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Issue of June 2003 
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IT and Business Alignment IS2003
Binding technology to business

IT needs to be firmly aligned with business objectives. The CEO and CIO should work together to achieve this alignment

IT must be closely aligned with business objectives. This can help reduce costs, enhance customer service, promote innovation, improve communication, and drive quality improvements—in short deliver on the very promises for which IT is implemented in the first place.

As per the results of IS 2003, almost 80 percent of the Indian CIOs believe that their IT goals and business objectives are closely aligned. This alignment between IT and business is claimed to be much closer in BFSI and Telecom/IT/ITES verticals where technology and business go hand-in-hand.

This is surprising if one considers that just a few years ago IT was anything but aligned with business.

Not so long ago
Just over two years ago, IT was considered the end-all. In many cases technology was implemented for technology's sake; rarely were the overall benefits—tangible as well as intangible—evaluated carefully before making an implementation decision.

CIOs were under constant pressure to follow the technology model adopted by the company's closest competitor. There was no clear rationale behind adopting a particular technology.

Companies failed to realize that every organization's business needs and issues were unique and that the replication model would not hold good. It was only events like the dotcom bust followed by the economic downturn that forced many companies to take a hard look at their technology investments.

Improving IT and business alignment was the only way out for most companies which had al-ready invested sizeable amounts on miscellneous technologies.

Lack of alignment
When CIOs were asked why they think IT and business were not aligned, the most popular reasons were, ‘Business goals are considered more important,’ ‘It is not the main objective of the company’ or ‘We are currently working to bring IT and business goals together.’ While reasons like ‘Lack of vision’ or ‘IT is not essential to the company's success’ figured last.

This highlights the fact that even though IT has gained prominence within an organization, it is still considered as just another department, and not a catalyst for growth. It's true that IT alone cannot drive growth, but it can act as the key growth enabler, and companies need to realize this.

27 percent of the organizations realize the need to align IT and business goals together and are already working towards that objective.

Top-down approach

This brings us to our next question: How does one align IT with business?
Aligning IT with business is more of a management issue than a technology one. For IT to be aligned with business, there has to be a clear understanding between the CEO and the CIO. For this, the CEO needs to step a level below to understand how a particular technology initiative will affect his company. At the same time, he needs to consider the CIO as a strategist, not just a technology solution provider.

The CIO needs to evolve. He must understand the core business issues and try to fit them into different technology scenarios. This way, he will be able to contribute significantly to the company's growth and future strategy.

As per the survey nearly 83 percent of the CIOs form a part of the company's core strategy team. This percentage is significantly higher in the BFSI segment where IT is a crucial component.

But the same cannot be said about the CEO’s involvement. If one analyses the key people involved in decision making, the CEO plays a significantly lower role. In certain areas like Enterprise Wide Applications, Security, and Outsourcing, less than 50 percent of the CEOs are involved in direct decision making. In fact, in most cases the Functional Heads play a more significant part in decision making as compared to the CEO.

A CEO needs to play a more proactive role when it comes to Process automation or Security, since they affect the organization as a whole. Enterprise-wide IT strategies also need to be discussed frequently at the board level. Currently, only 35 percent of companies discuss IT strategy frequently at board meetings.

Research Snapshots
  • 80 percent of CIOs believe that IT and business goals of their organization are closely aligned.
  • The alignment between IT and business goals is much closer in case of BFSI and Telecom/IT/ITES sectors.
  • The main reason for lack of alignment of IT with business is that ‘Business goals are considered more important.’
  • 1/3 of organizations are working towards aligning IT and business.
  • More than 80 percent of CIOs form a part of the company's core strategy team. This number is significantly higher for the technology-driven BFSI sector.
  • Only 35 percent of organizations discuss IT strategy frequently at board meetings.

NM Suggests
  • IT should be closely aligned with business. Then only will the organization be able to derive the maximum benefit from an IT implementation.
  • Improving IT and business alignment is the only way out for companies, which have already invested sizable amounts in technology.
  • Instead of replicating a competitor's technology model, organizations should be focused on analyzing their own pertinent business issues and how these can be addressed using technology.
  • The CEO and CIO should work closely to align IT with business.
  • The CEO should understand how a particular technology initiative will affect his company. He should also consider the CIO as a strategist, not just a mere technology solution provider. Enterprise-wide initiatives like ERP or security should be driven by the CEO.
  • The CIO should understand the core business issues to step into the role of a strategist.
  • IT strategies should be discussed frequently at board meetings especially in verticals like BFSI, Telecom/IT/ITES, where IT acts a business driver.
“CIOs should have exposure to business domain”

P.K. Vohra, General Manager, ICICI Bank Limited, believes that a good amalgam of business and technology will occur when the CIO and his team have had some exposure in the business domain they're trying to serve.

Why must the CIO and business heads align IT with business needs?
The CIO and business heads must align IT with business needs because business is the raison d'être (reason for a thing's existence) of IT. Technology does not have an existence unless it serves something that adds value to the stakeholders like customers, shareholders, and employees. For example in a bank, technology performs a support and enabler function.

You can't force an alignment. It needs to be natural. This will happen only when the CIO is aware of what the business is trying to do. The CIO must understand that he/she is there because there's a business running. And this business sells products and services. So the IT functions must be performed as efficiently and cost-effectively as possible.

