strategic alignment: leveraging informationtechnology...

REPRINTED FROM IBM SYSTEMS JOURNAL, VOL32, NO 1, 1993; © 1993,1999

Strategic alignment:Leveraginginformation technologyfor transformingorganizations

by J. C. HendersonN. Venkatraman

It is clear that even though informationtechnology (lIT) has evolved from Its traditionalorientation ofadministrative support toward amore strategic role within an organization, thereis still a glaring lack of fundamental frameworkswithin which to understand the potential of 1fT fortomorrow's organizations. In this paper, wedevelop a model for conceptualizing anddirecting the emerging area of strategicmanagement of information technology. Thismodel, termed the Strategic Alignment Model, Isdefined In terms of four fundamental domains ofstrategic choice: business strategy, informationtechnology strategy, organizational infrastructureand processes, and Information technologyInfrastructure and processes-each with Its ownunderlying dimensions. We illustrate the powerof this model in terms of two fundamentalcharacteristics of strategic management:strategic fit (the interrelationships betweenextemal and Intemal components) and functionalIntegration (integration between business andfunctional domains). More specifically, we derivefour perspectives of alignment with specificimplications for guiding management practice inthis Important area.

I t is perhaps a truism that the role and impact ofinformation technology (Iff) on today's orga-

nizations has significantly changed over the lastdecade. Across a wide spectrum of markets andcountries, Iff is transcending its traditional "backoffice" role and is evolving toward a "strategic"

role with the potential not only to support chosenbusiness strategies, but also to shape new busi-ness strategies. l

-4 Yet, there is increasing con-cern that the anticipated value of the investmentin Iff is not being achieved. 5 How do we reconcilethe dramatic increase in the role of Iff in organi-zations and markets with the evidence ofminimalproductivity gains at an aggregate level of theeconomy?

We argue that the inability to realize value fromIff investments is, in part, due to the lack ofalign-ment between the business and Iff strategies oforganizations. We view strategy as involving bothformulation (decisions pertaining to competitive,product-market choices) and implementation(choices that pertain to the structure and capa-bilities of the firm to execute its product-marketchoices). Our concept of strategic alignment isbased on two fundamental assumptions: One,economic performance is directly related to theability of management to create a strategic fit be-tween the position of an organization in the com-

IilCopyright 1993 by International Business Machines Corpo-ration. Copying in printed fOmI for private use is pemIittedwithout payment of royalty provided that (1) each reproduc-tion is done without alteration and (2) the Journal referenceand IBM copyright notice are included on the first page. Thetitle and abstract, but no other portions, of this paper may becopied or distributed royalty free without further pemIissionby computer-based and other infomIation-service systems.Permission to republish any other portion of this paper mustbe obtained from the Editor.

472 HENDERSON AND VENKATRAMAN 0018-8670/99/$5.00 © 1999 IBM IBM SYSTEMS JOURNAL, VOL38, NOS 2&3,1999

473VOL32, NO 1, 1993, REPRINTIBM SYSTEMS JOURNAL, VOL38, NOS 2&3, 1999 HENDERSON AND VENKATRAMAN

petitive product-market arena and the design ofan appropriat~ admin.istrative s~ru~ure to. sup-port its executIon. Th1S assumpt10n 1S cons1stentwith the generally accepted axi.om that strate~ic

choices in the external and mternal domamsshould be consistent. 6,7 Two, we contend that thisstrategic fit is inherently dyn~c. The c~oices

made by one business e~terpnse,.or firm (1f ~~damentally strategic), wdl over time evoke im1-tative actions, which necessitate subsequent re-sponses. Thus, strategic alignment is not an eventbut a process of continuous adaptation andchange.

In this context a critical lever for attaining thisdynamic capability is not a specific set of sophis-ticated technological functionality but the orga-nizational capabilities to leverage techn?logy todifferentiate its operations from compet1tors. Inother words, no single IIf appli~ation-however

sophisticated and state of the art 1t may be-coulddeliver a sustained competitive advantage. Rather,advantage is obtained through the capability of anorganization to exploit IIf functionality on a con-tinuous basis. This requires a fundamental changein managerial thinking about the role of IIf in orga-nizational transformation, as well as an understand-ing of the criti~ component~of IIf s~ategy and itsrole in supporting and shapmg busmess strategydecisions.

Although there may be some consensus on thechanging role of IIf with~ org~ization~, manag-ers are still confronted Wlth bas1c quest10ns suchas:

• What are the implications of IIf in my businessoperations? Today? In the future?

• What are the alternative perspectives for lever-aging information technology capabilities forbusiness operations?

• Is the locus of IIf competence "inside" or "out-side" the operation?

• What is the executive role of senior manage-ment for leveraging IIf capabilities?

• How should the Iff function be organized, andwhat is the role of IIf outsourcing?

• What are the appropriate criteria for assessingIIf-based benefits?

We attempt to answer these and related questionsby developing a model that defines the range ofstrategic choices facing managers and by explor-ing how they interrelate. As a prelude to the de-

velopment of such a mod~l, let us consi.~e~ howorganizations are leveragmg IIf capabihtIes toshape and support their business strategiesthrough the following four examples:

• Eastman Kodak Company and IBM announcedan "unusual agreement under which IBM willtake over the work done by four data centers,and 300 Kodak workers will become IBM em-ployees" (Wall Street Journal, July 26, 1989).Kodak expects to cut their operating costs by asmuch as 50 percent. In addition, Kodak turnedover the management of its telecommunicationsnetwork to Digital Equipment Corp. and· themaintenance of its personal computers to Com-puterland Corp.

