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Impact of Strategic Alignment On Organizational Performance PDF
Impact of Strategic Alignment On Organizational Performance PDF
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THE IMPACT OF STRATEGIC ALIGNMENT ON
ORGANISATIONAL PERFORMANCE
Muneera M. Al Khalifa
Phd Researcher, Brunel Business School
Uxbridge Campus, Kingston Ln,
Uxbridge, Middlesex UB8 3PH, United Kingdom
Muneera.Al-Khalifa@brunel.ac.uk
ABSTRACT
2
1. INTRODUCTION
3
financial indicators but rather by the achievement of social and political goals (Friesk et
al., 2014). In consideration of this point, the current research addresses the apparent gap
between theory and practice (Chan and Reich 2007;Luftman and Derksen 2012; Wilson
et al. 2013), and further proposes a model by which organisations can link IT and
business goals to organisational performance.
This research attempts to fill the gap identified in the literature by studying the
factors affecting the strategic alignment of business and IT, and presenting it for further
investigation in terms of its implications on the organisational performance of public
organisations.
The intended contribution will allow researchers, managers and public
organisation executives to control factors affecting this alignment, leading them to
achieve better performance. This research therefore presents a practical use of the
Strategic Alignment Model (SAM), allowing businesses to control factors impacting its
progression, paving the way for further research in this area to find empirical data on
strategic alignment in a suitable context. As such, this paper provides an overview of the
research being undertaken in pursuit of investigating these aspects.
The remainder of this paper is structured as follows: Section 2 provides an
overview of the literature in the field of strategic alignment; Section 3 presents a
conceptual model; and Section 4 concludes the paper.
4
2.1 Strategic Alignment
During the last few decades, researchers have witnessed the emergence of the
concept of Strategic Alignment. Although it has attracted many researchers and has
been the concern of many consultants and practitioners, and also has been clearly
defined, this concept is still in its infancy, and appears to lack a theoretical foundation
and practical validation (Levy et al. 2011; Maes et al., 2000; Schwarz et al. 2010;
Wilson, 2013).
Luftman and Brier (1999) define ‘good alignment’ as the application of the
appropriate Information Technology at the right time and place in mind of helping
organisations to achieve their goals and objectives. Campbell provides a very clear
definition as follows: ‘Alignment is the business and IT working together to reach a
common goal’ (Campbell, cited in Chan and Reich, 2007). Abraham (2006, p. 1) also
provides a very clear and simple definition of alignment, which is: ‘Strategic alignment
is then, everyone rowing in the same direction’.
Several researchers have conducted studies on strategic alignment, during which
there has been the development of models and frameworks (Henderson and
Venkatraman, 1993; Johnston and Yetton, 1996; Khan, 2013; MacDonald, 1991).
However, most studies were based on the Strategic Alignment Model (SAM) proposed
by Henderson and Venkatraman (1993, 1999). Furthermore, many researchers and
organisations have used this model to assess the level of alignment in a firm.
Henderson and Venkatraman’s Strategic Alignment Model (SAM)—the most
commonly cited framework (Chan and Reich, 2007)—comprises two main dimensions.
The first is strategic fit, which refers to the concordance between internal and external
domains. The integration of this domain is considered a strategic integration, which is
seen to reflect the link between business strategy and IT strategy. The second dimension
is referred to as functional integration, which refers to the two types of integration
between business and IT domains. The integration in this domain is at an operational
level, and links organisational infrastructure and process, and IT infrastructure and
process (Henderson and Venkatraman 1993).
Researchers have studied the SAM, translating it into action plans and
management frameworks (Lewis, Oldach and Luftman, 1993). One of the key
extensions to the SAM is the Strategic Alignment Maturity Model by Luftman (1996).
This identifies SAM practically, not with the aim of enhancing it but rather in mind of
expanding the related research related through the development of an alignment
framework; this includes a number of alignment criteria and levels.
In an attempt to further enhance the SAM, Maes (1999) developed a generic
model by incorporating more details within the internal and IT domains through the
Integrated Architecture Framework introduced by Godvolk (1999). Maes et al. (2000)
have further proposed a unified framework; this includes more functional and strategic
layers within the original model, reflecting the current need for information and
communication. This unified framework is the first comprehensive attempt to enhance
the original model, revealing the fact that technology evolves and becomes more
integrated with business strategies.
