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Strategic Alignment of Business and IT

D. Minnaar, S/N:2430264

the manner in which IT aligns to the business, and the

Abstract-- Strategic alignment is often rated as one of the
top concerns faced by IT and business executives.
Organizations do not realize the full value of their IT
investments due to misalignment between business and IT
strategies hindering their ability to achieve a competitive
advantage. It is important that organizations know how
to use their IT resources to meet business objectives, and
become competitive.
This research paper discusses the use of the Strategic
Alignment Model to achieve alignment between business
and IT strategies. The Strategic Alignment Maturity
Assessment Model is reviewed as a means for businesses
to evaluate, measure and assess their levels of alignment
maturity in the organization
manner in which IT should align to the business.
Two fundamental assumptions form the basis of Henderson
& Venkatraman (1993)‘s strategic alignment concept. 1)
Managements ability to create strategic fit directly affects the
financial success of an organization. Strategic fit should
exist between the organization’s market position and the
design of its internal structure and processes. 2) Strategic fit
is dynamic, changing as the organization changes.
In general, strategic alignment relates to the degree of
harmony between an organisation’s IT strategy and IT
infrastructure with the organization’s strategic business
objectives and infrastructure.

I. INTRODUCTION

T he role of IT has changed significantly over time,

evolving from being a business enabler, to being the
business. (Luftman, 2000). This view is reinforced by
Henderson & Venkatraman (1993), stating that IT has
developed beyond it’s traditional “back office” role towards
a strategic role in which IT not only supports the chosen
business strategies but can also shape new strategies. With
that in mind, it is clear that an organizations’ strategic
advantage is very dependant on their use of IT. Byrd et al.
(2006) argues that an organization may increase revenues and
profits better alignment of IS and business strategies, rather
than additional IT spend, however organizations do not
realize the full potential benefit of their IT investments due
to misalignment (Ward J., & Peppard, J., 2002.). Figure1 : Strategic Alignment CMap
Bharadwaj(2000) mentions three benefits of alignment;
Maximized return on IT investment, gaining competitive The rest of the paper focuses on the Strategic Alignment
advantage and organisations are more agile in their response Model and its four perspectives. Old Mutual is used as an
to opportunities. example, applying one of the perspectives. Management
challenges have been highlighted. Following this, the
According to the IT Governance Institute (ITGI, 2007) the Strategic Alignment Maturity Assessment Model is reviewed
focal points of strategic alignment are: as a means for businesses to assess their levels of alignment
• Making sure that business and IT plans are linked maturity in the organization. Figure 1 illustrates an outline of
• Defining, maintenance , and validation of the IT the key strategic alignment concepts discussed in this paper.
value proposition
• Alignment of IT and enterprise operations. II. STRATEGIC ALIGNMENT MODEL (SAM)

The ITGI confirms that the effective management of
information and related technology is crucial for an
organization to survive.
Luftman (2003) defines strategic alignment as “applying IT
in an appropriate and timely way, in harmony with business
strategies, goals and needs.” Two key points are addressed,
The Strategic Alignment Model was proposed by Henderson
and Venkatraman (1993), the most commonly used
framework for strategic alignment. This model is defined in
terms of 4 fundamental domains of strategic choice. 1)
Business strategy, 2) IT Strategy, 3) organizational
infrastructure and processes, 4) IT infrastructure and
processes, as illustrated in Figure 2.

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The SAM implies that effective and efficient utilization of IT

requires the alignment of IT strategies and business
strategies, based on two building blocks, Strategic fit and
functional integration. (Henderson & Venkatraman1993).
The ability to judge a business’ market position based on the
internal and external environment creates strategic fit. The
external domain is the actual industry and the organisation’s
position within the market place, defining product market
offerings and differentiation strategies. The internal domain
refers to the internal organisation infrastructure, processes,
human resource skills required to achieve organisational
competencies. Strategic fit is the vertical relationships of the
business strategy and internal organisation infrastructure, and
the IT strategy and internal IT infrastructure and processes.

