Alignment of Business Strategy with IT Strategy

IT Strategy – The Corporate Strategy for Competitive Advantage?

The last few decades have seen a tremendous advance in the field of information technology. The rise of internet and the developments in the field of information technology have had a great impact on business. New methods of communications and managing business operations have changed the face of business. This increased use of technology resulted in an awareness of the need for technology strategies, and many companies soon realised that a coherent IT strategy was required in order to put technology to good use. There is now widespread awareness of the strategic importance of information technology.

Bakos and Treacy (1986) pointed out that the opportunities arising from information technology are threefold: improved efficiency and effectiveness of the organisation, out-manoeuvring other participants in the industry, and the advantage an outsider can give themselves when trying to enter the industry. They further point out that these opportunities represent three major strategic views of corporate strategy: internal strategy, competitive strategy and business portfolio strategy. Evan and Wurster (2000) state that the ‘new economics of information’ blows traditional business structures to bits and the pieces of will then recombine into new business structures. What this translates to is that, the varied possibilities offered by information technology breaks up traditional ‘reach’ and supply chain structures – an ever widening target market can be reached using the new technologies, and the economics of supply and delivery is broken with the new technological methods of delivery. Once example of this is the newspaper business. The delivery of online news reaches a much wider audience, while the economics of traditional newspaper delivery is lost. Another side effect of the increased reach offered by information technology is that the need for intermediaries is greatly reduced. The newspaper business will probably need fewer outlets to physically sell their newspapers. The economics of using intermediaries also changes substantially. Another industry that has experienced a ‘revolution’ caused by information technology is the travel industry. Package holiday travel agents on the high street have faced severe competition from competitors who have used technology to gain great competitive advantage – there are many business selling airline tickets, hotel bookings, etc. online; the companies that do business online have great advantages in various areas such as reach, cost of conducting business, the advantages provided by instant updates for both the business and customers, etc.

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Johnson et al (2005) in fact regard technological changes as one of the change elements of the (business) environment. Environmental analysis is usually done using PESTLE analysis, scenario analysis, SWOT analysis, etc. Analysis of technological change is one of the pillars of PESTLE analysis. Johnson et al (2005) further point out that the SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for LINK, the network of UK ATMs, revealed that the threat it would face was from a competitor with the capability to develop more advanced technologies to capture the future market. This is in fact an example of the strategic gap – the gap between the capabilities of an organisation and the major environmental factors of change. The extent to which an organisation keeps up with the state of the art developments in its field often creates a strategic gap. The strategic gap is important because it measures the gap between the ‘now’, the organisation’s current position, and the ‘desired’, the organisation’s desired position.

Globalisation, that phenomenon of increased integration of markets around the world, is often attributed to free trade and economic treaties between most countries of the world; however, information technology has also been a major enabling factor in globalisation. New technologies have allowed instant communication, the transfer and dissemination of information to wider audiences and to audiences that have been otherwise out of reach, and correspondingly, have resulted in wider markets with reduced costs and greater reach. Thus technology has facilitated the creation of global networks, which has lead to the term ‘weightless economy’ and ‘virtual enterprise’ being applied to modern business (Dransfield, 2001, Lefebvre and Lefebvre, 1998).

The dot-com boom and bust has now subsided, and businesses do understand that technology is not the magic wand to success, but is a powerful tool that can bring great advantages. The advantages offered by the Internet simply cannot be ignored. It is also widely accepted that the implementation and use of technology requires a coherent IT strategy. Many large organisations today have the specific top executive post of ‘Chief Information Officer’, who is responsible for developing the IT strategy. Hagel and Brown (2001) point out that old IT management assumptions will be overturned by the stream of new Internet based services that offer great cost savings and new opportunities for collaboration. Old ERP (enterprise resource planning) systems have solved some problems, but have created new ones, especially because they are very restrictive. The Internet on the other hand, has a very defining characteristic of being open and flexible – it is based on open standards, has email and web servers distributed all around the globe, and anyone can easily set up servers that offer web services. Hagel and Brown further say that businesses should effect a transition to a new IT strategy based on Web-based services. They recommend a strategy that builds on the company’s existing systems, starting with the peripheral operations, and the use of common platforms for collaborations. They predict that the early use of Web services focused on reducing costs will be followed by its use for efficiency.

