1. ALIGNING IT WITH TIE BUSINESS STRATEGY 7
ASSESSING
IT/BUSINESS ALIGNMENT
Jerry Luftman
Alignment is the perennial business chart-topper on top-ten lists of IT issues. What foliows is
a methodology developed by the author for assessing a company's alignment. Modeled after
the Capability Maturity Model developed by Carnegie Mellon's Software Engineering Institute,
but focused on a more strategic set of business practices, this tool has been successfully
tested at more than 50 Global 2000 companies and is currently the subject of a benchmaricing
study sponsored by the Society for Information Management and The Conference Board. The
primary objective of the assessment is to identify specific recommendations for improving the
alignment of IT and the business.
I LIGN1MENT IS THE PERENNIAL BtJSLNESS
U
chart-topper on top-ten lists of IT issues.
Educating line management on technolo-
ALIGNMENT CATEGORIES
The tool has sLx IT-business alignment crit:eria,
or maturity categories, that are included in
gy's possibilities and limitations is diffi- each assessment:
cult; so is setting IT priorities for projects,
developing resources and skills, and integrat- L Communications Maturity
ing systems with corporate strategy. It is even 2. Competency/Value Measurements Maturity
tougher to keep business and IT aligned as 3. Covernance Maturity
business strategies and technology evolve. 4. Partnership Maturity
There is no silver-bullet solution, but achieving 5. Technology Scope Maturity
alignment is possible. A decade of research has 6. Skills Maturitv
found that the key is building the right relation- Each maturity category is discussed below. A
ships and processes, and pioviding the neces- tist of specific practices for each of the six
sary trainiing.
alignment criteria can be found in Exhibit 1.
What follows is a methodology developed
by the author for assessing a company's align-
ment. Modeled after the Capability Maturity Communications Maturity
Model® developed by Carnegie Mellon's Soft- Effective exchange of ideas and a clear under-
ware Engineering Institute, but focused on a standing of what it takes to ensure successful
more strategic set of business practices, this strategies are high on the list of enablers antd in-
tool has been successfully tested at more than hibitors to alignment. Too often there is little
50 G;lobal 2000 companies and is currently the business awareness on the part of IT or little IT
,JERRY LUFTMAIN is
subject of a benchmarking study sponsored by
a professorat the Howe appreciation on the part of the business. (iiven
School of Technology the Society for Information Management and
the dynamic environment in which most orga-
Management at The Conference Board.' The primary objective
of the assessment is to identify specific recom- nizations find themselves, ensuring ongoing
Stevens Institute of
Technology in mendations for improving the alignment of IT knowledge sharing across organizations is par-
hIoboken, New Jersey. and the business. amount.
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2. ALIGNING IT WITH THE BUSINESS STRATEGY
EXHIBIT I Alignment Criteria
Alignment Level 5:
CrIterion. Level 1: Level 2: Level 3: Level 4: Optimal Process
Communications With Process Beginning Establishing Improved (Complete
Maturity (No Alignment) Process Process Process Alignment)
Understanding ot IT management Limitea Good understanding Understanding Understancling
Business by IT lacks understanding by by IT management encouraged among required of ali IT
understanding IT management IT staff staff
Understanding of IT Managers lack Limited Good understanding Understanding Understanding
by Business understanding understanding by by managers encouraged among required of staff
rmanagers staff
Organizational Casual conversation Newsletters, reports, Training, Formal methods Learning mon:tored
Learning and meetings group e-mail departmental sponsored by for effectiveness
meetings senior
management
Style and Ease of Business to IT only; One-way, somewhat Two-way, forrnal Two-way, somewhat Two-way, informal
Access formal informal informal, and flexible
Leveraging Ad hoc Some structured Structured around Formal sharing at all Formal sharing with
Intellectual Assets sharing emerging key processes levels partners
.T-Business Liaison None or use only as Primary IT-Business Facilitate knowledge Facilitate Building relationsnip
Staff needed iink transfer relationship with
building partners
IT Metrics Technical only Technical cost; Review, act on Also measure Also measure
metrics rarely technical, ROI effectiveness business ops. HR,
