The Alignment EnigmaBy David Norton | Posted 07-01-2002
Ask CIOs what the number-one issue facing them is, and chances are excellent they will respond, "Aligning IT with the business strategy." That answer will come as no surprise to anyone familiar with the IT terrain. The April CIO Insight CIO research survey identified this as the number-one issue. But similar polls conducted during the past two decades drew the same conclusion.
It's not surprising that alignment is important. IT is expensive, and it can be applied to an infinite range of applications. Alignment with corporate strategy ensures that we are getting the greatest return for our technology investment. What is surprising, however, is that the issue of IT alignment has not been "solved" after more than two decades of trying. What is it about IT that makes alignment such an elusive, frustrating and career-jeopardizing goal?
I have been working with and around this issue for the past 25 years, both from the IT perspective out and, more recently, from the corporate strategy perspective in. I have formed some strong opinions as to why it is such an intractable problem. Yet I am very optimistic that we can and, in fact, are solving it.
Any number of studies have shown that the management of strategy is a dismal art in most organizations. Aligning IT is just one of the many problems companies face in trying to reach their strategic goals. According to research conducted by CIO Insight and Balanced Scorecard, presented in this issue, barely half of companies adequately communicate those goals to employees, about a quarter of the general employee base has even a general understanding of what the strategy is, and less than 30 percent of executives believe their budgets are strongly linked to strategy. You get the picture: If the corporation as a whole does not have an awareness of strategy and a process for managing it, then a department like IT is swimming against the tide when trying to make its own strategy work.
IT is not alone in struggling to assert itself in the strategic agenda; other areas also face this problem. But IT is different. The technology is complex and difficult to understand. Technical jargon, and the propensity of IT professionals to use it, creates a communications gap. Much of IT is infrastructure, which is difficult to justify because it can't be linked to specific applications or projects. IT has a high rate of obsolescence, creating legacies that limit its flexibility. And finally, IT is expensive, and that puts lots of pressure on those outside IT to understand its costs and benefits.
Yet investment in IT cannot be justified on its own merit because it is impossiblenot to say pointlessto isolate the IT component from the larger set of corporate resources needed to reach strategic goals. IT does not stand alone. To be successful, a strategic application requires training programs for users, reengineering processes, revamping incentive programs and inspiring leadership. Yet each of these ingredients comes from different parts of the company. The trick isn't "IT alignment"it's alignment of all the necessary resources around the strategy. But because all too often we organize around disciplines, IT departments attempt to align IT, HR departments attempt to align HR, and on and on.
IT is both different from and interdependent with other strategic resources. The only way to resolve the dilemma this fact presents is to create teamwork at the executive level. Unfortunately, executive teams are really a collection of specialists who have risen to the top because they mastered their narrow disciplines. My work with executive teams has found very low levels of shared understanding of critical issues such as the customer value proposition, the growth strategy, strategic competencies andsurprise!IT. Without shared knowledge of other business disciplines, executives tend to remain in the silos they understand. "Silo busting" is one of the major difficulties facing every executive attempting to execute strategically.
What is strategy, anyway? If we want to align ourselves with the strategy, we should be able to describe it. Sadly, no such generally accepted framework exists for describing enterprise strategy. In the absence of such a framework and a language, the communication of corporate strategy degenerates into a "strategy du jour," a hit list of topics that seemed important to someone at some point. How can we align IT, or anything else for that matter, to something we can't even describe?
All these issues persist thanks to the lack of a strategic management process. The fact that most executive teams spend less than one hour per month discussing strategy is not an indication of poor managementit's an indication of no management. Most governance processes are built around the monthly management of budgets and operating plans. In the slow-moving Industrial Age, this was perfectly adequate. But those days are long gone. What is needed now is a new management process built specifically around strategy.
Toward a Solution
The world has changed enormously in the past 20 years. A new economy has emerged. Baruch Lev of New York University has conducted studies showing that only 15 percent of the value of an S&P 500 company can be traced to tangible assets on a balance sheet. The rest is derived from such intangibles as work force skills, culture, speed, flexibility, technologies, brands and the like. Executives are now demanding better approaches to measuring and managing these assets.
The good news for the CIO is that the alignment problem is being addressed. The bad news is that it can't be solved within the confines of IT. The problem is bigger than IT. And it can't be solved from "IT out." It must be solved from the "enterprise in," or more specifically, from "strategy in." This is a significant opportunity. CIOs frequently lament that they are "not at the table" when it comes to strategy. In my experience, too often there simply is no table. So you get a seat at the table by helping to build the table. CIOs must go beyond their functional discipline and help make their organizations focused on strategy.
A critical first step is to build a strategy-focused leadership team. How? By making sure the team is clear on the mission to be driven by the strategy and by making the team accountableas a teamfor executing the strategy. The team must create a clear model of the strategy and agree on the specifics of the strategy so that everyone on the team knows what needs to be accomplished. Then these specifics can be communicated throughout the company to everyone who is expected to work directly to help reach the strategic goals so that they can align their activities to those goals.
The IT organization's senior leadership should provide a role model of how to manage strategically. IT should be managed like an asset, not an expense. When managing a technology like Customer Relationship Management, start with the strategy, clarify the customer value proposition, define the drivers of customer satisfaction and then introduce the technology. A customer value proposition is a strategy; CRM is a tactic.
IT leaders also need to create an integrated management process to align IT with enterprise strategy. According to the survey covered in this issue, only 25 percent of business executives consider IT to be a strategic partner. Need I say more? Your organization must become the "McKinsey & Co. of IT." This means building the abilities and processes to create a true strategic partnership and alignment.
Finally, the IT department needs to put in place a strategic measurement system that can be used to align and manage itself as a strategic resource on a continual basis. Measurement holds the key to describing and managing the creation of value. It's your best bet for making sure you and your peers are committed to strategic alignment and for making sure you're on the same page.
IT alignment has been and remains an enigma. The reason for its stubbornness is, quite simply, that it can't be solved by IT alone. If it's any consolation, this frustration is shared by your counterparts in other parts of your company. The time is right to step outside your boundaries and attack the issue as a team. The payoffs can be enormous. I look forward to CIO Insight's survey of IT and business executives in the year 2011. I anticipate that neither the word "IT" nor the word "alignment" will be included in the questions or the responses. These will be replaced by words like "strategy," "focused," "executive team" and "success."
David P. Norton is a cofounder, president and CEO of the Balanced Scorecard Collaborative Inc., and coauthor, with Robert S. Kaplan, of The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Please send comments on this story to firstname.lastname@example.org.