CIOs have been talking about it for years, decades even–preaching alignment with the business as the silver bullet for making IT departments most effective. But a new study reveals that most companies have, in fact, done a poor job with both.
In a yet-to-be-released survey, the consulting firm Bain & Company found that companies grew faster and lowered costs more dramatically by first focusing on making their IT departments effective. Those that favored alignment before effectiveness, on the other hand, faced tougher growth prospects and higher spending rates.
"Aligning IT strategy and business strategy is the ultimate goal–it has been for 30 years," says Rudy Puryear, head of Bain’s global IT practice and author of the report. "But there is a set of negative consequences of over alignment and how it compromises effectiveness."
One major problem, in Puryear’s eyes, is that technology and business executives misunderstand the concept of alignment. Instead of synching up strategies, companies tend to allot IT resources to different business units and call that alignment. But that process leads to increased complexity–rife with fragmentation, redundancy and subscale operations. "By definition, that complexity is going to drive up spending," Puryear says.
That complexity also leads to more ineffectiveness, by Bain’s definition. But the usual response–to push for more alignment to alleviate the effectiveness quotient–can be fraught with peril. "When companies find themselves (to be ineffective), the response is, we need to be more aligned," Puryear says." But if it’s over-aligned to the point where you get those unintended consequences, the ‘ah-ha’ is that alignment isn’t always the best thing."
Bain polled technology and business executives at 450 publicly-traded companies, asking two questions. First, the executives were asked how IT is aligned with the business organization. Bain defines alignment as the IT department fully understanding business priorities and having adequate staff to respond to those needs.
Second, Bain asked how effective–getting projects done as specified, on budget and on schedule–those IT departments have been. Based on that definition, 85 percent of respondents characterized their IT operations as ineffective.
Those that considered their IT operations to be effective saw positive results in cutting costs and boosting growth. Firms achieving effectiveness and alignment (7 percent of all respondents) saw their three-year compound annual growth rate jump 37 percent, while IT spending rates dropped by more than 10 percent.
Achieving effectiveness but not alignment also paid off: the 8 percent that reported that status cut IT spending by more than 17 percent and boosted growth by more than 10 percent.
On the flipside, firms 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 by 3 percent. For firms claiming to be aligned without yet reaching effectiveness (11 percent), the results were worse: spending jumped 8.4 percent, while three-year growth dropped by almost 10 percent.
With those findings in mind, Puryear urges companies to focus first on effectiveness before tackling alignment. While alignment may be the consensus goal of most IT departments, achieving effectiveness first can alleviate a number of problems that typically result from doing the reverse.