• Baxter Healthcare Corp. has launched a newbusiness program, ValueLink**, whereby ittakes over the materials management functionof its customers-hospitals on a partnership ba-sis with stringent performance clauses; the crit-ical business competence for offering this pro-gram is rooted in their superior informationprocessing capabilities derived from their now-famous Analytic System/Automated Purchas-ing (ASAP) information systems.

• Since the advent of electronic filing of individualincome taxes in the United States, many tax-re-turn preparers (for example, H & R Block, Inc.)have created new electronic linkages with retailfinancial institutions that enable interested tax-payers, for a fee, to receive refunds at the ~ime ofelectronically filing their return. Electromc con-nection between the filers and the Internal Rev-enue Service, combined with superior ~apability

to check for errors, has become an importantcompetency in this fast-changing marketplace.

• Procter & Gamble Co. and Wal-Mart Stores,Inc., have built upon new, integrated informa-tion systems to redesign key business processesthat affect their ability to manage the movementof products through their North Americandistribution channels. As a result, both firmsachieve significant improvements in operatingcosts and, more importantly, increased ~b!lity

to respond quickly to local market cond1tIonsand requirements.

These examples highlight different facets of align-ing IIf strategy and bu~ine~s strategy. In th~ ~ol

lowing sections, we bnefly mtroduce the buddmgblocks of our proposed Strategic AlignmentModel.

VOL32, NO 1, 1993, REPRINT IBM SYSTEMS JOURNAL, VOL38, NOS 2&3, 1999 HENDERSON AND VENKATRAMAN474

Strategic alignment: The emerging concept

Our concept of strategic alignment is based ontwo building blocks: strategic fit and functionalintegration. The former recognizes the need forany strategy to address both external and internaldomains. The extemal domain is the business

lIT strategy should be articulatedin terms of an external domain

and an internal domain.

arena in which the firm competes and is con-cerned with decisions such as product-market of-fering and the distinctive strategy attributes thatdifferentiate the firm from its competitors, as wellas the range of "make-versus-buy" decisions, in-cluding partnerships and alliances. In contrast,the intemal domain is concerned with choicespertaining to the logic of the administrative struc-ture (functional or divisional or matrix organiza-tion) and the specific rationale for the design andredesign of critical business processes (productdelivery, product development, customer ser-vice, total quality), as well as the acquisition anddevelopment of the human resource skills neces-sary for achieving the required organizationalcompetencies.

Within the business domain, the fit between ex-ternal positioning and internal arrangement hasbeen argued to be critical for maximizing eco-nomic performance. 8 We adopt this logic to arguethat the fit between external positioning and in-ternal arrangement is equally relevant within theI!I' domain. 1,9 More specifically, we contend thatIff strategy should be articulated in terms of anexternal domain-how the firm is positioned inthe Iff marketplace-and an internal domain-how the liS (information systems) infrastructureshould be configured and managed. However, ourresearch suggests that managers are more oftencomfortable with their capability to understandpositioning choices in the business marketplace(where their products are sold) than with theirunderstanding of how to be strategically posi-tioned in the I!I' marketplace (where they obtain

critical technological functionality that supportsand shapes their business strategies). This ispartly due to the fact that strategy-as a manage-ment concept-has historically been applied tothe output market rather than input markets andthat liS strategy has often been viewed as a func-

. tional, internal response to the business strategy.

Thus, we propose that the position of the orga-nization in the Iff marketplace involves three setsof choices:

1. Information technology scope-those specificinformation technologies (for example, elec-tronic imaging, local- and wide-area networks,expert systems, and robotics) that support cur-rent business strategy initiatives or couldshape new business strategy initiatives for thefirm. This is analogous to business scope,which deals with choices pertaining to prod-uct-market offerings in the output market.

2. Systemic competencies-those attributes ofI!I' strategy (for example, system reliability,cost-performance levels, interconnectivity,flexibility) that could contribute positively tothe creation of new business strategies or bet-ter support of existing business strategy. Thisis analogous to the concept of business dis-tinctive competencies, which deal with thoseattributes of strategy (pricing, quality, value-added service, superior distribution channels)that contribute to a distinctive, comparativeadvantage to a firm over its competitors.

3. Iff governance-selection and use of mecha-nisms (for example, joint ventures with ven-dors, strategic alliances, joint research anddevelopment for new Iff capabilities) for ob-taining the required Iff competencies. This isanalogous to business governance, whichinvolves make-versus-buy choices in businessstrategy. Such choices cover a complex arrayof interfirm relationships such as strategic al-liances, joint ventures, marketing exchange,and technology licensing.

In a similar vein, the internal liS domain mustaddress at least three components, namely:

1. liS architecture-choices that define the port-folio of applications, the configuration of hard-ware, software, and communication, and thedata architecture that collectively define thetechnical infrastructure. This is analogousto the choices within the internal business


strategy arena to articulate the administrativestructure of the firm dealing with roles, respon-sibilities, and authority structures.

2. liS processes-choices that define the workprocesses central to the operations of the liSinfrastructure such as systems development,maintenance, and monitoring and control sys-tems. This is analogous to the need for design-ing the business processes that support andshape the ability of the firm to execute busi-ness strategies.

3. liS skills-choices pertaining to the acquisi-tion, training, and development of the knowl-edge and capabilities of the individuals re-quired to effectively manage and operate theliS infrastructure within the organization. Thisis analogous to the skills required within thebusiness domain to execute a given strategy.

