Empam Management Journal Vol. 11, No. 2, pp. 139-149, 1993. 0263-2373193 $6.00 + 0.00.

Prrnted in Great Britain. Pergamon Press Ltd.

ContinuousStrategic
Alignment:
ExploitingInformation
TechnologyCapabilitiesfor
CompetitiveSuccess
N. VENKATRAMAN, Associate Professor of Management, MIT Sloan School of Management,
Massachusetts Institute of Technology, USA; JOHN C. HENDERSON, Professor of Management
Information Systems, School of Management, Boston University, USA; SCOTT OLDACH,
IBM Corporation, Brussels

There is widespread acceptance that information and McFarlan 1990; Scott Morton 1991; Venkatraman
technology (IT) and information systems (IS) have 1991). Yet there is an increasing concern that the antici-
evolved from a traditional administrative, back- pated value of IT investment is not being achieved
office support orientation towards a more strategic, (Roach 1991; Strassman 1990) with a growing number
central role within organizations. In this paper, of firms outsourcing their IT operations (Venkatraman
N. Venkatraman, John Henderson and Scott Oldach and Loh 1993). How do we reconcile the seemingly
discuss analytical and administrative approaches for conflicting view of strategic benefits from IT with the
conceptualizing and managing the emerging nexus evidence of minimal productivity gains at an aggregate
between strategic management and information level of the economy as well as increased incidence of
technology. They discuss the analytical approach IT outsourcing?
through their Strategic Alignment Model - defined
in terms of four basic domains of strategic choice: In this article, it is argued that the inability to realize
business strategy, information technology strategy; value from IT investments is first due to the lack of
organization infrastructure and processes, and alignment between the business and IT strategies of the
information technology infrastructure and pro- organizations that are making the investments. Further,
cesses. Subsequently, the administrative approach it is asserted that the organization’s ability to leverage
for achieving strategic alignment is discussed in IT functionality to obtain differential advantage in the
terms of a set of alignment mechanisms: governance marketplace requires a dynamic administrative process to
process, technology capabilities, human resource ensure continuous alignment between the business and IT
capabilities and value management. The power of domains.
this two-pronged model is highlighted through
illustrations from the authors’ research and Accordingly, a two-pronged framework of continuous
professional experience. strategic alignment is developed that is derived from
systematic field research over the last five years and the
authors’ professional experience in applying the frame-
work across a large array of organizations both in the
Introduction USA and Europe. This framework (see Figure 1) has an
Across a wide spectrum of markets and countries, analytical component that we term as strategic alignment
information technology (IT) is transcending its tradi- and an administrative component that we term as
tional ‘back office’ role and is evolving to a ‘strategic’ achieving alignment. As Table 1 highlights, neither
role. The implication is that such a shift has the potential component alone is sufficient as both are required to
not only to support chosen business strategies but also create and sustain the dynamic link between business
to shape new business strategies (Keen 1991; Konsynski and IT domains.

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CONTINUOUS STRATEGIC ALIGNMENT

their superior information processing capabilities

Continuous Alignment derived from their now-famous Analytical System
for Automated Purchasing (ASAP) information
systems (see Short and Venkatraman 1992 for an
elaboration of this example).
. Procter and Gamble and Walmart have built upon
new, integrated information systems to redesign
key business processes that affect their ability to
manage the movement of products through their
North American distribution channels. As a result,
both firms achieve sign~icant improvements in
operating costs and, more importantly, increased
Figure 1 Two Components of Continuous Strategic ability to respond quickly to local market conditions
Alignment and requirements.

What do these examples have in common? They high-

Analytical Component: Strategic light different facets of an organization’s IT strategy and
Alignment its link with business strategy.
As a prelude to discussing the analytical component,
let us consider some cases where organizations are
leveraging IT capabilities to shape and support their The Importance of Articulating IT Strategy
business strategies: Along an External Orientation
Although there is widespread acceptance that IT is a
Eastman Kodak and IBM announced an ‘unusual powerful and underexploited source of strategic advan-
agreement under which IBM will take over the tage, many managers - both business and IS managers
work done by four data centers, and 300 Kodak alike - continue to view IT strategy as a functional
workers will become IBM employees’ (Wall Street strategy that responds to the chosen business strategy.
Journal, 26 July 1989). Kodak expects to cut their In other words, the management focus is still on the
operating costs by as much as 50%. In addition, activities and skills within the internal IS function
Kodak turned over the management of its telecom- dealing with the following:
munications network to Digital Equipment Cor-
poration and the maintenance of its personal . IS architecture - choices that define the portfolio
computers to Computerland. (See Venkatraman of applications, the configuration of hardware,
and Loh 1993 for an executive summary of senior software and communicaiion, and the data archi-
management views on IT outsourcing.) tecture that collectively define the technical infra-
Baxter Healthcare has launched a new business structure; this is analogous to the choices within
programme, ValueLink, whereby it takes over the the internal business strategy arena to articulate
materials management function of its customers the administrative structure of the firm dealing with
and hospitals on a partnership basis with stringent roles, responsibilities and authority;
performance clauses; the critical business com- l IS processes - choices that define the work
petence for offering this programme is rooted in processes central to the operations of the IS

