Competing in the Information Age: Strategic Alignment in Practice

433 Pages·1996·18.28 MB·English

by  Jerry N. Luftman

Competing in the Information Age
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Competing
in the
Information Age
Strategic Alignment in Practice
EDITED BY
JERRY N. LUFTMAN
New York Oxford
OXFORD UNIVERSITY PRESS
1996
Oxford University Press
Oxford New York
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Copyright © 1996 by Oxford University Press, Inc.
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All rights reserved. No part of this publication may be reproduced,
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without the prior permission of Oxford University Press.
Library of Congress Cataloging-in-Publication Data
Competing in the information age : strategic alignment in practice /
edited by Jerry N. Luftman.
p. cm. Includes bibliographical references and index.
ISBN 0-19-509016-0
1. Organizational change. 2. Strategic planning. 3. Information
techology—Management. 4. Competition. I. Luftman, Jerry N.
HD58.8.C646 1996
658.4'038—dc20 95-9343
3579864
Printed in the United States of America
on acid-free paper
Foreword
In today's information age, senior executives are faced with the challenge
of harnessing information technology to help their business:
execute its strategy
improve its operations
and enhance the perceived value of its own products and services
This book provides a powerful tool, the Strategic Alignment Model, to
help executives realize the full value of information technology available to
them.
A key premise of this book is that: to capture the full value of information
technology it is essential to closely align strategic and operational planning.
The Strategic Alignment Model does just that. The model identifies four key
elements—business strategy, information technology strategy, business in-
frastructure and information technology infrastructure—that need to be
managed in tandem to derive full value from the investment in information
technology. It provides a systematic way of planning a successful business
strategy with the necessary information systems to support it.
The model also helps bridge the communications gap between the busi-
ness unit executive and the information systems executive by requiring a
disciplined discussion of key business strategies. Thus, each executive has
a major role to play.
The business unit executive must clearly be able to describe the strat-
egy, key decision points, and the degree of flexibility required for the busi-
ness plan. The information systems executive must be able to explain the
advantages and disadvantages of different information architectures and
technologies, their relative costs, and their implementation times.
vi FOREWORD
Both executives need to know the questions to ask each other, not only
to have an informed conversation, but to make informed decisions. The
Strategic Alignment Model provides the forum for this dialogue.
The book is the result of our experience at the IBM Consulting Group.
Our approach has been to combine a number of intensive research pro-
grams with leading academics with on-site consulting. The work with ac-
ademics has provided the conceptual underpinnings of the Strategic
Alignment Model. We have then applied the model with clients who were
seeking to maximize the value of their information systems in their strategic
planning. Thus, the book has been tested in the crucible of the real world.
This experience has taught us that information technology needs to be
discussed early on in the strategy formulation process. For most firms, ad-
dressing alignment at this point is the beginning of an important new di-
alogue between business and information systems executives on the critical
role technology will play in the future of their company. Our conclusion:
Information technology decisions must naturally flow from the business
review. Information technology enables and supports the agenda.
It is axiomatic today that understanding how information technology
delivers value is the critical new skill for the twenty-first century executive.
Thoughtful managers and executives will find the concepts explained in this
book to be a significant contribution to their understanding of value delivery
through investment in information systems.
General Manager, IBM Consulting Group Joseph F. Movizzo
Preface
The purpose of this book is to provide a practical—and powerful—way to
ensure that businesses get the full benefit from their investments in infor-
mation technology. The essential tool is what we call the Strategic Align-
ment Model. While it may sound forbidding, it is actually a means of giving
clarity and order to the process of bringing an organization's business plan
into harmony with the information technology that is necessary to make
that plan work. Only when the business strategy and the information sys-
tems have been "aligned" can the business move ahead successfully.
The methods described in this book will provide valuable guidance to
managers. They have been successfully applied to hundreds of organizations
already. Much of the practical value of this book derives from the work of
the IBM Consulting Group, which has supported important research by
outstanding academics in the field of applying information technologies to
business problems. In turn, the group has worked with clients to put the
results of the research into practice. This support gives the book a solid
basis in the real world of today's business.
The information age is well under way. The rapid evolution and in-
creasing complexity of information technology continue to challenge man-
agers on how to leverage it for maximum value. To suggest that information
technology is transforming industries is easy. The challenging task is to
define what will be demanded of managers and firms to survive and succeed
in this new age. This book will prepare organizations to accomplish that
task.
November 1995 J.L.
Ac knowledgments
This book has its origins in research that began in the mid 1980s. Much
of the original work has been published and presented around the world.
The demand to align business and information technology strategies re-
mains a top issue facing management today.
The chapters portray an evolution of the original research, with an
emphasis on its practical application. An international team of authoritative
practitioners, researchers, consultants, and teachers in the components
that comprise strategic alignment make up the authors of this important
book. Vitae of the contributing authors immediately follows.
While researching, writing, and editing this book, I have become in-
debted to a large group of individuals, only a few of whom can be men-
tioned here. I am greatly appreciative to the IBM Consulting Group,
Advanced Business Institute, and Systems Journal for the opportunity to
pursue and publish this important research. Recognition is due to Stevens
Institute of Technology for giving me the time to research and teach these
important ideas to the future leaders of industry and executives participat-
ing in its graduate information management programs.
Of course a large degree of thanks is due to the hundreds of companies
that have been used in creating, developing, and maturing the application of
the strategic alignment model. This includes the hundreds of students at-
tending seminars and courses at IBM's Advanced Business Institute and Ste-
vens, where thought-provoking discussions have led to many new insights.
I am also indebted to Herb Addison from Oxford University Press for
his literary direction and support. The original manuscripts were reviewed
and improved tremendously by Carolyn White.
This book is dedicated to the families of all of its contributors. I es-
pecially want to dedicate it to my father, Jack, who probably would have
read and appreciated the ideas presented.
Contents
CONTRIBUTORS, xi
1. Introduction, 3
JERRY N. LUFTMAN AND SCOTT H. OLDACH
The Strategic Alignment Model
2. Aligning Business and IT Strategies, 21
JOHN C. HENDERSON, N. VENKATRAMAN,
AND SCOTT OLDACH
3. Applying the Strategic Alignment Model, 43
JERRY N. LUFTMAN
Business Strategy
4. Aligning IT with New Competitive Strategies, 73
BART VICTOR, B. JOSEPH PINE II, AND
ANDREW C. BOYNTON
5. Building Global Competence, 97
JOHN L. DANIELS AND N. CAROLINE DANIELS
IT Strategy
6. Do You Need an IT Strategy? 137
PETER G. W. KEEN