DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

Linking Information Technology with Business Strategy

Term Paper
Mayank Jain 10810031 8/19/2011

PROJECT GUIDE Mr. Lovneesh Chanana

DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

1 ABSTRACT .................................................................................................................................................... 3 2 INTRODUCTION ........................................................................................................................................ 3 2.1 PRODUCT INNOVATION ....................................................................................................................................... 3 2.2 INTER- ORGANISATIONAL SYNERGIES ...................................................................................................................... 3 2.3 BARGAINING ADVANTAGE ................................................................................................................................... 4 3 CURRENT PRACTICES ............................................................................................................................. 4 3.1 GROWING IMPORTANCE OF IT .............................................................................................................................. 4 3.2 TRANSACTIONAL VIEW OF IT ................................................................................................................................ 4 3.3 PURSUIT FOR EFFICIENCIES ................................................................................................................................... 4 3.4 DISCONNECT OF IT WITH BUSINESS STRATEGY .......................................................................................................... 4 3.5 IT IMPACT ....................................................................................................................................................... 4 3.6 ROLE OF IT ANALYST .......................................................................................................................................... 5 3.7 PERVASIVE USE OF IT ......................................................................................................................................... 5 3.8 OUTSOURCING ................................................................................................................................................. 5 3.9 COLLABORATION ............................................................................................................................................... 5 4 MANAGERIAL ISSUES ............................................................................................................................ 5 4.1 TRANSACTIONAL VIEW OF THE INFORMATION TECHNOLOGY ......................................................................................... 5 4.2 SUSTAINABLE COMPETITIVE ADVANTAGE ................................................................................................................. 6 4.3 PEOPLE ISSUES .................................................................................................................................................. 6 4.4 ORGANISATIONAL BARRIERS ................................................................................................................................. 6 4.5 UNDER UTILISATION OF INFORMATION TECHNOLOGY ................................................................................................. 6 4.6 STATIC STRATEGY .............................................................................................................................................. 6 4.7 PLANNING CONSTRAINTS..................................................................................................................................... 6 4.8 BUDGET .......................................................................................................................................................... 7 4.9 COMPARISON OF IT PROJECTS............................................................................................................................... 7 4.10 BUSINESS MODEL ............................................................................................................................................ 7 5 RECOMMENDATIONS .............................................................................................................................. 7 5.1 INTEGRATED STRATEGY AND SYSTEM THINKING ......................................................................................................... 7 5.2 COMMUNICATION ............................................................................................................................................. 7 5.3 MONITORING OF THE STRATEGY ............................................................................................................................ 8 5.4 EMPOWERMENT OF IT LEADERS ............................................................................................................................ 8 5.5 INVOLVEMENT OF BUSINESS LEADER IN IT STRATEGY .................................................................................................. 8 5.6 STEERING COMMITTEE AND CROSS FUNCTIONAL TEAM ............................................................................................... 8 5.7 DYNAMIC STRATEGY .......................................................................................................................................... 8 5.8 INVESTMENT IN IT ............................................................................................................................................. 9 5.9 RIGHT BALANCE ................................................................................................................................................ 9 5.10 VALUE PROPOSITION ........................................................................................................................................ 9 5.11 STRATEGIC FOCUS ........................................................................................................................................... 9 5.12 ROLLING BUDGET ............................................................................................................................................ 9 5.13 ACKNOWLEDGING ORGANISATIONAL CULTURE ..................................................................................................... 10 5.14 UNDERSTANDING IT CAPABILITIES ..................................................................................................................... 10 6 REFERENCES ............................................................................................................................................. 10

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DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

1 Abstract
Increasingly Managers are becoming aware of the importance of IT strategy in pursuing business strategy. IT is changing the way firms compete, particularly when opportunities to create value are shifting from managing tangible assets to managing knowledge-based strategies. However rather than using IT strategy for developing core competence and sustainable competitive advantage the IT strategy of many organisation are focused on increasing the efficiency of processes. Thus underutilizing the potential offered by IT. Also being an evolutionary phase of the IT implementation Managers are facing increasingly challenging issues. This paper is an attempt to understand the role of IT in business strategy in present context. Furthermore managerial Issues faced in implementation of IT are highlighted and recommendations are put forth so as to make IT strategy more consistent with the business strategy.

2 Introduction
The Proliferation of the Internet and advancements in the Information Technology (IT) has brought new opportunities to companies to conduct their businesses more efficiently than the past. Senior executives, strategic planners, and information systems managers are increasingly turning their attention to opportunities for achieving competitive advantage through information technology. Technology developments and challenging business environment have made IT an economic imperative. Therefore IT needs to plays an increasingly pro-active role in developing long-term business strategy in such a way that IT and business strategy functions of organisation are completely synchronised towards common business-oriented goals. Earlier the IT was thought as a function whose objective was to improve the efficiency and effectiveness of the organisation to gain competitive advantage or parity. But now Information technology has role which has augmented the traditional role with exploitation of product innovation, inter-organisational synergies, and creation of bargaining advantage against the customers and suppliers. In sum IT strategy is no longer different from the business strategy.

