Detours in the Path toward Strategic Information ...

Detours in the path toward strategic information systems alignment Rudy Hirschheim; Rajiv Sabherwal California Management Review; Fall 2001; 44, 1; ABI/INFORM Global pg. 87

Detours in the Path toward Strategic Information Systems Alignment

Rudy Hirschheim Rajiv Sabherwal

I

nformation technology (IT) has come to play a prominent role in organizational existence, leading to the belief that information systems (IS) strategy should be aligned with the business strategy. Indeed, the issue of alignment between IS and the business has traditionally been one of the key issues facing IS management. 1 Perhaps the reason for the interest in strategic IS alignmentis because it has been shown to enhance not only IS success but organizational success as well. 2 Yet, despite this general recognition of the importance of strategic IS alignment, insufficient research has been conducted on how such alignment is achieved and sustained over time. Consequently, the difficulties in achieving and sustaining alignment have been largely underestimated and the path toward alignment is often treacherous. 3 The notion of strategic alignment as used in this article is based on three central arguments found in the literature. One, an organization's performance is related to its attaining the appropriate structure and capabilities to execute its strategic decisions. 4 Two, alignment is a two-way street. As organizations enter an era of information superhighways, expanded electronic commerce, and #virtualness," executives increasingly realize that in addition to business strategy influencing IT, IT now also influences business strategy. 5 Finally, it is evident that strategic alignment #is not an event but a process of continuous adaptation and change." 6 Thus, our view of strategic alignment focuses on an organization's ongoing efforts to establish and maintain a series of interdependent relationships We are grateful to the five anonymous rev1ewers who provided valuable comments. and to Tim Gales for his contributions to this study. We are also indebted to the numerous executives who provided the valuable insights upon which this article is based. Lastl)\ we are also grateful to the Advanced Practices Council of the Society for Information Management for partial support for the case studies upon which th1s article 1s based.

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Rudy Hirschheim is the Tenneco/Chase International Professor of Information Systems in the Bauer College of Business, University of Houston and past Director of the College's Information Systems Research Center. He has previously taught at the University of Bayreuth, Germany, Australian Graduate School of Management, Templeton College, and the London School of Economics. He is on the editorial boards of Information and Organization, Information Systems Journal, Journal of Information Technology, Journal of Strategic Information Systems, and Journal of the Association for Information Systems.

Andrew C. Inkpen is a Professor of Strategic Management at Thunderbird, The American Graduate School of International Management. His research focuses on various aspects of strategic alliances, mergers and acquisitions, and cross-border knowledge management. He has published articles in journals such as Academy of Management Review, Strategic Management Journal, Journal of International Business Studies, Organization Science, and Journal of Management Studies. 'Alopi Latukefu is the Kimberly Region Project Manager for the Outback Digital Network, an indigenous consortia covering Australia from the Kimberley region of Western Australia to the Cape York region of Queensland. He previously held positions in the National Office for the Information Economy and the National Center for Development Studies. He is also a visiting fellow with the Department of Sociology at the University of New South Wales and sits on the steering committee of the Global Islands Network. David F. Midgley is a Professor of Marketing at INSEAD, Fontainebleau, France. Previously he held positions at the Anderson School. University of California, Los Angeles, and the Australian Graduate School of Management. His research focuses on innovation, global marketing, and e-business issues. He is the author of six books and over sixty articles in journals such as the Journal of Consumer Research, Journal of Marketing. Journal of Marketing Research, Management Science, Marketing Science, and Organization Science.

Peter Smith Ring is a Professor of Strategic Management in the College of Business Administration at Loyola Marymount University in Los Angeles. He has been a visiting scholar at INSEAD, lESE, The Smurfit School of Business at U.C. Dublin, and at the Faculty of Economics at the University of Bologna. His research and consulting focus on issues related to the design and management of strategic alliances and the roles of trust and contract in organization dynamics. Jerry Ross is a Professor of Management at The American Graduate School of International Management. He has held positions at several universities in the United States, Canada, France, and Australia. In addition to international management. his research interests include organizational stratification and behavioral aspects of health care delivery. Rajiv Sabherwal is the Emery C. Turner Professor of Information Systems at University of Missouri, St. Louis. His research focuses on knowledge management, strategic management of the information systems function, and social aspects of systems development. He is an Associate Editor for MIS Quarterly and the IEEE Transactions on Engineering Management. He has published in Information Systems Research. MIS Quarterly, Organization Science, Decision Sciences, Communications of the ACM, European Journal of Information Systems. Journal of MIS, and Accounting. Management, and Information Technology.