5
Although most strategic alignment models have been based on the SAM, the literature
lacks evidence of its practical (Avison et al., 2004, Leonard and Seddon, 2012). This
recognition is identified in greater detail in in the following subsection.
6
Due to the importance of strategic alignment (Avison et al., 2004), and since
strategic alignment is hypothesised as having a positive impact on business performance
and IT effectiveness (Chan and Huff, 1993), researchers have proposed tools and
methods for the assessment of strategic alignment, such as those put forward by
Luftman (2004), and the 12-item measure of alignment, as proposed by Kearns and
Lederer (2003). Bergeron et al. (2004) also developed a tool for the measurement of IT
strategy and IT structure in organisations, centred on assessing its effect on
organisational performance.
A recent study by Pereira et al. (2014) contributed through the development of a
tool to improve alignment between business and IS strategies; this was achieved by
generating relative information related to prioritising IS projects that meet business
needs with the objective to achieve higher return on investment.
Another research by Palletier and Raymond (2014), was conducted to propose a
process model of reconfiguration of the firm’s IT and organizational resources,
competencies and capabilities. However this recent contribution was not validated and
the aim of it was only to provide an alternative for investigating and managing the
process of IT alignment.
In conclusion, none of the aforementioned tools have been based on the
components of the two dimensions of the strategic alignment model (Henderson and
Venkatraman, 1993) or otherwise on the enablers and inhibitors of business and
Information Technology alignment (Luftman et al., 1999); rather, as Figure 1 shows,
these have been based upon the model of Luftman (2004), with this approach covering
all of the dimensions of alignment (Belfo and Sousa, 2012). This is referred to as the
Strategic Alignment Maturity Assessment.
Enablers Inhibitors
1. Senior executive support for 1. Senior executives do not
IT; support IT;
2. IT involved in strategy 2. IT/business lack close
development; relationships;
3. IT understands the business; Business / 3. IT does not understand
4. Business–IT partnership; business;
5. Well-prioritised IT projects; IT 4. IT fails to meet
6. IT demonstrates leadership. Alignment commitments;
5. IT does not prioritise well;
6. IT management lacks
leadership.
Figure 1. : Enablers and Inhibitors of Business IT Alignment Adapted from Luftman (1999)
7
2.2.1 The Six Strategic Alignment Criteria
As described by Luftman et al. (2004), there are six strategic alignment criteria, also
shown in Figure 2:
1. Communications: this refers to the effective ongoing exchange of knowledge
between business and Information Technology departments within organisations.
2. Competency/Value Measurements: the measurement of the IT value and its
contribution to the business.
3. Governance: ‘Ensuring that the appropriate business and IT participants formally
discuss and review the priorities and allocation of IT resources’ (Luftman et al.,
2004, p. 17).
4. Partnership: defined as the ‘the relationship that exists between business and IT
organisation’ (Luftman et al., 2004, p. 18).
5. Scope and Architecture: this criteria provides an assessment of Information
Technology maturity by measuring the extent to which Information Technology is
capable with regard to the set of criteria defined by (Luftman et al., 2004), namely
going beyond the front/back offices of the organisation, assuming roles that
support a flexible infrastructure transparent to all business partners and customers,
evaluating and applying emerging technologies in an effective manner,
enabling/driving business processes and strategies as a set of standards, and
providing solutions customisable to customer needs.
6. Skills: these ‘include all of the human resources considerations for the
organisation’ (Luftman et al., 2004, p. 19). Such considerations are not only
salary and performance, but also social and cultural, with such factors including
innovation, entrepreneurship and learning dimensions.
COMMUNICATION
COMPETENCY PARTNERSHIP
MATURITY OF
IT / BUSINESS
STRATEGIC
ALIGNEMNT
SKILLS
GOVERNENCE
Figure 2. IT/ Business Strategic Alignment Maturity Dimensions, adapted from Luftman (2004).
8
Based on the above-mentioned alignment maturity dimensions—and using the
assessment tool of Luftman (2004), which determines the level of strategic alignment in
organisations based on a set of attributes against each dimension—the proposal is made
that this assessment can provide organisations with their current level of alignment in
order to achieve its management and enhancement according to their alignment goals
and objectives.