Table 1 Contlnuous Strategic Alignment: Dynamic Interplay Between Analytical and Administrative Components

Charac~erisfics Anal~icai Co~~onefft Ad~jnjstrafj~e Component

Main Focus Understanding the nature and pattern of Developing the management processes
interrelationships between business and that ensure consistency between the
IT domains analytical logic of strategic alignment
and the operational domain responsible
for delivering IT products and services

~js~jncfi~e Emphasis Scanning; planning; thinking; Implementation; adaptation;

interpretations; scenario building, etc. prioritization; process-interdependencies;
monitoring and control

Key Concepts Business Strategy; IT Strategy: Governance Process; Human Capability;

Organization Infrastructure; and IT Technology Capability and Value
infrastructure Management

Primary ~esponsjbjlity Business and IT Strategists; Top Operating Management and IT/IS
Management Management

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 CONTINUOUS STRATEGIC ALIGNMENT

infrastructure, such as: systems development, . IT Governance: selection and use of mechanisms
maintenance, upgrading and migration, capital (examples: joint ventures with vendors, strategic
allocation, as well as monitoring and control alliances, joint R&D for new IT capabilities) for
systems; this is analogous to the need for design- obtaining the required IT competences; this is
ing the business processes that support and shape analogous to business governance which involves
the firm’s ability to execute business strategies; ‘make-versus-buy’ choices in business strategy.
and Such choices cover a complex array of inter-firm
. IS skills - choices pertaining to the acquisition, relationships, such as: strategic alliances, joint
training and development of the knowledge and ventures, marketing exchange, joint R&D and
capabilities of the individuals required to effec- technology licensing.
tively manage and operate the IS infrastructure
within the organization; this is analogous to the
Aligning External and Internal Orientations
organizational skills required within the business
domain to execute a given strategy. Our call for articulating IT strategy in terms of an
external orientation does not in any way imply that the
\Z’econtend that such an internally-oriented view is internal orientation is unimportant or secondary.
restrictive, myopic and potentially dysfunctional as it Indeed, our field research over the last few years clearly
does not deal with critical and emerging sources of indicates that the inadequate fit between external and
capabilities in the IT marketplace. We urge managers internal orientations of IT is a major reason for failure
to articulate their IT strategy along an external orienta- to derive benefits from IT investments. One has only
tion with a particular focus on their position in the IT to scan the current business periodicals to recognize the
marketplace. Let us review Kodak’s alliances with IBM, possibility for an IT strategy to fail due to the poor
Digital and Computerland. It highlights not their supporting IS infrastructure. A vivid example is pro-
approach to organizing their internal IS function but vided by Citibank’s strategy for point-of-sale (POS)
their attempt to define their unique position in the IT information services. It launched its POS Information
marketplace to obtain new competences. Traditionally, Services in 1985 with the explicit idea of linking store
the user organizations viewed the technology market- purchase with electronic couponing, payment and
place as a market for obtaining critical inputs, where the frequent-shopper point as well as the electronic capture
dominant mode of positioning has been one of a of important information on purchase patterns. While
vendor-buyer relationship (namely, a standardized the general idea of combining information and financial
transaction). Kodak’s alliances, on the other hand, transactions is still considered worthwhile, Citibank has
underscore a shift from a standard buyer-supplier reportedly faced several significant technical problems
relationship to one of a partnership (see Henderson in the implementation of the concept that has resulted
1991 for an overview of the importance of partnerships in its inability to establish a clear leadership position.
in the IT arena), with increased shift in the locus of Several similar initiatives undertaken by competitors,
responsibility and authority for managing the user’s IT although smaller in scale, are doing well and still others
infrastructure. are attempting to establish an important competency in
this arena.
Clearly, the articulation of an organization’s IT strategy
is broader than its alliances and partnerships with Figure 2 is a schematic representation of our strategic
technology providers. We believe that there are three alignment model. It is based on four basic concepts:
important dimensions of IT strategy: business strategy and organizational infrastructure
representing the business domain; and IT strategy and
. lnformation Technology Scope: those specific infor- IT infrastructure and processes representing the IT
mation technologies (examples: electronic imaging, domain. Within this representation, we specify the link
local- and wide-area networks, expert systems and between business strategy and IT strategy as reflecting
robotics) that support current business strategy the capability to leverage IT strategy to both shape and
initiatives or could shape new business strategy support business strategy. Correspondingly, the link
initiatives for the firm; this is analogous to business between Organizational Infrastructure and Processes,
scope which deals with choices pertaining to and IT Infrastructure and Processes reflects the need to
product-market offerings in the output market. ensure internal coherence between the organizational
. Systemic Competences: those attributes of IT strategy requirements and expectations and the delivery capa-
(examples: system reliability, cost-performance bility within the IS function. For those interested in the
levels, interconnectivity, flexibility) that could con- theoretical underpinnings of this model, please refer to
tribute positively to the creation of new business Henderson and Venkatraman (1991).
strategies or better support existing business
strategy; this is analogous to the concept of business
distinctive competences which deal with those attri- Four Dominant Alignment Perspectives
butes of strategy (e.g. pricing, quality, value-added Figure 3 summarizes four dominant alignment perspec-
service, superior distribution channels) that contri- tives - each representing a ‘triangle’ of three concepts
bute to a distinctive, comparative advantage to a covering both business and IT domains, as well as
firm over its competitors. internal and external domains. Each perspective is