Jose de Ia Torre is a Professor of International Business Strategy and the founding Director of UCLA's Center for International Business Education and Research. He has previously taught at the Stockholm School of Economics. INSEAD, the Theseus Institute, Universidad Adolfo Ibanez (Chile), and Georgia State University. He is on the editorial board of several academic journals. His research focuses on the impact of e-commerce on global business, multinational corporate reaction to regional market liberalization, and the management of international collaborative agreements. He is co-author of Managing the Global Corporation (McGraw-Hill. 2000). Omar Toulan is an Assistant Professor of Strategy at the Faculty of Management of McGill University. His research and teaching interests focus on two areas of international business: the structuring of inter-firm relationships in an international context; and the impact of market reform on firm behavior. He has published in Strategic Management Journal, Journal of International Business Studies, Journal of Industrial and Corporate Change, and the Journal of Latin American Studies.


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between business and IS strategies. These relationships involve the movement (i.e., change) of business strategy and/or IS strategy in such a way that the two are in alignment. 7 While efforts to achieve alignment between IS and the business are sometimes successful, they often go astray. We observed three problematic trajectories, which we label as paradoxical decisions, excessive transformation, and uncertain turnarounds. Organizations sometimes make a decision that actually takes them out of alignment (paradoxical decision), go too far in certain respects (excessive transformation), or reverse a change and go back to the original position (uncertain turnaround).

Strategic IS Alignment Why Is Strategic IS Alignment Important?

Greater alignment or "fit" between an organization's business strategy and IS strategy implies that the information systems are targeted on areas that are critical to successful business performance. 8 Alignment between business and IS strategies heightens managers' awareness and use of information systems, and it enables a firm to better use IS to help realize its goals and objectives or obtain a competitive advantage. 9 For example, a low level of alignment created problems at New South Wales Health. Weak fit is problematic in two ways. First, it may create competing motivations for different people in different parts of the organization as with the tension between strategy and structure at NSW Health. Second, in the absence of a unifying theme or logic arising from tight fit, organizational players may be confused as to the appropriate decisions and behaviors in respect to achieving existing operational performance targets. 10

Similarly, in a study of 244 large academic institutions, the level of alignment between critical business success factors and IT capabilities was positively associated with perceived IT success as well as organizational performance. 11 More recently, a study of 226 companies found overall support for the hypothesis that alignment facilitates business performance. 12

Components of Strategic IS Alignment Strategic IS alignment refers to the extent to which the IS mission, objectives, and plans support and are supported by the business mission, objectives, and plans. 13 More fundamentally, alignment relates to the consonance or fit between business and IS strategies. 14 Whereas the early work on strategic IS alignment focused on aligning IS strategy to business strategy, the strategic potential of IS later led to the recognition that IS strategy can also affect business strategy. 15 Although there are many business strategy frameworks, we chose to adopt the popular typology 16 of Defenders, Prospectors, and AnalyzersY The

