Executive Summary

Information Technology (IT) must play a transformative role in the 21st century corporation. For this to
happen, the IT department must evolve from reactively aligning with the latest business strategy to
proactively creating business value using IT. This paper proposes a business/IT strategy integration
framework for generating business value using IT and communicating that value using business terms
instead of IT terms. The fundamental insights are:
1. The goal of IT is to generate business value through the application of information technology
2. To achieve this goal, the IT department must work proactively to integrate business and IT
strategy development, simply aligning IT with business strategy is not sufficient
3. CIO should be able to generate a business strategy, not just ask for one
4. The complexity of integrating business and IT strategy development requires a framework that
supports both analysis and synthesis of these efforts
5. business strategies evolve (sometimes radically) over the lifetime of the business
6. some IT decisions can be independent of business strategies (mainly around choice of
technology and service model)
7. significant literature exists in the areas of business strategy, IT strategy, and applications of
technology to business needs, this literature should be leveraged
8. business strategy and IT strategy should be linked explicitly through a business model
9. The proposed Business/IT Strategy Integration Framework meets the requirements above by
a. Providing for the generation of business strategy
b. Providing for the generation of IT strategy
c. integrating business and IT strategy via the business model
d. allowing for both top-down (business-driven IT strategy) and bottom-up (IT-driven
business strategy) strategy generation

Abstract

Information Technology (IT) must play a transformative role in the 21 st century corporation. For
this to happen, the IT department must evolve from reactively aligning with the latest business
strategy to proactively creating business value using IT. This paper proposes a business/IT strategy
integration framework for generating business value using IT and communicating that value using
in business terms, rather than IT terms. We instantiate the framework from the existing extensive
literature on business strategy, business models, and IT services. We demonstrate the use of the
instantiated framework using case studies. We also use the instantiated framework to synthesize an
integrated business and IT strategy. Finally, we outline areas for further development of the
framework.

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1 Background

1.1 The evolution of the CIO role and the goal of the Information Technology function
There is a consensus building that the role of the CIO must evolve if it is to survive. In the Electronic
Data Systems whitepaper, “The Future Multidimensional CIO” (EDS, 2007), the authors make the case
for several roles that go beyond the traditional technology caretaker role. Deloitte (2007) uses survey
results to identify a gap between the traditional CIO role and what the CEO wants and needs from the
IT department. McKinsey (Bloch and Hoyos-Gomez, 2009) presents the results of a survey conducted
to identify how companies gained competitive advantage through IT. Other authors (Lovelace, Soat)
have identified as critical the need to use IT to drive revenue enhancement in addition to cost savings.
The 2008 European CIO conference included a number of presentations on leveraging IT for business
benefit. The conclusion of these authors is that the role of the CIO must evolve to meet the new goal
for the IT function:
creating value through the application of information technology

Creating value via information technology is different from the traditional IT goal of running the IT
assets in support of the business. Creating value requires an integrated approach to analyzing and
synthesizing business and IT strategy. The approach must include these criteria:
1. an ability to appreciate and influence business strategy
To create value, the existing business strategy must be understood. However, IT must be ready to
go beyond appreciation of strategy and influence strategy in two cases: (1) where strategy does not
exist, or (2) an IT capability has the potential to create a new strategy. If a business strategy does
not exist, IT must proactively work with the business to generate one. There is also the potential
for a new or existing IT-driven capability to create a new opportunity that was not a part of the
original business strategy. In these cases, IT must influence the business strategy.

2. encapsulation of IT strategy
Note that the generation of IT strategy raises the question of how and how much of the strategy to
expose to the business. Most business people are not interested in the difference between Windows
Hypervisor and EMCs VMWare, yet the decision to pursue a virtualization strategy and which
vendor(s) products to implement are major components of an IT strategy. There are then two
reasons for encapsulation of IT strategy: (1) separate technology choices from the business needs,
where possible and (2) improve robustness to changes in business strategy. The nature of
technology is that it evolves rapidly. Today’s hot technology can be tomorrow’s obsolete one.
Vendors appear, disappear, merge, and split with bewildering rapidity. Ideally, the business value
being created by an IT capability should be independent of these inevitable changes. Encapsulation
attempts to meet this need. In addition to technology changes, the reality is that business strategies
change for a number of reasons:
• competitor actions: the competitive landscape will change, sometimes as a result of
strategic moves, sometimes regardless of strategy moves, forcing strategy to change
• customer evolution: customer needs change, so the business strategy may as well
• leadership change: a new leadership team is often hired to create a new strategy.
• regulatory issues: governmental actions can force changes to business strategy
• economic issues: unforeseen macroeconomic factors can force changes to business strategy
• the strategy succeeds: a successfully executed strategy may make that strategy obsolete
• the strategy fails: a failed strategy must be replaced with a new strategy
There is literature emerging on the topic of “strategic agility”—the idea that strategy development
and execution must be nimble for any and all of the reasons above (REFERENCE). Recognizing

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 this reality, a reasonable approach would be to generate value-creating IT strategies that are robust
across a range of anticipated business strategies.