reviewed mnetrics partners
Business Metrcs IT investments Costlunit; rareiy Review, act on ROI, Also measure Baianced scorecard,
rneasured rarely, if reviewed cost customer value incIudes partners
ever
Link between IT and Value of IT Business, IT metrics Business, IT metrins Formally linked; Balanced
Business Metrics investments rarely not linked becoming linked reviewed and acted scorecard, includes
measured upon partners
Service Level Use sporadically With units for With units; becoming Enterprisewide Includes partners
Agreements technology enterprisewide
performance
Benchmarking Seldom or never Sometimes May benchmark Routinely Routinely
benchmark formaily, seldom benchmark, usually bench mark, act on,
informally act act and measure
results
Formally Assess IT Do not assess Only when there is a Becoming a routine Routinety assess Routinely assess,
Investrnents problem occurrence and act on findings act on, and
measure results
Continuous None Few; effectivenessFew; starting to Many; frequently Practices and
Improvement not measured measure measure measures well-
Practices effectiveness effectiveness established
Formai Business Not done, or done as At unit functional Some IT input and At unit and With IT and
Strategy Planning needed level, slight IT input cross-functional enterprise, with IT partners
planning
Formal IT Strategy Not done, or done as At unit functional Sorne business input At unit and With partners
Planning needed level, light business and cross- enterprise, with
input functionai planning business
Organizational Centralized or Central/decentral: Central/decentral Federai Federal
Structure decentralized some collocation or Federal
Reporting CIO reports to OF0 CtO reports to CFO CIO reports to COO CIO reports to CiO reports to CEO
Relationships COO or CEO
How IT Is Budgeted Cost center, Cost center by unit Some projects IT treated as Profit center
spending is treated as investment
unpredictable investments
Rationale for iT Reduce costs Productivity, Also a process Process drnver, Competitive
Spending efficiency enabler strategy enabler advantage, profit
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3. ALIGNING ITWITH THE BUSINESS STRATEGY
EXHIBIT I Alignment Criteria (Continued)
Alignment Level 5:
Criterion: Level 1: Level 2: Level 3: Level 4: Optimal Process
Communications With Process Beginning Establishing Improved (Complete
Maturity (No Alignment) Process Process Process Alignment)
Senior-Level IT Do not have Meet informally as Formal committees Proven to be Also includes
Steering needed meet regularly effective external partner3
Comrmittee
How Projects Are React to business Determined by IT Determined by Mutually determined Partners' priorities
Prioritized or IT need function business function are considered
Business Perception Cost of doing Becoming an asset Enables future Drives future Partner with
of IT business business activity business activity business in
creating value
.T's Role in Strategic Not invoived Enables business Drives business Enables or drives IT, business adapt
Business Planning processes processes business strategy quickly to change
Shared Risks and IT takes ail the risks, IT takes most risks IT, business start Risks, rewards Managers incenteJ
Rewards receives no with little reward sharing risks, always shared to take risks
rewards rewards
Managing the IT-business Managed on an ad Processes exist but Processes exist and Processes are
IT-Business relationship is not hoc basis not always complied with continuously
Relationship managed followed improved
Relationship/Trust Conflict and mistrust Transactional IT becoming a Long-term Partner, trusted
Style relationship valued service partnership vendor or IT
provider services
Business Usually none Often have a senior IT and business Business sponsor or CEO is the business
Sponsors/ IT sponsor or sponsor or champion at sponsor or
Champions champion champion at unit corporate level champion
level
Primary Systems Cost of doing Becoming an asset Enabies future Drives future Partner with
business business activity business activity business in
creating value
Standards Not involved Enables business Drives business Enables or drives IT, business adapi
processes processes business strategy quickly to change
Architectural IT takes all the IT takes most risks IT, business start Risks, rewards Managers incented
Integration risks, receives no with little reward sharing risks, aiways shared to take risks
rewards rewards
How IT IT-business Managed on an ad Processes exist but Processes exist and Processes are