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Defender is the most stable of the three. It seals off a stable and predictable but narrow niche in its industry by offering high quality products or services at low prices. The Prospector continuously seeks new opportunities and is the creator of change in its market. Combining the strengths of the Defender and the Prospector, the Analyzer seeks to simultaneously minimize risk while maximizing opportunities for growth. There are several ways to describe information systems strategy. Some authors have talked about it as the plan developed by the IS function to support corporate strategy. Basic IS strategy typologies range from simple ones focusing on the role of the IS function (e.g., cost reduction vs. differentiation) to more complex formulations involving a variety of infrastructure and process dimensions.18 We view IS strategy as multi-dimensional, including the IS role (efficient, comprehensive, opportunistic), the IS sourcing arrangement (outsourcing, selective sourcing, insourcing), and the IS structure (centralized, shared, decentralized). 19 The information systems role reflects the way the IS function is viewed by the organization's senior management. 2 ° For Defenders, an IS role focusing on efficiency-achieved through internal and interorganizational process improvements and long-term decisions-is the most appropriate. 21 An opportunistic role of IS, focusing on market flexibility and quick decisions, is suitable for Prospectors as they explore and exploit new opportunities. An IS seeking comprehensiveness-involving careful decisions and quick responses through knowledge of other organizations-best helps Analyzers as they simultaneously build on prior strengths and pursue new opportunities. The alignment between these IS roles and business strategies has been found to affect business and IS performance. 22 However, IS is sometimes not considered strategic at all, being relegated to little more than simply supporting business operations. 23 Information systems sourcing refers to the internal/external arrangement through which IS products and services are provided. Three variations appear in use today. 24 IS outsourcing refers to the third-party management of IS assets, people, and activities. The term outsourcing is used to refer to those organizations that outsource at least 80% of their IS budgets to third-party providers. Insourcing, in contrast, refers to organizations that have over 80% of the IS budget provided by the internal IS department. Such insourcing often occurs when organizations formally evaluate vendors, but then select an internal IS departments' bid over external vendor bids. Selective sourcing refers to organizations that opt to use third-party vendors for certain IS functions that represents between 20-80% of the IS budget (typically around 40%) while retaining a substantial internal IS departmenl. IS outsourcing is recommended when IT is a useful commodity, a situation more likely for a Defender business strategy; insourcing is recommended when IT is a critical differentiator, which is likely for Prospectors; and selective sourcing is suggested for the intermediate situations found in Analyzers. 25


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FIGURE I. The Three Strategic IS Alignment Profiles

Alignment Profile

Infusion: Alignment through Business Leadership

Alliance: Alignment through Partnering

Utility: Alignment through Low Cost Delivery

Business Strategy

Prospector

Analyzer

Defender

liS Strategy • IS Role

Opportunistic

Comprehensive

Efficient

• IS Sourcing

lnsourcing

Selective Sou rcing

Outsourcing

• IS Structure

Decentralized

Shared

Centralized

Information systems structure reflects the configuration of the IS function and the locus of responsibility for IS management decisions. There are three possibilities: centralized, shared, or decentralized. 26 The locus of responsibility for making IS management decisions might belong to a corporate or a central unit (centralization), it might belong to a business unit or department (decentralization), or it might be divided between these groups (shared). A centralized IS structure provides scale economies and standards, which supports a Defender business strategy and helps manage IT outsourcing arrangements in an integrated fashion without redundancy. 27 A decentralized IS structure enables responsiveness to users in insourcing arrangements and supports a Prospector strategy. Finally, a shared IS structure simultaneously promotes strategic control and synergy and provides the main benefits of both centralization and decenetralization, thereby helping support an Analyzer business strategy.

Strategic IS Alignment Profiles The three strategic IS alignment profiles for the three business strategies are depicted in Figure 1 and summarized below. 28 • Utility Profile: Alignment through Low-Cost Delivery. Here an organization adopts a Defender strategy and chooses an appropriate IS strategy characterized as "utility." This IS strategy includes an IS role oriented toward efficiency, with business being supported through the most economical vehicle for the provision of IS products and services, and is based on outsourcing and a centralized IS function. We term this "alignment through low-cost delivery" as the IS function's primary purpose is to provide technical expertise and coordinate outsourced low-cost solutions to support the organization's primary business. • Alliance Profile: Alignment through Partnering. Here an organization adopts an Analyzer strategy and chooses an IS strategy that both supports existing business operations and helps identify and utilize opportunities for new products and services. Toward this end, IS builds alliances with other

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business and IS partners. IS plays a more active role here since the Analyzer strategy requires IS to be more adaptive and flexible. As such, IS's orientation is toward comprehensiveness, using a selective sourcing strategy-which permits flexibility and third-party assistance to help build alliances-and an IS function with a "shared" structure. We term this "alignment through partnering" as the IS function's primary role is to assist the organization in forming alliances with other businesses. • Infusion Profile: Alignment through Business Leadership. Here an organization adopts a Prospector strategy and chooses an IS strategy that will allow it to both create and change a market. The preferred IS strategy here is that of "infusion" -IS champions the business innovation. Insourcing is used to develop the necessary IS resources in-house and to retain the knowledge within the organization, although this does not preclude contracting out for some special needs or commodity services. A decentralized IS function helps to keep the IS knowledge proximate to the individual business units. We term this "alignment through business leadership" as IS's primary role is to be proactive in innovating the business. IS does this through the delivery of innovative IT products and services that support and sustain business opportunities.