3. explicit coupling of business and IT strategy

Even if a business strategy exists, it may or may not be straightforward to align the IT strategy with
it. If, for example, the business strategy states that “electronic commerce will be the primary means
of interaction with our customer base”. The IT strategy would therefore focus on delivering an e-
commerce capability. Note that even in this example, there is still no clear answer for IT
organization trying to decide between building a datacenter or leveraging cloud computing, or
which vendor’s virtualization solution to pick, or whether and how to deploy a social networking
capability. Worse business strategy often consists of much more generic statements: “be the best in
customer satisfaction”, “create products that differentiate us in the marketplace”, “be lowest cost,
relative to the competition”, etc. Contrast these statements with the language of IT which is in
terms of technologies (CDMA, SATA, Java, etc) and capabilities (hosting, application
development, deskside, and network services, etc). Integration of business and IT strategy requires
something that can relate the two.

1.2 Related work

Several sources address aspects of the value creation via IT concern. In Benson (2004), the authors
present a “Strategy to Bottom Line Value Chain” which consists of a set of processes to map business
strategy to IT strategy and IT projects. Their approach addresses both top-down business-driven IT
strategy and bottom-up IT-driven business strategy. However, it provides only one method for
capturing business strategy: strategic intentions. Their approach does not address the issue of
encapsulating IT strategy. Finally, the coupling mechanism between business and IT strategy is
implicit. As an example, they give a business strategic intent as “”Ensure that customer service is the
best in the industry”. The matching IT strategy is “Collect and maintain complete information on every
customer action”. What’s lost in this implicit mapping is the context— there are several criteria for
having the best customer service, without more information, it is not clear how tracking every customer
interaction was selected as opposed to, say, “provide improved analytical capability on customer
warranty claims”. Our approach emphasizes the use of a business model to explicitly create the
coupling.

Weill and Broadbent (1998) use an top-down approach to match business and IT strategies. Like
Benson (2004), they start with strategic intent. However, they further analyze these intents to develop
“business maxims” which are more implementation-oriented statements. These business maxims are
then used to the develop supporting IT maxims which then lead to IT strategy. This approach does not
address bottom-up opportunities for IT to drive business strategy. As with Benson (2004), this
approach uses only one method for capturing business strategy via strategic intent. Encapsulation of
IT strategy is not discussed, however, a services model, which is the encapsulation mechanism we
advocate , is used. The coupling between business and IT strategy is implict via the mapping of
business and IT maxims. The research at MIT, on which this work was based, has continued. More
recent publications, such as Broadbent and Kitzis (2005), provide refinements, but the overall approach
remains essentially the same.

Cliff Berg (2008) emphasizes the need for a business model to connect business value with IT
implementation efforts. His model consists of the income from the investment, the cost of the
investment, as well as the value of unforeseen opportunities enabled by the investment and the cost of
enabling those unforeseen opportunities. He also emphasizes the notion that the goal of IT projects is
to create a business capability, not just a piece of IT.

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Martin Curley (2004) describes the approach used at Intel to manage IT for business value. The main
artifact is a 3x3x3 cube with axes for “IT efficiency”, “Business Value”, and “Financial
Attractiveness”. A proposed project is rated against each of these axes using a set of criteria.
Coupling of business and IT strategy is implicit in the scoring criteria used for the 3x3x3 cube. This
work does not discuss how business strategy is captured. Encapsulation of IT strategy is not addressed.

CIO Magazine (www.cio.com) offers an annual “Top 100” list of IT projects that have generated
business value. The CIO 100 project descriptions provide a rich source of data on IT technology
options. The projects are classified in terms of the type of technology (mobile, collaboration, CRM,
SOA, etc.), the business function impacted (R&D, manufacturing, customer service, etc.), and the
business goal for doing the project (operational, customer, financial, strategic/competitive advantage).
The classification scheme addresses our criteria around understanding business strategy, IT strategy,
and the coupling between the two. However, the categories are not defined and are not consistent from
year to year.

1.3 The need for a Business/IT Strategy Integration Framework

The goal of IT is to create value through the application of information technology. To achieve this
goal, the IT department must work proactively to integrate business and IT strategy development,
simply aligning IT with business strategy is not sufficient. The complexity of integrating business and
IT strategy development requires a Business/IT Strategy Integration framework with the following
properties:
a. a way to capture, create, and/or modify business strategy
b. a way to capture, create, and/or modify IT strategy
c. a way to integrate business and IT strategy top-down (i.e., driving IT strategy from business
strategy) and bottom-up (i.e., driving business strategy from IT capabilities)
d. support for a variety of business and IT strategy approaches (which we call instantiations)

1.4 Summary and Overview

To create business value, the CIO must accomplish 3 things:
1. proactively engage in the analysis and synthesis of business strategy
2. continue to develop and execute the IT strategy
3. link the two strategies into an integrated strategy
In the next section we present a framework, the Business/IT Strategy Integration Framework, that
meets these needs. We demonstrate the framework using several case studies. While the case studies
were not created specifically for the framework, the fact that we can use the framework to analyze them
demonstrates its power.

