The pressure on the IT organization to cut costs is now more apparent than ever. At the same time, organizations need to deliver new IT services quickly with high reliability, performance and availability requirements. This necessity to, on the one hand, work as efficiently as possible but, on the other, be as customer-focused as possible, means that the IT strategy needs to be continuously tuned to the business strategy. This also means that IT needs to be able to quickly and transparently translate the IT strategy to IT operational processes to ensure effective business-IT alignment. This makes the question of how to achieve real business-IT alignment one of the most relevant challenges of today’s IT organizations. The idea behind that kind of alignment is comprehensive. This article will present a practical approach about how IT organizations can succeed in reaching this valuable goal.
According to ISACA, the ultimate goal of IT governance is to sustain and extend the strategies and objectives of the business organization. Hence, IT governance provides useful guidelines to deploy a business-IT alignment in the enterprise. The COBIT framework and IT balanced scorecard (IT BSC) are two relevant tools in the field of IT governance that can be used to realize the desired business-IT alignment.
COBIT presents a complete set of IT processes to ensure that the IT organization is linked to the strategic plan of the business. Furthermore, the IT BSC represents an extended version of Robert Kaplan and David Norton’s BSC1 adapted to the IT organization as an internal service provider. These tools can be used to accomplish an effective business-IT alignment approach— COBIT 4.1 as a framework to link business goals to IT goals focusing on selected processes and the IT BSC as a performance management tool to translate the IT goals to an effective measurement system. However, business-IT alignment is a game of two players. The business itself has to show a clear strategy and direction that the enterprise’s supporting functions can follow. Michael Treacy and Fred Wiersema2 propose three different types of value disciplines that companies can adopt to pursue market leadership. To ensure effective business-IT alignment, IT has to adapt to the dominant value discipline present in the business.
The IT Balanced Scorecard
Kaplan and Norton introduced the concept of the balanced scorecard as a framework to translate strategy into operational terms. They developed a scorecard that consists of a balanced set of tangible objectives and measures that complements financial measures of past performance (achievement of financial objectives), with measures of the value drivers of future financial performance. These objectives and measures are derived from a top-down process driven by the mission and strategy of the organization, and view organizational performance from four perspectives that are kept in balance:
- Financial perspective—Defines the financial performance expected from the strategy and serves as the ultimate target for the objectives and measures of all the other scorecard perspectives
- Customer perspective—Identifies the customer and market segments in which the organization has chosen to compete
- Internal business process perspective— Identifies the processes that are most critical for achieving customer and shareholder objectives. These processes are not just existing operating processes, but should be identified for the complete organizational value chain.
- Learning and growth perspective—Defines the organizational capabilities required to be able to achieve the objectives in the other perspectives
Where the balanced scorecard of Kaplan and Norton is positioned at an enterprise level, Wim Van Grembergen, Ron Saull and Stephen De Haes3 cascaded the scorecard down to IT. Recognizing that IT is an internal service provider, they changed the four perspectives of the balanced scorecard to corporate contribution, customer (user) orientation, operational excellence and future orientation. The user orientation perspective represents the user evaluation of IT. The operational excellence perspective represents the IT processes employed to develop and deliver IT services. The future orientation perspective represents the human and technology resources needed by IT to deliver its services. The business contribution perspective captures the business value of the IT investments.
The Discipline of Market Leaders
Based on empirical research, Treacy and Wiersema conclude that successful organizations always choose one dominant strategy from three possible strategies: operational excellence, product leadership and customer intimacy.4 Organizations have to decide which strategy is best suited for them and choose to excel in that specific strategy without neglecting the other strategies. Organizations need to be competent in all disciplines, but exceptionally competent in the chosen dominant strategy.
The operational excellence strategy focuses on the best price with the most convenience. This strategy will lead to cost control, standardization and a predictable quality. These organizations have a very low process failure rate (rework, fixes), remove as much “waste” as possible from their processes and demand the same from their suppliers. McDonalds and IKEA are examples of companies that successfully apply this strategy.
The second strategy is product leadership, which is dedicated to providing the best possible product for the market. This strategy puts much emphasis on research and development (R&D) and tries to gain competitive advantage based on unique characteristics of the product. Apple is a company with such a strategy, and Intel, for example, is known to increase its R&D budget in times of economic recession.