Trajectories of Strategic IS Alignment Ideally. organizations should always have a high level of strategic IS alignment. 2 " When an organization needs to change business or IS strategies, it should modify all four aspects of strategic IS alignment (business strategy, IS role, IS sourcing, and IS structure) in a synchronized fashion such that alignment is maintained. We depict this ideal trajectory on the left side of Figure 2. However, our research on strategic IS alignment (see Appendix) suggests that this ideal trajectory is rarely followed. Instead, organizations seek alignment through some amount of incrementalism-changing one or more of the four components of strategic IS alignment in one direction, then changing some other components, and occasionally undoing recent changes. Three trajectories -paradoxical decisions, excessive transformations. and uncertain turnaroundsoccur as part of these efforts toward alignment. As shown on the right side of Figure 2, organizations may decide to change one or more of the four components in one direction while changing some others in the opposite direction (paradoxical decisions). go too far in changing one or more components (excessive transformations), or reverse a recent change and move back toward the original position (uncertain turnaround). Following is a description of three organizations and their struggles with strategic alignment. First. we want to acknowledge that the framework we propose is a simplified description of a complex area. To keep the scope here manageable, we have excluded other dimensions of organizations, such as organization structure and business environment. which have an impact on


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FIGURE 2. The Trajectories of Strategic IS Alignment Paradoxical Decision

The Ideal Trajectory

Excessive Transformation

•

Uncertain Turnaround

\___

7

business and IS strategies. Moreover, our framework of business and IS strategies follows Mitroff's notion of an ideal type-a highly simplified but powerful conception of a specific character type. Such ideal types do not exist as "real" entities, rather it is their properties that are exhibited in existing entities which give the ideal type meaning and which provide valuable lessons for practice. 30

Illustrative Case Alpha Started in 1976 as an equipment sales company by three salespersons of a large computer vendor, "Alpha" became an independent equipment lessor in 1983. Its net worth grew from $25 million to $100 million from 1986 through 1996. Figure 3 summarizes the changes we observed in strategic IS alignment at Alpha. From the time of its creation, Alpha pursued a Prospector strategy. Seeking high growth, it operated in a decentralized fashion, with the functional areas operating as "little fiefdoms" without central control. Pursuing rapid growth,

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FIGURE 3. The Transition Path for Alignment Profiles at ALPHA Summary of Dynamics of Alignment

The Strategic IS Alignment Profiles

I Prospector I IS Role

Analyzer

.I

Effictent S Non. tratettc

Opportunistic Comprehensive

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I Centralized I

IS Structure Decentralized

'

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I

Aacl)K&

.. Defender


IS 5ourdnc llnsourcing

I

Low level of alignment; only business strategy and IS sourcing were aligned.

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I

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'

I Prospector IS Role

Uncertain Turnaround

) • AssaJ;w:

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I

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Outsourcing Centralized

As bus1ness strategy changed to Defender, IS role changed to emphasize efficiency. increasing alignment between these two dimensions. However. IS structure, which would have been in alignment with these two components if it had continued as centralized, paradoxically changed to shared. IS continued to be insourced. As a result, the low level of alignment continued; only business strategy and IS role were aligned.

Business strategy and IS role reverted back to their positions 1n Period I (Prospector, non-strategic, respectively), exhibiting uncertain turnaround.The other two components of IS strategy were in alignment with the business strategy

Alpha largely ignored systems. It had a smalL centralized group of IS personnel isolated from the business functions. Thus, a perception of information systems as non-strategic was accompanied by a centralized IS structure and an insourced IS function. Initially, business was good and Alpha grew rapidly. However, in 1986, Congress passed the Tax Reform Act, which dramatically altered the economic advantage of computer leasing. Yet Alpha continued to operate as if the environment had not changed. It also failed to recognize the sharp decline in mainframe prices due to the advent of personal computers. Alpha's economic position became problematic. 3 1 Perhaps these problems should not have been surprising considering the low alignment between business and IS strategies,