2.1 Product Innovation

Information technology is providing firms with unique opportunities for product innovation. In many industries, from automotive to consumer electronics, information technology is being built into existing products to enhance their value. In other industries, such as banking, insurance, and consulting, the technology is providing a development and delivery vehicle for new service-based products.The technology can provide an important means for differentiating existing products and developing new and unique ones.

2.2 Inter- organisational Synergies

Competitive strategies for exploiting synergies with customers or suppliers generally concentrate upon opportunities for better coordination. Information Systems that couple functional areas in two distinct firms can make operations more efficient to the benefit of all participants by having better coordination. For example, one might couple the production planning system of a firm with the order entry system of suppliers to lower the amount of inventory in process and the turnaround time for new orders. 3|P ag e

DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

2.3 Bargaining Advantage

An important tactic for improving one's bargaining position relative to customers is to provide unique and valuable information and services that require idiosyncratic changes to the customer's organization, and thus makes switching to a competitor more costly. Information technology can facilitate unique information or services offering which are of great value to the customer. Every supplier is a customer of another supplier in an unbroken value-added chain. Thus, the opportunity to gain bargaining advantage can be pursued by one's suppliers to the firm's disadvantage, Thus efforts should be made to avoid becoming dependent on supplier-controlled information and services, and create an efficient "electronic marketplace" between one's own organization and its suppliers.

3 Current practices
3.1 Growing Importance of IT
IT has become much more central element to the development and delivery of business strategy. More attention is being paid to IT strategy development than it has been ever paid in the past. The success of an organization is increasingly getting dependent on what businesses want to accomplish with their IT and how IT delivery strategy is shaped.

3.2 Transactional View of IT

The focus of IT is on transactional aspects. Most of the IT efforts are expended in exploiting the capabilities concerned with repeatable processes. IT plans are focused on tactical and tangible line of business needs or opportunities for operational integration.

3.3 Pursuit for Efficiencies

The investment opportunities are selected largely on their basis to affect the short-term bottom line rather than on delivering long-term top line business value. Much business strategy has become a relentless race to compete on efficiencies with IT as the primary means of doing so.

3.4 Disconnect of IT with Business Strategy

Mostly IT strategy is bolted onto the business, more or less as an afterthought; therefore IT is used as merely an implementation tool, not intrinsically involved in shaping strategy. In many organisation it is used as used as a substitute for labour and as a means to support product innovation.

3.5 IT Impact
To capture the value IT represented, organizations are addressing change in structure, culture, people, process, and leadership. IT is already enabling larger spans of control and thus the flattening the business organisation structure. Many organizations are turning to the consulting industry for help in understanding and managing these significant changes.

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DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

3.6 Role of IT analyst

Having understood the imperative of IT, the organisation are trying to make sure that IT analyst understand the business and how it operates. In some cases, the "business liaison" role has appeared within IT with responsibility for understanding the various business operations and how IT can help and In other cases, IT people are placed on site under the direction of the business units, with hopes that this would lead to better understanding of the business and stronger customer service.

3.7 Pervasive Use of IT

The confidence of the business on IT has changed the way firm work not only internally but also the way firm works with other firms (e.g., Wal-Mart or Dell Computer) and thus transformed the competitive landscape. There growing trend towards service homogenisation and the widespread adoption of either packaged software or outsourcing vendor.

3.8 Outsourcing
Today, firms do business either by using their own resources and expertise, or by outsourcing some of the internal functions to outside contracting firms that specialize in certain functions. They prefer outsourcing their business processes to firms that are highly specialized in using IT for business purposes. This IT outsourcing, involves a significant use of resources (either technological or human resources) external to the organizational hierarchy in the management of IT infrastructure. This behavior of organisation can be attributed to desire to improve functional effectiveness and flexibility by accessing a support network with highly qualified and specialized workforce and to control the costs and business risk by transforming high fixed costs to predictable expenditures.

3.9 Collaboration
Use of Inter-organisational IT systems is allowing firms to integrate their information-related activities (vertical information integration) without disturbing the legal boundaries of the entities involved. Eg: Just in Time system for inventory. Examples To improve its bottom line Wal-Mart is using radio frequency identification (RFID) technology and data warehousing to track products entering Wal-Mart's distribution centers and subsequently shipped to individual stores. Along with global positioning system (GPS) technology RFID provides end-to-end visibility of shipments

4 Managerial Issues
4.1 Transactional View of the Information Technology
IT has been merely an implementation tool, not intrinsically involved in shaping strategy. The approach is focused on the capability of IT to improve specific functional areas of the firm and thus utilization of Information Technology on correcting organisational deficiencies restrains its effective use. 5|P ag e

DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE When IT is looked with operational view point, IT just models the operations of the enterprise and concentrate on the efficiency part. Thus there is inherent constraint in the use of IT for the poorly structured functions such as senior management roles which cannot be modeled easily.

