The strategic alignment model

This post is the seventh post in a series in which I discuss various frameworks and models that I might be able to use to answer questions on my CGU IST screening exam of Jan 23. Venkatraman et. al. in 1993 argued that the reason that firms often fail to see value from IT investment is due to lack of alignment between the business and IT strategy in the firm, and furthermore a lack of a dynamic alignment process that ensures continuing alignment in strategy and implementation between the business and IT organizations. Venkatraman et. al. recognized four corporate domains in which choices can be made which affect alignment. The four domains can be organized into external facing domains, and internal facing domains. Another way to look at this is to classify them into strategic and functional domains. Here is how the model is typically depicted:

In the model, strategic fit describes the interrelationships between the external domain and the internal domains, while functional integration describes the integration between the business and technology domains. Strategic alignment at an organizational level can only occur when three of the four domains are in alignment. The implication is that change cannot happen in one domain without impacting at least two other domains. Venkatraman et. al. identified four dominant alignment perspectives which can be used for the analytic understanding of how business and IT can be aligned. To understand the perspectives, we will define some terms.

The anchor domain is the strongest domain for the firm, and will have the most representation at the executive level or will be where the core of the business lies. This domain in which changes are most often made. The pivot domain is the weakest domain for the firm. This is a pointer domain in a C programming language sense in that it indicates which other domain will be most affected by the change in the anchor domain. The impacted domain is the domain which will feel the greatest amount of impact from the change in the anchor domain.

The following diagram illustrates the four perspectives:

Venkatraman et. al. describes the four perspectives like so:

1. Strategy execution: this is the traditional perspective in which

business strategy drives organizational design, and organizational design determines what IT infrastructure and processes will be needed. Business management makes

strategy, and IT management implements it. This is the CIO as CTO 2. Technology potential: business strategy is still the driver, but it involves the articulation of an IT strategy to support the chosen business strategy and the corresponding specification of the required IS infrastructure and processes. This is the CIO as reactive leader perspective, in some sense. The business executives drive technology vision and indicate the strategy that the IT group should use to achieve it, and the CIO architects a solution in strategic and infrastructural terms. 3. Competitive potential: we want to exploit new technological opportunities to gain competitive advantage: offer new products and services or update existing ones, change business strategy, change organizational design and governance. The IT executives must be able to be the catalyst for business change, identifying upcoming technology trends and options and understanding them as opportunities or threats/risks. The business executives must be visionaries, able to take the offerings that the IT exec gives and see how to transform the business to exploit them to gain competitive advantage. 4. Service level: In this perspective, information is our core product or service, and the IT org is the one that provides it. This perspective is thus about IT/end-user alignment. Business strategy does not play much or a part, or only a distant part. Business management prioritizes which IT investments should be made with scarce resources within the organization and in terms of outsourcing and partnership arrangements in the marketplace. The role of the CIO is to make the business succeed, in light of operating guidelines from the business executives. In this way, the CIO acts as the business leader in this perspective.

Evaluation for use by the CIO

The real value of this model is in clarifying how business/IT alignment can happen within a firm for both the CIO and business leaders. As such, this is a model that the CIO would use collaboratively with the business leaders in the firm in order that all can achieve a shared understanding of how strategy setting in the firm becomes implemented as architecture and processes. The CIO would sit down with business leaders, and the group would identify the appropriate anchor domain (recall, the strongest domain, in which strategic choices are most often made) and pivot domain (recall, the weakest domain) for their business model in order to understand both the appropriate role of IT for the firm, and also how changes in IT strategy, architecture and processes are expected to be made.

The strategic alignment model is about identifying strategic drivers and effects of those drivers, and detailing the governance and decision making structure implications those have. The CIO and business top management can use the strategic alignment model both as an assessment tool (how does business/IT alignment happen today in the firm) and as a decision making tool for organizational change (what do we need to change about our strategic decision making in order to achieve a better fit with our external market forces).