Companies with a customer intimacy strategy select one or a few high-value customer niches and provide tailor-made products and services to their customers. They even can define themselves as partners instead of just being suppliers by helping their clients to be successful and share risks. Many management consultancy firms can be seen as customer-intimate companies.
Business-IT Alignment Approach
The approach to accomplish business-IT alignment is the following:
- Propose generic business goals, taking into account Treacy and Wiersema’s value discipline.
- Link business goals to IT goals and select the relevant processes to address that relationship, using COBIT 4.1 guidelines (in the figures accompanying this article, the IT processes are indicated by the process codes as used in COBIT).
- Implement an IT BSC to measure the achievement of the IT goals, choosing satisfactory metrics from the selected processes.
This article shows some specific solutions of this approach that are to be considered as a starting points. The final IT goals, processes and IT BSC depend on the strategy of each individual enterprise.
An IT function supporting the operational excellence value discipline focuses on its cost-efficiency in delivering a limited number of standardized IT services. Customer satisfaction is achieved by delivering cost-competitive products and services. This cost control relies on an accurate measurement system to detect and remove any inefficiency. Figure 1 shows how the operational excellence business goals link to the IT goals. Figure 2 proposes a set of metrics to manage the selected processes.
The product leadership enterprise depends highly on technology to lead the innovation in its market. Thereby, it has to be intensively knowledge-based, and the IT function plays an important role to protect and secure critical company knowledge. Moreover, the IT function has to prove its readiness to support the innovative and changing business and even to propose leading IT solutions proactively. Figure 3 links product leadership business goals to the IT goals, and figure 4 is the corresponding proposed IT BSC.
The foremost explanatory principle of the customer intimacy value discipline is that the customer defines the service. Accordingly, the IT function has to deal with an extended IT service portfolio while maintaining justifiable cost levels. Customers demand specific IT service levels with particular IT application requirements. Thereby, the IT function delivers a complex set of IT services to support the business processes in a continuous changing environment. Figure 5 links the customer intimacy business goals to the IT goals, and figure 6 shows its generic IT BSC.
COBIT 4.1 and the IT BSC are useful tools for achieving business-IT alignment. However, one single silver bullet solution that is valid for every organization does not exist. Therefore, the examples given are not to be interpreted as such. Each organization applying these concepts should adapt them to its own organizational context. When doing this, it is important to take the business context as a starting point in translating the business strategy to IT strategy and a measurement system. The concept of value disciplines of Treacy and Wiersema is an appropriate tool for defining the business context. The proposed tables in this article are practical examples of this exercise using the value disciplines, and they show that a difference in business context has a significant influence on the definition of a measurement system. Therefore, it is important to focus a lot of attention on this exercise to ensure its effectiveness in reaching business-IT alignment.
- Van Grembergen, W.; R. Van Bruggen; “Measuring and Improving Corporate Information Technology Through the Balanced Scorecard Technique,” Proceedings of the European Conference on the Evaluation of Information Technology, The Netherlands, 1997
1 Kaplan, Robert; David Norton; “The Balanced Scorecard— Measures That Drive Performance,” Harvard Business Review, January-February 1992, p. 71-79
2 Treacy, Michael; Fred Wiersema; The Discipline of Market Leaders, 1995
3 Van Grembergen, Wim; Ron Saull; Stephen De Haes; “Linking the IT Balanced Scorecard to the Business Objectives at a Major Canadian Financial Group,” in W. Van Grembergen (Ed.), Strategies for Information Technology Governance, USA, Idea Group Publishing, 2003
4 Op cit., Treacy and Wiersema
Juan Ignacio Rouyet
is an engineer in telecommunication and a consultant at Quint Wellington Redwood. Since 2005, he has delivered strategic consultancy services in IT governance and IT service management. He speaks on outsourcing, IT governance and IT service management and has published various articles regarding these topics. Currently, he is working on his doctorate in the field of IT governance and knowledge management.
Willem Joep Spauwen
is a consultant at Quint Wellington Redwood. With more than 10 years of experience specializing in the fields of IT management and IT governance, he has participated as an advisor on many projects in The Netherlands, Mexico, Spain and the US. Since working for Quint, he has also been a conference speaker in Europe and the Americas.
Luis Joyanes Aguilar
is the head of the Department of Languages and Computing Systems and Software Engineering at Pontifical Salamanca University in Madrid, Spain. He is a regular speaker at events and panels on technology and knowledge management topics. He is also a best-selling author of technical books.
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