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Measuring Alignment News Story by Peter Buxbaum

MAY 07, 2001 (COMPUTERWORLD) - As business and technology have become increasingly intertwined, the strategic alignment of the two has emerged as a major corporate issue. Not that this is a new subject. In fact, the strategic relationship between business and information technology has been chronicled as far back as the 1970s, when Harvard Business School Prof. Richard L. Nolan expounded his "stages theory" of the business/IT relationship. But the emergence of IT from the back room to the forefront of e-business brings the alignment issue under the spotlight like never before. And as the economy softens, the potential efficiencies and competitive advantages afforded by technology become all the more crucial. Now, Jerry Luftman, executive director and distinguished service professor for the graduate information systems programs at the Stevens Institute of Technology in Hoboken, N.J., has added a new wrinkle: a methodology that enables companies to self-assess the maturity of their business/IT strategic alignments. By referring to the characteristics of five maturity levels within each of six strategic categories, Luftman contends that companies can generate numeric scores that reflect the maturity of their alignment. Luftman points to Bristol-Myers Squibb Co. as a firm that has enhanced its business/IT alignment in recent years. The New York-based pharmaceutical giant has established an IT review board of IT and non-IT executives to lead the strategy and planning processes, identify opportunities, define priorities and track the progress of IT projects. Luftman says his methodology was validated through studies of 25 Fortune 500

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Measuring Alignment - Computerworld

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companies during the spring and summer of last year. Now, thanks to new sponsorship by The Conference Board Inc. in New York and the Society for Information Management in Chicago, Luftman is surveying hundreds of executives, primarily at Fortune 1,000 companies, with the aim of assembling an ever-expanding repository of benchmarking information. "The participants need to be executives both from the business and the IT organizations," he says. "We look to have at at least six executives from each firm." Will this be useful? Few will contradict Luftman's insights. The question is whether the assessment effort represents the best use of a CIO's time. Roy Nicolosi, CIO at the Insurance Services Organization (ISO) in New York, says he plans to use Luftman's methodology to assess the ISO's four separate business lines. "We hope to find good measurements to aid in the comparison of the business units with a balanced scorecard," Nicolosi says. A balanced scorecard is a methodology that's designed to track long-term strategic performance by measuring progress against discrete business goals. Nicolosi also says Luftman's methodology may come in handy when evaluating potential acquisitions. For example, the relative alignment of a potential acquisition with the prospective parent organization can aid in deciding whether to integrate the acquired company into the umbrella organization or to leave it as a stand-alone entity. But Chuck Emery, CIO at Horizon Blue Cross/Blue Shield of New Jersey in Newark, doubts whether Luftman's numeric scoring allows for effective comparison. "The problem is whether metrics can be developed that can be used across different organizations," says Emery, who's mulling whether to try Luftman's system. "The evaluations call for many qualitative judgments, so that the assessment is related to the subjectivity of the evaluator." For Emery, the problem is finding metrics that travel well across organizational boundaries. "As long as I'm the one doing it, the measurement may be consistent," he says. "But intergroup comparability becomes difficult." In many respects, alignment boils down to the effectiveness of the interpersonal relationships between business and IT managers. Effective IT leaders, among other things, must be privy to senior management's tactical and strategic plans, according to Luftman. They must also be present when corporate strategies are discussed. "It's all a question of whether you're invited to sit at the table or out near the kitchen," says Nicolosi.

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"It's not a bad methodology, as these things go," says Bruce Blitch, CIO at Tessenderlo Kerley Inc., a Phoenix-based chemical company. "In fact, it's probably closer to the mark than anything I've seen before." Still, he advises CIOs not to put too much faith in tools alone. "Instead, learn the craft of making and maintaining relationships." Blitch sees the art of persuasion as more important than numbers in his job. "Whatever we do as CIOs needs to make sense to the business," he says. "But making sense comes down to contributing to a vision shared with your management peers." Buxbaum is a freelance writer in Elizabeth, N.J. Contact him at [email protected]. The Luftman Model Jerry Luftman’s five levels of IT/business alignment: LEVEL 1: Initial/ad hoc process Communications: Business, IT lack understanding Competency/value: Some technical measurements Governance: No formal process Partnership: Conflict; IT a cost of doing business Scope and architecture: Traditional (e.g., accounting, e-mail) Skills: IT takes risk, gets little reward; technical training LEVEL 2: Committed process Communications: Limited understanding Competency/value: Functional cost efficiency Governance: Tactical at functional level, occasionally responsive Partnership: Process enabler; IT emerges as asset Scope and architecture: Transaction (e.g., decision-support system) Skills: Differ across functional organizations LEVEL 3: Established focused process Communications: Good understanding Competency/value: Some cost-effectiveness Governance: Relevant process across organization Partnership: Process driver; IT seen as asset Scope and architecture: Integrated across organization Skills: Emerging value service provider LEVEL 4: Improved/managed process Communications: Bonding, unified Competency/value: Cost-effective; some partner value Governance: Relevant process across organization

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Partnership: IT enables, drives business strategy Scope and architecture: Integrated with partners Skills: Shared risk, rewards LEVEL 5: Optimized process Communications: Informal, pervasive Competency/value: Extended to external partners Governance: Integrated across organization, partners Partnership: IT and business co-adaptive Scope and architecture: Evolve with partners Skills: Education/careers/rewards across organization

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