Why is the distinction important? Traditionally,managers think of IfI' strategy in terms of the latterthree components that reflect an internal orien-tation. It is understandable, since the historicalview is that Iff is a support function not essentialto the business of the firm. In the words of onefrustrated manager, "1fI' in our organization isviewed as the technical core of the MIS [manage-ment information systems] function. The wide-spread feeling is that it has very little to do withour business strategy. Unfortunately, we couldnot be farther from the truth." This statement isapplicable to those executives who view Iff as a"cost of doing business."

As IfI' emerges as a critical enabler of businesstransformation with capabilities to deliver firm-level advantages, it is imperative that firms alsopay attention to the three external components ofIfI' strategy. Hence, we argue that Iff strategyshould be elevated from its traditional internalfocus to address external issues of how well thefirm is positioned in the fast-changing IfI' market-place.

Consider the example of McGraw-Hill, Inc.'scustom publishing offering, Primis**, in the text-book marketplace. Primis reflects a strategy ofoffering custom textbooks as an alternative tostandard textbooks via its sophisticated elec-tronic imaging technology infrastructure (a three-way joint venture with Eastman Kodak and R. R.Donnelley & Sons Co.). In this business strategy,McGraw-Hill determines the needs of an individ-ual instructor and, from a set of modules, con-

structs or assembles a custom textbook that sat-isfies the market need. The IfI' strategy for thisinitiative must address and define a critical IfI'scope (electronic imaging technology), systemiccompetence (superior level of clarity of imagingto guarantee high-quality printing and flexiblebinding capability), as well as IfI' governanceGoint ventures and long-term agreements for ob-taining the requisite competencies). Choices inthese three areas determine the position of Mc-Graw-Hill in the IfI' and business marketplacesand have the potential to both shape and supportthe business strategy. Specifically, these choicescan be directly related to choices pertaining tobusiness scope and business competencies. Moreimportantly, the technology attributes playa veryimportant role in shaping these new businessstrategy initiatives. Such a view of IfI' strategy hasa clear external positioning focus that is to bedistinguished from its internal liS infrastructure.

Need to align external and internal domains ofIff.Our call for articulating IfI' strategy in terms of anexternal domain does not in any way imply thatthe internal domain is unimportant or secondary.Indeed, our field research over the last few yearsclearly indicates that the inadequate fit betweenexternal and internal domains of IfI' is a majorreason for failure to derive benefits from Iff in-vestments. One has only to scan the current bus-iness periodicals to recognize the possibility of anIff strategy failing due to the poor supporting liSinfrastructure. A vivid example is provided byCitibank N.A.'s strategy for point-of-sale (pos)information services. It launched its POS Infor-mation Services** in 1985 with the explicit idea oflinking store purchase with electronic couponing,payment, and frequent-shopper points, as well asthe electronic capture of important informationon purchase patterns. Although the general ideaof combining information and financial transac-tions is still considered worthwhile, Citibank hasreportedly faced several significant technicalproblems in the implementation of the conceptthat have resulted in its inability to establish aclear leadership position. Several similar initia-tives undertaken by competitors, although smallerin scale, are reportedly doing well, and still othersare attempting to establish an important compe-tency in this arena.

Need to integrate business and Iff domains. Thesecond dimension of the Strategic AlignmentModel is functional integration. The need to in-


Figure 1 Strategic Alignment Model

BUSINESS STRATEGY liT STRATEGY

--'<{ZII:W

~W

BUSINESSSCOPE

TECHNOLOGYSCOPE

, ,STRATEGIC FIT AUTOMATION )( LINKAGE, ,

~====±=======;;;f ~=====±=====~

ORGANIZATIONAL INFRASTRUCTURE liS INFRASTRUCTURE AND PROCESSESAND PROCESSES

BUSINESS INFORMATION TECHNOLOGY

FUNCTIONAL INTEGRATION

tegrate the Iff strategy and the business strategyhas long been advocated by both researchersand practitioners. 10-12 This dimension specificallyconsiders how choices made in the Iff domainimpact (enhance or threaten) those made in thebusiness domain and vice versa. However, muchof current research has focused only on issues ofintegrating the internal JJS strategies (JJS infra-structure and processes) with internal organiza-tional requirements as a response to businessstrategies. 13

The Strategic Alignment Model (see Figure 1)identifies the need to specify two types of inte-

gration between business and Iff domains. Thefirst, termed strategic integration, is the link be-tween business strategy and Iff strategy reflectingthe external components. More specifically, itdeals with the capability of Iff functionality toboth shape and support business strategy. Thiscapability is particularly important as Iff hasemerged as an important source of strategic ad-vantage to firms. The second type, termed oper-ational integration, deals with the correspondinginternal domains, namely, the link between orga-nizational infrastructure and processes and JJS in-frastructure and processes. This type highlightsthe criticality of ensuring internal coherence be-


tween the organizational requirements and ex-pectations and the delivery capability within thelIS function.

The logic ofstrategic alignment. A third premise ofthe Strategic Alignment Model (see Figure 1) isthat effective management of Iff requires a bal-ance among the choices made across all four do-mains. The question, then, is how do we concep-tualize and achieve this type of alignment?

The simplest approach calls for considering allcombinations of any two domains, a bivariate-fitperspective. If, for instance, the organizationaland liS infrastructures can be reconfigured easily,then a strategic perspective that focused only onstrategic integration, bivariate fit between busi-ness and Iffstrategies, could suffice. That is, if thefirm could easily adapt their internal process(both business and Iff) to support any possiblemarket positioning strategy, the executives coulddelegate this issue and spend their time under-standing only the dynamics of markets. Unfortu-nately, there exists a significant possibility thatinternal inconsistencies (mutually conflicting di-rections) will occur. For instance, a bivariate per-spective that considered only external issues(business and Iff strategies without any regard forthe internal, organizational domains) could seri-ously underestimate the difficulty (risks) of rede-signing key business processes. Alternatively, abivariate fit that considered issues ofbusiness andIff strategic fit separately has been argued to bedysfunctional. ll,1f,14

In contrast, the Strategic Alignment Model callsfor the recognition of multivariate relationships,or more precisely, cross-domain relationships.Four types of cross-domain relationships are dis-cussed in the next section.

