Strategic Alignment Between Business and Information Technology

Strategic Alignment Between Business and Information Technology

Fernando José Barbin Laurindo (University of São Paolo, Brazil)
DOI: 10.4018/978-1-60566-026-4.ch571
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Abstract

Information technology (IT) has assumed an important position in the strategic function of the leading companies in the competitive markets (Porter, 2001). Particularly, ecommerce and e-business have been highlighted among IT applications (Porter, 2001). Two basic points of view can be used for understanding IT’s role: the acquisition of a competitive advantage at the value chain, and the creation and enhancement of core competencies (Porter & Millar, 1985; Duhan, Levy, & Powell, 2001). Several problems have been discussed concerned with IT project results in effectiveness of their management. Effectiveness, in the context of this article, is the measurement of the capacity of the outputs of an information system or of an IT application to fulfill the requirements of the company and to achieve its goals, making this company more competitive (Shimizu, Carvalho, & Laurindo, 2006). There is a general consensus about the difficulty of finding evidence of returns over the investments in IT (the “productivity paradox”), even though this problem can be satisfactorily explained (Farrell, 2003). Carr (2005) defends the idea that IT in itself has no more strategic value, since it is so widely disseminated that it could not be a source of strategic differentiation anymore. In order to better use these investments, organizations should evaluate IT effectiveness, which allows the strategic alignment of objectives of implemented IT applications and their results with the company business vision (Shpilberg, Berez, Puryear, & Shah, 2007; Laurindo & Moraes, 2006). Besides, it must be highlighted that if IT applications are associated with changes in business processes, it is possible to notice greater impacts in business performance (Farrell, 2003). According to Benko and McFarlan (2003), three aspects must be taken into account about IT strategic alignment: IT projects portfolio, business objectives, and the constantly changing situation of business environment. Thus, the comparison and evaluation of business and IT strategies and between business and IT structures must be a continuous process, since the company situation is constantly changing to meet market realities and dynamics.
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Introduction

Information technology (IT) has assumed an important position in the strategic function of the leading companies in the competitive markets (Porter, 2001). Particularly, e-commerce and e-business have been highlighted among IT applications (Porter, 2001). Two basic points of view can be used for understanding IT’s role: the acquisition of a competitive advantage at the value chain, and the creation and enhancement of core competencies (Porter & Millar, 1985; Duhan, Levy, & Powell, 2001).

Several problems have been discussed concerned with IT project results in effectiveness of their management. Effectiveness, in the context of this article, is the measurement of the capacity of the outputs of an information system or of an IT application to fulfill the requirements of the company and to achieve its goals, making this company more competitive (Shimizu, Carvalho, & Laurindo, 2006).

There is a general consensus about the difficulty of finding evidence of returns over the investments in IT (the “productivity paradox”), even though this problem can be satisfactorily explained (Farrell, 2003). Carr (2005) defends the idea that IT in itself has no more strategic value, since it is so widely disseminated that it could not be a source of strategic differentiation anymore.

In order to better use these investments, organizations should evaluate IT effectiveness, which allows the strategic alignment of objectives of implemented IT applications and their results with the company business vision (Shpilberg, Berez, Puryear, & Shah, 2007; Laurindo & Moraes, 2006). Besides, it must be highlighted that if IT applications are associated with changes in business processes, it is possible to notice greater impacts in business performance (Farrell, 2003).

According to Benko and McFarlan (2003), three aspects must be taken into account about IT strategic alignment: IT projects portfolio, business objectives, and the constantly changing situation of business environment.

Thus, the comparison and evaluation of business and IT strategies and between business and IT structures must be a continuous process, since the company situation is constantly changing to meet market realities and dynamics.

Key Terms in this Chapter

Competitive Forces: According to Porter (2008) , the state of the competition in a particular industry depends on five basic forces: new competitors, bargaining power of suppliers, bargaining power of customers, rivalry among current competitors, and substitute products or services.

Strategic Grid: Nolan and McFarlan (2005) and McFarlan (1984) proposed the Strategic Grid, which allows the visualization of the relationship between IT strategy and business strategy and operations. This model analyzes the impacts of IT-existent applications (present) and of an applications portfolio (future), defining four boxes, each one representing one possible role for IT in the enterprise: “Support,” “Factory,” “Turnaround,” and “Strategic.”

Strategic Alignment: The IT Strategic Alignment Model was proposed by Henderson and Venkatraman (1993) and consists of a framework for studying IT impacts on business and understanding how these impacts influence IT organization and strategy, as well as how it enables analysis of the market availabilities of new information technologies.

Effectiveness: In the context of IT, the measurement of the capacity of the outputs of an information system or of an IT application to fulfill the requirements of the company and to achieve its goals, making this company more competitive. In other words, effectiveness can be understood as the ability of “do the right thing.”

Value Chain: According to Porter and Millar (1985) , the set of technologically and economically distinct activities a company performs in order to do business.

Productivity Paradox: The discussion about the lack of evidence about the return of investments on IT in the economy productivity indicators.

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