Infrastructure Is relationship is not hoc basis not always followed are complied with continuously
Perceived managed improved
Innovative, Discouraged Somewhat Strongly encouraged Also at corporate Also with partners
Entrepreneurial encouraged at unit at unit level level
Environment level
Key IT HR Decisions Top business and iT Same, with emerging Top business and Top business and IT Top management
Made by: management at functional influence unit management; management across firm and
corporate IT advises across firm partners
Change Readiness Tend to resist Change readiness Programs in place at Programs in place at Also proactive an d
change programs functional level corporate level anticipate change
emerging
Career Crossover Job transfers rarely Occasionally occur Regularly occur for Regularly occurat all Also at corporate
Opportunities occur within unit unit management unit levels level
Cross-Functional No opportunities Decided by units Formal programs run Aiso across Also with partner;
Training and Job by all units enterprise
Rotation
Social Interaction Minimal IT-business Strictly a business- Trust and confidence Trust and confidence Attained with
interaction only relationship is starting achieved customers and
partners
Attract and Retain No retention IT hiring focused on Technology and Formal program for Effective program for
Top Talent program; poor technical skills business focus; hiring and hiring and retairning
recruiting retention program retaining
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SYLTEMS MANAGEMENT
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4. ALIGNING ITWITH THE BUSINESS STRATEGY
Many finns choose to draw on liaisons to fa- ranks high among the enablers and iihibitors
cilitate this knowledge sharing. The keyword of alignment. Giving the IT function the oppor-
here is "facilitate.' This author has often seen tuanity to have an eqLual role in defining business
facilitators whose role becomes serving as the strategies is obviously important. However,
sole conduit for interaction among the differ- how e-ach organization perceives the contribu-
ent organizations.This approach tends to stifle, tion of the other, the trsust that develops among
rather than foster, effective communications. the participanits, ensuring appropriate businiess
olg Rigid protocols that impede discussions and sponsors and chamupions of IT endeavors, and
beyond the the sharing of ideas should be avoided. the sharing of risks and rewards are all major
traditional contributors to mature alignment.This partner-
Competency/Value Measurements ship should evolve to a point wlhere IT both en-
considerations ables and drives changes to both business
Maturity
aire factors Too many IT organizations cannot demonstrate processes and business strategies. Naturally,
that include their value to the business in terms that the this demancds having a clearly defined vision
business understands. Frequently, business and shared bv the CIO and CEO.
the
IT metrics of v-alue differ. A balanced 'dash-
oreranizations board" that diemonstrates th-e value of If in Technolagy Scope Maturity
cultural and terms of contribution to the business is needed. This set of criteria assesses the extent to which
Service levels that assess If's commitments
Social IT is able to:
to the business often help. However, the ser-
environnment, vice levels must be expressed in terms that the ] Go beyotnd the back office and the front
business understands and accepts.The service office of the organization
levels should be tied to criteria that clearly de- LI Assunme a role suipporting a flexible infra-
fine the rewards and penalties for suwpassing, structure that is transparent to all business
or missing, the objectives. partners anid customers
Frequently, organizations devote significant [: Evaluate and apply emerging technologies
resotrces to measuring performance factors. effectively
However, they spend miuch less of their re- i Enable or drive bulsiness processes and strat-
sources on taking action based on these mea- egies as a true standard
surements. For example, reqjuiring a return on L Provide solutions customizable to customier
investmnent (ROD) before a project begins, but needs
not reviewing hlow well objectives were met af-
ter the project was deploved, provides little Skills Maturity
value to the organization. It is important to This category encompasses all IT huaman re-
continuously assess the performance metrics source considerations. such as how to hire and
criteria to understand (1) the factors that lead fire, motivate, train and educate, and culture.
