1.5 Strategic Alignment of Business and IS

There are many perspectives on the strategic alignment and value of IS within a business. In his landmark 2004 book Does IT Matter? Nicholas Carr argues that “IT doesn’t matter.” His logic was that other early technologies such as electricity and railroads were once considered strategic, competitive advantages to those who adopted them. However, as every corporation in a marketplace adopted the same technology, these technologies no longer provided a competitive advantage but simply became a necessary commodity of doing business. Carr argued that, in his view, IT had become the same type of commodity as electricity and railroads. Because no business could gain any advantage through its use of IT, companies should minimize their use of, and expenditures for, IT.

Although both research and practice have since shown that this is a very perfunctory view, Carr raised an important point that should not be ignored. While IT is necessary to support all business processes, not all business processes are part of an organization’s set of core competencies—those aspects of the business that make it most unique in the marketplace and provide the most value to consumers. Therefore, some portions of the IT infrastructure should be minimized.

Despite this view, it is easy to find examples of businesses that have used IT in new and creative ways that have given them measurable competitive advantages over other firms. And, if these technological innovations help an organization achieve the first-mover advantage, they can create a sustainable competitive advantage. The IT infrastructure can be thought of as fulfilling two general purposes (in addition to supporting organizations and people): (1) IT should be used to support the structure of the organization deemed necessary to meet the strategy (at the lowest IT cost possible), and (2) IT should be used in creative ways to give the organization a sustainable strategic and competitive advantage (in which additional investments in IT may return value).

In general, the exact structure of the IS should be based on the needs of the business and not simply on the “latest and greatest” capabilities of state-of-the-art technology. Paradigms should shift because of potentially better business processes, not because of a new technology. There are many examples of technologies that were state-of-the-art when they came to market, but failed quickly because they didn’t deliver real value:

Failed Technology

• Google Glass (2013)

• Reason: Privacy concerns, limited functionality, high price, and social backlash.

• Summary: Despite the hype, Google Glass failed to find a market beyond niche industrial and medical applications.

• Microsoft Zune (2006)

• Reason: Late entry to the market, poor marketing, and stiff competition from the iPod.

• Summary: Microsoft’s attempt to compete with Apple’s iPod fell short due to its lack of distinguishing features and ecosystem.

• Amazon Fire Phone (2014)

• Reason: High price, lack of unique apps, and reliance on Amazon’s ecosystem.

• Summary: The Fire Phone failed to attract consumers due to its gimmicky features and limited app support.

• Apple Newton (1993)

• Reason: High cost, poor handwriting recognition, and competition from cheaper PDAs.

• Summary: Apple’s early attempt at a personal digital assistant (PDA) was ahead of its time but marred by technical issues.

• Segway PT (2001)

• Reason: High price, regulatory issues, and limited practicality.

• Summary: Although hyped as a revolutionary transportation device, the Segway never gained widespread adoption.

• Sony Betamax (1975)

• Reason: Higher cost and shorter recording time compared to VHS.

• Summary: Despite better picture quality, Betamax lost the format war to VHS due to strategic missteps.

• HD DVD (2006)

• Reason: Format war with Blu-ray, limited studio support.

• Summary: Toshiba’s HD DVD lost to Sony’s Blu-ray in the high-definition optical disc format war.

• Pebble Smartwatch (2013)

• Reason: Rapid advancements in competitor smartwatches, financial issues.

• Summary: Despite being a Kickstarter success, Pebble couldn’t compete with larger tech companies entering the smartwatch market.

• Microsoft Kin (2010)

• Reason: Poor design, limited functionality, and high cost.

• Summary: Targeted at a young audience, the Kin failed due to its lack of apps and features compared to other smartphones.

• 3D TVs (2010)

• Reason: High cost, lack of content, need for glasses, and limited improvement in viewing experience.

• Summary: 3D TV technology did not provide enough value to justify its drawbacks, leading to its decline.

• Juicero (2016)

• Reason: High cost and realization that the juice packs could be squeezed by hand.

• Summary: The expensive juicer machine faced backlash for its lack of necessity and quickly went out of business.

• Google Wave (2009)

• Reason: Complex user interface, lack of clear use case.

• Summary: Despite innovative features, Google Wave was too complicated and failed to gain traction.

• Nintendo Virtual Boy (1995)

• Reason: Poor graphics, uncomfortable to use, and limited game library.

• Summary: Nintendo’s early attempt at virtual reality gaming was a commercial failure due to its many flaws.

• Palm Foleo (2007, but canceled before release)

• Reason: Overlap with smartphones and laptops, limited functionality.

• Summary: The Palm Foleo was a sub-notebook that was deemed redundant and canceled before hitting the market.

• Facebook Home (2013)

• Reason: Limited functionality, intrusive user interface.

• Summary: Facebook’s attempt at a home screen replacement for Android phones was not well received by users.

Revolutionary Technologies

Although that is a scary list of failed technologies, in relatively rare instances of remarkable innovation, a new technology changes the paradigm and the business process must then be adjusted. In other words, if you failed to see the value in these revolutionary technologies, then you likely went out of business because your competitors did not fail:

• The Internet (early 1990s for public adoption): Revolutionized communication, commerce, and information sharing.

• Mobile Technology (2007 iPhone introduction): Untethered businesses from fixed locations, enabling mobility and constant connectivity.