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CONTINUOUS STRATEGIC ALIGNMENT

Business Domain LT. Domain

External Business Information Technology

Strategy Strategy

Organization
Internal Infrastructure and
Processes

Figure 2 The Strategic Alignment Model

unique in terms of the driver - either business strategy Two examples illustrate this perspective: USAA, :
or IT strategy and represents distinct management leading US insurance company, decided that the bes
implications. strategic option involved the development of a superio
document handling system based on state-of-the-ar
Perspective One: strategy execution electronic imaging technology. This was accomplishec
This perspective reflects a notion that the business through a joint development venture with a key vendor
strategy is the driver of both organization design choices IBM, with subsequent changes to the internal IS infra
and the logic of IS infrastructure. This is, perhaps, the structure: data, applications and configurations. Anothe
most common and widely understood alignment example is given by American Express Travel Relatec
perspective as it corresponds to the classic, hierarchical Services, whose business strategy is anchored on twc
view of strategic management. Thus, it is not surprising technology-based competences: quick approval of pur
that several different analytical methodologies are avail- chases and providing copies of receipts to the card
able to operationalize this perspective, where the more holders. Approval process on a charge card (i.e., withou
popular approaches include critical success factors any pre-set spending limit) typically has a longer lead,
(Rockart 1979), business systems planning (IBM Cor- time than a corresponding transaction involving thei]
poration 1981) and enterprise modelling (Martin 1982). competitors’ credit card (with a pre-set spending limit)
I’he top management should play the role of the strategy It was imperative that American Express at least matchec
Formulator to articulate the logic and choices pertaining the response time of the leading competitors, failing
to business strategy, while the role of the IS manage- which the cardholder may switch to an alternative,
ment should be that of the strategy implementor - for faster-transacting card. This business strategy requirec
efficiently and effectively designing and implementing a systemic competence involving expert-systems (Auth,
the required IS support to the chosen business strategy. orizer’s Assistant) as well as corresponding changes ir
The performance criterion in this perspective is based the internal IS organization for developing, maintaining
.m financial parameters reflecting a cost centre focus. and controlling the systems. The second component,
termed ECCB (Enhanced Country Club Billing) refer:
Perspective Two: technology potential to their business competence of providing copies of al
rhis alignment perspective involves the articulation of charge slips with the monthly statement. While card
IT strategy to support the chosen business strategy and holders expressed satisfaction with this service, the cos
the corresponding specification of the required IS infra- of maintaining and distributing the slips was becoming
structure and processes. In contrast to the strategy prohibitive in the traditional mode. However, an optica
execution logic, this perspective is not constrained by scanning, storage and laser-printing system allowed thl
the current organization design, but instead seeks to delivery of the same level of service more efficiently
identify the best possible IT competences through
appropriate positioning in the IT marketplace as well These examples highlight the impact of business strateg]
as identifying the corresponding internal IS architecture. (especially distinctive competence) on IT strategy (I1

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 CONTINUOUS STRATEGIC ALIGNMENT

