Sunday, August 17, 2008

Business-IT Alignment

We hear the term (or should I call it buzz phrase?), business-IT alignment thrown around a lot these days - especially in SOA and Enterprise Architecture circles. In fact business-IT alignment is commonly named as one of the key benefits of SOA (along with business agility, which is something I'll discuss in more detail in a future post).

So what is business-IT alignment, and why is it important? What is all the fuss about? Simply put, business-IT alignment is the extent to which IT investments are made in accordance with business strategy. In the other direction, it is also the extent to which new technologies can be harnessed in order to gain competitive advantage. Furthermore, it is also the extent to which the enterprise IT architecture aligns with and supports the enterprise business architecture.

A model for business-IT alignment is illustrated below.

The elements of this model are:

Business Strategy

Johnson and Scholes in their book Exploring Corporate Strategy define strategy as "the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.

Expanding on this, a business strategy identifies:

  • The long term strategic objectives of the business
  • The markets in which the business should compete and the business functions required to do so
  • The ways in which those business functions can be performed in such a way to gain competitive advantage
  • The resources (people, skills, IP, technology, finance, etc) necessary in order to support the business functions and compete effectively
  • The external/environmental factors that influence the business's ability to compete effectively
  • The concerns, objectives and expectations of the various stakeholders (both internal and external) that have the power to influence the success of the business

IT Strategy

As with business strategy, IT strategy involves identifying the long term view of the IT function of the business. It identifies the direction and scope of the IT function over the long term in order to achieve advantage for the organisation through its configuration of IT resources within a challenging environment to meet the needs of the business and to fulfil stakeholder expectations.

Business Architecture

Business Architecture is the process of defining the business functions, processes, capabilities, services, roles and reporting relationships that make up a business. Here, we are referring to Business Architecture applied at the enterprise level, rather than the solution level.

IT Architecture

IT Architecture is often expressed as Information Architecture, Application Architecture and Technology Architecture. I'll describe these architecture domains in more detail in future posts. In short, IT Architecture is the process of organising IT and information assets to support the business architecture and IT strategy.

Businesses that have strong business-IT alignment tend to have the following in common:

  • IT investments can be directly linked to specific strategic business objectives.
  • The business drives all major IT initiatives in conjunction and cooperation with IT.
  • The business has an explicitly defined IT strategy which is directly linked to the business strategy.
  • IT is generally seen as an investment rather than an expense.
  • IT has direct representation in the executive leadership team and as such is present during business planning and strategy sessions.

Most businesses today leverage IT only as a support mechanism. IT is viewed as a cost centre - a means to an end, rather than a strategy enabler. This is evidenced by the fact that many organisations do not have IT representation in the executive leadership team.

We see this commonly where the CFO belongs to the executive leadership team, and the CIO reports to the CFO. In some organisations, the IT function is buried even further down in the hierarchy. Business strategy is formulated without input from or support of IT. IT is then involved as late as possible in the process only as a means of executing business strategy, rather than being involved in its formulation.

As a result of this ethos, IT has little to no visibility of the business strategy. That is, IT has no visibility of the long term business plan or objectives. Consequently, IT is limited to adding value reactively rather than proactively. The IT function is directed to deliver systems with specific tactical scope, which although being part of a broader strategic vision doesn't give IT any visibility of that vision.

This results in the delivery of IT solutions that meet all the tactical requirements, but do not necessarily align with the long term strategic objectives of the organisation.

Furthermore, many organisations do not engage in Enterprise Business Architecture practices. As such, there is no enterprise-wide functional view of the business. Usually, there is only a structural view in the form of an organisation chart. We usually find various business processes that have been documented with varying levels of detail, scope and accuracy, but no view as to how those processes fit into the bigger picture or how those processes support the business strategy.

As such, IT does not have the necessary information in order to formulate an effective enterprise IT architecture. This only further forces IT down the road of acting tactically rather than strategically. If IT has no view of the enterprise business architecture, then it cannot structure its IT assets optimally so that IT systems have high cohesion and loose coupling.

A result of delivering IT systems with only a tactical focus over an extended period of time is an enterprise IT architecture that is an unstructured mess with duplication of functionality (often manifested as many applications performing similar functions across the enterprise), suboptimal distribution of data, data locked in application silos, large numbers of complex and brittle interdependencies between systems, and poor performance and reliability of business critical IT systems.

Consequently we see an ever increasing percentage of IT budget being spent on maintaining the status quo, rather than being spent on investing in new capabilities that deliver new value to the enterprise. Clearly this position is not sustainable in a competitive market.

One of the key ingredients in achieving business-IT alignment is an Enterprise Architecture program. Businesses are already seeing significant returns from this investment, and time is running out for businesses that have not yet commenced engaging in this practice.