Striving Towards Strategic It & Business Alignment in Small And

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STRIVING TOWARDS STRATEGIC IT & BUSINESS ALIGNMENT IN SMALL AND MEDIUM-SIZEDELECTRIC UTILITIES - A PRAGM ATIC APPROACH

M Haglind, K H Cheong,

Royal Institute of Technology (KTH), SWEDENUniversity Tenaga Nasional (UNITEN), MALAYSIA

Summary - Based on case research, this paperhighlights critical issues in achieving alignmentbetween business and IT strategies in small andmedium-sized electric utilities. The paper investigatespotential benefits of using well-established rameworksas tools fo r decision support in strategic ITmanagement, and obstacles in implementing suchframeworks. Finally, the paper provides suggestions tocircumvent the obstacles by proposing an alternative,more pragmatic, approach fo r strategic planning oundto be suitable f o r small and medium-sized utilitieswhere resources for strategic IT management arescarce.

INTRODUCTION

Electric utilities are undergoing tremendous changesdue to deregulation, rapid development in InformationTechnoZogv (IT), and the enormous growth of theInternet. While deregulation has brought about threatsand opportunities, along with many uncertainties to

. utilities, modem IT has been regarded as an importanttool in order to meet the challenges ahead. However,the deployment of software systems in organizations isseldom without problems [ 1,2,3]. Barring technicalproblems in implementation, the systems still often failto satisfy all stakeholders around the system, as thedelivered set of functions does not match the actualneeds of the business. In a recent study conducted bythe Standish Group International (a US-based marketresearch and advisory firm) within the electricity andgas utilities sector shows that only 8% of the ITprojects had actually succeeded to fulfill their initialexpectations [4], see Figure 1.

Success8%

Figure 1: IT-project resolution for utilities

19% of the projects are challenged, i.e. the project iscompleted and operational, but over budget, over thetime estimate, and offering fewer features andfunctions than originally specified, and as much as

73% of the projects are cancelled at some point in thedevelopment cycle. According to the study, theinvolved organizations' limited ability to manage therapidly changing regulatory and business requirementsduring the development process are the predominantcause of failed and challenged IT projects

A lot of Information Systems (IS) research has beendirected at identifying the causes of the failure and todevelop models and techniques to enhance the successrate of IT investments. One of the most written causesof IT investment failure is that too much attention isplaced on technology itself, rather than its links withbusiness operations, customer value, and management

decision making [5]. In other words, there is a lack ofalignment or harmony between IT and otherorganizational and business imperatives. Becausebusiness success increasingly depends on IT enabledprocesses, products, and services, it is important to linkbusiness goals and the potential IT contribution.Although the need to integrate business and IT strategyhas been advocated, few practical frameworks exist [6].Moreover, most research in strategic IT managementhas been conducted in North America with very large-scale organizations in mind PI. IT management insmall and medium-sized enterprises (SMEs) isgenerally considered to be under-developed and under-researched [8].

The purpose of this paper is to highlight critical issuesin achieving alignment between business and ITstrategies in small and medium sized electric utilities.Based on case research, this paper attempts to highlightpotential benefits and obstacles in applying well -established strategic alignment frameworks as tools fo rdecision support in strategic IT management. Tocircumvent some of the obstacles, the paper proposesan alternative, more pragmatic, approach for strategicplanning found to be suitable for small and mediumsized utilities.

Research approach. The research approach applied inthis study is based on a qualitative approach, which is acombination of the case study methodologiesprescribed by Yin and Walsham [9,10]. At a later stageof the study, one of the authors was invited by theorganization concerned to partly participate in the on-going process as external advisor. Thus, this part of thestudy could be considered as "action research," whichis a methodology that pursues action (or change) andresearch (or understanding) at the same time [111.

ClRED2001, 18-21 June 2001, Conference Publication No. 482 0 EE 2001


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Outline. This paper is organized into six sections.Section 2 provides an introduct ion to the issue ofstrategic alignment. Thereafter, the theoreticalapproaches are contrasted with the current practice ofstrategic alignment in electric utilities. Section 4presents experiences from a strategic IS planninginitiative in a mediumsized utility. Thereafter, analternative approach to strategic IS planning ispresented. Finally, the paper ends with conclusions.

