Strategy

By Dave Trowbridge

Whether you're a newly appointed CIO or a seasoned IT executive, you have heard repeatedly that for IT to be seen as a driver of business value rather than a cost center, you must "align IT with the business."

But should alignment always be your goal?

That may seem like a foolish question. But according to a 2007 article in the MIT Sloan Management Review¹, business alignment is not an unalloyed good. In fact, unless you have a highly effective IT department, alignment alone can trap your company into a dangerous combination of high IT spending and low corporate growth.

Alignment or Integration

What's really important is IT-business integration, which requires a proper balance between alignment and IT effectiveness. And, according to the article's authors, all of whom are partners or senior advisers at Bain & Company, a global business consulting firm, if you're not there yet, then start with effectiveness. Trying for alignment first is a recipe for failure.

Focusing on alignment usually involves developing custom solutions specifically designed to serve each division's particular needs. But, since IT resources are limited, this usually means putting off standardization or upgrading older systems. As the article points out, this results in:

• Overlaying complexity on old systems
• Postponing infrastructure improvements
• Leaving significant scale benefits untapped

Costs rise; delays mount; and fragmentation undercuts coordination across business units. It isn't difficult to imagine how the following potential fallout from such a situation would make executives more likely to view the CIO as an order-taker and IT as a cost center.

• A vicious cycle of declining IT credibility
• Tightening IT budgets
• Decreasing IT effectiveness

The Alignment-Effectiveness Landscape

The article also identified this "alignment trap" by asking business and technology executives at more than 450 companies about both the alignment and effectiveness of their IT capabilities. They compared the results to the compound annual growth rate (CAGR) and IT spending of each company, expressed as the percentage difference from the three-year average for the companies surveyed. The results, summarized in the Figure, are enlightening.

Close to 75 percent of the companies were in the "maintenance zone," where IT was regarded as neither particularly effective nor particularly aligned: it was simply keeping systems up and running. Companies in this zone saw a little less than average growth while spending the same as the average on IT. By contrast, companies where IT was regarded as both highly effective and highly aligned ("IT-enabled growth") saw a CAGR 35 percent greater than the average while spending 6 percent less than the average on IT - definitely the place where a CIO wants to be!

But the real lesson of the study comes from considering the other two quadrants as a guide to how to get from the maintenance zone to IT-enabled growth. Companies where IT was regarded as highly effective but not highly aligned ("well-oiled IT") did well compared to the average, seeing 11 percent better CAGR and 15 percent less IT spending. But those mired in the "alignment trap," where IT was regarded as highly aligned but not highly effective, got the worst of both worlds: 14 percent lower growth and 13 percent higher IT costs.

Getting Out of the Alignment Trap

Here's a definite confirmation of the reality of the alignment trap: if you try to move from the maintenance quadrant by improving alignment first, you'll see lower corporate growth and higher IT costs: a lethal combination for a CIO's career. Instead, the way to go is to aim for effectiveness first, and alignment second. Success there will give you better growth and lower IT costs, which builds credibility and momentum for the further changes needed to elevate your IT department to an organization that enables corporate growth.

The article recommends three principles as key to greater IT effectiveness:

• Simplification
• Right-sourcing
• Focus on value delivery

Simplification may actually move you away from alignment with particular divisions at first, but it builds in scalability, which will eventually lower costs. Right-sourcing is often simply a matter of identifying what must be proprietary, but even with functions that can be outsourced, it's often best to do them in-house first, to guarantee that you can recognize when and why someone else isn't performing up to standards. And focusing on value delivery requires feedback from both executives and users, as well as using Key Performance Indicators (KPIs) and similar metrics and processes to assure that IT projects are completed on-time, within budget, and up to expectations.

Effectiveness in Healthcare

What does this process of moving to a more effective IT function look like? Some good examples can be garnered from two of the most information-intensive industries: healthcare and pharmaceuticals. As Jennifer Allerton, CIO of Hoffman-LaRoche says, "IT is the lifeblood of the pharmaceutical business. It takes 10 to 12 years to bring a new drug to market, and every step along the way requires collecting, storing, organizing, classifying, and understanding vast amounts of data." She used right-sourcing as a way to reduce IT's cost structure by setting up operations in more cost-effective near-shore locations: an application development center in Poland and a technology and engineering center in Spain.

Simplification involves both standardization and scalability. In the pharmaceutical industry, one of the greatest sources of complexity is regulatory compliance. It's hard to think of an industry, aside from financial services, that carries the same burden. At Novartis, CIO Jim Barrington faced this challenge by pooling all of the company's compliance and security issues into a single, standardized accountability framework, called "IT in Control," which is the responsibility of the Head of Compliance and Risk Management, who reports to Barrington. This department covers both the external requirements imposed by regulators and the internal requirements such as security, business continuity planning, and the like.

The gain in IT effectiveness and agility was noteworthy: "My IT staff now doesn't need to keep up to date with regulations and their interpretation," says Barrington. "They just need to implement the controls in the framework." As for scalability, according to Claus Pedersen, international manager for Medcom International, a cooperative venture between authorities, organizations, and private firms linked to the Danish healthcare sector, "Don't even think about an initiative unless you're sure you can scale it up to support your normal daily business, and make it economically sustainable."

Value delivery must start with very simple moves, especially when faced with conservative users, as in healthcare. As Albert Molas Barberá, CIO of Hospital d'Igualada near Barcelona, Spain notes, "The primary precept of healthcare professionals is 'first, do no harm,' which isn't a bad motto for a CIO, either! So they are naturally and rightly suspicious of any change unless you can demonstrate a benefit to their patients." He found that overcoming this resistance in a new hospital simply involved using the benefits of digitized radiology to get doctors and nurses accustomed to logging in to the new system. "In the old hospital, radiology was all film, and doctors fretted at the delay and hassle this entailed. In the new hospital, from day one, all radiology was digitized, online, and very quickly available, but you had to log in. Not a big deal, but a huge payoff in terms of convenience. Now practically the entire staff could see a benefit from the new system with very little effort on their part."

Measuring results is naturally harder, but the best way usually involves some form of user feedback, as Allerton notes. "The fact that we've been able to support double-digit annual growth for five years is a pretty good metric of IT's effectiveness. But we also pay a lot of attention to less tangible results, the people results, and for that we rely on internal surveys and external benchmarks."

Dave Trowbridge is a freelance writer based in Boulder, CO.