The effect of strategic alignment on the use of IS-based resources for competitive advantage

Abstract

Persuasive evidence has described the strategic use of information resources in organizations. As a result, IS researchers have sought empirically to link that use to improved organizational performance. However, this alignment-performance relationship has been difficult to confirm.

The current study contributes by distinguishing the alignment of the information systems plan with the business plan (ISP–BP) and the reciprocal alignment (BP–ISP). The study used 107 matched pairs of IS executives and other senior executives. Analysis showed that for IS executives both ISP–BP and BP–ISP alignment predicted the use of IS-based resources for competitive advantage. However, for other senior executives, only ISP–BP alignment predicted it. Study results suggest both groups of subjects share an understanding of the role of ISP–BP in creating competitive advantage from their information systems investments. However, the lack of a shared understanding of BP–ISP alignment may prevent organizations from achieving that advantage.

Introduction

Contemporary organizations are aligning IS and business strategies to improve organizational performance. Charles Schwab and Amazon.com have leveraged existing processes with online access and employed a first-mover strategy to realize record online revenues (Stewart, 1999). Dell Computer, in a first-mover strategy, has achieved success by aligning its core competency in supply-chain expertise with Internet technology. Chemical companies have successfully aligned information technology strategy and a business strategy of customer relationship management by creating virtual storefronts from which customers can access databases and complete transactions unassisted. Fingerhut has leveraged its transaction history of 75 million customers with data warehousing technology to identify customers with the highest potential for targeted marketing campaigns. Banks are mining data warehouses of customer information to profile profitable customers and target them with specialized services to retain their best and most profitable ones (Whiting and Sweat, 1999). Newcomer National Airlines is overcoming market entry barriers using an IS infrastructure that includes Internet and intranet sites, a data warehouse, and airplane maintenance system (Hibbard and Engler, 1999). All of these examples represent IS-based applications that are aligned with business plans and positively affect organizational performance.

IS-based applications can create competitive advantage based on the generic strategies of cost leadership, product differentiation, and market focus (Porter, 1980, McFarlan, 1984, Bakos and Treacy, 1986, Sethi and King, 1994). Strategic partnering, electronic data interchange, the introduction of switching costs via electronic alliances, distributed databases, geographical information systems, data warehouses, object-oriented development, and enterprise resource planning are all examples of IT investments for attaining competitive advantage (Eardley and Lewis, 1996, Gatignon and Xuereb, 1997).

Increased attention has been given to the alignment of IS and business strategies to create that advantage. In fact, the lack of such alignment has been argued to be the reason many businesses fail to realize value from investments in IT (Henderson and Venkatraman, 1993).

Investments in IT are often decided on the basis of the information systems plan and should be governed by the objectives of the firm as expressed in the business plan (Saunders and Jones, 1992). Thus, this alignment of the information systems plan and business plan is of utmost importance and leads to IS effectiveness (Chan and Huff, 1993). Firms are apt to view such IS-aligned investments as being strategically important and believe that they can enable IS resources to be used to produce competitive advantage (Kettinger et al., 1994).

The objectives of the study described herein were to: (1) provide a model of the relationship of strategic alignment and the use of IS-based resources to produce a competitive advantage; (2) develop measures for constructs of the model; (3) perform psychometric tests of those constructs; and (4) test the dependent variable from two perspectives — that of IS executives and that of other senior executives. This study would thus contribute to existing research through the parsimonious examination of the impact of alignment on the competitive advantage construct.