The development of a new IT strategy however, has to be in alignment with the business strategy. Louis et al (1998) bring a strategic alignment perspective to the study of successful management of information technology and stress the need for internal consistency between IT strategy and business strategy. They define four types of alignment between IT strategy and business strategy – Business- strategy-led, Conservative, Organization-led and Technology-led. Plant (2000) identifies one key issue of strategy execution that is often overlooked by an organisation – content ownership. He states that content may be king, but the best content often comes from an acknowledgement that it is the total environment within the organisation that contributes and supports to the development of that content. This in fact can be said to be the cornerstone of the strategy for management of information. Plant also rightly points out that e-commerce organisations require a much more adaptive structure than traditional command and control structures. He suggests that the formulation of Internet strategies must vary according to whether the organisation was born on the Internet, has been established and is now moving to the Internet, or forming new collaborations on the Internet, and describes in detail the process each type of organisation can adopt to formulate their Internet strategies.

Dell Computers is a company that has leveraged on the Internet and created a business model that has given itself a very powerful competitive advantage over its competitors. It is a very good example of a company that has formulated a very good business strategy that uses the Internet to specifically gain advantage over its competitors. Michael Dell, who set up Dell Computers famously said that ”Think of the Internet as a weapon there on the table. Either you pick it up or your competitor does–but somebody is going to get killed.” (Burrows, 1999). Arora et al explain that the presence of markets for technology conditions the IT strategy as well as the corporate strategy of companies. The markets for technology increase the strategy space, as companies have a choice about the use of technology. This in turn has implications for the management to formulate a strategy for more proactive management of technology. They further point out that at the industry level, markets for technology may lower barriers to entry and increase competition, which has important implications for the company’s broader strategy as well.

As society evolves and becomes more technology dependant, businesses have to evolve correspondingly too. It is no longer sufficient to simply be the best – change happens, and companies have to adapt to this change in order to maintain their position. Technology is one of the biggest factors of this change and this makes it very important that corporate business strategy and IT strategy of a company are in alignment for a company to succeed.

References

Arora, A., Fosfuri, A. and Gambardella, A. (2001) Markets for Technology and their Implications for Corporate Strategy Industrial and Corporate Change, Vol 10, Number 2, pp. 419-451 Oxford University Press

Bakos, J.Y., Treacy, M.E. (1986) Information Technology and Corporate Strategy: A Research Perspective MIS Quaterly Vol. 10, No.2, p.107

Burrows, P. (1999) Michael S. Dell BusinessWeek Online, September 27, 1999 Issue (Available online at http://www.businessweek.com/1999/99_39/b3648052.htm – last accessed May 2007)

Dransfield, R. (2001) Corporate Strategy Harcourt Heineman

Evan P & Wurster T (2000) Blown to Bits, How the New Economics of Information Transforms Strategy Boston, Mass. : Harvard Business School / London McGraw-Hill.

Hagel, J. and Brown, J.S. (2001) Your Next IT Strategy Harvard Business Review Oct 2001, pp. 105 – 113.

Hee-Dong Y., Mason, R.M. (1998) The Internet, value chain visibility and learning

Proceedings of the Thirty-First Hawaii International Conference on System Sciences, 1998. Vol. 6 pp. 23-32

Johnson, G. and Scholes, K., Whittington, R. (2005) Exploring Corporate Strategies Harlow: Prentice-Hall, 7th Edition

Ma, L.C.K., Burn, J.M., Galliers, R.D., Powell, P. (1998) Successful management of information technology: a strategic alignment perspective Proceedings of the Thirty-First Hawaii International Conference on System Sciences, 1998. Vol. 6 pp. 13-14

Boddy, D, Boonstra, A. and Kennedy G. (2005) Managing Information systems: An Organisational Perspective Harlow: Financial Times/Prentice Hall. 2nd Edition

Laudon C. and Laudon, J.P. (2006) Management Information Systems Upper Saddle River, NJ : Pearson/Prentice Hall, 9th Edition