Perspective One: Strategy Execution Perspective Three: Competitive Potential

DriWr: Business strategy

Role of Top Management: Stratey Formulator

Roleof IS Management Strategy Implementor

Performance criteria: Cost/Service Center

IT Strategy

Perspective Four Service Level

Perspective Two: Technology Potential

DriWl: IT strategy

Role of Top Management Prioritizer

Role of IS Management: Executive Leadership

Performance criteria: Custome* Satisfaction

Figure 3 Four Dominant Alignment Perspectives

governance and systemic competences, respectively) exploitation of emerging IT capabilities to impact new
and the corresponding implications for IS infrastructure products and services (i.e., business scope), influence
and processes. As this is a new alignment perspective, the key attributes of strategy (distinctive competences),
analytical perspectives and methodologies are obviously as well as develop new forms of relationships (i.e.,
fcbw and limited. The more promising ones include business governance). Unlike the two previous perspec-
Gartner’s G/CUE, which examines an organization’s tives that considered business strategy as given (or a
business strategy and develops implications for IT constraint for organizational transformation), this per-
strategy with respect to key trends in the IT markets via spective allows the modification of business strategy via
technology scanning, scenarios as well as identify emerging IT capabilities. Beginning with the three
the implications for migrating from the current IT dimensions of IT strategy, this perspective seeks to iden-
infrastructure to the desired state. tify the best set of strategic options for business strategy
and the corresponding set of decisions pertaining to
For this alignment perspective to succeed, the top organizational infrastructure and processes.
management should provide the technology vision to
articulate the lgoic and choices pertaining to IT strategy Key examples of this perspective include: the exploita-
that would best support the chosen business strategy, tion by Baxter Healthcare to leverage its IT strategy
while the role of the IS manager should be that of the (enhanced technology scope, greater systemic com-
technology architect - who efficiently and effectively petences and governance with IBM through the
designs and implements the required IS infrastructure Spectrum joint venture) to deliver superior, value-added
that is consistent with the external component of IT service to its hospital customers and the consequent
strategy (scope, competences and governance). The implications for redesigning the internal organizational
performance criterion in this perspective is based on processes (for details, see Short and Venkatraman 1992);
technology leadership with qualitative but insightful the attempt by Federal Express to create a new standard
benchmarking along a set of critical measures pertaining for overnight delivery through its COSMOS/PULSAR
111the positioning in the IT marketplace. system and the corresponding implications for redesign-
ing its internal processes; and the ability of American
Express, IDS division, to leverage its IT infrastructure
Puspectiue Three: competitive potential to develop capabilities for electronically filing income
This alignment perspective is concerned with the tax returns as well as leveraging the information for

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CONTINUOUS STRATEGIC ALIGNMENT

tailoring its financial products to the individual needs efforts without corresponding attention to the strategy
(Venkatraman and Kambil 1991). implementation issues.

The specific role of the top management to make this To ensure adequate attention to the administrative
perspective succeed is that of the business visionary, practice of achieving alignment, we introduce four
who articulates how the emerging IT competences and alignment mechanisms, as shown in Figure 4. These are
functionality as well as changing governance patterns the governance process, which specifies the allocation of
in the IT marketplace would impact the business decision-rights to the various decision makers within the
strategy. The role of the IS manager, in contrast, is one organization as well as outside vendors and partners as
of the catalyst, who identifies and interprets the trends may be appropriate; technological capability - the mech-
in the IT environment to assist the business managers anism for specifying and modifying the various IT
to understand the potential opportunities and threats products and services required to support and shape
from an IT perspective. The performance criterion in this business strategy; human capability - the mechanism for
perspective is based on business leadership with quali- specifying and modifying the various human skills
tative and quantitative measurements pertaining to required to support and shape business strategy; and
product leadership (market share, growth, new product z&ue managemenf - the mechanism for allocating the
introduction, etc.). required resources as well as ensuring that the maximal
benefits are realized from IT investments. Finally, we
Perspective Four: service level specify strategic control as the ongoing strategic manage-
This alignment perspective focuses on how to build a ment task that attempts to maintain internal consistency
world class IT/IS organization within an organization. among these four mechanisms.
This requires the articulation of the external dimensions
of IT strategy with corresponding internal logic for the ~ove~i~~ce process
IS infrastructure and processes, with appropriate impli- By governance we refer to the policies, procedures and
cations for the organizational infrastructure and pro- systems for the aIlocation of design-rights to the key
cesses. In this perspective, the role of business strategy decision makers both within the organization as well as
is indirect. This perspective is often viewed as neces- external vendors and/or partners responsible for IT
sary (but not sufficient) to ensure the effective use management. Typically, the management challenges of
of IT resources and be responsive to the growing adminis~ation have been viewed in terms of ‘centraliza-
and fast-changing demands of the end-user popula- tion versus decentralization’. More recently, with
tion. Analytical methodologies even partially reflecting increased incidence of IT outsourcing, we see attention
this perspective require a systematic analysis of the given to ‘inside versus outside’ modes of IT governance.
IT markets as well as possible service contracting Our belief is that effective governance involves balancing
approaches. along both sets of options: centralization versus decen-
tralization as well as inside versus outside. Some
The specific role of the top management to make this decisions, for example, infrastructure standards, may
perspective succeed is that of the prioritizer, who be more appropriately vested with a central body, while
articulates how best to allocate the scarce resources both other decisions pertaining to leveraging IS applications
within the organization as well as in the IT marketplace for business purposes may be more suitably decentral-
(in terms of joint ventures, licensing, minority equity ized to the business units. Similarly, in the wake of
investments, etc.). The role of the IS manager, in managing the IT function using inter-organizational
contrast, is one of business leadership, with the specific alliances and partnerships (including outsourcing),
tasks of making the internai business succeed within the some decisions, such as operations and maintenance,
operating guidelines from the top management. The may be shifted outside the organizational boundary
performance criterion in this perspective is based on while other decisions, design of the infrastructure or
customer satisfaction with qualitative and quantitative migration plans, may be kept inside the organization,
measurements with internal and external ~nchrn~~ng.

