organizational readiness, and external pressure should be carefully measured. (Grandon and Pearson, 2003) Should change be implemented without this and without the provision of education so that members of the organisation learn to use the technology efficiently, huge disruption can be caused thereby hindering the organisations overall effectiveness and causing substantial financial loss.
5.1. The Business Process- How is it defined? The way in which an organisation defines a ‘business process,’ can be a very good insight into the efficiency of the company. The definition speaks volumes between the lines about the preconceptions and expectations that influence management’s thinking. (Keen and Knapp, 1996) There will be a significant discrepancy of definition, for example, between companies that view business processes from a Silo Perspective, as compared to those that view them from a Process Perspective. In order to avoid the abovementioned discrepancies between definitions, the business process is defined by Keen and Knapp in their comprehensive account entitled, ‘Every Managers Guide to Business Processes, A Glossary of Key Terms and Processes for Today’s Business’ in the following manner: ‘Regardless of definition, business process implies (1) organization of work to achieve a result; (2) multiple steps and coordination of people, (3) an element of design or implementation that renders a business process a distinctive competitive asset as research and development or product development, a “firm specific asset” (in the words of institutional economists), “core competence,” or “dynamic capability”; and (4) management as the enabler and sustainer of process advantage.’ (1996)
5.2. Types of Business Processes Essential to the present argument, is the fact that business processes can be categorized by their strategic importance to the market value of the company. The manner in which a company prioritises, categorises and allocates resources to the various processes within the organisation should stem directly from the manner in which it defines its own competitive advantage. This goes back to the idea of the translation of strategy into architecture and stresses the point that business processes should stem directly from architecture Business Processes can be categorised according to two fundamental criteria: salience and worth. (Keen and Knapp, 1996) Salience refers to the role of the process and is defined according to whether a business process contributes to the company’s internal and marketable identity, is fundamental to the businesses core processes, is a background process that does to contribute to profits but is essential for operation, or is a folklore process which has long extended its useful life. (Keen and Knapp, 1996)
Worth regards a business process either as a financial asset that is designed to contribute to the growth and prosperity of the company or a liability that serves to drain it of important resources. (Keen and Knapp, 1996) 5.3. The Process Paradox Given the above definition of processes, the incredible importance of the strategic allocation of resources to business processes can be clearly seen. Resources should be allocated to processes according to the criteria of salience, worth and significance to core business processes. This is especially true in the case of those companies have not taken the financial implications of investing heavily in a secondary or background process properly into account, or more likely, have not been able to clearly separate those business processes that contribute most actively to their market share than those that don’t. This error has been referred to as the ‘Process Paradox’ and it is used to signify a situation in which, despite the fact that a company has achieved a great deal of progress in a specific area, it has nevertheless either seen a decrease in market share or has not received any real benefits from the investment in such processes.
An implementation of Total Quality Management, a form of business process reengineering, lead IBM and General Motors to win the prestigious Baldrige award for quality at the very time their economic and competitive performance was plummeting like never before. (Keen and Knapp, 1996) Here, a prime example of the process paradox can be seen, as the companies had invested heavily in processes that were not relevant to their market share. An alarming 50 – 70% of all re-engineering projects fail. The substantial benefits that can be realized from re-engineering projects such as Total Quality Management and Business Process Re engineering are well documented and, for many businesses, are not worth overlooking. For this reason, businesses must clearly define their strategy, from which core or profit generating processes must be defined and then focused on. This should ensure that the re- engineering will increases the efficiency of those core processes, thereby increasing profits.
6. Principles for effective IT execution According to Charles Field and Donna B. Stoddard, in an informative article written for the Harvard Business Review in February 2004, there are three basic principles for executing IT efficiently. They clearly illustrate the extent to which it is essential for IS Strategy to be defined by Business Strategy, and not the other way around. The principles are the following: 1. A Long Term IT Renewal Plan Linked to Corporate Strategy This principle advocates that IT renewal should keep the entire IT group focused on the companies overarching goals during a multiyear period, making appropriate investments toward near term cost reduction, and generating a detailed blue print for long-term systems rejuvenation and value creation. 2. A Simplified, Unifying Corporate Technology This principle advises that companies create a unified and horizontally oriented platform to serve the company as a whole and replace a wide variety of functionally oriented silo’s that serve individual corporate units.
3. A Highly Functional Process-Oriented IT Organization Instead of being treated differently, the IT department works as a team and operates according to corporate performance standards. 7. Conclusion Information Systems is an essential aspect of any successful organization in the new world economy. It has considerable potential to allow organisations to increase their efficiency and to create a common platform for communication across departments so that core processes are maximised, background processes are made more efficient and profit margins are met. It is however, essential for IS strategy to come out of cross-departmental, process oriented approach, one that has prioritised the companies core efficiencies and overall business strategy. In the next decade, sophisticated IT leadership will be a defining characteristic of a successful organisation. Those companies that are ahead in this regard will be those that understand the importance of an Information Systems Strategy that is designed to innovatively implement the companies overall business strategy. There can be no doubt that business strategy must drive IS strategy, and not the other way around.
1. Keri E Pearlson and Carol. S Saunders, Wiley 2004, Managing and Using Information Systems, a Strategic Approach, 2004. 2. Charles S. Field and Donna B. Stoddard, 2004, Getting IT Right, Harvard Business Review, February Issue, pp 72-79 3. Grover S Kearns, 2004, Information Resources Management Journal A Multi-Objective, Multi-Criteria Approach for Evaluating IT Investments: Results from Two Case Studies, Vol.17 No. 1 37-62. 4. John M. Pearson and Elizabeth Grandon, 2003, Strategic Value and the Adoption of E Commerce, Journal of Global Technology Management , Vol.6 No.3 pp 22-39. 5. Peter J. Brews and Christopher L. Tucci, 2003, Internetworking: Building Internet-Generation Companies, The Academy of Management – Executive, Vol.17 No. 4 pp 8-17. an essay presented to the Information Systems Department University of Cape Town in partial fulfilment of the requirements for the Introduction to Business Computing Course (INF400F)