4.2 Sustainable Competitive Advantage

The approach to use IT as a tool to improve operation may support the competitive position of the firm to the extent that they may become industry innovations but this competitive advantage cannot be sustained for long. Industry follows the leader and there would be competitive parity soon. Example of this is Telecom industry in India which is struggling to differentiate it product despite of using the best of Technology.

4.3 People Issues

IT analyst focuses on Knowledge of the processes within an organization and not on business strategy thus cannot comprehending the drivers of future success. For example, a business systems analyst for a retail chain might understand store operations, distribution and merchandising, yet be clueless regarding the industry trends that will determine the long-term winners and losers

4.4 Organisational Barriers

Recognition of a capability need precedes the ability to put it into place and there are number of organisational barriers that inhibit the strategy development. There is a lack of supporting governance structure managing interdependence among different business processes. Due to absence of enterprise wide funding model negotiation for funding between the lines of business is necessitated . IT implementation has put the demand for process and behavior change thus altering the organisational culture.

4.5 Under Utilisation of Information Technology

Technology-based competitive opportunities are overlooked because of: senior management's ignorance of information technology and its potential uses poor communications between the information systems group and the rest of the business resistance to change, among both information systems and business personnel a lack of focus on opportunities for competitive advantage. a lack of instruments to measure benefits.

4.6 Static Strategy

In these rapidly changing business conditions and continuously evolving Technology, static IT strategy does not create business value originally envisioned.

4.7 Planning Constraints

IT strategy is not aligned with the business strategy because annual budgetary planning tends to lock the organization into fixed expenditures which may not be practical in a rapidly changing environment. Also 6|P ag e

DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE since the business and IT strategy planning is not always done in parallel it is not easy to integrate the two sets of plans. Moreover business plans change constantly thus IT strategy to grow farther and farther apart over time.

4.8 Budget
Varied opportunities presented by IT is making budget allocation exercise complicated. There is continual pressure on IT to reduce its utility costs in order to free up more resources for other types of projects. The five investment opportunities presented by IT are business improvement, businessenabling, business opportunities, opportunity leverage, and infrastructure. Business Improvement are the reengineering initiatives streamline processes thus save substantial amounts of money . Business-enabling, Business opportunities and Opportunity leverage investments are for organisation's long term interest.

4.9 Comparison of IT projects

IT strategies are mostly completely technology-centric and focused purely on technology products, thus it is difficult to compare among the IT project competing for the same resources.

4.10 Business Model

IT is leading to considerable disruption as business models due to newer technology-enabled approaches to delivering products and services. IT has dramatically changed the way companies add value.

5 Recommendations
5.1 Integrated Strategy and System thinking
To ensure we are driving success, IT executives must fully understand the business strategy. IT management must be well-versed in how to develop business strategy and how to link IT resources to the business drivers. Rather than just respond to the requests from the business organization, IT management must make sure it understands the business strategy and should seek out IT solutions that will drive business success. To be effective partners with their business units, IT executives must be at the table during strategy development. The process of developing strategy should make sure that after the situation assessment, determination of strategic direction IT integration with business strategy is done. Strategic decision should be made with input from both business and IT executive.

5.2 Communication
An achievable implementation roadmap must be created and the role and value of IT should be clearly communicated throughout the organization. Optimal IT metrics to measure the impact of IT solutions and services on business performance should also be identified. Also the IT manager should translate its ideas and concept into business language thus underscoring the IT's focus on business.

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DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

5.3 Monitoring of the strategy

To maintain an appropriate strategic focus, IT executives must meet two-to-three times a year with each business unit. This meeting should not be confined to discuss IT performance, but it should be an opportunity to understand success driver of business unit in past, changes happening in the industry which may cause the driver to change and the barriers to the success for the business unit. IT executives should also try to find out the indirect outcomes which, could directly lead to increase revenues, increase margins, greater customer satisfaction etc. This discussion would help the IT executives to do strength, weakness, opportunity and threat analysis of each business unit and thus a effective IT strategy could be designed which could address these indirect outcomes, barriers and drivers

5.4 Empowerment of IT leaders

Business strategy cannot naturally drive IT strategy. For this IT leaders need to be given significant organizational roles including the role of a change leader and having the responsibility for strategic alignment of IT and business. Only with this augmentation in the critical responsibilities of ITs role, the capabilities of emerging IT can shape the strategic direction of a firm.