We have organized the remainder of the paper as follows:

Section : We present the Business/IT Strategy Integration Framework and give an example of how the
framework can be used to analyze a business case study.
Section : We discuss the elements of the framework and different ways that the elements can be
instantiated.
Section : We provide mappings to a critical element of the framework, the business model
Section : We use the framework to analyze several case studies
Section : We use the framework to synthesize an integrated business/IT strategy
Section : We propose some extensions for future work

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2 The Business/IT Strategy Integration Framework

2.1 Framework overview

In the previous section we made the case for integrating business and IT strategy, as opposed to simply
aligning them. We have created the Business/IT Strategy Integration Framework to meet this need.
Figure 2.1 shows the framework, which contains the following elements:
Element 1: capture the capabilities of the company
Element 2: capture the environmental stresses impacting the company
Element 3: capture the strategic move(s) that is/are being taken or likely to be taken by the company
Input/Output: capture the initiatives that support the strategy
Element 4: capture as changes to the business model (via initiatives) required to support the strategy
Element 5: capture the IT Services strategy to support the initiatives, including accommodating new
technology directions that are transparent to the business as well as technologies that can innovate the
business model and create new strategies

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In the previous section, we identified three critical issues with integrating business and IT strategy:
developing business strategy, developing IT strategy, and relating the two. The table below shows how
the elements of the framework address these issues.
Issue Framework Element
1. Analyze/synthesize business strategy Element 1: capture/alter environmental conditions
Element 2: capture/alter business capabilities
Element 3: create or modify business strategy
2. Analyze/synthesize IT strategy Element 5: create or modify IT Services strategy
3. Couple business and IT strategy Element 4: capture changes to the business model

Note that the framework operates bi-directionally, not just top-down. That’s because the IT strategy
can impact the business model, which then impacts the strategies, which alters the external landscape
as well as the need for internal capabilities. One author refers to this as having IT generate “digital
options” which are then available to the firm.

3 The Business/IT Strategy Integration Framework in practice

We demonstrate the framework by analyzing a case study on Aetna Insurance. For now, we will rely
on an intuitive understanding of the various elements of the framework, their relationships, and how
they can be instantiated. More detail on the elements, instantiations, and mappings between them will
be provided later.

3.1 Case Study: Aetna (Gibson, 2006)

Aetna completed a turnaround that started in 2001 and achieved most of its objectives by 2005. The
CEO who was brought in for the turnaround identified the environmental conditions affecting the
business (poor relationships with physicians and patients, inadequate segmentation of the customer
base) and lack of capabilities (slow operating processes and unprofitable pricing). Given that the
company was in no position to proactively move against the competition, we classify their strategy as
holding ground—keep the business that they had. The strategy was supported by some key initiatives:
• The operating process issues were addressed by integrating and upgrading the internal systems,
partly through acquisition and partly through the deployment of a services-oriented architecture.
• The customer segmentation issue was addressed via a new management information system.
In terms of the business model, these initiatives made improvements in fulfillment & support, core
processes, and information & insight. In IT Service terms, two services were provisioned: applications
service and electronic management of information. The CEO also called on IT to provide a “Holy
Grail”—something to differentiate Aetna in the marketplace. IT achieved this quest with an online
diagnostic tool, the Aetna Navigator. This tool also helped the relationship issue with doctors and
patients. The Aetna Navigator was profiled in BusinessWeek (Weintraub, 2006). Aetna continues to
build on this tool (NYTimes, 2009).

A summary of the case using Business/IT Strategy Integration Framework terminology is given in
Table 2.1. In summary, the business and IT strategies of the Aetna turnaround were more than just
aligned, they were integrated, one impacting and reinforcing the other. The Business/IT Strategy
Integration Framework captures the essential elements and interrelationships of this story.

Case Study: Aetna (Gibson, 2006)

Timeframe: 2001-2005
Environmental threats: poor relationships with physicians, customers, members;

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Internal weaknesses: inadequate operational processes; weak customer segmentation, lack of pride in
the culture
Strategy: Defense, holding ground--improve services, price profitably
Initiatives: create executive management information system, acquisitions
Business model changes:
Fulfillment & Support (Aetna Navigator online medical advisory tool)
Core Processes (order processing)
Information & Insight (customer segmentation)
IT Service changes:
1.10 Application Service Provision (deployment of service-oriented architecture)
3.4 Electronic provision of management information
?.? Web-based service, portal
Table 3.1 Case Study Summary: Aetna (Gibson, 2006)

4 Analysis and Synthesis of Business Strategy

In this section, we define each element of the framework and provide one or more examples of how
that element can be instantiated.

