A Blog by Jonathan Low

 

May 11, 2018

Can Information Technology Be Too Tightly Aligned With Business Strategy?

The challenge comes when leaders focus too much on cost savings and efficiency, without considering the need for agility increasingly required by the constantly evolving demands of the digital economy.

Effective managers recognize that one size does not fit all and the optimal solution preserves the organizational ability to adjust as opportunities present themselves. JL


Huigang Liang and colleagues report in MIT Sloan Management Review:

Aligning IT with a company’s strategy can cut costs and improve the ability to collect data, facilitating the creation of early-warning systems, operational dashboards and coordinated adjustments of business processes. While alignment can synchronize changes in business processes, this often comes at the expense of agility. If every IT change ripples through your entire company, no decision can be made without lengthy deliberation. Alignment can produce inertia. Some situations call for the efficiency created by alignment. Others demand flexibility.
Tight alignment of a company’s IT systems with its current strategy can hamper agility in fast-moving markets — unless the right social conditions are in place.
In the wake of the global economic downturn, price pressures forced the Chongqing Qianwei Science & Technology Group Co. Ltd., a Chinese shipbuilder headquartered in Chongqing, to reevaluate its business strategy.For years, as the company focused on diversifying and creating new product lines, it left IT decisions largely up to the managers of its subsidiaries so they could respond nimbly to customer needs. But after the downturn, Qianwei’s top executives realized they needed to cut costs, and the company’s former distributed approach to IT “proved to be a huge obstacle,” said Zhang Jin, former CEO of Qianwei Group. It was well-aligned with the former strategy but created an obstacle of its own — it seemed to rob Qianwei of its agility.
Qianwei’s top executives thus found themselves confronting a frustrating dilemma: They had achieved the kind of IT-business alignment once considered a gold standard, but they had sacrificed something unexpected in the process.

Alignment vs. Agility

We studied the Chinese shipbuilding industry and found experiences like Qianwei’s to be surprisingly typical: Too much alignment between IT and current business strategy can hamstring organizational agility. If every IT change ripples through your entire company, no decision can be taken lightly or made without lengthy deliberation. Alignment, in other words, can produce inertia — unless it’s accompanied by the right culture and the right norms of communication.
To be sure, closely aligning IT with the rest of a company’s strategy can cut costs and improve the ability to collect data, facilitating the creation of early-warning systems and operational dashboards. Well-aligned systems can also enable quick, coordinated adjustments of business processes. That’s likely why alignment continues to be a priority for many chief information officers: In 2016, 42% of 490 CIOs in a Society for Information Management survey listed it as a critical concern. But a less regimented approach to corporate IT has its place too. It allows responses to changing business and economic conditions that are swift and creative. Sometimes a company needs the harmonic complexity of a classical master like Ludwig van Beethoven, but other times, the quirky improvisations of jazz pianist Thelonious Monk are what’s called for.
China has the world’s largest shipbuilding industry, so it seemed an apt setting for our investigation of the effects of managerial decisions about business-IT alignment. And while our results bear directly on only one industry in one country, the lessons may well extend to others that are, like shipbuilding, both capital- and labor-intensive and enmeshed in global supply chains. Shipbuilding has its idiosyncrasies — its plants, for example, must be located near deep water — but it has much to teach manufacturers of many kinds.
The Chinese shipbuilding industry was facing difficult changes at the time of our study, 2013-2014. In the face of a downturn, many Chinese shipyards were hewing to their traditional approach of holding down costs and building simpler vessels, like bulk carriers and tankers. But some decided to switch strategies and push into the high-value-added ship and nonmarine product markets — an agile response to changing conditions. As a result, they were able to break the dominance of the South Korean incumbents in these markets, securing orders for liquefied natural gas carriers, large container vessels, and ocean engineering equipment.
For our investigation, we conducted surveys between October 2013 and March 2014 of pairs of shipbuilding executives, each from the same company. One survey targeted a senior IT executive, while the other targeted the CEO or another senior business executive. The 429 pairs of respondents came from a variety of companies. Most companies were fairly large, with annual sales of 500 million to 1 billion renminbi ($80 million to $160 million) and 2,500 to 5,000 employees. Almost 60% of the respondents worked for companies directly involved in shipbuilding, such as shipyards, ship outfitters, and ship coaters. But we also received responses from other kinds of companies, such as power equipment and raw material providers.

