It’s the Business Model, Stupid!

When talking about business and IT alignment, our focus always goes to business strategy and its alignment with IT strategy. This thought process recognizes a fundamental truth. Unfortunately, it only gets part of the picture.

When talking about business and IT alignment, our focus always goes to business strategy and its alignment with IT strategy. This thought process recognizes a fundamental truth. Unfortunately, it only gets part of the picture.

To understand business and IT alignment, one must understand the “big picture” of the business.

An organization’s business model is its formula for success. It is the business model that defines the factors that drive the success or failure of the organization. Consequently, it is the business model, not the business strategy that is the anchor to which every aspect of the organization must conform or “align.”

The business model in turn drives the business capability required to enable it. Business strategy is an integral component of business capability but there are three other components that need to be acknowledged. Business processes, organization and IT capability are those three components that together with business strategy comprise business capability.

Business Model defines the desired business capability to create shareholder value:

  • Business Strategy defines the most effective and efficient path from “as-is” to the desired or “to be” business capability. It is the “what,” “when” and “where” of business capability
  • Business Processes power the business capability by defining the actions or steps he organization undertakes to actually create products and services that create shareholder value. They are the “how” of business capability. As a matter of fact, business strategy is also a business process
  • Business organization enables business capability. It defines the structure and skills required to enable business processes.
  • IT Capability also enables business processes by automating some or all processes

All four components of business capability must be in alignment with each other. Like four wheels on the same car, they must work in tandem to ensure forward movement of the car.

It is clear from this framework that IT Capability exists to enable business processes. However, it is driven by not just the desire to automate processes but the decision to selectively automate some and the exact manner in which they should be automated. Consequently, IT Capability is defined or driven by all three components of business capability.

Business and IT alignment then refers to business capability being aligned with IT capability.

IT Capability in turn has four components, namely, IT Strategy, IT Processes, IT Organization and infrastructure. Their purpose and definition is analogous to their business counterparts.

  • IT Strategy defines the most effective and efficient path to the desired IT Capability
  • IT processes define the work or the steps the IT organization does to create products and services that create IT value or more appropriately, value through IT
  • IT Organization enables IT processes
  • IT Infrastructure, comprised or applications, data and network, not only powers IT processes but also business processes

The entire purpose of the other three components of IT Capability is to create an IT infrastructure most suitable for the support of the “desired” business capability. By doing so, by definition, it creates shareholder value or the “biggest bang for the IT buck.”

If we think of aligning business and IT strategy, then we miss critical aspects of value creation related to processes:

  • Process Optimization: Business strategy drives business processes. However, not all processes are optimized for efficient operations. The golden rule is: optimize then automate
  • Cross Process Integration: Perhaps the most value that comes from automation is at process intersections. “Available to promise” or ATM is one such intersection for all organizations. This concept is easily explained with a manufacturing company example. Simply stated, when a sales representative takes a customer order they are making a “promise” of delivery at a certain date. In the least, this delivery date drives customer satisfaction. Indeed, some customers might not even place the order is the delivery date is not to their liking. However, it also drives revenue recognition and a host of other things that impact shareholder value. This delivery date cannot just be based on product available on the shelf, in transit or in the warehouse because there might be more orders outstanding than available at any of these locations. Consequently, ATM has to factor in the demand forecast, production plan and supply chain. This is a very complex undertaking but as discussed above one that is critical to shareholder value.

Similarly, organization – structure and skills – have a significant impact on IT capability. Focusing on business strategy and missing organization is counterproductive to the goal of IT creating shareholder value.

So the next time you think of business and IT alignment, think of the big picture. The next time you wonder why IT is not creating the biggest bang for the buck focus on aligning business and IT capability not just business and IT strategy.

About the Author:

Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit www.StartSmartS.com. Or feel free to contact Sourabh at Sourabh.Hajela@StartSmartS.com


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Posted on 05/19/2009 by


It’s the Business Model, Stupid! author sourabhhajela

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