Information Systems Strategy: Aligning IT with the Business

A distributor spends a year on its new strategy. It will open an online channel for trade customers, promise next-day delivery in three new regions and compete on service rather than price. The commercial plan is detailed down to the sales target for each region. The IT department learns about it at the launch meeting.

Eighteen months later the online channel is live, but trade customers cannot see their negotiated prices or real stock levels, because both live in a system that was never built to share them. Next-day delivery depends on route planning software nobody budgeted for. The two engineers who understood the order system have left. Every commercial decision was sound. The systems those decisions relied on were never part of the plan.

Companies with well-crafted commercial, product and distribution strategies still push their information systems into the background, or leave them entirely to technical staff. The information systems strategy is the chapter they skip.

An information systems strategy complements the business strategy. It decides how technology will reinforce the company’s goals and competitive advantages, and it deserves the same rigor as any other part of the strategy.

Like any strategy, it has three jobs:

• Identify the future state the company wants its systems to reach, which may be a long way from where they are today.
• Set a framework that keeps the objectives consistent with one another and with the business.
• Chart the direction of the moves needed to get there, through strategic planning rather than a string of reactions.

IT’s share of the budget is the wrong yardstick

How much executive attention should the information systems strategy get? The instinctive answer is proportional: IT is a modest share of the cost base, so it gets a modest share of the agenda.

That measures what the systems cost, not what depends on them. A function can be a small line in the budget and still be the constraint on every growth initiative the board approves. The distributor’s problem was never how much it spent on IT.

The better measure is the benefit of planning business strategies systematically, together with the information systems needed to support them. Each commitment that depends on a system should be planned with that system from the start, not at launch.

Executive attention is also earned. IT leaders who present technology choices as technical activity get technical attention. Those who tie each choice to a goal the board already owns get a seat where the strategy is written. Most of the advice on presenting to your CEO applies unchanged to a CIO arguing for an architecture decision.

Four domains that have to fit together

In conceptual terms, an information systems strategy is built like any other business strategy. It has an external component that faces the market and decides how the company will compete there, and an internal component that adapts the organization and its resources to deliver on that choice.

The clearest map of how those two sides relate, to each other and to the business, is the strategic alignment model that John C. Henderson and N. Venkatraman published in the IBM Systems Journal in 1993. It divides the enterprise into four domains with three elements each:

	Business	Information systems
External: how the company competes	Business scope, distinctive competencies, business governance	Technology scope, systemic competencies, IT governance
Internal: how it is organized to deliver	Administrative structure, business processes, skills	IT architecture, IT processes, IT skills

The model’s point is that the four domains have to fit in two directions at once. Down each column, external choices need internal means, which Henderson and Venkatraman called strategic fit: a promise of real-time service needs the architecture, processes and people to deliver it. Across each row, business and IT choices have to agree, which they called functional integration: technology decisions justified only by their own logic drift away from what the company is trying to win.

The distributor failed both tests. Its commercial plan made promises its systems could not keep, and when those promises came due, IT had neither the architecture nor the people to catch up.

Alignment is not a state you reach once. Every new business goal and every new technology moves one domain and pulls on the other three.

The external perspective: which technologies the business competes with

Seen from the outside, an information systems strategy makes three decisions, each mirroring one the business strategy already makes:

• Technology scope. Just as the business decides which products and services it takes to market, the information systems strategy decides which technologies are critical to developing and consolidating that business. For a logistics company, routing and tracking may be core. For a consulting firm, it may be knowledge management and collaboration. Whatever falls outside the scope is a candidate for a standard, low-attention solution.
• Systemic competencies. The attributes IT contributes to the company’s competitive position, in the same way distinctive competencies make its products stand out. Stability, interconnectivity and flexibility are typical. Customers rarely see them directly and notice at once when they are missing.
• IT governance. Who makes technology decisions, and how the company obtains the capabilities it needs: building them in-house, buying them, or reaching them through partners and outsourcing. The business makes the same kind of choice when it enters a market alone or through an alliance.

Governance is the element most often left out, and it decides whether the other two survive contact with reality. A technology scope that nobody has the authority to enforce becomes a list of preferences, and every department ends up buying its own tools.

The internal perspective: the organization that has to deliver

The internal component adapts the IT organization and its resources to the position the external component has chosen. Its three elements mirror the business’s own infrastructure:

• IT architecture. The hardware, software, communications and data configurations, and the policies, rules and standards defined on top of them. It plays the part the administrative structure plays for the business.
• IT processes. How the portfolio of applications that supports business operations is built, run and changed on that architecture.
• IT skills. The recruitment, training and development of the people who manage and operate IT resources.

IT processes are where strategy most often turns into a queue. The applications that run the business consume people and budget every month, and the projects meant to change them compete for the same people and budget. Managed as separate lists, one side loses without anyone deciding it should. ITM Platform’s portfolio management treats both as components of one portfolio: projects and services sit side by side, the financial analysis shows the workforce and purchases budget of each, and a single schedule shows the dependencies between them. When a new platform depends on retiring an old one, the dependency appears in the plan instead of in the postmortem.

IT skills are the element most exposed to wishful thinking. A technology scope that names cloud, data and security as critical is a hiring and training plan in disguise, credible only if you know which skills your projects already lack. Resource planning in ITM Platform sets the effort every project and service needs from each professional profile, such as a senior analyst or a technical architect, against that profile’s capacity across the organization, by week, month or quarter. A profile that shows a red gap quarter after quarter is not a scheduling problem. It is a skills decision the strategy has not made yet.

Alignment is decided one project at a time

The model describes what has to fit. In practice, alignment is decided somewhere far less abstract: in the list of projects the company chooses to fund. Every IT project either advances a business goal or uses capacity that could have advanced one. An information systems strategy that never reaches that list stays a document.

The discipline has three steps. The people who own the business strategy weight the goals first. A different group then scores each candidate project against those goals, so that enthusiasm for a technology cannot set its own priority. Only then is the portfolio chosen within the budget and capacity available. The method is covered step by step in strategic alignment and selecting the most valuable project portfolio.

ITM Platform runs that sequence inside a program. Its strategic alignment feature lets the board rank goals by percentage, on a qualitative scale or by pairwise comparison, has each component scored against them, and at the selection stage compares the goals represented in the chosen portfolio with the weighting the board agreed. That comparison is the model’s functional integration, checked before the budget is committed.

The external choices attract the attention because they sound like strategy. The internal ones decide whether any of it happens. A company that makes both, and tests them against its business goals every time it funds a project, has an information systems strategy. One that makes only the first has a wish list, and finds out the difference the way the distributor did.

Next steps

• Start a free ITM Platform trial and set up a program with the business goals your IT projects have to serve.
• See how programs and portfolio management keeps projects, services, budgets and goals in one view.
• Before your next funding round, review how strategic alignment scores IT projects against prioritized business goals.