Antonio Thonis

In this third part of my bachelor thesis we take a look at IT and business strategy theories. First I’ll explain why internal and social media (and IT) strategy should be formulated in an internal and external domain. And why these need to be aligned together and with the business strategy of the organization. Further I argue why Value Disciplines should be used to form a social media strategy. Please share your views again!

Aligning business and IT strategy

Now that we have definitions of web 2.0 and social media and the importance of them for organizations we continue the research on how organizations can approach these and align them with their organization strategy.

Organizations can adopt an internal or external focus, for their business strategy as well as their IT strategy. This chapter will present evidence that IT, electronic and social media strategies should also be formulated in internal and external dimensions and how these strategies should be governed by organizations.

The strategic alignment model

Strategic alignment model, Oxford University Press US (1992)

IT strategy should be articulated in terms of an external domain and an internal domain. Where the external domain focuses on the position of the firm in the IT marketplace and the internal domain focuses on how the internal Information Systems should be managed. To acquire an adequate fit that delivers benefits to IT investments a strategic fit between internal and external domains is needed. Benefits can be realized by finding a fit between internal and external IT applications and platforms.

Between IT strategy and business strategy there is also a need for functional integration that takes note of the impacts each has on another (Henderson et al. 1993). This way, more value can be realized from investments in IT as they take note of the business strategy and goals the organization has. IT effects on business performance varies across organizations, because of the ability to achieve a link between business and IT strategy (Rai et al. 1997).

The need for strategic alignment of IT

IT has evolved from an administrative role towards a strategic role that can support and shape business strategies. Yet sometimes there seems to be an inability to realize value form IT investments. Henderson et al.(1993) argue that this is due a lack of alignment between business and IT strategies in organizations.

Trying to achieve strategic fit between the dynamic internal support structure and the external product-market is a continuous process of adoption and change. Exploiting IT functionality on a continuous basis can deliver sustained competitive advantage. Organizations try leveraging their IT capabilities to differentiate operations from their competitors and use these capabilities to shape and support their business strategies. This underlines the importance and value of aligning both strategies in organizations.

Technology Investment and Business Performance

Rai et al. (1997) argue that when calculating the return on corporate IT investments focus must lie on the links between IT, business strategy and competitive context.

While IT likely improves organizational efficiency the effect on business performance varies across organizations, because of the firm’s management processes links with IT strategy. This emphasizes the need for linkage between IT and business strategy.

IT investments are often not well measurable with ROA or ROE. This paper suggest to break down IT investments, not treating as a whole entity and following an justification process that considers specific objectives of the proposed investments. For example investments aimed at reducing labor costs can be justified on the basis of cost savings

Corporate governance of IT

Raghupathi (2007) recognizes the value of internal and external strategic fit (Henderson et al.1993) and argues that modern IT governance should formulate strategies according to this model.

IT Governance can be defined as: “The organizational capacity to control the formation and implementation of IT strategy and provide direction to achieve competitive advantages for the corporation”. IT is critical for supporting and enabling enterprise goals. Effective ITG can generate real business benefits like reputation, trust, product leadership, time-to-market and reduced costs. These benefits all increase stakeholder value.

This emphasized the alignment of IT objective with business strategy. IT governance cannot be an isolated activity and must be part of top management. IT Governance is changing: ”Boards of directors are beginning to look beyond the accounting roots of IT governance toward the risk of legal liability and harm to product brand and corporate reputation.”

Conclusion

Inability to realize value from IT investments is due to lack of alignment between business and IT strategies in organizations (Henderson et al.1993).

There is a need for strategic fit between internal and external domain of IT and a functional integration between business and IT strategy (Henderson et al.1993). To achieve this alignment IT governance cannot be an isolated activity and must be part of top management (Raghupathi, 2007). Modern IT governance should formulate strategies according to this model that recognized the value of internal and external strategic fit (Raghupathi, 2007).

I argue that social media strategy should be aligned with the business strategy of organization to achieve successful investments. With the growth of social media importance in organizations it should become part of IT governance. Where the ”Boards of directors are beginning to look beyond the accounting roots of IT governance toward the risk of legal liability and harm to product brand and corporate reputation (Raghupathi, 2007).”

Organization strategy formulated in value disciplines

Treacy and Wiersema(1993) presented the value disciplines model that describes three value disciplines that can help define the main focus of an organization’s business strategy, helping the organization to make strategic decisions. Choosing one will shape strategy and operational decisions in a company. These value disciplines are guidelines for organization strategy and in order to be competitive organizations need to maintain an acceptable level on all three disciplines while excelling in one. The three value disciplines are:

Operational excellence:  Aims at offering the best total cost. Optimizing internal and external processes to minimize costs. The focus in the organization is on standardization and streamlining of operations, efficiency and low total cost. Most large international corporations like McDonald’s, Wal-Mart and Dell focus on this discipline. (Marc Eichen, 2006)

Product leadership:  Aims at offering the best product or solution. The focus in the organization is on R&D, design and innovation. Organization structure and culture need to be flexible to stay ahead of competition and offer cutting-edge solutions to customers.

Customer intimacy: Aims at offering the best solution and focus on customers to maintain long-term relations and growth. Continuously tailoring and shaping products and services to fit customer needs. Organization structure needs to be flexible, close to the customer and solving the customer’s problem has to be put above all.

Marc Eichen (2006) argues in his article “Value disciplines: a lens for successful decision making in IT” that the value disciplines are a good method for IT strategy decisions to be aligned with the institutional goals of organizations.

Conclusion: Value disciplines: a lens for successful decision making in IT

Formulating organization strategy in terms of choosing one value disciplines gives and clear view on the business strategy of an organization. Having this clear definition helps communicating the strategy to the rest of the organization.

Operational excellence, product leadership and Customer intimacy can all be used to formulate the goals of IT strategy and shape strategic decisions. I argue they should be used by organizations as a starting point from which to formulate their social media strategy. This way the social media strategy will have a basis that is aligned with the business strategy of the organization.

Related posts:

1. The alignment of web 2.0 and social media with business strategy – Thesis Pdf
2. Business types and approach to use Social Media – Thesis part 4
3. Business use and Definitions of Web 2.0 and Social Media – Thesis Part 1
4. Impact of Social Media and Web 2.0 on Organizations – Thesis Part 2