to missing the criteria and (2) what can be (icing beyond the traditional c onsiderations
learned to imaprove the environment. such as training, salary, performance feedback
and career opportunities, there are factors that
Governance Maturity include the organization's cultural andi social
The considerations for IT governance include, environment. For example, is the organization
how the authoritv for resoturces, risk, conflict readv for change in this dynamic environment?
resolution, and responsibility for IT is shared Do individuals feel personally responsible for
among businiess partners, IT inanagemnent, and business innovation? Can individuals and orga-
service providers. Project selection and priori- nizations learn quickly from their experience?
tization issues are includted here. Ensuring that Does the organization leverage innovative
the appropriate business anid IT participants ideas and the spirit of entrepreneurshp? These
formally discuss and review the priorities andJ are some of the important conditions of mature
allocation of IT resources is aimong the most organizations.
important enablers (or inlhbitors) of align-
ment.This decision-making authority needs to LEVELS OF
ALIGNMENT MATURITY
be clearly defined,
Eachi of the six criteria described anove has a
set of attributes that allow particsular dimen-
Partnership Maturity sions ('orpractices) to be assessed using a rating
The relationship that exists among the business schem-ne of five levels. For example, for the prac-
and IT organizationis is another criterion that tice "Understanding of business by if' uider the
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5. ALIGNING ITWITH THE BUSINESS STRATEGY
Communications Maturity criterion, the five Each description corresponds to a level of
levels are: alignment, of which there are five:
Level 1: IT management lacks understanding Level 1:Without Process (no alignment)
Level 2: Lilnited understanding by IT1manage- Level 2 Beginning Process
ment Level 3: Establishing Process
Level 3: Good understanding by IT manage- Level 4: Improved Process
WArganizations ment Level 5: Optimal Process (complete alignment)
should seek to Level 4: Understanding encouraged among IT
attain, and staff Level 1 companies lack the processes and com-
Level 5: Understanding required of all IT staff munication needed to attain alignment. In Lev-
sustain, the fifth
el 5 companies, IT and other busi ness
and highest level It is important to have both business and functions (marketing, finance, Rl&D, etc.) adapt
of alignment. IT executives evaluate each of the practices for their strategies together, using fully developed
the six maturity criteria.Typically, the initial re- processes that include extemal partners and
view will produce divergent results, and this customers. Organizations should seek to attain,
outcome is indicative of the organization's and sustain, the fifth and highest level of align-
alignment problems and opportunities being ment.
addressed. The objective is for the team of IT Conducting an assessment has the follow-
and business executives to converge on a matu- ing four steps:
rity level. 1. Form the assessment team. Create a team
Further, the relative inportance of each of of IT and business executives to perform
the attributes for each maturity criterion may
the assessment.Ten to thirty executives typ-
differ among organizations. For example, in
ically participate, depending on whether a
some organizations, the use of SLAs (service single business unit or the entire enterprise
level agreements), which is a practice under
is being assessed.
the Competency/Value Measurements Maturity 2. Cather information. Team members
criterion, may not be considered as important should assess each of the 38 alignmient
to alignment as the effectiveness of IT-busi- practices and determine which level, i rom
ness liaisons, which is a practice under the 1 to 5, best matches their organization (see
Communications Matirity criterion. Assigning Exhibit 1).This can be done in three wrays:
the SLA practice a low maturity assessment (1) in a facilitated group setting, (2) by hav-
should not significantly impact the overall rat- ing each member complete a survey and
ing. However, it is still valuable for the assess- then meeting to discuss the results, or (3)
ment teanm to discuss why a particular attribute by combining the two approaches (e.g., in
(in this example, SLAs) is less significant than situations where it is not possible fo,r all
another attribute (liaisons). group members to meet).