Four dominant alignment perspectives

Business strategy' as the driver. The first two cross-domain relationships given here arise when bus-iness strategy serves as the driving force.

Perspective One: Strategy execution. As depict-ed in Figure 2, this perspective is anchored on thenotion that a business strategy has been articu-lated and is the driver of both organizational de-sign choices and the design of liS infrastructure.

Figure 2 Strategy execuUon alignment perspective

DRIVER: BUSINESS STRATEGYROLE OF TOP MANAGEMENT STRATEGY FORMULATORROLE OF liS MANAGEMENT STRATEGY IMPLEMENTORPERFORMANCE CRITERIA. COST/SERVICE CENTER

This alignment perspective is, perhaps, the mostcommon and widely understood perspective as itcorresponds to the classic, hierarchical view ofstrategic management. Thus, it is not surprisingthat several different analytical methodologiesare available to make this perspective operation-al: critical success factors,1S business systemsplanning,16 and enterprise modeling. 17

It is important to identify the specific role ofman-agement to make this perspective succeed. Spe-cifically, we contend that top management shouldplay the role of the strategy formulator to artic-ulate the logic and choices pertaining to businessstrategy, whereas the role of the liS managershould be that of the strategy implementor, onewho efficiently and effectively designs and imple-ments the required lIS infrastructure and pro-cesses that support the chosen business strategy.The performance criteria for assessing the liSfunction within this perspective are based on fi-nancial parameters reflecting a cost center focus.

Perspective Two: Technology transformation. Asshown in Figure 3, this alignment perspective in-volves the assessment of implementing the cho-sen business strategy through appropriate Iffstrategy and the articulation of the required liSinfrastructure and processes. In contrast to thestrategy execution logic, this perspective is not


Figure 3 Technology transformation alignmentperspective

DRIVER BUSINESS STRATEGYROLE OF TOP MANAGEMENT TECHNOLOGY VISIONARYROLE OF I S MANAGEMENT: TECHNOLOGY ARCHITECTPERFORMANCE CRITERIA TECHNOLOGY LEADERSHIP

constrained by the current organization design,but instead seeks to identify the best possible Iffcompetencies through appropriate positioning inthe Iff marketplace, as well as identifying the cor-responding internal liS architecture. For example,United Services Automobile Association (USAA),a leading U.s. insurance company, decided thattheir business strategy of low-cost insurance de-livery via telemarketing required the develop-ment of a superior document-handling systembased on state-of-the-art electronic imaging tech-nology. Since such technology was not available,they pursued a joint development venture withmM. Their Iff strategy involved defining this keytechnology scope and the associated critical com-petencies and committing to a technology alli-ance. Equally important, however, the strategicmanagement process also defined the changes inthe liS infrastructure that were necessary to ex-ecute this technology strategy. Thus, they under-stood the issues in migrating their technology ar-chitecture, including the need to invest in thedevelopment of a data architecture.

Another example is American Express Travel Re-lated Services Co., Inc., whose business strategyis anchored on two technology-based competen-cies: providing quick approval of purchases madeby charge card and providing copies of receipts tothe cardholders. The approval process on a

charge card (without any preset spending limit)typically has a longer lead time than a corre-sponding transaction involving their competitors'credit cards (with a preset spending limit). It wasimperative that American Express match the re-sponse time of the leading competitors to reducethe possibility of the cardholder switching to analternative, faster-transacting card. This businessstrategy required a systemic competence involv-ing expert systems (Authorizer's Assistant**) aswell as corresponding changes in the internal liSorganization for developing, maintaining, andcontrolling the systems. The second component,called ECCB (Enhanced Country Club Billing**),refers to their business practice of providing cop-ies of all charge slips with the monthly statement.Although cardholders expressed satisfaction withthis service, the cost of maintaining and distrib-uting the slips was becoming prohIbitive in thetraditional mode. Their investment in an optical-scanning, storage, and laser-printing system al-lowed the delivery of the same level of servicemore efficiently.

These examples highlight the impact of businessstrategy (especially, distinctive competence) onIff strategy (Iff governance and systemic compe-tencies, respectively) and the corresponding im-plications for lIS infrastructure and processes.Techniques used to aid executives in the devel-opment of this strategy include technology fore-casting and a variety of architectural planning ap-proaches. The role of executive management inthis perspective is to provide technology visionthat would best support the chosen business strat-egy. The role of the liS manager should be that ofthe technology architect, who efficiently and ef-fectively designs and implements the required lISinfrastructure that is consistent with the Iffvision(scope, competencies, and governance). The per-formance criteria in this perspective are based ontechnology leadership, often utilizing a bench-marking approach to assess the position of thefirm in the Iff marketplace.

Iff strategy as the enabler. The following twocross-domain relationships arise when manage-ment explores how Iff might enable new or en-hanced business strategies with correspondingorganizational implications.