This study will expand the research on the SAM by linking this alignment with
organisational performance with the aim of providing better execution to the model and
ensuring that the goals and objectives of the organisations are met. The following
section will provide insights into and limitations of the recent studies on the SAM.
9
on the other hand, can cause failures in the management of IT projects, as well as the
neglect of IT when making business decisions (Sauer and Burn, 1997).
Based on the firm typology provides by Miles and Snow (1978), Sabherwal and
Chan (2001) studied the impact of alignment on organisational performance, and proved
the positive link between them, detailing evidence to support improved business
performance. Although the study showed a significant correlation between alignment
and performance, Sabherwal and Chan (2001, p. 27) concluded that, ‘The processes by
which alignment is accomplished (i.e. practically and effectively worked out) in
organisations needs to be better understood’. This conclusion encourages researchers to
conduct additional studies on alignment in order to provide better understanding of the
methods, processes and factors of alignments; this helps in achieving improved
performance.
Other researches by Sabherwal et al. (2001) have examined the way in which
alignment evolves over time, although most research in the alignment field has treated
alignment as a static end state as opposed to a dynamic situation, as noted by Henderson
and Venkatraman (1993). In this vein, Sabherwal et al. (2001) developed the Punctuated
Equilibrium Model (Sabherwal et al., 2001), suggesting that, once alignment is
achieved, it passes through periods of stability or evolutionary change, with such
evolutionary periods interrupted by short revolutionary periods. Revolutionary periods
are suggested to be a combination of environmental shifts, influential outsiders,
sustained low performance, perceptual transformation and strong leadership. The
findings of this study show that some firms had low alignment or misalignment even
during revolutionary periods. They concluded that a redesign is used, although this does
not often work. In an effort to address this, the IS strategic management profile should
include business and IS strategy and structure.
Tallon and Pinsonneault (2011) have also studied the relationship between
alignment and firm performance through the use of agility as a mediator under different
conditions of IT infrastructure flexibility and environmental volatility. They found a
positive and significant link between alignment and agility, and between agility and
firm performance; however, their contribution integrates the literature on strategic IT
alignment and organisational agility, but does not provide a direct impact on the
performance.
Papp (1999) agrees that alignment is the key to achieving improved profitability
from using Information Technology. In this regard, alignment is recognised as a
strategic fit, and the basic integration between business and Information Technology.
Papp recognises in the literature 12 different perspectives on alignment, with fusion
recognised as common and where this study offers an approach to assess or reach
alignment. This involves the application of the alignment model in assessing the
perspectives of the organisation, providing knowledge to identify and leverage
Information Technology to highest efficiency, with the inclusion of financial
measurements.
A research by El Mekawy et al. (2014) highlighted the Business-IT Alignment
potential link with organizations. Measuring the influence of alignment on information
security process (ISP). The in-depth literature survey followed by case study in two
organizations showed clear impact of business IT alignment on IT security components.
On the other hand, however, in their study of the use of Quick Response
technology in the retailing sector, Palmer and Markus (2000) did not find a positive or
negative link between alignment and performance.
10
Findings from the previous studies are clearly inconsistent, with contradiction
believed to be owing to the inflexible alignment plan and investing in different types of
IT that prevented the organisation’s ability to change (Chan et al., 2006).
Hence, researchers have investigated the factors that might impact the
relationship between alignment and performance, such as industry, type of strategy,
structure and size of organisation. In their studies on the antecedents and effects of
alignment, a comprehensive model was developed and empirically tested, including
some factors impacting alignment, along with the impact of this alignment on
organisational performance. The findings showed the positive effect of alignment on
organisational performance (Al-adwan, 2014; Chan et al., 2006; Chege, 2014).
Researchers have agreed that the process of strategic alignment requires full
awareness of the factors able to have an impact on it (Naryan and Awashti, 2014).
Accordingly, researchers have studies the factors proposed in the literature, confirming
or rejecting the positive relation with strategic alignment, such as Luftman, Papp and
Brier (1999), Reich and Benbasat (1996), Hussin, King and Cragg (2002), Chan,
Sabherwal and Thatcher (2006), Gutierrez and Lycett (2011). The outcomes of their
research are summarized in Table (1).