Administrative Component: Achieving I Governance

Strategic Alignment
The second component deals with the management
challenge of ~a~lating the strategic choices made with
reference to the four concepts of the strategic alignment
model (Figure 2) into administrative practice and opera-
tional decision-making. We believe that many companies
- while devoting considerable attention to the evalua-
tion of alternative choices within the four concepts of
the strategic alignment model - have not devoted as
much time or thinking to the administrative challenge 1Management
of ensuring that these four concepts would be in balance
in practice. This is akin to excellent strategy formulation Figure 4 Four Alignment Mechanisms

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 CONTINUOUS STRATEGIC ALIGNMENT

The main challenge in designing the governance process design the necessary data standards, redesign and
is to articulate the rules by which the allocation of implement integrated systems that support the indivi-
decision-rights would be specified and modified, as well dual service manager providing customer service. The
as the process by which the conflicts would be resolved. resultant functionality was that the service manager
Mechanisms for dealing with conflict resolution play a could not only obtain an image of the policy document
\rery efficient (and effective) role in ensuring that the but could also access supporting financial records and
logic for allocation of decision-rights is maintained other relevant information.
through the decisions on a continuous basis. This is
particularly important as effective governance of the Adaptation. This focuses on the adaptation and migration
IT function involves a myriad of decisions taken by issues associated with technological capability. The
several different decision-makers across organizational importance of this activity can be easily appreciated
boundaries. given the dynamic evolution in the price-performance
of IT as well as in the proliferation of multiple, com-
More specifically, the decision categories deal with the peting standards. In our research, this issue was most
development of technological and human capabilities, commonly observed with reference to ‘legacy systems’
and value management, as discussed below. - those that have been in existence for some time and
cannot be easily changed without incurring significant
Technological capability commitment of financial resources and time. Thus,
This alignment mechanism deals with the administrative while such systems may be efficient (low cost, given that
process for creating the required IT capability for the initial capital may be amortized), they restrict the
supporting and shaping the business strategy. This development of new capability for the organization. We
involves three important and interconnected activities: argue that this issue cannot be swept under the carpet
dc$nifion of IT products and services that collectively and should be attacked head-on through the institution
define the capability; development of IT products and of an administrative process.
services to harness the capability for business purposes;
and adaptation of IT products and services to dynamically Human capability
evolve the capabilities to the changing requirements. This alignment mechanism deals with the administrative
process for creating the required human skills and capa-
Definition. This deals with the administrative processes bility for supporting and shaping the business strategy.
of scanning the technology environment to identify This involves three important and interconnected activi-
those existing and potential IT-related capabilities that ties: definition of human skills and capability; development
could support and shape business strategy. It is impor- of these skills and capability within the specific organi-
t‘mt to recognize that the focus is not simply to identify zational context; and adaptation of these capabilities to
the set of technologies but in defining the totality of the cater to the changing requirements.
capabilities offered by the chosen set of technologies.
For example, in the case of a financial services organiza- Definition. This deals with the definition of human
tion, an important technological capability is global, capabilities within the organizational context required
seamless information access and analysis across different to shape and support the business requirements. The
data sources and distinct media. The specific set of reason for its importance stems from the argument that
technologies selected may involve trade-offs along the organizations of the future will seek to blend the
several criteria, including the particular set of stan- technological capabilities with appropriate human skills
dards within the organization. This is analogous to the and capabilities to develop the overall set of organiza-
customer needs satisfied by a set of products in the case tional capabilities. Neither technology nor human skills
of business strategy. alone would be effective as they fail to leverage impor-
tant complementary sources of capabilities. The defini-
Development. This deals with the principles, policies and tion of human skills, in our view, is more than the
rules that will govern the development and implementa- specification of traditional job descriptions for hiring or
tion of these capabilities, For instance, an important promotion but involves the articulation of how human
issue pertains to the articulation of the relationships skills support and complement the available or potential
between the required technological capability for the IT capabilities. For instance, the definition of the skills
future and the current standards. What if they are of a customer service manager would be articulated not
inconsistent? Similar to the analysis of the impact of a merely in terms of the number of years of education and
new product introduction on the profitability of existing experience but in terms of how the overall capability
products, this mechanism must assess the trade-off of superior customer service would be delivered by
between current standards and new functionality. One harnessing the required human and IT skills.
example of this is found in the introduction of image
processing technology to support telemarketing service Development and Adaptation. This deals with the process
b\r USAA, which instituted a careful management for developing the skills within the organizational
review and monitoring programme directed at the context. Our position is that organizations spend a lot
implementation of image processing. They did not of resources to develop human skills, independent of
underestimate the impact of this technology on the their investments in IT capabilities. More importantly,
existing IT infrastructure and, hence, they were able to the investments in training to leverage IT functionality