Perspective Three: Competitive potentiaL Asshown in Figure 4, this alignment perspective isconcerned with the exploitation of emerging Iff


Figure 5 service level alignment perspective

Figure 4 Competitive potential alignment perspective

I T STRATEGYBUSINESS VISIONARYCATALYSTBUSINESS LEADERSHIP

DRIVER I T STRATEGYROLE OF TOP MANAGEMENT PRIORITIZERROLE OF I S MANAGEMENT EXECUTIVE LEADERSHIPPERFORMANCE CRITERIA CUSTOMER SATISFACTION

DRIVERROLE OF TOP MANAGEMENTROLE OF LS MANAGEMENTPERFORMANCE CRITERIA

tative measurements pertaining to product lead-ership such as market share, growth, or new prod-uct introduction.

Perspective Four: Service level. As shown in Fig-ure 5, this alignment perspective focuses on howto build a world-elass lIS service organization.

The specific role of top management to make thisperspective succeed is that of the business vision-aly-one who articulates how the emerging Iffcompetencies and functionality as well as chang-ing governance patterns in the Iff marketplacewould impact the business strategy. The role ofthe lIS manager, in contrast, is one of the cata-o/st-one who identifies and interprets the trendsin the Iff environment to assist the business man-agers to understand the potential opportunitiesand threats from an Iff perspective. The perfor-mance criteria in this perspective are based onbusiness leadership with qualitative and quanti-

Key examples of this perspective include the ex-ploitation by Baxter Healthcare of its Iff position(enhanced technology scope, greater systemiccompetencies, and governance with ffiM throughthe Spectrum joint venture that will provide soft-ware service to the health care marketplace) todeliver superior, value-added service to its hos-pital customers and the consequent implicationsfor redesigning the internal organizational pro-cesses. iS Similarly, the attempt by Federal Ex-press Corp. to create a new standard for over-night delivery, through its COSMOS/PULSAR**system, with corresponding implications for re-designing its internal processes or the ability ofAmerican Express, through its IDS Financial Cor-poration, to leverage its Iff infrastructure to de-velop capabilities for electronically filing incometax returns and for customized financial productsreflect how an effective Iffpositioning can be usedto enhance or create new business strategies.That is, in each of these cases, an important en-abler of the ability of the firm to move quickly toacquire technology or achieve the competenciesnecessary to embark on their strategy was theirposition in the Iff market.

capabilities to impact new products and services(business scope), influence the key attributes ofstrategy (distinctive competencies), and developnew forms of relationships (business gover-nance). Unlike the previous perspective that con-siders business strategy as given (or, a constraintfor organizational transformation), this perspec-tive allows the adaptation ofbusiness strategy viaemerging Iff capabilities. Beginningwith the threedimensions of Iff strategy, this perspective seeksto identify the best set of strategic options forbusiness strategy and the corresponding set ofdecisions pertaining to organizational infrastruc-ture and processes.


This requires an understanding of the external di-mensions of Iff strategy with corresponding inter-nal design of the I/S infrastructure and processes.This strategic fit for Iff creates the capacity tomeet the needs of I/S customers. In this perspec-tive, the role of business strategy is indirect andis viewed as providing the direction to stimu-late customer demand. This perspective is oftenviewed as necessary (but not sufficient) to ensurethe effective use of Iff. The I/S organization mustdeploy resources and be responsive to the grow-ing and fast-changing demands of the end-userpopulation. Analytical methodologies even par-tially reflecting this perspective require a system-atic analysis of both the customer needs and theproducts and services that currently exist, alongwith those under development. Examples of an-alytical methods include end-user-needs survey-ing,19 service-level contracting,2O and architec-tural planning. 21

The specific role of top management to make thisperspective succeed is that of the prioritizer, theone who articulates how best to allocate thescarce resources both within the organization andin the Iff marketplace (in terms of joint ventures,licensing, minority equity investments). The roleof the I/S manager, in contrast, is one of executiveleadership, with the specific tasks of making theinternal service business succeed within the op-erating guidelines from top management. The per-formance criteria in this perspective are based oncustomer satisfaction obtained with qualitativeand quantitative measurements using internal andexternal benchmarking.

Key Issues and management challenges

DitI'erentiating strategic alignment from tradi-tionallinkage. The Strategic Alignment Model insome ways reflects and accommodates a long his-tory of research and practice concerning the mosteffective means of linking business and technol-ogy strategies. However, the concept of strategicalignment differs from the traditional views oflinkage in four important ways (see Table 1).First, the Strategic Alignment Model calls for afundamental shift in the focus of the lIS functionfrom an internal orientation toward one of stra-tegic fit within the Iff domain, namely, recogni-tion of the external Iff marketplace in terms of thescope of the technologies, the desired level ?fcompetencies, and the locus of governance. This

shift is important if we consider that Iff has thepotential to shape business competencies and ac-tions in the product-market arena.

Second, whereas the traditional management ob-jectives for the I/S function were geared towardensuring that I/S activities are linked with the bus-iness requirements, we argue that future chal-lenges deal with the selection of appropriate align-ment perspectives (out of the four dominant onesidentified in this paper) that best suit the businessconditions and organizational objectives. This ar-gument requires the business leadership to con-sider a broader vision of the potential role andscope of Iff within organizations. In essence, thecontextual frame of reference for understandingand making strategic choices varies. One impli-cation of this variation is the need to alternateplanning processes to ensure that critical issuesassociated with the different perspectives are ad-dressed systematically.

Third, the model and the alternative alignmentperspectives highlight the diversity of roles car-ried out by both line and I/S executives. As dis-cussed earlier, the line executives must, at times,assume traditional leadership roles associatedwith strategy implementation. At other times,however, alignment requires roles includingthose of business visionary, technology vision-ary, and prioritizer. For the I/S managers, theroles range from the traditional functional man-ager (resource optimizer) to executive leadership,technology architect, and change catalyst. Rec-ognizing the diversity of these roles and ensuringthat the right role is present for the right alignmentperspective is, we argue, an important enabler ofachieving strategic alignment. Finally, the criteriafor performance assessment expand from costand service considerations to a larger set involv-ing multiple goals-both operational and strate-gic. The need to view organizational performancefrom multiple perspectives is widely recog-nized. 22 The Strategic Alignment Model helps toarticulate and emphasize how the performancecriteria shift across different alignment perspec-tives and argues that each set of criteria should bepresent across different stages in evolution.