Another study by Yayla and Hu (2009) involved them proposing and empirically
validating a comprehensive strategic alignment model, identifying five antecedents of
alignment, namely centralisation, formalisation, shared domain knowledge, successful
IT history, and relationship management mediated by two drivers of alignment, notably
the level of connection between IT and business planning, and the level of
communication between IT and business managers. The findings of this study showed
significant effects on alignment, confirming the effects of all antecedents except
centralisation.
Most research on antecedents of strategic alignment focused on the role of IT/IS
managers in the alignment process paying less attention to the role of business
managers. Few research have examined the contributions of business managers in the
alignment process. Hence, a research by Mezghani and Mezghani (2014) was conducted
to to identify the contributions of business managers’ skills in achieving alignment
between business strategy and ERP (Enterprise Resources Planning) implementation.
These results of their study are in contradiction with several previous studies that
emphasize the importance of the "technical" skills of business managers (IT/IS skills) to
contribute to alignment.
Reviewing various attempts to measure fit (Atkins, 1994; Chan et al., 1997;
Lefebvre et al., 1992; Luftman et al., 1999; Reich and Benbasat, 2000) and
understanding processes of alignment brings us back to the idea of what may enable or
inhibit alignment (Luftman et al., 1996). Thus, if more studies need to cover alignment,
this needs to cover factors as well as the impact on the organisational performance.
11
3. DEVELOPMENT OF A THEORETICAL MODEL
12
not included the external IT expertise, as Hussin et al. (2002) reported that this factor
did not have a relevant impact on strategic alignment. Another factor, which is
organisational size, was also left out of this study because researchers did not find a
significance influence on organisations (Gutierrez et al., 2009, Luftman and Kempaiah,
2007a). Another research by Chan et al. (2006) reported that environmental uncertainty
also does not have influence on strategic alignment; hence, the researchers have omitted
this factor as well. On the other hand, the analysis of the results does not provide any
indication of findings related to prior IS success; therefore, the researcher included this
in the research (Kurti et al., 2014; Yayla and Hu, 2009).
The theoretical analysis on IS success has assisted in the identification of an
additional factor that needed to be considered for further examination, which is IT
acceptance. Therefore, this study will seek to build on previous researches in the field in
an attempt to fill the gaps in the literature. This will be achieved by examining the level
of strategic and IT alignment, and linking it with organisational performance (as also
noted by Chan and Reich, 2007).
-IT involvement in
Luftman, Papp Data from 1051 Alignment of IT strategy development
and Brier business and IT plans and - IT understanding of
(1999) executives business Plans business - Planning
participating in - IT failure to meet Sophistication
alignment classes commitments
- Senior executive
support for IT
-Well-prioritised IT
projects - Shared
- Business IT Knowledge
Partnerships
Table 1: Common factors related to alignment of business and IT from prior research
13
Researchers within the field of strategic alignment have explained the
importance and value of alignment to organisations by developing models and
frameworks; however, the results obtained after testing these models were inconsistent.
Researchers have related this inconsistency to the use of different measures of
alignment, contributing to the slow progress of research in this critical field (Gerow,
2014). Accordingly, this study concludes by proposing a model that is based on the
strategic alignment model and the matching assessment tool linked to organisational
performance assessment measures (Figure 3), as discussed in the following section.
IT
Strategies
Latent Variable
14
4. CONCLUSION
The research being undertaken and presented in this paper highlights the
importance of strategic alignment between business and IT strategy, and the potential
positive impact it can have on organisational performance. Aligning business and
Information Technology is significant once the factors affecting this alignment are
considered and strategic alignment is linked to the goals and objectives of the
organisation. Furthermore, with regard to public organisations’ performance, the
researchers have taken the theoretical gap in this field into consideration in an effort to
develop a strategic alignment model that links the maturity of the strategic alignment
with organisational performance through the implementation of a multidimensional
approach. This may be of a great value for practitioners as an aid in the decision-making
process. It will also provide empirical evidence and widen the research on the strategic
alignment in the context of public organisations.
The conceptual model presented seeks to structure the empirical stage for future
research as a foundation for research design. The model identifies the elements about
which data needs to be collected to make the research outfitted. The structure of the
conceptual model defines the structure of the questionnaire and the data collection
process as a whole. A follow-up research will examine the presented model in an effort
to provide the evidence that populates it and provides the empirical data.
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