4.1 Environmental conditions Element

Purpose: Environmental conditions are things outside the business that affect it. Types of
environmental stress are:
1. Change in customer (demographics, taste, etc)
2. New competition
3. Economic meltdown

Instantiation: A typical way to capture environmental conditions is as Opportunities and Threats as part
of a Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis (REFERENCE).

Other instantiations: Another option is to use a scenario planning approach that identifies trends and
uncertainties (REFERENCE).

4.2 Business capabilities Element

Purpose: Business capabilities are the resources that can be leveraged in the pursuit of business goals.

Instantiation: A typical way to instantiate these are via a list of Strengths and Weaknesses, as part of a
Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis (REFERENCE). The list may
leverage the subelements of the business model (SECTION REFERENCE).

Other instantiations: Another alternative is as a list of core competencies (REFERENCE). Strengths

can also be captured as Driving Forces (REFERENCE).

4.3 Strategy Element

Purpose: The strategy element captures the process of creating or modifying strategy. The
output classifies the essential features of current and potential business strategies.

Instantiation: We use a model from the book Strategy Moves by (Vasconcellos). The author classifies
the business strategies as follows:

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Attack Strategies:
Guerilla: attack where there is no competition
By-pass: attack where competition is not, but could be
Flanking: attack where the competition as some presence
Frontal: attack where the competition has a major presence
Undifferentiated circle: attack in multiple segments with synergistic offerings
Differentiated circle: attack in multiple segments with distinct offerings

Defense Strategies:
Signaling: warn off the competition before they enter the market
Barriers: establish obstacles for competition
Global service: enlarge the offering to include more support as required by the customer
Pre-emptive strike: in response to a competitors planned move, enter a segment that threatens the
competitor
Blocking: in response to a competitor entering a segment, enter that segment as well
Counter-attack: in response to a competitor entering a segment, enter a different segment that still
threatens the competitor
Holding the ground: fight the competition in your segment
Withdrawal: choose to leave the segment

This paper provides some examples (SECTION) of the various strategies in the case studies. The book
also provides several examples of each strategy and guidance on when and how to use them. The
interested reader is referred to the book for more information.

Other instantiations: The literature in the area of business strategy is vast and growing. Some other
strategy models are given in Appendix (STRATEGY). One example is Porter who identifies three
strategies: cost leadership, differentiation, and focus (REFERENCE).

4.3.1 strategy moves create initiatives which are changes to the business model

5 Analysis and Synthesis of IT Strategy

5.1 IT Services Element

Purpose: The IT Services element is required because separates the details of technology and
support from the business. The business should see a set of offerings with a service level(s) and
price(s). Inherent in this model is the recognition that business strategy can guide, but not
drive, IT strategy.
1. same reasons as why alignment isn’t enough (section 1)
Bad Strategy #1: Believe the Illusion of Forever. In your computer science studies, the focus was
on building industrial strength systems that would stand the test of time. This perspective is totally
inappropriate for a CRM system and leads to a series of progressively expensive mistakes. The
reason: the business requirements for a CRM system are likely to change so radically over time that
the system design life will be less than 5 years. In some industries, the tenure of a VP of Sales or a
CMO is only 18 months, and even a CEO change is likely every few years. With each new
leadership change will come shifts in market strategy, sales tactics, and product line emphasis. New
regulations come into play, and new partnerships become important (or not). Everything you
"designed in" the system at the outset is likely to become irrelevant or counterproductive years

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 later. Even if you were to stay with the same CRM platform over time, there are good reasons to re-
implement the system from scratch after 5 years. This short design life means you need to get the
business payoff out of the system quickly. The payback for the investment should be less than 18
months in most cases—and any benefits projected beyond 5 years should be discounted almost
entirely. Of course, you don't want to have a throw-away system that is too fragile to survive the
inevitable revisions. But it's a big mistake to over-engineer your CRM system, the scope of data to
be imported, and the range of external system integrations. Perfectionism doesn't pay. CRM On The
Cheap: 5 Strategies That Backfirei
2. the largest gaps in the business model may or may not relate to the largest gaps in IT Services
3. some choices are independent of business strategy (C++ vs Java, IBM vs HP, etc.)
4. IT strategy can suffer from too many “targets of opportunity”, integrating business strategy can
focus the effort
5. IT strategy can innovate the business model, therefore IT strategy can drive business strategy.
Example: This use of technology to drive innovation and growth can be seen at UK television
station Channel 4. The channel, which must support itself without public funding (in contrast to
the BBC), has been able to grow its business through new media. In addition to sustaining its
strong core television channel, it has created new genre-focused digital channels and a broader
portfolio of content. This has required building a diverse set of new and old technologies,
including television, print, blogs, and social networking. Channel 4 has changed its revenue
models in some areas, from traditional broadcast advertising to paying for downloads, for
example.