After each practice is assessed, an average 3. Decide on individual scores. The 1.eamn
score for the evaluation team is calculated for agrees on a score for each practice. The
each practice, and then an average category most valuable part of the assessment is not
score is determined for each of the six criteria
the score, but understanding its implica-
(see Exhibit 2). The evaluation team then uses tions for the entire company and what
these scores for each criterion to converge on
needs to be done to improve it. An average
an overall assessment of the IT alignment matu- of the practice scores is used to deter -nine
rity level for the firm (see below). The next a category score for each of the six criteria
higher level of maturity is then used as a road-
(see Exhibit 2).
map to identify what the firm should do next. 4. Decide on an ovlerall alignment score.The
A trained facilitator is typically needed for team reaches consensus on what overall
these sessions. level to assign the organization.Aver.ging
the category scores accomplishes this, but
ASSESSING YOUR ORGANIZATION having dialogue among the participants is
This rating system will help you assess your extremely valuable. For example, some
company's level of alignment. You will ulti- companies adjust the alignment score
mately decide which of the following defini- because they give more weight to particu-
tions best describes your business practices. lar practices.
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6. ALIGNING ITWITH THE BUSINESS STRATEGY
EXHIBIT 2 Tally Sheet
Average
IPractice Averaged Scores Catgory
Categories Pr'actices 1 1.5 2 2.5 3 3.5 4 4.5 5 Score
Communications 1 Understanding of business by IT
2 Understanding of IT by business
3 Organizational learning
4 Style and ease of access
5 Leveraging intellectual assets
6 IT-business liaison sta-f
Competency/ 7 IT metrics
Value
8 Business metrics
Measurements
9 Link between iTand business metrics
10 Service level agreements
11 Benchmarking
12 Forrrmally assess IT investments
13 Continuous improvernent practices
Governance 14 Formal business strategy planning
is Formal iT strategy planning
16 Organizational structure
17 Reporting relationships
18 How IT is budgeted
19 Rationaie for IT spending
20 Senior-level IT steering committee
21 How projects are prioritized
Partnership 22 Business perception of IT
23 IT's role in strategic business planning
24 Shared risks and rewards
25 Managing the IT-business relationship
26 Relationship/trust style
27 Business sponsors/champions
Technoiogy Scope 28 Primary systems
29 Standards
30 Architectural integration
31 How IT infrastructure is perceived
Skills 32 Innovative, entrepreneurial environment
33 Key IT HR decisions made by:
34 Change readiness
35 Career crossover opportunities
36 Cross-functional training and job rotation
37 Social interaction
38 Attract and retain top talent
Your Alignment Score.
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7. ALIGNING ITWITH THE BUSINESS STRATEGY
The overall alignment score can be used as The strategic alignment maturity assess-
a benchmarking aid to compare with other or- ment tool provides a vehicle to evaluate whlere
ganizations. Global 1000 executives who have an organization is, and where it needs to go, to
used this tool for the first time have rated their attain and sustain business-IT alignment. The
organizations, on average, at Level 2 (Begin- careful assessment of a firm's IT-business align-
ning Process), although they typically score at ment maturity is an important step in identify-
Level 3 for a few alignment practices. ing the specific actions necessary to ensure
that IT is being used to appropriately enable or
CONCLUSION drive the business strategy.
Achieving and sustaining IT-business align-
ment continues to be a major issue. Experience Note
shows that no single activity will enable a firm 1. See also Jerry Lufftan, editor, Comnpeting ir the
to attain and sustain alignment. There are too Information Age.Align in the Sand, Oxfor d
many variables. The technology and business University Press, 2003; and Jerry Luftman,
environments are too dynamic. Managing tbe [T Resource, Prentice Hall, 2:003.
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8. COPYRIGHT INFORMATION
TITLE: Assessing IT/Business Alignment
SOURCE: Inf Syst Manage 20 no4 Fall 2003
WN: 0328802780001
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