5.5 Involvement of Business Leader in IT strategy

Business executives would have to take a more prominent role in IT related decisions so that IT strategy shapes and/or complements business strategy. IT related decisions cannot be solely considered the responsibility of IT. Executives should work closely with IT and understand the implication of Technology decisions. Apart from this business leader need to take responsibility for the organizational and process changes that would deliver business value while implementing IT strategy.

5.6 Steering Committee and Cross Functional Team

There should be an IT Steering committee at the top which should identify and manage the cross functional synergies and strategic dependencies between various business units and processes. These steering committees should take up enterprise -wide IT strategies and turn them into detailed IT plans. These committees should manage and control the resources for implementation. Apart from this efforts should be made to ensure that good ideas emanating from the bottom of the organisation are nurtured by having cross functional teams. Intra- and inter-functional communication on a regular basis help organisation to understand identify new opportunities for which IT could be effective, thus to develop programs, and then to design specific roadmaps for reaching business goals.

5.7 Dynamic Strategy

Due to ever changing external environment business strategy development should become more evolutionary and interactive with IT. Also the IT strategy development must be focused on developing strategic capabilities that will support a variety of changing business objectives and in the process becoming more dynamic itself. This can be done by crafting programs that focus on developing specific business capabilities and each program consisting of many smaller, inter-related businesses and IT initiatives that cut across several functional areas. Thus these can be designed to be adapted, reconfigured, accelerated or cancelled as the strategic program evolves.

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DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE As a example consider a bank which wants e banking as its differentiator. Using e banking as a theme bank should engage the imaginations of the its employees and mobilize a variety of ideas and actions around a broad strategic direction. By grouping IT and business programs around this theme manager can easily track and direct the programs and also visualize the synergies and interdependencies involved across a variety of programs spread out across the organization and over time.

5.8 Investment in IT
IT budget allocation should be done in all IT investment opportunities viz Business Improvement, Business Enabling, Business Opportunities, Opportunity Leverage and IT infrastructure in accordance with the IT strategy. This would ensure balance between the short term returns and organisation's long term interest. The idea should be to minimize fixed IT cost (transactional investment) and allocate the remaining budget towards those IT investment opportunities that will support and further the organizations business strategy.

5.9 Right Balance

IT strategy is balancing act between our tactical and operational commitments and the work that builds long term capabilities Effective strategy is about making right trade-offs between the different types of IT work. Thus building critical mass high levels of operational Information Technology expertise is not economical to maintain. For example, computer security consulting requires a high level of expertise, which few firms can economically maintain in-house.

5.10 Value Proposition

Also IT strategy should not be just a tactical game of relentless pursuit to compete on efficiency because such a model would just result in continual shaving of profit margins. Therefore rather than affecting the short-term bottom line Information Technology should focus on delivering long-term top line business value and for this top line growth IT strategy should offer unique value proposition to the organisation. Organisation should redesign, reconfigure or build upon their offering by use of IT to radically transform the value proposition.

5.11 Strategic Focus

Business executives need to recognize that business strategy is not only enabled by IT but it can also provide new business opportunities. The effective IT strategy should thus identify the IT capabilities and components that could enable improved business performance. It should also define the implementation path for achieving these capabilities.

5.12 Rolling Budget

In rapidly changing environment organisation need to have a longer term view of its resourcing practices and the opportunity to make changes to it more frequently, rather than having annual fixed budget

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DEPARTMENT OF MANAGEMENT STUDIES, IIT ROORKEE

5.13 Acknowledging Organisational Culture

The culture of the business always has a very strong bearing on the successful application of technology. Therefore important aspect of Information Technology strategy is the cultural analysis. It helps to understand the structure, ethos and nature of organisation.

5.14 Understanding IT Capabilities

To have cohesive business and IT strategy all IT assets and their delivery channels should be identified and their inter-dependencies should be documented. IT asset would include people, skill, process, Service level agreement etc.

6 References
HEATHER A. SMITH ,JAMES D. MCKEEN ,SATYENDRA SINGH DEVELOPING INFORMATION TECHNOLOGY STRATEGY FOR BUSINESS VALUE, Journal of Information Technology Management ISSN #1042-1319 J. Yannis Bakos, Michael E. Treacy. Information Technology and Corporate Strategy: A Research Perspective, Center for Information Systems Research, Sloan School of Management http://www.leadstrat.com/resources-consult-its-role.html http://www.thehackettgroup.com/expertise/it-strategy.jsp http://hbswk.hbs.edu/item/3402.html http://www.skyrme.com/insights/5itorg.htm http://www.ncc.co.uk/publications/best-practice-guides/aligning-it-with-business-strategy-printed

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