Alignment as an Enabler — and an Anchor

Based on what our respondents told us, fears about inertia from business-IT alignment are well-founded. While alignment can synchronize changes in business processes throughout a company, this often comes at the expense of agility. Standardized procedures can be cumbersome, and, as a result, companies can struggle to cope with the changing conditions.
As is always true, much depends on context — we also found that the effect of alignment is sensitive to a company’s particular situation. When a company’s business strategy dovetails with its environment, alignment helps, since small IT adjustments can ripple through the organization quickly. But, in tougher times calling for more radical approaches, alignment may have no benefit and can even become an anchor. And the stronger the alignment, the stronger the inertia.
This inertia is rooted in both resources and routines. Aligned IT systems can become obsolete, but they can be difficult to switch out because of sunk costs, the complexity of their interactions with a company’s business processes, and critical connections with third parties such as key customers or suppliers. Routines, entrenched through sustained success, can limit employees’ creativity — habits make you more efficient, but they also lead you to overlook new, better ways of operating.

Intellectual vs. Social AlignmentCan organizations realize the benefits of alignment without fear of these sorts of drawbacks? They can. But if that’s to happen, IT managers and colleagues in other divisions must understand that alignment comprises two distinct, but interrelated, forces: intellectual and social alignment. Intellectual alignment is the formal linkage between business and IT strategies. Social alignment is the shared understanding between business and IT executives.
Intellectual alignment dictates the formulation and implementation of strategies and thus shapes answers to such critical questions as how centralized a company’s IT systems will be or how aligned all departments or subsidiaries will be — think of this as getting everything shipshape. Social alignment, in contrast, is about culture and communication — think of this as getting everyone on board.

Intellectual alignment produces efficiencies inasmuch as resources are coordinated and processes move in lockstep, but its inherent rigidity can impede nimbleness when faced with a fast-changing market. Social alignment, in contrast, has the opposite effect. It facilitates agility by enhancing business-IT coordination and is especially valuable in times of tumult.
Shared understanding between IT and non-IT managers is a necessary but not sufficient condition for social alignment; communication must lead to coordination. Differences between corporate and subsidiaries or between divisions will endure; these are inevitable in any sizable company. Social alignment overcomes these natural differences and enables coordinated efforts to recognize and respond to change.
For our respondents, the effects of intellectual and social alignment were unambiguously similar across companies. Whether the company was a large outfit like Qianwei, with $3.8 billion in total assets and more than 2,000 employees, or a small one like Dalian Sanli Ship Ancillary Equipment Plant, located in the province of Liaoning, with $600,000 in total assets and only six employees, respondents said both types of alignment affect agility and that social alignment is critical in times of rapid change.
For Qianwei, its previous decentralized business-IT alignment had hindered the move to its new cost-cutting strategy. A centralized information system was called for, but subsidiaries were reluctant to discard their legacy systems. Social alignment helped the company transition to the new approach. “We asked our CIO to get in touch with the subsidiary executives personally and talk to them in private,” said Jin. “The informal communication did the job: It helped get everybody on the same page to implement the new IT strategy.”
For Sanli, in contrast, social alignment between the owner and the IT manager enabled a tiny company to improvise around constraints imposed by more powerful clients and their existing business-IT alignment.
Our conclusion is that companies must cultivate both intellectual and social alignment. They should strive to be “consistently inconsistent” as they shift between both advancing their formal strategic plans and cultivating informal, improvisational coordination.
Some situations call for the efficiency created by intellectual alignment. Others demand the flexibility that only social alignment can bring. The best managers, regardless of their particular expertise, are both smart and socially deft.

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