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with IS sourcing being the only element of IS strategy that was aligned with business strategy. In the light of continuing financial troubles, a new CEO was hired and the company shifted to a Defender business strategy. Alpha stopped growing and started cutting costs. The new CEO centralized the business structure, instituted clear lines of reporting, and took a greater role in all major decisions. The changes in top management, strategy, and structure on the business side were accompanied by major changes in IS. Realizing that IS could play a strategic role in offering new opportunities, particularly in cutting business costs, IS's role shifted to seeking efficiency, thereby increasing alignment with the new Defender strategy. IS continued to be insourced. A new CIO was hired, who stopped most of the ongoing IS activities and focused on major cost-cutting initiatives. However, he shifted the previously centralized IS to a more shared form by moving many IS personnel to user areas. This was a paradoxical decision, since the previous centralized IS structure was more suitable for the new business strategy and the IS role. The shared structure was intended to improve the quality of IS services, which would have been appropriate for an IS role emphasizing comprehensiveness, but not for the new efficiency orientation. The cost controls achieved through IS and other means enabled Alpha's turnaround, following which it made several major changes in business and IS strategies. It started concentrating again on sales growth, expanding its leasing offerings. The company shifted back to a Prospector business strategy, with clear reporting structures and roles being blurred and people being rotated frequently across departments and tasks. The importance of IS was reduced; having made a strategic contribution to the corporate turnaround, IS became non-strategic again. Although ostensibly insourced, the IS function was largely dismantled and had become decentralized to the business units. The CIO disagreed with these ongoing changes and left Alpha. These changes in business strategy and the IS role, which reverted to their positions in Period l (Prospector, nonstrategic, respectively) illustrate uncertain turnaround. In both these aspects, Alpha first went in one direction, and then went back in the opposite direction. At no time did Alpha experience strategic IS alignment. As it never had a strong IS function, it is hardly surprising that Alpha first made a paradoxical decision, and then did an uncertain turnaround. When we last visited this company, some senior executives were concerned that this diminished importance of IS may come back to haunt them in the future. For example, the CFO remarked: "It's like you're on a little curve. Right now, the IS group is on the downside of that curve. But at some point we are going to pay for that, too-for only having two people in IS-because right now we are limited to what we can do as far as making big strides."

The fact that senior managers were worried about Alpha's long-term future because of its inability to come to grips with IS illustrates the importance of strategic IS alignment. 32 Alpha also shows how frequent changes in the business strategy can wreak havoc on the IS function."

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ntustrative Case Beta fiBeta" is a diversified Australian company with annual revenue of about $2 billion and after-tax profits of over $250 million. Its businesses include financial services, property services, capital services and investments, and group services. Pursuing a Prospector strategy, Beta grew considerably from 1980 to 1993 by getting into new areas, partly through external acquisitions. IS management was highly decentralized, aimed at supporting the internal operations of the different business units within Beta. Each business unit had a separate IS unit. IS played a non-strategic role and was insourced. According to senior management, IS activities were driven by fithe techies," with little direction from the business side. As shown in Figure 4, which summarizes the changes observed in strategic IS alignment at Beta, alignment was close; both IS sourcing and IS structurebut not the IS role-were aligned with the Prospector strategy. This was accompanied by a steady improvement in the company's business performance; Beta's net earning per share improved by 16% from 1990 to 1993. Following a consulting firm's report in 1993, the CEO and the other senior managers began recognizing the need for major changes to respond to several international companies' entry into Australia. This caused a shift to an Analyzer strategy as Beta searched for ways to simultaneously accomplish three strategic objectives: global competitiveness, a 35 to 40 percent reduction in business expenses, and entry into the high-growth IS industry. In accordance with the Analyzer strategy, the CEO sought to acquire a stake in the IS industry by creating an alliance with a major IS provider rather than purchasing an IS company. IS shifted to a comprehensive role, with IS being expected to help both in generating external revenues through a 35% stake in an IS company and in significantly reducing business costs. Thus, with the company changing to an Analyzer business strategy, IS changed to a comprehensive role, thereby increasing the alignment between these two dimensions. A joint venture was formed with a large international IS vendor and Beta outsourced its IS activities to the company. Additionally, Beta changed the way the decisions were made; IS decisions were now the province of the corporate CEO and CIO, while the historically independent business units had little say in the matter. The IS function had become centralized. Thus, IS sourcing and IS structure changed in a mutually consistent albeit excessive fashion; they changed too far, to outsourcing and centralization instead of to selective sourcing and a shared structure, respectively. As a result of this excessive transformation, alignment decreased; the business strategy and the IS role were aligned with each other, and IS sourcing was aligned with IS structure, but the two pairs were not mutually aligned. Consequently, Beta's financial performance remained stable without further improvement; its net earning per share remained steady from 1994 to 1996. Although Beta's business strategy did not change later, the IS strategy did. While the joint venture company started to win major outsourcing deals in Australia, the IS situation within Beta grew problematic. The problem largely