• Cloud Computing (AWS launch in 2006): Provided scalable, on-demand computing resources and storage, reducing the need for physical infrastructure.

• Big Data and Analytics (late 2000s): Transformed decision-making by enabling data-driven insights and predictive analytics.

• Artificial Intelligence (AI) and Machine Learning (ML) (2010 for mainstream adoption): Enabled automation, advanced analytics, and new ways of interacting with technology.

• Social Media (Facebook launch in 2004): Transformed marketing, customer engagement, and brand management.

• Blockchain Technology (Bitcoin launch in 2009): Introduced decentralized and secure ways of conducting transactions and managing data.

• Internet of Things (IoT) (early 2010s for mainstream adoption): Connected physical devices to the internet, enabling real-time data collection and automation.

• 3D Printing (mid-2010s commercial adoption): Revolutionized manufacturing by enabling rapid prototyping and on-demand production.

• Augmented Reality (AR) and Virtual Reality (VR) (mid-2010s mainstream adoption): Provided immersive experiences for training, marketing, and design.

Technology-Ignoring Companies (Failed)

After reviewing this list, you might be thinking, “Why would anyone NOT adopt those technologies?” Believe it or not, there are a lot of big egos in business. Many CEOs thought they were smarter than the market and knew better than their customers so they skipped out on relevant technologies. You probably haven’t heard of these companies because they are now bankrupt:

• Blockbuster (2013): Ignored the internet and their customers’ demand for streaming options.

• Kodak (2012): Relied too heavily on traditional film, missing the shift to digital photography.

• RadioShack (2017): Failed to compete with online retailers like Amazon and adapt to changing consumer electronics trends.

• Borders (2011): Did not embrace the shift to e-books and online retail, unlike competitor Barnes & Noble.

• Compaq (2002): Rise of more cost-efficient and innovative assembly processes.

• Polaroid (2008): Continued to focus on instant film cameras despite the rise of digital cameras.

• Palm (2011): Ignored the smartphone; failed to innovate beyond its early success with PDAs, losing out to Apple and Android smartphones.

• Tower Records (2006): Ignored digital music streaming revolution.

• Sears (2018): Ignored consumers’ desire for online shopping until it was too late to compete.

• Toys “R” Us (2018): Ignored consumers’ desire for online shopping until it was too late to compete.

• Circuit City (2009): Ignored consumers’ desire for online shopping until it was too late to compete.

• Napster (2001): This is a unique case; Napster ignored updating regulations that legitimized digital music distribution.

How Do We Align IS with Business Strategy?

Let’s not end this discussion on a down note. There are just as many examples of companies that have fantastically succeeded in aligning IS with their business strategy. How exactly do they do it? Well, we may have made it sound above like you just have to be smart about recognizing when the best technologies come around at the right times. But there’s much more to it than that. Let’s start with what the experts have to say:

That sounds all well and good. But what exactly do they mean? Let’s dive into some detail, but also keep it simple. Here is a summary of advice from business leaders, thought leaders, and academic business research:

1. Joint Strategic Planning:

• IS and business leaders should collaborate in the strategic planning process to ensure alignment. Experts emphasize the importance of involving IS in business strategy discussions from the outset. This ensures that IT initiatives are directly aligned with business goals.

2. Implementing IT Governance Frameworks:

• Establish frameworks like COBIT (Control Objectives for Information and Related Technologies) to ensure that IT investments are aligned with business goals. This results in clearly defined roles, responsibilities, and processes for decision-making regarding IT investments.

3. Establishing Relevant KPIs:

• Develop key performance indicators (KPIs) that measure the impact of IS on business performance. Examples include measuring operational efficiency, customer satisfaction, and return on investment (ROI) for IT projects.

4. Creating Cross-Functional Teams:

• Form teams that include members from both IS and business departments to work on projects. Cross-functional teams facilitate better communication, collaboration, and understanding between IT and business units.

5. Adopting Agile Practices:

• Use agile methodologies to ensure flexibility and responsiveness to changing business needs. Agile practices enable rapid development and deployment of IT solutions that are closely aligned with business priorities. This can be achieved using Scrum, Kanban, and other agile frameworks for project management.

6. Leveraging Emerging Technologies:

• Invest in the “right” new technologies that can drive innovation and provide a competitive edge. How do you get these crucial investment decisions right? You must have regular technology assessments, pilot test projects, and partnerships with tech innovators.

7. Enhancing Communication Channels:

• Establish clear and open communication channels between IS and business units. Transparent communication helps in setting expectations, understanding requirements, and tracking progress. Implement regular status updates, strategic briefings, and feedback loops.

8. Focusing on Customer Needs:

• Align IS initiatives to enhance customer experiences and satisfaction. A customer-centric approach ensures that IT projects are designed to meet customer demands, thereby supporting business strategy. This can be implemented through customer journey mapping, user feedback integration, and customer-focused KPIs.

As you can see, quite a lot goes into aligning IS with business strategy. Does this seem like a mountain of information to learn? It really is, but like every discipline, this is why an entire academic program is developed to prepare you as an IS professional. Also, this chapter gives you somewhat of a roadmap of the topics we will cover throughout the rest of the book. Everything you learn will directly relate back to the topics covered in this chapter.