Is Strategic Alignment Still a Priority?

By Brian P. Watson  |  Posted 10-10-2007

Is Strategic Alignment Still a Priority?

Alignment of IT strategies with business priorities might not be the foremost concern for CIOs anymore, according to the Society of Information Management, but it still matters.

For the first time since 1995, SIM members did not ranks IT-business alignment as their No. 1 concern. It came in second. [The top concern was hiring, training and retaining IT professionals.]

That became clear in mid-September, when CIO Insight published a story on some rather provocative research: a then unreleased survey by the consultancy Bain & Co. challenging the decades-old wisdom that companies should align their business and IT strategies.

Bain's research found that most businesses judge their IT departments to be "ineffective," meaning that projects, at times, go past deadline or over budget. Before companies can successfully align business strategies with IT, IT must become effective, Bain advised. And the comments came pouring in, most of them opposing Bain's findings.

That feedback reignited the debate over how businesses can best link up their IT strategies to correspond to business needs.

Still, several current and former CIOs agree that effectiveness and alignment are interconnected in many ways. "Ineffectiveness is caused by not being aligned," says Michael Gerrard, a vice president and distinguished analyst with Gartner who previously served as a CIO in the financial services industry. "You need to work on both at the same time, especially if your lack of effectiveness is caused by not being close to the business."

Others, though, suggest the debate goes way beyond those issues. Some even balk at what they believe are narrowly defined terms--particularly alignment, which they feel suggests that IT departments should run side by side with the business instead of within it, like an organ functioning within the body.

All agree that the concept of aligning strategies has progressed in recent years and continues today, as business processes evolve and the role of the CIO gains respect and acceptance from the business. (For more on the CIO's role, see "Chief Possibility Officer," page 23.) And most believe alignment must emanate from the top, with CEOs and CFOs leading the charge to create environments in which IT organizations are intimately involved in planning and executing business strategy.

"Alignment is a culture," says Frank Wander, CIO at Guardian Life. "You want the culture to believe this is the way you should run the company."

Word Games

Word Games

Bain's survey found that companies grew faster and lowered costs more dramatically by focusing first on making their IT departments effective. The consultancy defined "effectiveness" as getting projects done as specified, on schedule and on budget. Based on that definition:

  • 85 percent of respondents to Bain's survey characterized their IT operations as ineffective. Those who focused on effectiveness over alignment fared better in lowering IT spending and boosting growth, according to Bain. Those who considered their IT operations effective saw positive results in cutting costs and boosting growth.
  • Firms achieving effectiveness and alignment (seven percent of all respondents) saw their companies' three-year compound annual growth rate jump 37 percent while their IT spending rates dropped more than 10 percent.
  • Achieving effectiveness but not alignment also paid off: The eight percent that reported that status cut IT spending by more than 17 percent and boosted growth more than 10 percent.
  • On the flipside, companies that deemed themselves ineffective in IT and not aligned with business-- 74 percent of all respondents--saw their IT spending rise 1.3 percent and growth sink three percent.
  • For firms claiming to be aligned without yet reaching effectiveness (11 percent), the results were worse: Spending jumped 8.4 percent while growth dropped almost 10 percent.

One major problem, Bain found, is that technology and business executives misunderstand the concept of alignment. Instead of syncing up strategies, companies tend to allot IT resources to different business units and call that alignment. But that leads to increased complexity, rife with fragmentation, redundancy and subscale operations. "By definition, that complexity is going to drive up spending," says Rudy Puryear, head of Bain's global IT practice and author of the survey report.

It also leads to more ineffectiveness, by Bain's definition. But the usual response--to push for more alignment--can be fraught with peril. "When companies find themselves [ineffective], the response is, we need to be more aligned," Puryear says. "But if they're over-aligned to the point where you get those unintended consequences, the 'ah-ha' is that alignment isn't always the best thing."

While many current and former CIOs acknowledge the benefits of having an effective IT operation, they don't believe effectiveness and alignment should be mutually exclusive. "I'm not a believer that you wait for one before you start the other," says Karenann Terrell, CIO of life sciences firm Baxter International. "There is a complexity to doing both, but that's the job."