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CONTINUOUS STRATEGIC ALIGNMENT

is minimal compared to the investments in technological ment in designing an appropriate measurement to

systems and applications. We highlight the importance ensure IT investments achieve desired benefits has
of an ongoing process that allows the human skills to increased significantly.
be continually updated to minimize the need for large-
scale layoffs that are invariably due to the mismatch Two factors are central to effective performance manage-
between existing human skills and the requirements. ment systems: focus and actionability (Curley and
Henderson 1989). Focus refers to both the number of
Value management measures in use as well as the underlying concepts they
This mechanism deals with those actions taken to (1) are intended to measure. Planning concepts such as
establish the means to select IT investments, (2) define Critical Success Factors (Rockart 1989) and others have
the performance management system that will maximize emphasized the need to identify a few critical issues that
the likelihood that these investments will achieve are central to organizational success. A performance
desired benefits, and (3) learn how to adapt this perfor- measurement system with too few or too many measures
mance management over time. We view this as being is argued to be ineffective. Of course, the challenge is
decoupled from the day-to-day operational control and to effectively identify and design this core measurement
the management of IT. Rather, it is the mechanism by system. Actionability is the second factor in effective
which the senior management team establishes the performance management systems. An outcome-based
principles, policies and rules that will guide individual measurement system can be used to create incentives
managers in their efforts to continually align IT and and to identify potential problems. But such a system
business strategies. does not enable the manager to diagnose’causes of the
problems and to use this insight to take actin. Current
Three interrelated activities comprise value management: thinking in total quality and service quality eFphasizes
(1) investment decisions; (2) performance management; the need for a causal approach to performance manage-
and (3) evaluation. Traditionally, the IT investment ment. In a service intensive system, it is not sufficient
decision falls within the capital budgeting process where to rely on only outcome measures (e.g., profit or
the potential IT impacts are described in productivity customer satisfaction), and one must identify the critical
terms. There is widespread dissatisfaction with this view processes that contribute to these outcomes and pro-
of value management. First, as the impact of IT invest- vide measures of these processes as well. Curley and
ments has begun to reshape the work environment Henderson (1992) have argued that this process-outcome
(business process re-engineering), the productivity/ perspective must also be extended to explicitly reflect
financial orientation of most capital budgeting processes individual, functional and business unit issues. The
has proven too limited, both to reflect the true value of concept of Value Management requires both horizontal
the investment and to adequately represent the risks (i.e., process to outcome) and vertical (individual to
(radical change) associated with the investment. While functional to business) linkage.
the technical component of risk may be recognized (i.e.,
the risk that the system may not deliver the required We observed the operational implications of this logic
technical features), the true risk associated with the in the performance management system of a large US
radical change in the organization is often significantly agricultural products company. The company’s objec-
underestimated. tive for a major IT initiative was to increase profitability
by reducing the level of inventory prestaged in the
Second, the value of many capital investments is asso- distribution channel by 50%. While the economic out-
ciated with the future flexibility provided by the resulting come measure was clear, the management team also
infrastructure. For example, the value of a project to identified those processes that most affected the inven-
provide access to all corporate data lies, in large part, tory levels and established measures for these processes.
in the follow-on projects that produce direct productivity They then developed a direct relationship between these
gains. Unfortunately, the traditional capital budgeting processes and the proposed IT investment. This causal
process will systematically undervalue this opportunity linkage, i.e. IT enables specific process changes which
to create future options. Perhaps more importantly, the delivers specific economic impacts, formed the core of
application of this net present value (NPV) oriented their performance management system. They extended
approach to most IT investments tends to further their measurement system to the individual level,
obscure the true risks of the IT investment. As Kambil, identifying those activities required by each individual
Henderson and Mosidan (1992) argue, it results in a role. Again, performance measures were developed and
single-point investment decision-making process rather the role of IT in improving this performance specified.
than a multi-phased process required to manage both Finally, the potential for developing strategic impacts
the risks and opportunities associated with an options such as increased market share was evaluated and
creating investment. incorporated into their measurement system. As a result
of this effort, the management team deployed the
Performance Management. This deals with the design of system of measures which helped to ensure that the IT
the measurement system that will be used to guide the investment actually achieved expected benefits.
operational activities of the firm with a particular focus
on the logic for the design of measures. With the current Evaluation. We view the evaluation capability in terms
emphasis on total quality, the involvement of manage- different from the traditional IT audit. To maximize