How much of business operations and processes should a CIO understand?
It helps a lot if the CIO understands the actual business that needs to be supported. It allows a better 'handshake' of IT with the business areas in the organization. The 'handshake' ensures that IT understands what the business wants to do, and adds values by suggesting automation and changes.

A good amalgam of business and technology will occur when the CIO and others in the IT team have had some exposure in the business domain they're trying to serve.

What is your role in the IT-business alignment process in your organization?
I ensure that an expert from the IT team is associated with the project from the planning till the deployment stage. I'm a member of an internal product development team comprising department heads of various business areas. Any new product like a credit card, debit card, and retail loan is put through a thorough testing phase before being introduced into the market.

For example, a credit card will only be introduced when the IT team is sure that the systems will be able to support the associated transactions, billing, and future growth in users. The IT team works in conjunction with other business heads to achieve results.

What is the role of IT governance in an organization?
IT governance ensures that standards, procedures, transparency, and robustness is introduced in the systems. In the long term, attention should be paid to predictability of various IT functions and processes.

Governance functions in Indian enterprises are not as structured as the companies would have liked it to be. And this gives scope for consultants and partners from around the world, suggesting certain models for provisioning and deploying governance.

Unfortunately, not many banks in India have suitable governance policies, although there is a need for processes in different functional areas.

How do you measure the success of technology initiatives in your organization?
Technology in ICICI bank is embedded in the organization. We don't use the classical approach, which says that, technology investments need to stand on their own, and you need to get ROI.

Some IT investments are purely on core technology components. These investments serve very specific businesses needs. For example, products like credit cards, debit cards, and retail loans depend on an IT backbone to function. This backbone is integral to the business.

So when the product is created, it is a part of the business. And the profits brought in by the product, is able to justify the technology investment. In this case the IT investment is not considered a separate technology budget. However, the business heads for specific products need to be comfortable with the IT spend.

There are certain IT solutions, which may not be tied up with a particular business. They may be Disaster Recovery (DR), off-site availability systems, and investments on the nationwide and global WANs. Of these, some may be regulatory and some strategic.

If required by regulatory norms, justification of ROI may not be possible. In strategic investments like those on DR, the ROI is the cost of downtime.

“CIOs should play a dual role”

Mani B. Mulki, General Manager, Information Systems, Godrej Consumer Products Limited says that CIOs should play a dual role—one of a technologist and other of a business manager—for aligning IT with business.

What is the importance of aligning IT with business objectives?
It is extremely important to align IT strategies and solutions with an organization's business objectives and needs. And, the need to align has become especially relevant in the present business environment.

The situation in companies was different around 15 years ago. EDP was more of a service department. The actual benefit derived from IT at that time was the speed at which a few low-level operational reports were generated.

The scene changed around six years ago with the introduction of useful and robust enterprise applications like ERP. Some companies began to deploy them and it triggered a kind of 'fear psychosis' among other companies. If any company used a particular solution, its competitor would jump into the same solution.

There would be no rationale or consideration about its use. Companies failed to identify whether the applications were suitable for their businesses or not. They failed to realize that every organization's needs and business environments were unique, and irrelevant to other organizations.

Around 1999, e-commerce was the noticeable trend. Organizations poured in money to enable e-commerce and hoped to derive huge value out of these investments. This unfortunately proved to be unsuccessful in many cases.

In the present day, it's interesting to see that the amount of investment in IT has not come down. IT investments are just very carefully evaluated. This is why it's important to align IT with business.

Earlier IT drove business. Now business drives IT. And that's the way it should be.

What role does the CIO play to fulfill business objectives?
The CIO must keep abreast of the latest technology advances, and should be able to choose the solution that fits the enterprise correctly. The CIO should play a dual role. One of a technologist, and the other of a business manager.

For example, there may be a dozen SCM solutions available in the market. And these solutions may use a dozen different technologies. The CIO is responsible for choosing the solution relevant to every supply chain business aspect of the company.

Success stories of other organizations do not matter very much any longer. Just because another organization has been successful in adopting a particular technology or solution does not mean that another company will be successful as well.

Can you recommend a standard approach or methodology?
The CIO has to be well-versed in business and should know the core competencies. He/she should be aware of the business and operational and productivity levels, since these are the strengths of an organization. The CIO should then look for IT solutions that revolve around these strengths.

The technology should augment the core competencies and result in better services, better products, and better ways of conducting business. Unless the technology introduces a fundamental and visible change in the business processes, it will not impact the bottom line or the top line.

How does the CIO evaluate whether IT deployment is successfully aligned with the business needs?
Since most IT investments are large, they must have performance indicators. For example, in an SCM deployment, there should be a notable decrease in inventory levels. Benefits of an IT investment are tangible like cost savings, and intangible like faster dissemination of information. These could be the indicators. Before an IT investment is made, the performance indicators have to be agreed upon by the board. This helps the company calculate and measure benefits.

How should the CFO view the technology investment?
An IT investment is a strategic decision and is thus made by the board, of which the CFO is a member. Investment in IT should be viewed as a core investment and at par with any other core business investments, in a company. For example, if the company wants to set up a new regional office, there needs to be a robust IT infrastructure at the location as well. The IT investment is too vital to be questioned.

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