It has been argued that organizations’ inability to realize sufficient value from their IT investment is due in part to an absence of strategic alignment. In an attempt to formally evaluate this notion, we introduce a conceptual model containing the determinants (management practices) and consequences (IT business value) of strategic alignment. Using this model, we develop a process-level perspective on strategic alignment centered around the processes in the value chain

Kraemer, Kenneth

Tallon, Paul

English

Kraemer, Kenneth L.

eScholarship - University of California

A Process-oriented Assessment of the Alignment of Information Systems and Business Strategy: Implications for IT Business Value

AIS Electronic Library (AISeL)

Association for Information SystemsAIS Electronic Library (AISeL)AMCIS 1998 Proceedings Americas Conference on Information Systems(AMCIS)December 1998A Process-oriented Assessmnt of the Alignment ofInformation Systems and Business Strategy:Implications for IT Business ValuePaul TallonUniversity of CaliforniaKenneth KraemerUniversity of CaliforniaFollow this and additional works at: http://aisel.aisnet.org/amcis1998This material is brought to you by the Americas Conference on Information Systems (AMCIS) at AIS Electronic Library (AISeL). It has been acceptedfor inclusion in AMCIS 1998 Proceedings by an authorized administrator of AIS Electronic Library (AISeL). For more information, please contactelibrary@aisnet.org.Recommended CitationTallon, Paul and Kraemer, Kenneth, "A Process-oriented Assessmnt of the Alignment of Information Systems and Business Strategy:Implications for IT Business Value" (1998). AMCIS 1998 Proceedings. 184.http://aisel.aisnet.org/amcis1998/1841A longer version of this paper is available upon request from the first author (ptallon@uci.edu).-550-A Process-oriented Assessment of the Alignment of Information Systems andBusiness Strategy: Implications for IT Business Value1Paul P. TallonKenneth L. KraemerCenter for Research on Information Technology and OrganizationsGraduate School of ManagementUniversity of CaliforniaAbstractIt has been argued that organizations’ inability to realize sufficient value from their IT investment is due inpart to an absence of strategic alignment. In an attempt to formally evaluate this notion, we introduce aconceptual model containing the determinants (management practices) and consequences (IT business value)of strategic alignment. Using this model, we develop a process-level perspective on strategic alignmentcentered around the processes in the value chain.IntroductionAlthough business executives continue to voice concern for IT business value, defined as the contribution of informationtechnology (IT) to firm performance, strategic alignment or the alignment of information systems (IS) strategy with businessstrategy, has emerged as the single most important issue facing business and IS executives in Europe and North America (CSC1996; Price Waterhouse 1996). Although IT business value and strategic alignment are often treated as separate issues,researchers have established a link between both issues by arguing that organizations’ inability to realize sufficient value fromtheir IT investments is due in part to an absence of strategic alignment (Henderson and Venkatraman 1993; Woolfe 1993). If,as these researchers suggest, payoffs from IT investment are a function of strategic alignment, then any attempt to measure orotherwise influence IT business value must consider the extent to which IS and business strategies are aligned. Similarly, if anorganization tries to reposition or change its strategic alignment, some consideration must be given to the subsequent shift inthe payoffs the organization receives from its IT investment. With the exception of some preliminary work by Chan, Huff, Barclay and Copeland (1997) and Tallon, Kraemer andGurbaxani (1998), the empirical IS literature has neglected to examine the implications of strategic alignment for IT businessvalue. In an effort to address this situation, we introduce a conceptual model containing the determinants (management practices)and consequences (IT business value) of strategic alignment. By modeling strategic alignment in this way, we hope to show howsenior executives can use management practices around the concept of strategic alignment to deliver improved levels of ITbusiness value and firm performance. We describe how this model can be evaluated using a process-oriented perspective onstrategic alignment centered around the processes in the value chain. Finally, by combining the notion of dynamic capabilities(Teece, Pisano and Shuen 1997) with the resource-based view of the firm (Penrose 1959; Wernerfelt 1984), we provide someadditional insights into how strategic alignment can be evaluated in practice.Defining Strategic AlignmentWe consider strategic alignment under two headings, “technology shortfall” and “strategy shortfall”. As seen in Figure 1,technology shortfall arises when an organization's IT capability fails to provide adequate support for its business strategy.Consequently, the organization is held in check by its IT capability. Strategy shortfall, on the other hand, arises when anorganization's business strategy fails to take full advantage of the existing IT capability. For instance, business opportunities arepresent in the environment for which technological support is available, yet for some reason the business strategy has neglectedto take full advantage of these opportunities.From Figure 1, we define strategic alignment as he extent to which the IS strategy supports, and is supported by, thebusiness strategy. This definition serves to focus our research efforts on activities central to the implementation of IS andbusiness strategies. This facilitates a more dynamic assessment of strategic alignment than if we were just to focus on strategicobjectives or strategic planning activities, as has been the case with much of the existing literature in this area.-551-Strategic AlignmentTechnologyBusiness StrategyTechnologysupports StrategyStrategy capitalizeson TechnologyStrategyITIT shortfallStrategyITStrategy shortfall+Mis-alignmentFigure 1.  Exploring the Dimensions of Strategic AlignmentIT Business ValueStrategicAlignmentBusiness StrategyIS StrategyIS and OrganizationalManagement PracticesFirmPerformanceFigure 2.  