Paul Tallon: The Alignment Paradox
Transforming Banks for a Digital Future: The Winners, The Losers, and the Strategies to Beat the Odds
With all that's been written about the benefits of strategic alignment, it's hard to believe IT alignment can sometimes fail to produce a business payoff. Yet in a recent study of 238 midsize companies I participated in, jointly conducted by Boston College's Carroll School of Management and the Center for Research on IT and Organizations at the University of California at Irvine, we not only found that this alignment paradox is possible, but sometimes strategic alignment might actually harm a company. Our study found that while 70 percent of companies reduce costs or improve sales and customer service after increasing strategic alignment, 30 percent see no improvement or even a decline.
What's behind this "alignment paradox?" Think rigidity. When companies create an inflexible IT backbone as they align their systems to strategy, they risk locking themselves into a particular way of doing business. Indeed, our research team consistently found that this loss of flexibility was a key reason why the 30 percent group saw no real benefit from their alignment efforts.
A closer look at the data reveals some other insights. Companies that suffered from this alignment paradox did so either because they installed incompatible systems, or they failed to establish a common IT architecture. They were therefore unable to realign their systems and share information as needed when their own strategies or outside business conditions changed.
Diminished flexibility may not pose a major problem for some firms, chiefly those in more stable industries such as chemicals and construction. In these industries, the cost of achieving flexibility may not be worth the business gain. Our study found the highest correlation between IT value and alignment in stable industries such as these.
But inflexibility can be particularly troubling for companies facing increased competition, changing consumer tastes, price wars, shrinking product life cycles or new government regulations. Given these challenges, speed and the ability to adapt to change are essential. If increased strategic alignment restricts IT infrastructure flexibility, alignment could simply strangle the company in a killer's embrace.
In fact, the companies we found facing an alignment paradox tended to be in fast-paced industries such as electronics, pharmaceuticals and financial services, where IT flexibility and the ability to turn on a dime are a matter of survival. For example, Dell Inc. has stared the paradox in the face, but managed to avoid it. Executives at Dell had considered deploying SAP software to help solve an immediate need: to integrate its systems around the globe so managers could view production data from Dell's plants worldwide. They decided, however, that in the long run standardizing global applications would prevent regional managers in Asia, Europe and Japan from being responsive to their local markets, because they would no longer be able to control their own applications. This was a clear conflict with Dell's overriding need for a flexible business model. The company ultimately decided not to deploy SAP.
Companies don't need to accept misalignment as a necessary evil in a rapidly changing environment. Many have succeeded in creating IT backbones that can provide both increased strategic alignment and IT flexibility. For example, companies such as Delta Air Lines, Putnam Investments and eBay have used middleware in sophisticated ways to solve the paradox. Each has an IT infrastructure that provides flexibility and the ability to grow along with its business, all while providing applications that help the company pursue its strategic business goals. And at Vicor, a Massachusetts-based manufacturer of specialized power converters, an enterprise resource planning system helped to make IT more flexible, not less so. By serving as the backbone of a common infrastructure, enabling the company to provide a configuration tool on its Web portal, Vicor's ERP system helped give customers the ability to design power converters that meet their particular specs, and submit their orders online.
Application service providers and outsourcing services provide companies with another way to achieve strategic alignment and IT flexibility at the same time. Outsourcing legacy systems can help a company to quickly get rid of inflexible, older systems. The utility model of IT services, embodied in recent agreements such as those between American Express and IBM Global Services, takes flexibility even further by allowing IT services to expand and contract in line with changes in the business environment. Such arrangements protect companies from having to pay for unused IT systems during periods of stability, or free them to make IT investments during periods of rapid change.
But CIOs beware: The alignment paradox can't be avoided just by picking certain technologies and avoiding others. Flexibility takes vigilance and smart management. IT executives must carefully size up the ability of each IT investment to either enhance flexibility or diminish it. Applying options-pricing models to your evaluation of an IT investment is one way to help you decide whether preserving flexibility for tomorrow is worth the cost today.
And as always, culture is important. At companies like Delta and Vicor, business executives are willing to share information with IT, and the CIO is a respected business partner and collaborator, not an inferior. There needs to be a mind-set that encourages shared networks and common IT procurement policies, and an across-the-board willingness to give up best-of-breed systems that could be incompatible.
The critical alignment lesson for companies is this: Increased strategic alignment will improve IT's value to the business, but only if the company is wired flexibly enough to react to sudden business change. Just as ice hockey legend Wayne Gretsky said, "I skate to where the puck is going, not to where it is," IT executives must think about where their business is going and ask whether their current IT spending can get them there without the need for significant retooling.
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