Instantiation: We use the MIT Service Clusters (REFERENCE)

Researchers at MIT have identified 70 services grouped in 10 clusters (REFERENCE). The clusters
are:
1. channel management services: point-of-sale devices, kiosks, websites, call centers, mobile
phones, mobile computing as well as
2. R&D services: identification of new technologies
3. communications and services: network, broadband, intranet, extranet, EDI,
4. data management services: data warehouses, management information (dashboards), and
knowledge management services
5. IT management and: project management, supplier agreements, portfolio planning,
6. security services: security policies and disaster recovery
7. architecture and standards services: data, application, and communication architecture
specification and enforcement
8. applications infrastructure services: internet policy establishment and enforcement, email,
centralized management of applications, enterprise resource planning tools, mobile and wireless
apps, workflow applications
9. IT Education: training and management of IT personnel
10. Infrastructure Facilities: installation and maintenance of data processing facilities

Other instantiations: Gartner has one (REFERENCE?)

5.1.1 IT Services Technology Options

Purpose: Technology options are the available solutions, current or future.
Instantiation: There are many publications, websites, podcasts, video-casts, etc, that review these.

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5.1.2 IT Services Deployment Options
Purpose: Once a technology-based service is created, there still remains the question of how to deploy
it.
Instantiation: The two obvious choices are in-house vs outsourcing. However, between these two
endpoints lie at least one other option, which we call managed service. These three options are
described in the table below.
Deployment Option Description
1. in-house Run the service using in-house infrastructure and personnel
2. managed service Use outside support with in-house processes
3. purchased service Use outside support along with their processes

6 Coupling business and IT strategies

6.1 Business Model Element

Purpose: The business model captures in a simple way, the essential features of a business.
“The business model of a company is a simplified representation of its business logic. It describes what
a company offers its customers, how it reaches them and relates to them, through which resources,
activities and partners it achieves this and finally, how it earns money. The business model is usually
distinguished from the business process model and the organization model.” (REFERENCE)

The model provides a way to identify areas that must adapt in support of a given strategy, or areas that,
if innovated, could create opportunities for new strategies.

“A company within an industry that sees a major need or opportunity to transform itself will need to
articulate those changes through a business model. That model in all these instances must provide a
convincing logic of value-creation.” Organizational Transformation through Business Modelsii

In our framework, the business model plays a crucial role in linking business strategy with IT strategy.
We believe this is the first framework to do so explicitly (it could be argued that the “business maxim”
approach by Weill and Broadbent (REFERENCE), is an implicit form of a business model). Three
examples of the power of using a business model in this role are given below. The first shows how the
business model enables selection of the right IT strategy, given a business strategy. The second
example demonstrates discovery of strategic business opportunities based on a new IT capability. The
third set of examples show how business model innovation leads to new business and IT strategies.

Example 1: Suppose the business strategy is to attempt a guerilla move by introducing an existing
product into a new space that currently has no competition. Coming from the other side, suppose the
IT team is considering whether to deploy a new ERP system or mobile sales force hardware and
software as major IT services. There is no obvious way to establish the linkage between the guerilla
business strategy and the proposed IT strategies. The business model creates the necessary linkage by
translating both strategies to their impact on model. If, for example, the guerilla strategy requires a
significant increase in the agility of the sales force, that would be captured in the “customer interface”
part of business model. Since the mobile sales force IT strategy also impacts the customer interface,
we can see immediately that we have a proposed IT strategy that matches the business’ strategic need.
Similarly, if the new business strategy requires an integrated set of “core processes” (which would be
identified in the business model) then the ERP-based IT services strategy which also maps to
improving core processes would be the right choice.

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Example 2: Suppose a new business intelligence IT service has converted what used to be a days-long
manual number-crunching exercise around sales and inventory data into real-time automated capability
that can provide up-to-the-minute analysis of important trends. That capability translates into useful
information for the members of the supply-chain (or “value network” in the business model).
Improving relations in the value network can lead to a Barriers To Entry business strategy aimed at
competitors attempting to leverage the same network.

Example 3a: Leveraging a strategic asset. Suppose your business is a local toy store, competing against
online e-tailers who can offer more variety at lower cost because they have no physical stores. One
answer is to think of your physical store as a “strategic asset” (in your business model) and develop
innovative ways to leverage this asset. You could start hosting “play dates” for young families, with a
specially created “play area” in the store where you allow hands-on activities with selected products.
This creates a Holding the Ground defensive strategy. To further leverage this idea, you could create
an online calendar for reserving slots. This creates the need for the associated IT web service strategy
and implementation.

Example 3b: Leveraging an existing core competence: “The military contractors are now in the
enviable position of turning what they learned out of necessity — protecting the sensitive
Pentagon data that sits on their own computers — into a lucrative business that could replace
some of the revenue lost from cancellations of conventional weapons systems.” (REFERENCE)
Internal IT service around security becomes a business proposition. The business strategy is
Flanking Attack or Counter-attack, depending on whether this is a proactive or reactive move.

Instantiation: The Hamel Business Model

One enhancement of the business model can be to include attributes. One set of attributes could be
gaps with respect to capabilities required to support a given business strategy.