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FIGURE 4. The Transition Path for Alignment Profi les at BETA Summary of Dynamics of Alignment


.......... 'r-:---"--1 ._.. I ProSf'ector "C

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Alignment was close; w ith the exception of IS role , IS strategy was aligned with the Prospector strategy

lnsourcing Decentralized

As business strategy changed to Analyzer, IS role changed to comprehensive, increasing alignment between these two dimensions. IS sourcing and IS structure changed in a mutually consistent but excessive fashionto outsourcing and centralized, instead of to selective sourcing and shared, respectively. As a result, alignment decreased; business strategy and IS role were aligned with each other, and IS sourcing and IS structure were mutually aligned, but the two pairs were not aligned. Business strategy and IS role remained unchanged. Exhibiting uncertain turnaround, the other two components of IS strategy moved back somewhat toward their situations in Period I .These shifts produced the ideal alignment profile of " AIIiance-Aiignment through Partnering."

emerged because in transitioning its IS personnel to the vendor, virtually no one remained behind to manage the contract. This centralized IS structure eventually gave way to a shared arrangement with the business units. The business divisions were given greater say, with each business now having its own CIO and its own people for managing its part of the vendor contract. With the hiring of new IS personnel in the business units, the sourcing arrangement evolved into a selective sourcing arrangement. Thus, while the business strategy and the IS role remained the same as before, the other two components of IS strategy changed. Exhibiting uncertain turnaround, these two components moved back somewhat toward their original situations; they shifted to selective

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sourcing and a shared structure, respectively. Consequently, they were brought into alignment with the IS role and business strategy, producing the ideal alignment profile of" Alliance-Alignment through Partnering." Beta's business performance improved as well, with its net earning per share increasing by 20% from 1996 to 1997.

ntustrative Case Gamma "Gamma" is the U.S. subsidiary of an international organization engaged in the exploration, production, refining, and marketing of petroleum products. Its revenues exceed $20 billion, with a net income of over $1 billion. It employs more than 15,000 people. The organization was restructured and several independent subsidiaries (including one focusing considerably on IS) were formed. Figure 5 summarizes the changes observed in strategic IS alignment at Gamma. Until 1993, Gamma had been operating in a stable fashion, with little change in strategic orientation, organization structure, or corporate philosophy. It was historically very successful and had pursued a Defender strategy-maintaining its territory through low costs but not seeking opportunities for any significant growth. During this period, the insourced IS function was highly centralized, with a central IS group serving the various business areas. The IS role focused on efficiency, with systems supporting business areas by helping reduce business costs. However, IS was perceived as telling business people how to do things rather than listening to their needs. Alignment was close, with IS strategy being consistent with a Defender strategy with the exception of IS sourcing. During the late 1980s and early 1990s, the market changed; the industry became much more competitive, largely due to an extended period of low oil and natural gas prices. Continued success had apparently produced a complacent, inward-looking, and inflexible corporate culture at Gamma. Its financial performance in early 1990s was therefore disappointing relative to other energy firms. To meet the needs of a changed industry environment, it hired a new President and Chief Executive Officer. The company shifted toward an Analyzer business strategy with greater attention to the market conditions and efforts to identify growth opportunities. Gamma underwent a major corporate transformation in 1995, where each subsidiary became an independent entity with individual profit and loss responsibility. One of the subsidiaries, Subsid, employed about 1800 people, including approximately 800 in IS. Subsid's mission was to provide a variety of corporate services, including IS, not only to Gamma subsidiaries, but also on the open market to other organizations, indicating a shift to an opportunistic IS role. Subsid's corporate siblings were free to look outside for IS services. A CIO was appointed for each business unit, and IS accountability and decision making was pushed into the business units. The IS structure for Gamma thus became decentralized and the sourcing strategy shifted to outsourcing to reflect the fact that the business units now received their IS services from the "external vendor market." Thus, as the company changed to an Analyzer business strategy, IS changed-but in an excessive


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Detours 1n the Path toward St rategic Informat ion Systems Al ignment

FIGURE 5.