Management implications. Several key implica-tions can be derived from the Strategic AlignmentModel. First, one possible reason for the currentdissatisfaction with the level of integration be-


Table 1 Dltlerentlatlng stndeglc alignment from traditional vtewa on linkage

Characteristics

Predominant focus of informationsystems and technology

Management objectives

US executive roles

Dominant criteria for performanceassessment

Traditional Linkage

Internal liS function andorganization

Ensuring that liS activities are linkedto business requirements

Line leadership and liS functionalsupport

Cost and service considerations

Strategic Alignment

Internal liS function and organizationand external Iff marketplace

Selecting appropriate alignmentperspectives for achieving businessobjectives

Multiple executive roles for line andliS managers

Multiple criteria

tween the business and lIS domains and possiblythe absence ofvalue derived from I/T investmentslies in the lack of understanding of the enablingstrategic choices that bind a business strategy andlIS infrastructures. Viewed within the StrategicAlignment Model shown in Figure 1, the directlink between business strategy (top left) and lISinfrastructure (bottom right) can only derive itslogic within the context of the two alignment per-spectives that have business strategy as the driv-er: strategy execution and technology transfor-mation. In the former case, the link derives itsmeaning by translating the implications of busi-ness strategy for the organizational infrastructurewith subsequent demands for I/S products andservices. In the latter case, the linkage is achievedthrough the effective positioning of the firm in theI/T marketplace, namely, the specification of thethree components of I/T strategy and the conse-quent implications for the three internal compo-nents of the lIS infrastructure and processes.

The prescription from the Strategic AlignmentModel is that both perspectives should be con-sidered for attaining the best possible link be-tween business strategy and the I/S infrastructure.More importantly, the senior line managementmust understand both perspectives. Too often,we believe, line management is engaged in theprocess of strategy execution but delegates-ex-plicitly or implicitly-the responsibility for tech-nology transformation. There appears to be oneexception-in the case of 1/1' outsourcing. How-ever, even in this case, we believe that the deci-sions are viewed from a general sense of dissat-isfaction with the costs and performance of theinternal I/T infrastructure and processes rather

than as a primary desire to be actively pursuing aposition and stake in the I/T marketplace.

Similarly, the direct link between an I/T strategyand organizational infrastructure has no straight-forward logic. One cannot and should not simplyseek to identify and adopt the best available tech-nology to restructure the organization or stream-line the business processes without due consid-eration to the two alignment perspectives thathave I/T strategy as the driver: competitive po-tential and service level. The former identifies thepotential impact of I/T strategy on business strat-egy with consequent implications for the organi-zational infrastructure. The latter seeks to pro-vide the best possible service to the internal clientby developing the appropriate basis for the rede-sign of the I/S infrastructure. We would expectthat in the absence of such understanding, therewould be a significant probability of failure forinvestments made to transfer business processes,because of an inability to provide the informationnecessary to execute the processes.

Second, managers need to reconceptualize thescope and power of the I/T strategy of the firm.The Strategic Alignment Model highlights thecompelling need to view the strategic choices inthe I/T domain in terms of both an external and aninternal orientation. Although the internal focusis traditional with a requirement to support high-er-level (corporate and business) strategies, webelieve it is also important to have an externalfocus-in terms of the requirements of position-ing the firm in the I/T marketplace (I/T scope, sys-temic competencies, and I/T governance). Thislevel of understanding will become more impor-


tant as firms realize that the source of Iff com-petencies is not entirely within the firm butinvolves a complex array of alliances and part-nerships with a wide-ranging set of firms in themarketplace.

Third, the criteria to assess the performance ofthe Iff function should be reconceptualized. It isexpected that the Iff manager would be evaluatedusing a mix of four criteria: evaluation as a costcenter (to ensure that the internall/S organizationhas its cost levels for delivering the required levelof support comparable to the external Iff vendorcommunity actively soliciting outsourcing con-tracts), evaluation as a service center (with levelsof service quality that are comparable to the best-in-industry as well as best-in-class), evaluation asa profit center (to create a sense of market refer-ent within the lIS organization), and evaluation asan investment center (through investments suchas a minority equity stake in emerging technolo-gies, joint research and development invest-ments, joint ventures, technology licensing, andother means to enhance the required Iff compe-tencies). In the absence of such a fundamentalshift in the criteria used to assess the performanceof the Iff function, the lIS organization would nothave emerged as a serious and significant memberof the top management team. Indeed, we shouldstrive to assign appropriate performance criteriafor the different alignment perspectives.

Finally, the use of this model requires an under-standing of its intrinsic dynamic nature. Many ofthe strategic planning techniques popularized inthe 1970s and 1980s have gone out of favor-notbecause of the weakness in their logic, but due totheir failure to recognize the dynamic nature ofstrategy. Managers are painfully aware that thereal business challenge is not static alignmentamong the four domains at anyone point in time(when the strategic planning exercise is carriedout!), but ensuring continual assessment of thetrends across these four domains to allow them toreposition the firm in the external environmentand rearrange their internal infrastructure. Weurge managers to recognize seriously the need toevolve from one perspective to another based onshifts in the business environment-both internaland external. This is consistent with the currentemphasis on the centrality of learning and adap-tation for achieving successful organizationaltransformation. As one senior manager who is inthe midst of adopting the Strategic Alignment

Model said: "The most important lesson to keepin mind is that strategic alignment is a journey andnot an event."