146 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993

 CONTINUOUS STRATEGIC ALIGNMENT

organizational learning, evaluation must be considered benefits from IT investments. We emphasize the impor-
at the initiation of any project. This is akin to an experi- tance of the alignment mechanisms (Figure 4) that
mental design approach that asks the question: ‘how ensure that the appropriate logic for allocating decision-
can we design the next phase of this project to maximize rights has been put in place as well as that the required
the amount of learning from this effort?‘. As we consider technological and human capabilities are being harnessed
IT initiatives that fundamentally change the nature of on a continuous basis within the overall scheme of
work, this experimental, continuous improvement value management. These alignment mechanisms over
perspective is critical. While most managers recognize time create the dynamic organizational capabilities to
the value of this activity, the tactical demands of day- transform the corporation effectively.
to-day operations sidetrack efforts in this area. As a
result we see the same mistake made over and over We underscore that the use of our approach and the
and, perhaps worse, the inability of one part of the underlying models requires an understanding of its
organization to learn from another. intrinsic dynamic nature. Much of the strategic planning
techniques popularized in the 1970s and 1980s have
gone out of favour - not because of the weakness in
their logic but due to their failure to recognize the
Management Implications dynamic nature of strategy. Managers are painfully
We believe that a major reason for the current dissatis- aware that the real business challenge is not static align-
faction with the level of integration between the business ment among the four domains at any one point in time
and IS domains and possibly the absence of value (when the strategic planning exercise is carried out!),
derived from IT investments lies in the lack of under- but ensuring continual assessment of the trends across
standing of the enabling strategic choices that bind a these four domains to allow them to reposition the firm
business strategy with the IS infrastructure. Viewed in the external environment and rearrange their internal
within our Strategic Alignment Model (Figure 2), the infrastructure. We urge managers to seriously recognize
direct link between business strategy (top left) and IS the need to evolve from one perspective to another
infrastructure (bottom right) can only derive its logic based on the shifts in the business environment - both
within the context of the two alignment perspectives internal and external. This is consistent with the current
that have business strategy as the driver: strategy execu- emphasis on the centrality of learning and adaptation
tlcln and technology potential. In the former case, the link for achieving successful organizational transformation.
derives its meaning from translating the implications of As one senior manager who is in the midst of adopting
business strategy for the organizational infrastructure the strategic alignment model said: ‘the most important
with subsequent demands for IS products and services. lesson to keep in mind is that strategic alignment is a
In the latter case, the link is achieved through the journey and not an event’.
effective positioning of the firm in the IT marketplace;
namely, the specification of the three components of We have been asked on numerous occasions: ‘Which
IT strategy and the consequent implications for the alignment perspective is the best?‘. As researchers and
three internal components of the IS infrastructure and observers of strategic management phenomena, we do
processes. not believe that there is one universally-superior mode
to formulate and implement strategy. If there were, it
Similarly, the direct link between an IT strategy (top would not be strategic as all firms would adopt it. The
right) and organizational infrastructure (bottom left) has four dominant alignment perspectives that use the two
no direct meaning. One cannot and should not simply strategies as the driver are equally useful and powerful
seek to identify and adopt the best available technologies in thinking about the role of IT in organizational trans-
to restructure organization or streamline the business formation. Indeed, we urge managers not to consider
processes without due consideration to the two relevant IT as a panacea and consequently focus only on those
alignment perspectives that have IT strategy as the two perspectives with IT strategy as the starting point
driver: competitive potential and service level. The former (namely, business transformation and service level). Nor
identifies the potential impact of IT strategy on business do we want to argue that business strategy should
strategy with consequent implications for organizational always be the starting point and adopt only the other
infrastructure. The latter seeks to provide the best two perspectives on strategic alignment. The potential
possible service to the internal client by developing the for IT impact is so varied and complex that the executive
appropriate basis for the redesign of the IS infrastruc- must consider these perspectives as alternative concep-
ture. We would expect that in the absence of such under- tual lenses and institutionalize the appropriate set of
standing there would be a significant probability that alignment mechanisms.
investments made to transfer business processes may
\j,ell fail due to an inability to provide the information
necessary to execute the processes. Note
Professors Venkatraman and Henderson thank the IBM
The specification of individual dimensions of the four Corporation’s Advanced Business Institute (ABI) for research
concepts of the strategic alignment model as well as the support. Further, we thank several managers who participated
selection of one or more alignment perspectives is only in our research project on strategic alignment over the last five
a part of the overall management challenge to realize years.

