The Relationship between Business Strategy and IT Strategy
Introduction: The alignment of Business and IT strategy is a critical issue facing corporate organizations in their daily decisions. Ongoing academic debate exists on the strategic role and the extent of impact from investment into Information Technology. It is however becoming clear that the issue does not lie so much on the importance of IT but on its alignment with corporate strategy as this often generates the most value for any organization.
In this paper, we will look at the relationship between IT and business strategy while trying to look at some issues affecting IT implementation and integration across businesses. What is Business Strategy? : Johnson et al in their book “Exploring Corporate Strategy” define strategy as follows: “Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations”.
Essentially, Business Strategy defines a way the business is run and the unique priorities and methods that differentiate one business from another. It is very important for a business to understand its strategy in order to enhance its market value before looking at other issues that help it fulfil its strategy. It is also very important to understand the dynamic nature of strategy is today’s competitive and innovative world. Gary Hamel (2002) in his book “Leading the Revolution” explains that it is necessary for organizations to continually reinvent themselves in the industries in which they compete.
Companies have to carry out regular strategic analysis to understand the strength of their business position and to know how external factors affect that position. The Value of IT: IT is seen as one critical tool for supporting business strategy and companies often develop an IT policy or strategy which is a document that explains how organizations wish to deploy IT and the role it will play in the business. It is clear that one reason why IT projects fail is when organizations get into the technology frenzy without a clear goal of what strategic value the IT project is aimed at offering.
It is for this reason that a lot of research has been done and articles written about the need for IT strategy to be aligned to Business Strategy to enhance a company’s competitive advantage. In the article by Goldstein et al, the writers’ view is that It projects should be supported by a business case and that IT planning should be tightly linked to Strategic planning. This is simply another way of explaining the fact that IT cannot be in isolation; it should be a tool for supporting business strategy if it is to enhance corporate value.
Despite several suggestions that IT is not important like the recent article by Nicholas Carr on IT becoming a utility; most organizations can still agree that IT continues to be important if its role is clarified in relation to a business’ strategic goal. It is obvious that Carr’s objections can be seen in the light of situations where technology is used out of place and without strategic objectives. Collaborative Computing: This article clearly shows the misconception that is often associated with the use of IT.
The company had a clear goal; to deploy enterprise-wide systems to enhance collaboration with suppliers and customers in order to reduce cost and cycle times; aid the quick delivery of goods etc. Goldman saw the IT project as an opportunity since it did not have significant investments in the sector at the time and management was committed to the project with the direct involvement of the President. The project however met with difficulties particularly with suppliers and customers who saw it more as a future possibility rather than something they could immediately implement.
It can be argued however from the article that it appeared the company was more interested in IT rather than evolving a clear strategy for which the IT project would find expression. It was also clear that the success of the project was going to be based on the adoption by suppliers and customers which should not have been the case. When a company is dependent on another company in the implementation of a critical project; then it may have not had a good strategy in the first place.
This implementation for Goldman was however not totally unsuccessful as there was indication that the adoption rate would be better in the future and also the project provided good internal results of reduced cycle times and a reduction in cycle times, maybe this would have been the prime focus of the project in the first place. Putting the Horse First: This article explains the need for organizations to understand what gives them competitive advantage and which strategy they should implement.
Core competence is a term made popular by Gary Hamel, strategy professor and refers to the important part of an organisation that makes it different from others and that gives it competitive advantage. Understanding this and making the right decision to remain focused on this is the key to evolving a strategy that will enhance an organisation’s long term prosperity. For example, Instill focused on its software capabilities and enhancing the efficiency of its software in providing vale to Food processing companies instead of concentrating on the market place as it was its own core competence.
How does this link up to our earlier discussion? When IT is used to support a well articulated business strategy that is based on an organisation’s core competence; it provides value and reduces the uncertainty associated with changes in the deployment if IT. Relationship between Business and IT Strategy: Essentially, a business organisation is set up with business objectives aimed at delivering either a product or a service. Consequently for a business to be successful, it should be delivering value to customers and consequently profits to sustain shareholder investment.
The mistake organisations often make when implementing IT therefore is to measure IT success in terms of IT parameters like time, capacity, service levels, processing speed etc instead of measuring success against business goals like customer satisfaction, profitability and growth in revenue etc. This is why business strategy should take precedence over IT strategy as the ultimate measure of success is how well the business does in the market place. Examples abound of organizations with state of the art IT infrastructure but with dwindling revenues because of “putting the cart before the horse”.
The value of IT is in the future opportunities and solution to business needs that it provides (Curley, 2005). He explains further that organizations now talk about “solutions” rather than “applications” because delivering a solution means that a business problem is being solved. So IT strategy should support and be aligned to an organisation’s overall business strategy in order for it to produce business value; deploying IT infrastructure with understanding the organisation’s strategy and core competence is a recipe for IT failure or poor performance.
References Nicholas Carr (2004), IT Doesn’t Matter.Harvard Business Press. Pages 1 – 10. 2004 http://web. njit. edu/~jerry/CIS-677/Articles/Carr-HBR-2003. pdf (assessed on 05/03/06) Phil Goldstein, Richard Katz and Mark Olson (2003), Understanding the Value of IT. Educause Quarterly. Pages 1 – 5, 2003. http://www. educause. edu/ir/library/pdf/eqm0333. pdf Martin Curley, Managing Information Technology for Business Value. Intel Press. Pages 1 – 13, 2005. ftp://download. intel. com/intelpress/excerpts/excerpt_bvit1. pdf Gerry Johnson, Kevan Scholes and Richard Whittington. Exploring Corporate Strategy. Hamel G. (2002). Leading the Revolution. Page 12. First Plume Printing.