Concluding remarks

We have been asked on numerous occasions:"Which alignment perspective is the best?" Asresearchers and observers of strategic manage-ment phenomena, we do not believe that there isone universally superior mode to formulate andimplement strategy. If there were, it would not bestrategic because all firms would adopt it. Thefour dominant alignment perspectives that use thetwo strategies as the driver are equally useful andpowerful in thinking about the role of Iff in orga-nizational transformation. Indeed, we urge man-agers not to consider Iff as a panacea and conse-quently focus only on those two perspectiveswithIff strategy as the starting point (namely, com-petitive potential and service level). Nor do wewant to argue that business strategy should al-ways be the starting point and adopt only theother two perspectives on strategic alignment.The potential for Iff impact is so varied and com-plex that the executive must consider these per-spectives as alternative conceptual lenses and beprepared to continuously make adaptations.

Other papers in this special issue deal with a setof themes that complement the strategic align-ment concept. Specifically, the paper by Luftman,Lewis, and Oldach23 explores in more pragmaticdetail how to translate the Strategic AlignmentModel into management frameworks and actionplans for the transformation of the enterprise.Keen24 develops a companion concept of a fusionmap to link information technology to business op-erations; Boynton, Victor, and Pine25 examinesome of the structural transformations in the mar-ket and explore the potential role of informationtechnology capabilities; Davidson26 provides acomplementary perspective by looking at the roleof organizational competencies enhanced throughinformation technology; Konsynski27 considers insome detail the possibility of redefining firm bound-aries through information technologies and the re-quired management strategies to compete in thechanging marketplace; and Broadbent and Weill28

discuss valuable lessons from cases in the Austra-lian banking industry on this topic.

Our hope is that the conceptual model of strategicalignment and the companion papers will go a


long way toward providing a set of ideas, tools,and illustrations to leverage the emerging capa-bilities of I!I' for transforming organizations andmarkets.

"Trademark or registered trademark of Baxter HealthcareCorp., McGraw-Hill, Inc., Citibank, N.A., American Ex-press, or Federal Express Corp.

Cited references

1. P. G. W. Keen, Shaping the Future, Harvard BusinessSchool Press, Boston, MA (1991).

2. B. R. Konsynski and W. F. McFarlan, "Information Part-nerships-Shared Data, Shared Scale," Harvard Busi-ness Review 68, No.5, 114-120 (September-October1990).

3. M. S. Scott Morton, The Corporation ofthe 1990s, OxfordUniversity Press, Oxford (1991).

4. N. Venkatraman, "Information Technology-InducedBusiness Reconfiguration: The New Strategic Manage-ment Challenge," The Corporation of the 1990s, M. S.Scott Morton, Editor, Oxford University Press, Oxford(1991).

5. S. S. Roach, "Services under Siege-The RestructuringImperative," Harvard Business Review 69, No.5, 82-91(September-October 1991).

6. A. C. Hax and N. S. Majluf, The Strategy Concept andProcess:A PragmaticApproach, Prentice-Hall, Inc., En-glewood Cliffs, NJ (1991).

7. N. Venkatraman and J. C. Camillus, "Exploring the Con-cept of 'Fit' in Strategic Management,"Academy ofMan-agement Review 9, 513-525 (1984).

8. A. D. Chandler, Strategy and Structure: Chapters in theHistory ofAmerican Enterprise, The M.LT. Press, Cam-bridge, MA (1962).

9. M. M. Parker and R. J. Benson, with H. E. Trainor, In-formation Economics: Linking Business Performance toInformation Technology, Prentice-Hall, Inc., EnglewoodCliffs, NJ (1988).

10. J. C. Henderson, J. F. Rockart, and J. G. Sifonis, "In-tegrating Management Support Systems into Strategic In-formation Systems Planning," Journal of ManagementInformation Systems 4, No.1, 5-23 (1987).

11. W. R. King, "Strategic Planning for Management Infor-mation Systems," MIS Quarterly 2, No.1, 27-37 (1978).

12. E. R. McLean and J. V. Soden, Strategic Planning forMIS, John Wiley & Sons, Inc., New York (1977).

13. A. C. Boynton and R. W. Zmud, "Information Technol-ogy Planning in the 199Os: Directions for Practice andResearch," MIS Quarterly 11, 59-71 (1987).

14. P. J. Pyburn, "Linking the MIS Planwith Corporate Strat-egy: An Exploratory Study," MIS Quarterly 7, No.2,1-14 (1983).

15. J. F. Rockart, "Chief Executives Define Their Own DataNeeds," Harvard Business Review 57, No.2, 81-93(1979).

16. Information Systems Planning Guide, Business SystemsPlanning, GE20-0527-2, 3rd edition, ffiM Corporation(July 1981); available through IBM branch offices.

17. J. Martin, Strategic Data PlanningMethodologies, Pren-tice-Hall, Inc., Englewood Cliffs, NJ (1982).

18. N. Venkatraman and J. E. Short, "Strategies for Elec-tronic Integration: From Order-Entry Systems to Value-

Added Services at Baxter," MIT Center for InformationSystems Research Working Paper, Cambridge, MA(1991).

19. R. M. Alloway and J. A. Quillard, "User Managers' Sys-tems Needs," MIS Quarterly 7, 27-41 (1983).

20. R. L. Leitheiser and J. C. Wetherbe, "Service SupportLevels: An Organized Approach to End-User Comput-ing," MIS Quarterly 10, No.4, 337-349 (1986).