The Transition Path for Alignment Profiles at GAMMA

Summary of Dynamics of Alignment


., •t: :. 0

........ ......,

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Alignment was close. IS strategy was consistent with a Defender strategy with the exception of IS sourcing. As business strategy changed to Analyzer, IS role and IS structure changed but too far-to opportunistic and decentralized, instead of to comprehensive and shared, respectively. This excessive transformation in IS role and IS structure was accompanied by a paradoxical sh ift in IS sourcingtoward outsourcing, which was aligned with the earlier Defender business strategy rather than the new Analyzer strategy. Consequently, alignment decreased; only IS role and IS structure were mutually aligned, and no aspect of IS strategy was aligned with the business strategy. With the company continuing w ith an Analyzer business strategy, all three aspects of IS strategy moved back somewhat toward their positions in Period I, exhibiting uncertain turnaround. This resulted in the ideal alignment profile of " Alliance-Alignment through Partnering."

fashion-to an opportunistic role and decentralized structure, instead of to a comprehensive role and a shared structure. This excessive transformation in the IS role and IS structure was accompanied by a paradoxical decision about IS sourcing; it was changed toward outsourcing, which was aligned with the earlier Defender business strategy rather than the new Analyzer strategy. Alignment decreased as a result; only the IS role and IS structure were mutually aligned, and no aspect of IS strategy was aligned with business strategy. As Gamma moved into the latter part of the 1990s, it continued its Analyzer strategy, but IS strategy did change. Needing to better support the corporate strategy, IS shifted to a comprehensive role. This was more in line with

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Detours 1n the Path toward Strateg1c lnformat1on Systems Al1gnment

Gamma's overall desire to reduce business and IS costs through efficiencies expected from market competition, and the simultaneous expectation of increased revenues from Subsid, which was free to provide IS services to other companies. Gamma's other business units were free to go elsewhere for IS services. They also developed their own IS internal units. Gamma's IS function had become one of selective sourcing as each business unit was free to choose the mix of external and internal IS providers. With the growth of internal IS units in Gamma, its IS changed from a decentralized to a shared structure. Thus, while the company continued its Analyzer business strategy, all three aspects of the IS strategy moved back somewhat toward their positions in Period l, exhibiting an uncertain turnaround. These adjustments in the three components of IS strategy produced the ideal alignment profile of" Alliance-Alignment through Partnering."

Pragmatics of Alignment Factors Explaining Potentially Problematic Trajectories of Alignment Our cases 34 revealed that it is difficult for an organization to synchronize its alignment. 35 Due to these difficulties, organizations follow three potentially problematic trajectories of strategic IS alignment-paradoxical decisions, excessive transformations, and uncertain turnarounds. Moreover, several factors emerged from the cases as likely explanations of these problematic trajectories. These factors, 36 and the problematic trajectories they explain, are summarized in Figure 6. We found situations where a firm's business and IS strategies changed such that some aspects changed in one direction but the other components changed in a different direction, thereby producing misalignment. Organizational inertia helps explain such paradoxical decisions to some extent. Established patterns of alignment are difficult to change because alignment will likely lead to structural and cultural inertia and conservatism. 37 Such organizational inertia might be associated with a sequential attention to goals, 38 which could also lead to paradoxical decisions as executives first deal with one set of issues while planning to deal with other issues later-and, in doing so, they produce misalignments. Paradoxical decisions may also be explained by gaps in knowledge of business or IS strategy, including the business executives' ignorance of the potential contributions of IT and the IS managers' lack of knowledge of business strategy. 39 IS executives might misunderstand what the business strategy is or is going to be, or they may attempt alignment-but to the previous business strategy, not with the new one. Split responsibilities, with some executives deciding on certain aspects of IS strategy and others deciding on the remaining aspects, could also lead to paradoxical decisions. The paradoxical decision at Alpha clearly illustrates the impacts of these factors. The organization had been focusing on sales


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