Other instantiations: There are several business models that exist, including Porter’s Value Chain
(REFERENCE) and Osterwalder’s (REFERENCE). Appendix (APPENDIX) has more information.

6.2 Case studies: Coupling Business Strategy to the Business Model

The best way to understand the framework is to apply it to case studies. We created the case studies
below from articles in the literature. We use the framework instantiation from Figure (FIGURE). We
use the instantiated framework to identify and classify the various elements from the articles.

6.2.1 Examples

6.2.1.1 Case Study: American mid-sized car market (REFERENCE)

Timeframe: early 1990s to 1999
Environmental stress: crowded segments
Attack Strategy: combination of guerrilla (for true 'white space') and bypass
Initiatives: related to design and marketing of the new product (or realignment of existing product)
Business model changes: None
IT Service changes: noneiii

6.2.1.2 Case Study: Car market- shift to safety features

Timeframe: 1993 to 2001

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Environmental stress: changing customer tastes/requirements/desires
Attack Strategy: Flanking attack (competition had features but not considered to be important)
Initiatives: customer needs analysis, R&D in the safety area
Business Model Changes:
Information & Insight: confirm customer needs in safety area
Core Competencies: build R&D knowledge
IT Service Changes: unknowniv

6.2.1.3 Case Study: Sony Turnaround

Timeframe: 2008, 2009
Environmental Stress: losing money, unable to come up with winning products
Attack Strategy: Differentiated circle (videogames, TVs, digital cameras), tied together with a
networked devices approach
Initiatives: following Gerstners gameplan:
1. stop the red ink
2. raise cash by selling non-core businesses
3. realign the company's strategy
4. decide not to break up the company
Business Model Changes:
Core Processes: getting divisions to work together
Strategic Assets: closing plantsv
IT Service Changes: unknown

6.2.1.4 Case Study: Jetstar (Quantas)

Timeframe: 2000-present, Jetstar launched in 2004
Environmental Stress: attack from low-cost/no-frills carrier Virgin Blue in 2000
Attack Strategy: Blocking
Initiatives:
1. New work practices
2. New pay rates
3. Minimal customer fulfillment
4. Fast turnaround times (asset utilization)
5. Leverage parent airline's purchasing power and network scheduling
Business Model Changes:
All new business model
IT Services changes:

6.2.1.5 Case Study: Orica/ICI Australia Division

Timeframe: unknown
Environmental Stress: price war caused by new competition in the business of delivering explosives
for blasting stone quarries
Attack/Defense Strategy: Global Service
Initiatives:
1. Supply explosives in bulk, mixed on-site
2. Identify best places for drilling with laser profiling of rock face
3. Provide broken rock instead of explosives (bill based on quantity of rock delivered)
Business Model Changes:
Core Processes: provide service instead of product
Core Competencies: expertise gained from blasting experience across several customers

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Fulfillment & Support:
Pricing Structure: product price is buried in the service
IT Services changes: unknown

6.2.1.6 Case Study: Harley-Davidson

Timeframe: 2004-2007
Environmental stress: competitors earning higher premiums and appealing to younger customers.
Attack Strategy: frontal attack (going after same customer base), possibly flanking
Initiatives: ladies-only parties, line of women's jackets, motorbikes with custom seats for a smaller
build, new Buell product line aimed at younger riders
Business model changes:
Fulfillment & Support: oriented toward women
Information & Insights: finding out what women need, translating into bike design
Relationship Dynamics: ladies-only parties
IT Service changes: unknown

6.3 Case studies: Coupling IT Strategy to the Business Model

Per the framework, we must establish the linkage between IT Services and the Business Model. One
approach is given in the Appendix (LETTER). We have taken a list of CIO 100
(http://www.cio.com/cio100/2008/1) award-winning ideas and used the descriptions of those ideas to
map onto the MIT Service Clusters. We found cases where the implementations mapped to more than
one service cluster. We accommodated this situation by mapping the technology to a “primary” and
“secondary” Service Cluster based on our assessement of where the largest impact was. Then, based
on the description of how the service was used by the business, we determined the part of the business
model that was impacted by the implementation.

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 Capture/a
IT IT Management
R&D
Application Infrastructure
IT Facilities Management

Security & Risk

IT Education
IT Architecture &

Communications
Standards

environm
Data Management

Channel Management

conditions
7 The Business/IT Strategy Integration Framework: Putting the Elements Together

7.1 End-to-End Strategy Integration Framework examples

7.1.1 Case Study: Seven Eleven Japan

Timeframe: 1977-2004
Environmental Stress: establishing a new franchise retail business in a crowded sector
Attack Strategy: Frontal attack

