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Chapter 3 Information Systems, Organizations, and Strategy 141

ALIGNING IT WITH BUSINESS OBJECTIVES

The research on IT and business performance has found that (a) the more
successfully a firm can align information technology with its business goals, the
more profitable it will be, and (b) only one-quarter of firms achieve alignment
of IT with the business. About half of a business firm’s profits can be explained
by alignment of IT with business (Luftman, 2003).
Most businesses get it wrong: Information technology takes on a life of its own
and does not serve management and shareholder interests very well. Instead of
business people taking an active role in shaping IT to the enterprise, they ignore
it, claim not to understand IT, and tolerate failure in the IT area as just a nuisance
to work around. Such firms pay a hefty price in poor performance. Successful
firms and managers understand what IT can do and how it works, take an active
role in shaping its use, and measure its impact on revenues and profits.

Management Checklist: Performing a Strategic
Systems Analysis
To align IT with the business and use information systems effectively for
competitive advantage, managers need to perform a strategic systems analysis.
To identify the types of systems that provide a strategic advantage to their firms,
managers should ask the following questions:
1. What is the structure of the industry in which the firm is located?
• What are some of the competitive forces at work in the industry? Are there
new entrants to the industry? What is the relative power of suppliers,
customers, and substitute products and services over prices?
• Is the basis of competition quality, price, or brand?
• What are the direction and nature of change within the industry?
From where are the momentum and change coming?
• How is the industry currently using information technology? Is the orga-
nization behind or ahead of the industry in its application of information
systems?
2. What are the business, firm, and industry value chains for this particular firm?

• How is the company creating value for the customer—through lower prices
and transaction costs or higher quality? Are there any places in the value
chain where the business could create more value for the customer and
additional profit for the company?
• Does the firm understand and manage its business processes using the
best practices available? Is it taking maximum advantage of supply chain
management, customer relationship management, and enterprise systems?
• Does the firm leverage its core competencies?
• Is the industry supply chain and customer base changing in ways that
benefit or harm the firm?
• Can the firm benefit from strategic partnerships and value webs?
• Where in the value chain will information systems provide the greatest value
to the firm?
3. Have we aligned IT with our business strategy and goals?

• Have we correctly articulated our business strategy and goals?
• Is IT improving the right business processes and activities to promote this
strategy?
• Are we using the right metrics to measure progress toward those goals?

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