Functional integration represents the horizontal relationships

between business and IT. Business leverages IT to stay in
touch with the marketplace. Functional integration has the
potential to maximise the value of IT and create competitive
advantage. (Henderson & Venkatraman, 1993).

Figure 2: Strategic Alignment Model - Henderson and Venkatraman (1993)

Figure 3: The twelve Components of Alignment (Luftman, 2003)

Although agreeing with the SAM, Luftman (1999), provided
clearer definitions for the twelve strategic components, a
weakness found in Henderson and Venkatraman’s model.
SAM did not adequately describe these components. This has
since been known as Luftman’s twelve components of
strategic alignment Luftman (1999).See Figure 3.
III. STRATEGIC ALIGNMENT PERSPECTIVES
The four domains are integrated, working together in
synergy, towards strategic alignment, See Figure 2.
It is necessary to identify the initial domain, pivot and
perspective in order to fit the proper method for applying
SAM. Henderson and Venkatraman’s (1993) lists four
strategic perspectives.

• Strategy Execution
• Technology transformation
• Competitive Potential
• Service Level

Perspectives are made up of three components, i.e anchor,

pivot, and area of impact. These components simply describe
how the domains are affected in the application of the
perspective.

The strongest area of the business is the anchor domain, also

the driver for change. The weak area, known as the pivot,
will be re-aligned with the changes directed from the anchor
domain. The area of impact is the area directly impacted by

changes in the pivot area, though re-alignment. Henderson
and Venkatraman’s (1990)
A. Perspective 1: Strategy Execution
Figure 4: Strategy Execution. Adapted from (Henderson
&Venkatraman,1993)
Strategy Execution, a top-down approach, involves
relationships between business strategy (anchor domain),
organisational infrastructure and processes (pivot domain) as
well as IT infrastructure and processes (area of impact)
which has to undergo changes due to the business process
changes in the pivot domain. (Henderson & visionaries, while IS managers are catalysts for change
Venkatraman,1990). For this perspective to succeed, specific
management roles are to be specified. Business executives
are strategy formulators while IS Management are strategy
implementers. (Henderson &Venkatraman,1993)
B. Perspective 2: Technology transformation
Figure 5: Technology transformation. Adapted from (Henderson
&Venkatraman,1993)
Again driven by business strategy (anchor domain) is the
Technology Transformation perspective, focusing on
strategic fit through the appropriate use of IT, to enable new
business strategies. The pivot is the IT strategy domain. The
IT infrastructure and processes is the area of impact
(Henderson & Venkatraman,1990) Business executives
provide technology vision, while IS Management are the
technology architects (Henderson &Venkatraman,1993)
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C. Perspective 3: Competitive Potential
Figure 6: Competitive Potential. Adapted from (Henderson & Venkatraman ,
1993)
The Competitive Potential perspective analyses how
emerging new information technologies can influence and
enable new business strategies to create competitive
advantage. The IT strategy is the driver and anchor domain,
business strategy the pivot domain, and the impacted domain
is organization infrastructure and processes. (Henderson
&Venkatraman’s 1990). Business executives are business
(Henderson & Venkatraman’s 1993)
D. Perspective 4: Service Level
Figure 7: Service level. Adapted from (Henderson &Venkatraman, 1993)
The final perspective is the Service Level perspective,
focusing on delivering a world class IT service to the internal
business, improving business’ own processes, and the
delivery of products and services. The business strategy
indirectly focuses on attracting and retaining customers. The
IT strategy is the anchor domain. The IT infrastructure and
processes is the pivot domain, while the organizational
infrastructure and processes domain being the area of impact.
Extended application of this perspective could result in IT
outsourcing (Henderson & Venkatraman, 1990) Business
executives are prioritizers, while IS Management provides
executive leadership (Henderson &Venkatraman’s 1993).
IV. STRATEGIC ALIGNMENT AT OLD MUTUAL
The Old Mutual Group Corporate Strategy states:

“Build a long-term savings, protection and investment
group by leveraging the strength of our people and
capabilities in SA and around the world. We will focus,
drive and optimise our businesses to enhance value for
customers and shareholders” (Old Mutual, 2011)
The Old Mutual “Big 5” Business Objectives to support this
strategy are: (Old Mutual, 2011):
1. Develop the customer proposition and experience.
2. Deliver high performance in all business units
3. Share skills and experience across the Group
4. Build a culture of excellence
5. Simplify our structure to unlock value.
The 5 Old Mutual South Africa Information Technology
(OMSA IT) strategic imperatives are defined as (Old Mutual,
2010):
1. Managing Unit Cost
2. Drive cohesive and improved customer service
experience
3. De-risk and drive full value from IT
4. Enable leverage of capabilities by Emerging
Markets and LTS
5. Strengthening our leadership, culture and
capabilities
Figure 8: OMSA IT strategic mapping to Old Mutual Group BIG 5 Business
Objectives (Old Mutual, 2010)
Figure 8 illustrates the mapping of OMSA IT’s (Old Mutual
South Africa Information Technology), a division of Old
Mutual South Africa, strategic imperatives to the “BIG 5”
business objectives in support of the Old Mutual Group
Business strategy. OMSA IT provides most of Old Mutual
South Africa’s IT services. The business strategy is the driver
for change with IT being positioned via strategic objectives
to meet the objectives. Within the organizations, projects are
underway to deliver IT platforms that enable the leveraging
of capabilities for emerging markets and driving full value
from IT.
This description of the process underway at Old Mutual fits
perspective 2, Technology Transformation, of the Strategic
Alignment model. In this instance executive management
defined the “Big 5” objectives that provide a vision for IT to
support. Hence business strategy is the anchor domain, IT
strategy the pivot, and IT infrastructure and processes the
area of impact. Business executives, at the international Old
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Mutual group level formulates the business strategy, so as to
leverage capabilities and competencies within in the South
African subsidiary. This is to enable the business to enter
markets within the rest of the world, utilizing South African
IT capabilities and competencies.
This example shows the application of the strategic
alignment model to a current business example of strategic
alignment.
V. STRATEGIC ALIGNMENT MODEL PITFALLS
The SAM poses a few management challenges.
The model illustrates IT strategy on the same level as the
business strategy within the external domain. This requires
the organisation to view IT on the same level as business
strategy, shifting the focus from the traditional thinking of IT
as an internal back-office operation. It is imperative for the
organisation to understand that IT has the ability to enhance
business strategies within the market place.
IT operations and activities were commonly linked to
internal business processes. According to Henderson &
Venkatraman (2003), management geared their objectives
accordingly. The strategic alignment model requires a
broader vision of the role that IT plays within the
organisation. Hence the correct perspective should be chosen
when making strategic decisions. Business conditions and
organisation objectives should be taken into account when
choosing the correct perspective.
The strategic alignment model proposes 4 perspectives of
strategic alignment. It is important that management
understand the role they are to perform when choosing a
perspective. To be successful, the correct role is to be applied
when executing a particular perspective. For business
executives roles vary from strategy executor, technology
vision, business visionary and prioritiser. IS manager, roles
vary from strategy executor, technology architect, catalyst
and executive leader. In order for any of the perspectives to
be successful, the correct role should be performed by the
correct leader.
The SAM does not illustrate how strategic alignment is
attained nor the means to quantitatively determine levels of
strategic alignment maturity.
VI. ACHIEVING AND SUSTAINING STRATEGIC ALIGNMENT
According to Luftman (2003) strategic alignment is utilising
IT in harmony with business strategies, supporting its goals
and needs. Strategic alignment levels are assessed and
determined using Maturity Models. Alignment maturity
levels are evaluated, as well as ways to improve maturity
levels.