The language of IT is often foreign to those outside IT--and alignment and effectiveness are no different. To Terrell, effectiveness involves excellence in process management and execution, and in making them repeatable and consistent. Alignment also relies on a proactive relationship with the business. "That means trying to move away from being order takers to people who are proactive, with business skills, and see how IT can enable the business," she says.

But when it comes to top executives, such as CEOs and CFOs, alignment takes on a different meaning. "To them, alignment is, 'I don't need you up beside me, with me doing all the thinking; I need you doing the thinking,'" she says. "That's the way the business looks at it."

When Gerrard served in top IT functions at AVCO Financial Services and Citigroup, executives expected him to naturally align his IT strategy with business needs, he says, but narrowly defining effectiveness and alignment creates a misunderstanding of what the actual goals of IT and business should be. "The whole idea of alignment implies you have these two separate entities cruising along on courses that are parallel," he says. "Drop the word 'alignment.' Integration is more where you want to get to."

Evaluating success based on IT spending and project success can be misleading. Companies that invest in growth-related projects, for example, might not see the results for years. Too often, Gerrard says, companies will blame CIOs and IT departments for being ineffective when the IT organization isn't the cause. It could be, he says, that the business was unclear about its expectations or needs, or corporate priorities shifted a project off course.

Before situations like that arise, IT departments must establish credibility with the business and transparency around their objectives and project selection. "Do what you say you're going to do, for the amount budgeted," Gerrard says. "Sometimes you run over budget, but the business can understand why, so you won't hurt your credibility."

Governance and the CIO

Governance and the CIO

Paul Tallon, an assistant professor of information systems at Boston College's Carroll School of Management, sees some of the same downfalls. Weighing in on the alignment issue a few days after the Bain survey story appeared, Tallon noted an alignment "paradox": Despite all the touted benefits of aligning IT and business strategies, he said, companies still failed to find a payoff.

"The point...is not to become overly fixated on the goal of alignment at the expense of knowing what you are committing to along the way," Tallon wrote in an email to CIO Insight, recalling a 2003 column he wrote for this journal. "With IT, the journey is as critical as the destination."

Sometimes companies make bad IT decisions, Tallon said, but don't know they're mistakes at the time. The blame, though, shouldn't lie with CIOs; instead, it's a lack of governance that allowed the missteps to occur. "With the proper governance, flexibility will not be so impossible," he wrote. "Good governance allows firms to have alignment and flexibility at the same time." And that, in turn, can eliminate the paradox.

Tom Pettibone, former CIO of Philip Morris, New York Life and BMW and founder of Transition Partners, a management consultancy, struck a similar note. Alignment, he says, must be guided by the highest levels in the corporate hierarchy. And if CEOs and CFOs don't buy into the idea, Pettibone says, neither should CIOs. "The job for the CIO is to understand and comprehend the shifts management is making through the governance process and adapt to that complexity," he says. "If each business unit wanders off and does its own thing in Lone Ranger fashion, without the governance processes in place, that's wrong."

CEOs and CFOs are constantly evaluating investments, with one department fighting another for dollars. The challenge for the CIO, Pettibone says, is to understand the complexity behind the evaluations and accurately predict what it will take to deliver the projects up for consideration. But in the end, the frontoffice executives must make the final call.

Alignment is dynamic, Pettibone says, and must trickle down from the highest levels. But it doesn't always happen that way. "Governance is relatively easy to put in place but not widely adopted by CEOs and CFOs," he says. When companies undertake the wrong projects, it's often because of a lack of communication among CEOs, CFOs and CIOs. "That communication is improved through the governance process," he adds. Regardless, the key to alignment is strong collaboration between business and IT, says Wander, who became CIO at Guardian Life last December. He pushes his staff to work closely with business executives, emphasizing collaboration that goes beyond teams to reach across the entire corporate structure.

Still, challenges remain. Harkening back to the dispute over terms associated with alignment, Wander questions how businesses can quantify their success in achieving strategic synergy. "Alignment is a nebulous concept; what does it really mean?" he asks. "Everybody gets the concept, but how do you go measure it?"