STRATEGIC ALIGNMENT - A MATTER OFCOORDINATION

Strategic alignment addresses the problem ofcoordinating the relationship between the businessdomain and the IT domain in an organization. Strategicalignment is often discussed in the context of StrategicInformation Systems Planning (SISP). Strategicalignment (in short alignment) and SISP are oftenconsidered to be two sides of the same coin. WhileSISP addresses the planning process of coordinatingthe relationship between the business domain and theIT domain, alignment represents the result, or product,of that process. Improving strategic planning, andhereby strategic alignment, has been considered one ofthe most important IS management issues during thelast decade. But benefits of using IT can be achievedonly after the applications are in use. Thus; the supplyside of the IT domain must also be managed properly.Galliers argues that the key to successful SISP lies inthe integration of the IS strategy with that of thebusiness on the one hand (demand side), and ISdevelopment on the other (supply side) [121.

As a result of the importance of SISP, a lot of ISresearch have been directed at develop models andtechniques for planning purposes. A typical SISPsetting in the literature is a situation where top-management in an organization produces a strategic ISplan through a major, intensive study, and implementsthe plan by deciding and initiating a number of projectsconcerned with changing or extending theorganization s software systems as defined andprescribed in the plan [13]. Because of the importanceof the issue, organizations usually follow one ofseveral, similar well-defined and documentedmethodologies to guide it or it could customize its own.

The IS literature s approach to alignment has recentlybeen summarized in a theory of SISP, describing a top-down planning process in which input to the model isperceived and influenced by external environments(customers, suppliers, competitors, legislation,technology, etc.), internal environments (organizationalculture, size, structure, goals, management style, etc.),

as well as by planning resources (the organizations

business strategy and the time, effort, skills, andexperiences from management and consultants) p3],see Figure 2. The output of the process is theproduction of a strategic IS plan, followed by thisplan s implementation (i.e. the initiation and

implementation of recommended IT-deploymentprojects), and finally alignment. Alignment is, in thistheory, the degree to which the planning process resultsin strategic information systems. Here, alignment aimsat achieving a fit between implemented projects and theorganization s objectives. Thus the theory viewsalignment as the product or the effect or outcome of theSISP-process. This is in-line with Reich and Benbasatwho define alignment as the degree to which the ITmission, objectives, and plans support and aresupported by the business mission, objectives, andplans [141.

lntemalE n m m t

PlanlungResources

1PlanningPmCeSS

InfamationPlan

Implementahx

liinment

Figure 2: A typical top-down SISPproc ess.

During the last years, the need for, and usefulness of,SISP also in small a nd , mediumsized enterprises(SMEs) have been increasingly advocated PSI. SMEsare generally regarded as flexible organizations thatcan respond quickly to customers requirements.However, flexibility does not extend to IS adoption or

use [SI. SMEs that adopt IS without consideringstrategy are unlikely to gain business benefits, dueprimarily to the perception of IT as a drain of limitedSME resources rather than an opportunity for growth[16]. In general, the focus of the prevalent theory is onvery large-scale organizations; there is very littleguidance in literature how the theories and ideas couldbe scaled down to fit smaller businesses [A .

STRATEGIC ALIGNMENT IN ELECTRICUTILITIES

The Swedish electricity market has undergoneremarkable transformation in the last few years asmarket competition has replaced century-old monopolyorganization. The changes have implied extraordinary

pressures on the utilities, organizational structures,business processes, and business strategy thinking. Theincreasing demand for flexible energy products,characterized by value-added services, and enhancedefficiency in operations have forced utilities to focus ontheir business processes trying to integrate them more


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tightly as customer interaction usually cuts through thetraditional functional organizations.

Increased focus on cross-functional as well as inter-organizational information exchange in support ofbusiness processes, have fundamentally reshaped therequirements concerning IT within a utility. In thesame time, the information intensity of the industry hasgrown and it is several orders of magnitude greatertoday than before deregulation. Today, access toaccurate and timely information are not only aprerequisite for an open, competitive market but alsoconsidered to greatly impact the capability of a utilityto maintain its service excellence while increasing itscompetitive edge [ 17.