There are enablers and inhibitors of strategic alignment.
Displayed in Table 2, are the six most important ones.
Table 2: Enablers and inhibitors of strategic alignment,
(Luftman et al, 1999)
The strategic alignment model indicates the necessity for
continuous alignment but it does not illustrate how strategic
alignment is attained. Luftman (2003) provides a method of
achieving strategic alignment. Luftman (2003) users to
enablers/inhibitors of alignment, (Table 2) combined with the
twelve components of alignment (Figure 3), to create the
strategic alignment maturity assessment method, based on six
components.
• Communications: A measure of effectiveness on
the exchange of knowledge, information and ideas
between business and IT.
• Value: Measure of contributions of IT and IT
organization make to the business.
• Governance: Defines delegating of IT decision
making, on a strategic, tactical and operational level
as well as the manner in which priorities are set and
resources allocated.
• .Partnership: Relationship between the business
and IT organisation.
• Scope and architecture: The provision of flexible
IT infrastructure, including its evaluation and
application of new technologies that enable and
support organisation processes.
• Skills: Measurement for human resources practices
and their practices.
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Figure 9: Six Business Alignment Maturity Criteria (Luftman, 2007 )
Each of these components are compared to a five-level
model in order to determine the maturity level of the
organization. See figure 10.
Level 1: Initial or ad-hoc processes. There is poor trust
between the business and IT, indicated by poor
communication and understanding Business and IT strategy
is not aligned.
Level 2: Committed process. There is a limited level of
understanding between the business and IT regarding each
others responsibilities. Organisations at this level have
already begun to transform their businesses relationships with
IT and are working towards alignment at an initial phase.
Level 3: Established, focused processes. At this level,
organisations already have an integrated vision, where senior
IT managers begin understand the business . IT emerges as
an investment potential to the organisation.
Level 4: Improved, managed processes. Organisations
operating at this maturity level have closed the alignment
gap. IT and business operate very closely together. IT is
viewed as a valued service provider and manages their
processes efficiently in order to align their strategy with the
goals of the enterprise. IT
Level 5: Optimized processes. Organisations at this level
have optimized processes and strategic alignment though
rigorous governance processes. Strategic alignment extends
beyond the organisation and integrates with external
customers and suppliers.

Figure 10: Strategic Alignment Maturity Summary (Luftman, 2007)
The process steps for achieving and sustaining strategic
alignment: (Luftman, 2000)
1. Set the goals and establish the team
2. Understand the Business-IT linkage
3. Analyse and prioritise gaps
4. Specify the actions (project management)
5. Choose and evaluate success criteria
6. Sustain Alignment
The Strategic Alignment Maturity Assessment allows an
organisaton to asses it’s current and required levels of
strategic alignment. Organisations should always focus on
their state of alignment maturity, and take the necessary
action to enhance and sustain their level of alignment.
VII. CONCLUSION
Strategic alignment is one of the top concerns faced by IT
and business executives, aiming to be effective and efficient
in an ever-changing environment. Effective strategic
alignment engages business and IT optimally to gain a
competitive advantage. The strategic alignment model aims
to achieve strategic alignment by balancing and integrating
business strategy, IT strategy, business infrastructure and
processes, and IT infrastructure and processes, though
strategic fit and functional integration. Old Mutual has been
used as an example of the Technology Transformation
perspective of the Strategic Alignment Model. Organisations
should look to measure and assess their alignment maturity,
using the Strategic Alignment Maturity Assessment. This
IX. APPENDIX 1 : STRATEGIC ALIGNMENT CMAP
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model provides quantitative measures of strategic alignment.
This is crucial if organisations wish to assess, and sustain
alignment to achieve organisation objectives. Although many
guidelines, models and frameworks have been put in place to
facilitate strategic alignment, it’s still not clear as how these
assessment methods should be implemented. This research
paper has discussed using the Strategic Alignment Model to
achieve alignment between business and IT strategies. The
Strategic Alignment Maturity Assessment has been reviewed
as a means for businesses to evaluate, measure and assess
their levels of alignment maturity in the organization
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