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Initiatives:
1. Introduce original products with higher quality than competitors
2. High density, clustered store openings
3. Supply chain based on partners rather than the company
Business Model Changes:
Core Processes: developing original products, managing the supply chain to ensure fresh, quality
items, temperature-separated combined distribution system
Partners: "team merchandising"-- working with partners on original products
Information & Insight: use point-of-sale data to identify hot selling and slow selling items, segment
customer base, etc. Demand forecasting
Fulfillment & Support: online financial services, internet shopping site, in-store copy machines
w/internet connection, meals on wheels ordered via internet
IT Services changes:
2.1 (first major use of ISDN to exchange POS information)
1.11 weather forecasting system
1.11 in-store inventory management
2.4 common infrastructure with partners
3.4 fifth generation business intelligence system
7.3 various e-business initiatives
compare to Store24 experience

7.1.2 Case Study: Coffee Market (Starbucks)

Timeframe 2008-2009
Environmental Stress: dropping comparable store sales, stock price, over expansion, competition
from Dunkin' Donuts and McDonalds
Attack Strategy: Guerilla (gourmet instant coffee), also "disciplined global expansion" which could be
frontal or flanking or bypass depending on market.
Initiatives: cutting $500M in expenses, improving operational efficiencies, making technology
investments, Digital Ventures new LOB, product development, data-mining
Business Model Changes:
Core Competencies:
Fulfillment & Support: Digital Ventures, loyalty cards
Information & Insight: data mining + Starbucks ideas website
Pricing Structure: changing prices on product
Core processes: looking for operational efficiencies
IT Service Changes:
1.11 (tracking ethical origins of coffee)
1.8 (continuing ERP rollout)
3.4 (BI and loyalty card data)
7.3 (digital ventures)

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7.1.3 Case Study: Southwest Airlines
Timeframe: 2002-2007
Environmental Stress: competition against other low-cost rivals
Attack/Defense Strategy: holding the ground defense
Initiatives:
1. financial success
2. operating efficiency (redefining excellence)
3. customer satisfaction (customer relationship managment)
4. firm foundation (empowered, happy employees)
Business Model Changes:
Core Competence: Knowing the Score (later)
Core Processes: Redefining excellence (2004-2007)
Fulfillment & Support: customer self-service (early), CRM project (later)
IT Services changes:
Architecture & Standards (starting in 2002)
1.5
1.6
1.11 rewrite reservations system (2005-2007)
1.11 updated call center system
Note: business model may change again as SWA looks at longer routes (food required, more checked
bags) or smaller cities (need different airplanes), international flights.

7.1.4 Case Study: Blockbuster (Nash, 2009)

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Timeframe: 2007-2009
Environmental Stress: losing customers to Netflix, video-on-demand (Apple, Amazon, Hulu, others),
cut-rate DVD sellers (Walmart, Target), and movie vending machines in grocery stores (Redbox)
Internal capabilities:
Weakness: customers unable to find popular movies 75% of the time (company data)
Strength: Physical stores that account for 85% of $26B industry sales
Attack/Defense Strategy: Defense, Holding Ground, Blocking, and Counter-Attack
Initiatives:
1. stabilize the business (Holding Ground)
2. diversify sales—consumer electronics (Counter-attack)
3. build online distribution system (Blocking)
Business Model Changes:
Information & Insight: customer and competitor location information
Core Competence: sales knowledge for consumer electronics
Strategic Assets: store-within-a-store (consumer electronics)
Core Processes: online distribution, consumer electronics sales
Fulfillment & Support: forecasting
IT Services changes:
New databases to track digital rights for movie downloads
3.4 Business Intelligence (location of competitor stores)
1.11 Application: sales forecasting for inventory pull system
1.11 Application: Total Access—Netflix-like online ordering system (bricks and clicks)
8 Synthesis example
Timeframe: 2009
Environmental threats: economic meltdown, resetting of customer desires, green movement, high-
end luxury manufacturers on one side, mass market producers on the other
Internal weaknesses: capitalization, high fixed asset costs
Strategy: (current) Attack: frontal attack (traditional segments, hybrids, etc.) (recommended) Defense:
Withdrawal
Initiatives: (current) reduce cost structure, capitalize via government loans, (recommended) reduce
fixed assets, leverage vendor capabilities via improved linkages and partnerships
Business model changes:
(current) Fulfillment & Support
(recommended) Strategic Assets (prune)
Information & Insight, Value Network
IT Service changes:
Employ virtualization or cloud computing
Link to supplier ERPs with goal of inventory reduction
Create collaborative work environments, innovative partnerships
Table 7: Synthesis example: Jaguar Land Rover

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9 Extension to the Enterprise (optional, may be an appendix)

10 Mergers and acquisitions

11 Zachman

12 Business/IT Strategy Integration Framework and the Balanced Scorecard

13 Business/IT strategy integration framework key assumptions (see Appendix A)

14 Next Steps for the CIO (or Office of the CIO), using the framework
A. Find a strategy model
B. Find a business model
C. Find an IT Service model
D. Find examples of technology deployments that yield business value
E. Find examples of strategy choices and how they delivered business value
F. Build a library of mappings between A-E
G. Apply to your company
Per The Sun Tzu, from a finite number of choices come a infinity of combinations

