The Future of Alignment

By Edward H. Baker  |  Posted 10-15-2005

You're holding in your hands cio Insight's fourth annual Special Issue on IT alignment. The first three editions focused on the alignment gap between IT and business, the role of money in fostering IT/business alignment, and the various ways in which corporate culture can derail alignment, or aid and abet it. In putting together this year's issue, the editors of CIO Insight asked ourselves an entirely different question: What is the connection between alignment and corporate growth?

The issue arose as a result of a major change taking place throughout corporate America. After four years of across-the-board cost-cutting brought about by the after-effects of the bursting of the Internet bubble, corporations, by all accounts, are beginning to look for ways to increase revenues again. The return of the growth strategy has by no means brought with it the resumption of the all-out spending sprees of the late 1990s, and the generosity shown to IT departments in the era of the Internet and the Year 2000 buildup is not likely to return any time soon. Instead, companies are shifting cautiously from bottom-line to top-line strategizing, making sure that all the parts—IT, HR and operations—fit together before plunging ahead.

Given the shift to growth, we decided to pose a simple question: Is strong alignment between IT and business necessary to generate and sustain growth? In hopes of answering that question, we looked at six companies of varying sizes and industry sectors, all of which have exceptional records of growth over the past three years. In addition, we spoke to some experts on the issue: a pair of consultants who have been researching and measuring the connection between IT alignment and corporate financial results for more than two decades, and an executive whose experience includes stints as both CIO and CEO at a variety of large companies. Finally, in our research, we conducted surveys of more than 1,000 IT and business executives on their companies' growth histories and alignment status in hopes of establishing a correlation between alignment and growth.

The results, to be blunt, are mixed.

The research shows why. Respondents whose companies are growing quickly are more likely to say they are well-aligned than are those whose companies are growing more slowly. Likewise, they are more inclined to say that their IT organizations have done an excellent job helping their companies meet their growth objectives. Still, only about three-quarters of all executives agree that their IT departments are keeping up with growth goals, while about the same proportion say their companies have the governance structures and collaborative culture necessary to foster alignment. While our respondents tend to say their overall alignment is good, specific issues pertaining to alignment don't receive quite such good grades. The devil is in the details.

The experts we spoke with for this issue appear to come to the same conclusions. Allan Z. Loren recently retired as CEO of financial data giant Dun & Bradstreet; before that he served as CIO of American Express and as CIO and then chief of operations at Apple Computer. His view of alignment: The CIO must take "ownership" of the business strategy, working actively to ensure that it successfully plays out in the company's infrastructure and enterprise applications.

Meanwhile, CogniTech Chairman Thomas Lodahl and President Kay Lewis Redditt have been researching the alignment problem since they founded their consulting firm in 1983. Their goal in working with companies is to assess the state of alignment and measure what they call "I.S. Contribution," thereby arriving at a quantitative correlation between that contribution and the company's specific financial goals—most typically profit margin. Their experience leads them to believe that IT is usually much better at supporting cost-cutting goals than it is at helping boost growth. That's because at most companies, both IT and the business simply do a better job of defining strategies and practices related to cost-cutting than they are at working together to develop specific ways in which IT can support top-line strategies.

The heart of this year's alignment issue lies in the six case studies we've put together to test the specifics of alignment at high-growth companies in the real world. The results, again, are mixed. Home builder Toll Brothers's stellar growth record over the past few years has depended not on any special IT strategy but on its success in taking advantage of one of the biggest housing booms in the nation's history; the company never even had a CIO until a couple of years ago. On the other hand, Netflix, the leader in online DVD rentals, has succeeded thanks to its ability to develop technology that very closely supports its business model, and to mesh that technology smoothly with the real-world demands of getting DVDs to and from customers quickly.

And then there's Alltech Biotechnology. This midsize maker of organic animal-feed additives has also been growing quickly, and has plans to maintain its high growth rate. Until recently, however, its IT department was hindering, not helping, its efforts to expand globally. So under the leadership of MIS Director Timothy Arthur, Alltech decided to revamp its infrastructure and business applications entirely, in hopes of developing an underlying IT structure that can better support the company's growth. Arthur, however, prefers not to use the term "alignment" to describe what he's trying to accomplish; instead, he says he's "complementing" the business, laying the technical underpinnings that will be able to align to Alltech's strategy no matter how it might change.

This, we believe, is the future of alignment—to create an infrastructure that can ensure flexibility under any future strategic goal, and in response to any future market scenario. It's not easy—or cheap—but it will become a necessity for long-term competitive advantage.