Does Aligning IT and Business Strategy Always Pay?
By N. Raghavan
Bangalore, Sep 24, 2007

When the relationship between its IT organization and its corporate strategy is not synchronized, an enterprise runs the risk of having mediocre business practices in place which, in turn, can damage its relationship with customers and business partners. CIOs have been talking about this for years.

But what should take first priority - making the IT department more effective or getting the IT strategy in sync with business strategy? That's a subject of much debate. A recent survey of over 400 executives in listed companies by consulting firm, Bain & Company, has thrown up some rather interesting findings.

According to a preview of the survey, enterprises that focused their resources and energies on making their IT departments more effective showed much faster growth and lowered costs compared with those who tackled the alignment issue first. In fact, enterprises that preferred alignment over effectiveness had to face some rough weather, in terms of tougher growth prospects and higher rates. Alignment, as defined by the firm that did the survey, meant complete understanding of business priorities by the IT department and staff required to meet them.

Asked how effective their IT departments were, an overwhelming 85% of the technology and business executives drawn from 450 listed companies replied in the negative. Effectiveness was defined (in the survey) as getting projects completed as specified, on budget and on schedule. Enterprises that deemed themselves ineffective in IT and not aligned with business - 74% of all respondents - saw their IT spending rise 1.3% and growth sink by 3%. Firms that claimed to be aligned but hadn't yet reached effectiveness (11%) fared worse - their spending climbed by 8.4% whereas their 3-year growth dropped by almost 10%.

Some experts believe that companies who seek to align their IT and business strategy run the risk of ending up with an inflexible IT backbone. The enterprise becomes so settled in the ways it carries on its business that often it's unable to realign its systems quickly enough to meet either the demands of a rapidly changing market place, or even changes in its own strategy. While companies in more traditional industries, as for instance construction or chemicals, can afford to get by despite lack of IT flexibility, it can impact the very survival of enterprises in fast-paced industries such as electronics and financial services. So the trick lies in creating IT infrastructure that's sufficiently flexible to expand or contract depending on requirements occasioned by changes in a company's strategy or its business environment.

In sum, when it comes to IT and strategy alignment, the message coming through - at least from the Bain survey - is clear: companies are better advised to focus first on IT effectiveness and think of tackling IT-strategy alignment next.

Related Links:
IT: An Important Part of Financial Services
IT Investments to Expand Extensively: A Report