15 Future Work
Once the strategy integration framework is built, the next step is to develop an Business/IT Strategic
Innovation Framework. We want to identify “strong” technology deployments—ones that have a
quantum effect on business performance. By understanding the relationship between these
deployments, the business model, the strategy, and the SWOT of the business, we can understand when
and how to apply them to maximum effect in our business. Another opportunity is a qualitative score
indicating whether or not the parts of the business model are leading, competitive, or uncompetitive
compared to the competition. Important point: the goal is not necessarily to be leading in all
categories, rather, use the data to look for opportunities within the business model for new attack and
defense strategies, or places where IT services could innovate the model. Business model innovation
should be focused on finding new ways to resolve the core dilemmas of business (ex:
centralization/decentralization, etc).

16 Bibliography
EDS, “The Future Multidimensional CIO”,
http://www.eds.com/insights/whitepapers/multidimensional_cio.aspx, 2007.

Deloitte, “CIO 2.0: The Changing Role of the Chief Information Officer”.
http://www.deloitte.com/dtt/cda/doc/content/nl_eng_cio20_changing_role_cio_270405x.pdf, 2007.

Lovelace, Herbert, W. “Secret CIO: Business Savvy is the key to IT Success”, InformationWeek.

Soat, John. “The CIO is dead; long live the CIO”. InformationWeek.

Welch, Jack

Kaplan & Norton, Alignment.

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Doz, Yves, and Mikko Kosonen. Fast Strategy: How strategic agility will help you stay ahead of the
game. Wharton School Publishing. 2008.
Vasconcellos, Jorge A. Strategy Moves.

Nash, Kim S. “Blockbuster’s Cliffhanger”, CIO Magazine. March 1, 2009. pp 30-39.

17 Appendix A. Business/IT Strategy Integration Framework: Key Assumptions

1. Doesn't claim that the strategy is correct (i.e., will get results)
2. Aimed at CIOs who want to proactively translate business strategy into IT Initiatives, but also to
innovate using technology-enabled business strategies
3.IT organization is past the "disabler" and "efficient" stages
4. The business entity is a private sector organization (i.e. Not government agencies, unless they are
facing competition for services from the private sector)
5. Organization is capable of delivering on projects to deliver business value (program and project
management + governance)

Most of the literature on IT strategy assumes alignment with business strategy as the ultimate aim of
the IT strategy effort. A search on “IT Alignment” in Google results in hundreds of thousands of hits.
In fact, there is an online journal devoted to the topic of aligning IT with the business
(http://www.alignjournal.com/). A similar search for other support functions (ex: finance, human
resources, legal, procurement), yields far fewer results. We postulate the reason for the difference is
that the other functions assume alignment, their question is how to create value. IT, perhaps because it
is immature relative to the other functions, seems mired in the alignment question.

We suggest a different approach—recognize that strategies change, so as part of integrating business

and IT strategy, develop an IT strategy that is robust to potential changes in business strategy. For the
reasons above, we reject alignment as the goal of IT strategy development. Instead, we advocate the
integration of business and IT strategy. Unlike alignment, integration requires the IT organization to
• know the answer to the question: “how does the company make money?”, as opposed to “where
is a copy of the business strategy?”
• identify opportunities to create business value
• proactively engage in the development of business strategy
• introduce IT innovations that can create new strategies or new options for existing strategies
• anticipate the impact that strategy will have on the business model
• link the IT strategy to business model changes in support of the overall strategy
• build agility into the IT strategy, whether or not agility is seen as key to the business strategy
There is a growing body of opinion that is consistent with this view (REFERENCES).

18 Appendix B: Strategy frameworks

Include the Welch 5 question model
Include the strategic intent model

19 Appendix C: Business Model Frameworks

Porter Value Chain
MIT, Peter Weill

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Strategy, Pure and Simple II
Bossidy and Charan
Dr. Alexander Osterwalder (http://business-model-design.blogspot.com/)
Clayton Christensen CVP, Profit Formula, Resources, Processes
Hamels http://business-model-design.blogspot.com/

20 Appendix D: MIT CISR IT Services and Clusters

21 Appendix E: Technology Deployment Examples: The CIO 100 List

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i
Taber, David. CRM on the Cheap: 5 Strategies that backfire.

ii
Keen, Peter. Organizational Transformational through Business Models.

iii
D'Aveni, Richard. "Mapping Your Competitive Position" Harvard Business Review November
2007. 110-120.

iv

v
Meredith, Robyn. It take a Crisis.

Benson, Robert J., Thomas L. Bugnitz,and William B. Walton, From Business Strategy to IT Action:
Right Decisions for a Better Bottom Line.

Weill, Peter and Marianne Broadbent, Leveraging the New Infrastructure.

Broadbent, Marianne and Ellen S. Kitzis, The New CIO Leader.

Curley, Martin, Managing Information Technology for Business Value.