Oct

2

The IT Alignment Trap

Filed Under Alignment, Strategy | 2 Comments

A MITSloan Review article highlights research on how organisations approach making their IT departments more effective. The traditional approach for organisations seeking to improve the performance of their business, by leveraging information technology has been to increase alignment between their business and IT objectives….

"For many years now, companies seeking to deliver higher business performance by harnessing IT have focused on alignment. By alignment, we mean the degree to which the IT group understands the priorities of the business and expends its resources, pursues projects and provides information consistent with them. Almost every company we have worked with recognizes that IT and business priorities must be tightly linked. In practical terms, that means IT spending must be matched to the company’s growth strategies. There must be shared ownership and shared governance of IT projects. It’s become something of a mantra voiced by senior business executives: A lack of alignment can doom IT either to irrelevance or to failure."

At first glance this seems like reasonable advice and even common sense. Closer alignment between an organisations strategic objectives and the IT divisions objectives must produce better results… Not so! Research, which consisted of more than 500 senior business and technology executives worldwide, followed up with in-depth interviews of 30 chief information officers and other senior leaders from a broad cross-section of companies, uncovered the following….

"….even at companies that were focused on alignment, business performance dependent on IT sometimes went sideways, or even declined."

This raises a key question….

"Why wouldn’t a high degree of alignment alone bring about improvement? In our experience, a narrow focus on alignment reflects a fundamental misconception about the nature of IT. Underperforming capabilities are often rooted not just in misalignment but in the complexity of systems, applications and other infrastructure……. Complexity doesn’t magically disappear just because an IT organization learns to focus on aligned projects rather than less aligned ones. On the contrary, in some situations it can actually get worse. We’ve seen firsthand how IT organizations provide dedicated resources, such as application developers and data centers, to each business unit — in order to improve alignment. They develop customized best-of-breed solutions designed to serve each business’s unique needs. Meanwhile, they ignore the need for standardization and upgrading of legacy systems. They create a labyrinth of new complexity on top of the old, making system enhancements and infrastructure improvements ever more difficult to implement and leaving significant potential scale benefits untapped……. ‘Aligning a poorly performing IT organization to the right business objectives still won’t get the objectives accomplished.’ That, in a nutshell, is the alignment trap."

The alignment trap is illustrated in the following matrix….

 

IT Alignment 

 

The research findings:

 

  • 18% of respondents believed that their company’s IT spending was highly aligned with business priorities — that IT, in other words, always or nearly always established and acted on priorities that supported their business strategy.
  • 15% of companies believed that their IT capability was highly effective, that IT ran reliably, without excess complexity and always or nearly always delivered projects with promised functionality, timing and cost.
  • Almost three-quarters of respondents believed that their IT capability was neither highly aligned nor highly effective. These companies occupy what the researches call the "maintenance zone."
  • Companies in the maintenance zone recorded a slower rate of growth — 2% below the three-year average in the survey — while spending the same as the average every year on IT.
  • Only about one in five senior executives reported that their company was highly aligned.
  • When looking at the 11% of companies in which IT was highly aligned but was not highly effective, the researchers found those companies were considerably worse off than their counterparts in the maintenance zone. While their IT spending was 13% higher than average, their three-year growth rates were 14% lower than average.
  • 7% of respondents said that their IT organizations were both highly aligned with business strategy and highly effective in delivering what was asked of them. But those companies as a group recorded a compound annual growth rate over three years that was 35% higher than the survey average.

 

"How have these companies managed to reach that point? ……… For the majority of companies, the single most important task has been to forget about enhancing alignment for the moment and to focus first on increasing the effectiveness of the IT organization. In order for IT to enable growth, that first move is critical — and it’s the one that companies often get wrong."

3 Essential Steps for Improving IT Effectiveness

 

  1. Emphasizing Simplicity. Any company’s first step should be to focus relentlessly on reducing complexity rather than increasing it…. Reducing complexity means developing and implementing companywide standards. It means replacing legacy systems where possible and eliminating add-ons. It means building new solutions on a simplified, standardized infrastructure rather than extensive customizing or more layering on top of whatever happens to be there.
  2. "Rightsourcing" Capabilities. Choosing the right source for a capability — maximizing effectiveness while minimizing costs — is thus a critical consideration.
  3. Creating End-to-End Accountability. Companies cannot build effectiveness unless they hold IT and the business accountable for delivering expected results on time and on budget….. True accountability reflects organizational changes: Executives get the information they need to measure IT progress; IT people are held accountable for outcomes; line managers give IT the resources it needs and then work closely with IT leaders to exercise joint supervision of individual initiatives.

 

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