Conceptual Model of Strategic AlignmentA Conceptual Model ofStrategic AlignmentConsistent with prior researchon strategic choice (Child 1972),previous studies have regarded the“content” of alignment as a seriesof intersecting and mutually con-sistent choices across fourdomains comprising businessstrategy, IS strategy, organi-zational infrastructure and pro-cesses and IS infrastructure andprocesses (Henderson and Venka-traman 1993). While this answersthe “what is alignment” question,it does not allow consideration ofstrategic alignment as a continuousprocess, nor does it consider themanagement practices used in moving an organization towards alignment. As described in Venkatraman, Henderson and Oldach(1993), management practices act as “alignment mechanisms” that deal “with the management challenge of translating thestrategic choices made . . . into administrative practices and operational decision-making” (p. 144). Essentially, these alignmentmechanisms are tools that enable IS and organization management to oversee and manage the content and process of alignment.Examples include IS outsourcing (Kambil and Turner 1994), involving business executives in IS planning (Broadbent and Weill1993), promoting dialogue between IS and business executives (Keen 1991), or the creation of a shared IT vision and mutualrecognition of business and IS objectives (Reich and Benbasat 1996).Using the above arguments, we construct a conceptual model containing the determinants (management practices) andconsequences (IT business value) of strategic alignment (Figure 2). We now describe how a process-oriented perspective canbe used to evaluate this model in practice. Developing a Process-oriented PerspectiveVarious researchers havehighlighted the potential benefitsfrom adopting a process-orientedperspective on IT business value(Crowston and Treacy 1986;Bakos 1987). It has been arguedthat the first order impacts of ITinvestment should be measured atlower operational process levelswithin the organization, since thisis typically the level at which thetechnology is implemented(Barua, Kriebel and Mukhopadhdyay 1995). This is consistent with the argument that firms derive value from their IT investmentthrough its impacts on intermediate business processes (Mooney, Gurbaxani and Kraemer 1995). These intermediate processescover a wide range of managerial and operational processes that comprise a firm’s value chain (Porter 1985). Furthermore, inorder to remain consistent, if we decide to adopt process-level measures of IT business value, then we should also adopt process-level measures of strategic alignment.There are a number of benefits associated with process-level measures of strategic alignment. First, process-level measuresare likely to yield greater insights into where the organization is mis-aligned, helping to isolate bottlenecks and otherimpediments to IT business value within the organization. If strategic alignment was measured at the firm-level, IS and businessexecutives might simply know that their organization was mis-aligned, but would not have sufficient information to isolate thesource of the mis-alignment. Second, researchers have argued that it is difficult to measure strategy at the firm-level because ofits multifaceted nature (Hambrick 1980; Ginsberg 1984). If we adopted a process-level perspective instead, we could representstrategy as a series of activities within each business process. Describing strategy in this way as a series of intersecting aciviti sfits neatly within the definition of a process as a sequence or ordered set of activities (Davenport 1993). This means we avoidhaving to force-fit business strategy into one of the established generic strategy types. Finally, measuring IS and business strategyat the process-level allows us to take a closer look at key activities within each process configuration, and more importantly, to-552-observe the extent to which IT is successful at supporting those activities.  Consequently, there is considerable support foradopting a process-level perspective on strategic alignment.Combining Dynamic Capabilities with the Resource-Based ViewIf we consider organizational capabilities as an expression of business strategy (Grant 1991), an opportunity for strategicalignment will arise if technological resources are directed towards the maintenance, improvement and creation of capabilitiesthat underlie the business strategy. Capabilities are defined by Amit and Schoemaker (1993) as “a firm’s capacity to deployresources, usually in combination, using organizational processes, to effect a desired end” (p. 35). Similarly, Grant (1991) arguesthat “while resources are the source of a firm’s capabilities, capabilities are the main source of its competitive advantage” (p.119). Recognizing resource heterogeneity and its ability to confer sustainable competitive advantage, the resource-based viewof the firm characterizes the firm as a collection of productive (physical and human) resources (Penrose 1959; Wernerfelt 1984).Resources are defined as “all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc.controlled by a firm to conceive of and implement strategies that improve its efficiency and effectiveness” (Barney 1991: p. 101).An obvious resource that fits with this definition is IT. Thus the link between resources and capabilities is well established. The adoption of a dynamic perspective on strategic alignment necessitates a shift in emphasis towards dynamic capabilities(Teece, Pisano and Shuen 1997). Dynamic capabilities describe an approach to strategy that tries to “identify the dimensionsof firm-specific capabilities that can be sources of advantage, and to explain how combinations of competences and resourcescan be developed, deployed and protected . . . in order to stress exploiting existing internal and external firm-specificcompetences to address changing environments” (p. 510). In that sense, the term dynamic refers to “the capacity to renewcompetences so as to achieve congruence with the changing business environment” (p. 515). Recognizing that strategic alignment“is not an event but a process of continuous adaptation and change” (Henderson and Venkatraman 1993: p. 5), the assignmentof IT resources to capabilities must be continuously re-evaluated to prevent the organization slipping into a state of mis-alignment. In an attempt to empirically evaluate our conceptual model, we have used the above arguments to develop three surveyinstruments which measure business strategy, IT support for the business strategy and IT business value at the process-level. Inview of space restrictions, the content of these instruments is described in a separate paper, available upon request from the firauthor. ConclusionThe evolving nature of IT and the ever-increasing pace of industrial, social, political and environmental change underscoresthe importance of strategic alignment. As organizations evolve, and engender new forms of IT-enabled competitiveness, strategicalignment is likely to assume an even greater degree of importance. With IT spending forecasted to grow at unprecedented rates,business executives need to be able to utilize IT resources in the most effective manner possible. The strategic alignment modelpresented in this paper presents both IS researchers and business executives with a challenging paradigm within which toconsider the simultaneously pursuit of strategic alignment and IT business value.ReferencesReferences available upon request from first author (ptallon@uci.edu).

A Process-oriented Assessmnt of the Alignment of Information Systems and Business Strategy: Implications for IT Business Value

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A Process-oriented Assessmnt of the Alignment of Information Systems and Business Strategy: Implications for IT Business Value

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