21. J. A. Zachman, "A Framework for Information SystemsArchitecture," IBM Los Angeles Scientific Center Re-port, G320-2785 (March 1986). Also in IBM Systems Jour-nal 26, No.3, 276-292 (1987).

22. N. Venkatraman and V. Ramanujam, "Measurement ofBusiness Performance in Strategy Research: A Compar-ison of Approaches," Academy ofManagement Review11, No.4, 801-814 (1986).

23. J. N. Luftman, P. R. Lewis, and S. H. Oldach, "Trans-forming the Enterprise: The Alignment of Business andInformation Technology Strategies," IBM Systems Jour-nal 32, No.1, 198-221 (1993, this issue).

24. P. G. W. Keen, "Information Technology and the Man-agement Difference: A Fusion Map," IBM Systems Jour-na132, No.1, 17-39 (1993, this issue).

25. A. C. Boynton, B. Victor, and B. J. Pine II, "New Com-petitive Strategies: Challenges to Organizations and In-formation Technology," IBM Systems Journal 32, No.1,40--64 (1993, this issue).

26. W. H. Davidson, "Beyond Re-engineering: The ThreePhases of Business Transformation," IBM Systems Jour-na132, No.1, 65-79 (1993, this issue).

27. B. R. Konsynski, "Strategic Control in the Extended En-terprise," IBM Systems Joumal32, No.1, 111-142 (1993,this issue).

28. M. Broadbent and P. Weill, "Improving Business andInformation Strategy Alignment: Learning from theBanking Industry," IBM Systems Journal 32, No.1,162-179 (1993, this issue).

General references

J. J. Cash and B. Konsynski, "liS Redraws CompetitiveBoundaries," Harvard Business Review 63, No.2, 134-142(1985).A. C. Hax and N. S. Majluf, Strategic Management: An In-tegrative Perspective, Prentice-Hall, Inc., Englewood Cliffs,NJ (1984).J. C. Henderson, "Plugging into Strategic Partnerships: TheCritical liS Connection," Sloan Management Review 31, No.3, 7-18 (1990).J. C. Henderson and J. G. Sifonis, "The Value of Strategic liSPlanning: Understanding Consistency, Validity, and liS Mar-kets," MIS Quarterly 12, 187-200 (1988).B. Ives and G. P. Learmonth, "The Information System as aCompetitive Weapon," Communications of the ACM 27,1193-1201 (1984).H. R. Johnston and P. Lawrence, "Beyond Vertical Integra-tion-The Rise ofValue-Adding Partnerships," Harvard Bus-iness Review 66, No.4, 94-101 (July-August 1988).R. Kling, "Social Analyses of Computing: Theoretical Per-spectives in Recent Empirical Research," Computing Surveys12, No.1, 61-110 (1980).M. L. Markus and"D. Robey, "Information Technology andOrganization Change: Causal Structure in Theory and Re-search," Management Science 34, No.5, 583-598 (1988).


F. W. McFarlan, "Information Technology Changes the WayYou Compete," Harvard Business Review 62, No.3, 98--103(1984).M. E. Porter and V. E. Millar, "How Information TechnologyGives You Competitive Advantage" Harvard Business Re-view 63, No.4, 149-160 (July-August 1985).J. F. Rockart and J. E. Short, "Iff in the 1990s: ManagingOrganizational Interdependence," Sloan Management Re-view 30, No.2, 7-17 (1989). .P. Strassman, The Informtltion Payoff, The Free Press, NewYork (1985).R. W. Zmud, A. C. Boynton, and G. C. Jacobs, "The Infor-mation Economy: A New Perspective for Effective Informa-tion Systems Management," Data Base 16, No.1, 17-23(1986).S. Zuboff, In the Age of the Smart Machine, Basic Books,New York (1988).

Accepted for publication September 8, 1992.

John C. Henderson Systems Research Center, School ofManagement, Boston University, 704 Commonwealth Ave-nue, Boston, Massachusetts 02215 (electronic mail: [email protected]). Dr. Henderson is Professor of ManagementInformation Systems and Directorofthe Systems Research Cen-ter at the Boston University School ofManagement. He earnedhis Ph.D., M.S., and B.S. degrees from the University otTexasat Austin. His early work focused on decision support systemsand the development of prototyping as an approach to develop-ing both decision support systems and the more traditional man-agement information systems. Presently, his research is focusedin three areas: the alignment of business and information tech-nology strategies, the role of information technology in buildingand managing strategic partnerships, and the use of informationtechnology to support software development teams. He has heldfaculty appointments at Florida State University and Ohio StateUniversity and has served as staff director for the Joint Com-mittee on Electronic Data Processing at the Florida legislature.Prior to coming to Boston University, Dr. Hendersonwas on thefaculty of the Alfred P. Sloan School of Management at theMassachusetts Institute of Technology. He is the author of anumber of articles dealing with management and informationtechnology issues.

N. Venkatreman Alfred P. Sloan School of Management,E52-537, Massachusetts Institute ofTechnology, 50MemorialDrive, Cambridge, Massachusetts 02135. Dr. Venkatraman isan associate professor at the Sloan School ofManagement. Heholds a Ph.D. from the University of Pittsburgh, an M.B.A.from the Indian Institute of Management, and a B.Tech. fromthe Indian Institute ofTechnology. Dr. Venkatraman has pub-lished extensively in professional and management journalsand serves on the editorial boards of Sloan Management Re-view and theAcademy ofManagement Review. For his Ph.D.dissertation he received the 1986 A. T. Kearney Award forOutstanding Research in General Management.

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