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CONTINUOUS STRATEGIC ALIGNMENT

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148 EUROPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993

 CONTINUOUS STRATEGIC ALIGNMENT

N. VENKATRAMAN, MIT JOHN C. HENDERSON,

Sloan School of Management, School of Management, Boston
Massachusetts, lnstitute of University, Boston, MA 02215,
Technology, Cambridge, MA USA
02239, USA
John C. Henderson is Professor
N. Venkatraman is Associate of Management information
Professor of Management in the Systems and Director of the
Sloan School of Management at Systems Research Center at the
Massachusetts Institute of Tech- Boston University School of
nology. His current research Management. He earned his
interests intersect strategic PhD, MS and BS degrees from
management and information technology. At Sloan, he the University of Texas at Austin. His early work
teaches a course on Strategic Management and Informa- focused on decision support systems and the development
tion Technology and his research projects deal with (2) of prototyping as an approach to developing both deci-
the causes and effects of electronic integration - the role sion support systems and the more traditional manage-
of information technology to restructure business rela- ment information systems. Presently, his research is
tionships, and (2) information technology strategy, focused in three areas: the alignment of business and
especially information technology outsourcing and information technology strategies; the role of information
governance. He wrote an influential chapter on the role technology in building and managing strategic partner-
of IT in the strategic transformation for the book, The ships; and the use of information technology to support
Corporation of the 1990s based on the MIT Research software development teams. Professor Henderson is
Program, Management in the 1990s. His doctoral thesis currently the Departmental Editor, lnformation Systems
was awarded the 1986 AT Kearney Award for Out- & Decision Support Systems for Management Science.
standing Research in General Management by the He has held faculty appointments at Florida State Uni-
Academy of Management and his research papers have versity and Ohio State University as well as having
appeared in several professional journals such as served as staff director for the Joint Committee on
Management Science, Strategic Management Electronic Data Processing at the Florida legislature.
Journal, Academy of Management Journal, Infor- Prior to coming to Boston University, Professor
mation Systems Research, Sloan Management Henderson was on the faculty of the Sloan School of
Review and others. He holds a PhD Degree in Business Management at MIT. His articles have appeared in
Administration from the University of Pittsburgh, MBA many journals, including Management Science, MIS
and Bachelor of Technology degrees from India. Quarterly, IBM Systems Journal, Information
Systems Research, Sloan Management Review,
SCOTT OLDACH, IBM, Journal of Management Information Systems,
Brussels, Belgium Decision Sciences, and IEEE Transactions on
Engineering Management.
Scott Oldach is a Vice President
of the IBM Consulting Group,
where he leads the Global Infor-
mation Technology Strategy and
Planning Practice. This consult-
ing practice aligns business and
information technology both
strategically and operationally to
deliver superior shareholder
value. Mr Oldach’s clients are largely dependent on
information technology to deliver their competitive posi-
tioning. His interests include: competitive systems,
value of IT infrastructure, systems support of business
flexibility. He has led assignments in over 40 clients
covering a variety of industries, including consumer
manufacturing, retail, telecommunications, airline,
energy, insurance and financial services.

EIJKOPEAN MANAGEMENT JOURNAL Vol 11 No 2 June 1993