In order to meet the changing business requirementsconceming information management, there is a needfor completely new functionality, but also effectiveintegration of existing software systems in mostutilities. Today, an overall Enterprise Software System(ESS) in a mediumsized utility may comprise ofhundreds of interconnected systems with differentdegree of interaction, some of them not even within theorganization. However, the traditional managementstrategy for automation of tasks within utilities hasbeen a bottomup approach, in which functional areaswere automated on an application-by-application basis,without consideration for integration and optimizationat the firm level [18]. Thus, the inflexibility of existinglegacy systems is still a major obstacle for achievingsystem integration. As a result of the increased level ofdependency between different systems, EnterpriseSo fi ar e Architecture (ESA) has become a key issue.

In the process of adapting their ESS to the newbusiness requirements, several utilities have started todeploy a new wpply strategy. Traditionally, systemshave been developed and customized from scratch inorder to fulfill the specific requirements for oneorganization, This is however changing as the cost fortailor-made software systems is arduous to bear formost organizations. The trend for enterprise softwaresystems is thus an increased use of COTS -Commercial Off he Shel f - software. The COTScomponents used vary in size, but are often fairly largegrained and might even comprise complete systems,e.g. Customer Information Systems. By using COTS-software, utilities are able to bring down the effort ofdeveloping bread and butter functionality, but inretum the use of COTS increases the total systemcomplexity and introduces a complete new plethora ofproblems that must be tackled [ 191.

As a result of the increased complexity of IT and itspotential business impacts, there is a need for aneffective strategy to fully exploit its benefits [12].Many utilities have recognized this, and planning anddevelopment of an IS strategy have become theaccepted way to identify those areas in whichinvestment in IS will provide the greatest benefit for

the organization. A study into several IS strategiesformulated by utilities has however revealed that mostof the strategies formulated focus only on parts of theESS [20]. Furthermore, in a recent survey conducted bythe authors, the results show that only about 45% of theSwedish utilities had an IS strategy in place Ell]. Theresearch shows that, as many as about 70% of thesecompanies were not satisfied with the impact of thestrategy on their business activities. One of the mainreasons for this dissatisfaction was a lack of alignmentbetween the IT and business domains. This is reflectedin the survey results that, so far, existing IS strategy hasnot had any significant impact on the utility s businessfunctions, for example, in reshaping its businessstrategy, in redefining its taskdprocesses, roles andresponsibilities of its people, and relationship with itscustomers. There is even less impact on theorganization s structure and the relationship with itssuppliers. Similar results are found in other studies inwhich the existing IS strategies were found to providevery little or no assistance at all to the different ITdeployment projects carried out in the studiedorganizations [ 221.

CASE STUDY: SISP IN AN EL ECTRIC UTILITY

In order to further explore the issue of strategicalignment between IT and business domains, a casestudy investigating SISP practices has been conducted.The company under study was a mid-sized Swedishelectricity retailer formed by a merger of the previouselectricity sales operations of five municipally ownedelectric utilities. The company was established in 1996and during the first years, management had beenfocused on consolidation issues such as establishmentof organizational structure, management team, andworking routines, rather than aggressive businessstrategies. In 1998, management had started to reviewthe strategies of the company in order to prepare forforth-coming changes in the market. Management wasforecasting that the sales and marketing strategy had tobe more aggressive and customer-focused, and that thecooperation with other companies to facilitate bundlingof products and services had to be enhanced. Also, thelowered margins on electricity sales urged for bettercontrol of the company s business processes, moreeffective risk management in the electricity trading,and reduced administrative costs in the handling ofsmall customers.

Early in the strategy review, management concludedthat most problems identified were related toshortcomings of the existing legacy ESS to support thebusiness operations sufficiently. The existing ESS wasa heritage from the mother companies and consisted ofa wide-array of legacy systems and components. TheESS lacked functionality in several critical areas andprovided on the other hand, over-lapping functionalityin several others. The company experienced problemsto merge information for analysis and effectivereporting purposes as several of the mission critical


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systems lacked capabilities for interoperability.Furthermore, the limitations in interoperability made itdifficult to introduce multi-channel customrinteraction, or conduct effective electricity trading andrisk management.

In order to start the process of introducing a moreappropriate ESS, the management team decided toundertake a systematic and formal IS planning process.A major management consultant firm was contracted toapply their methods and frameworks to help the utilityto develop a migration strategy for the major part oftheir legacy ESS. In the process of collectinginformation, a comprehensive set of activities wascarried out by consultants, activities that were mainlydirected toward the top management team andcomprised elicitation of business strategies, objectives,and priorities. As the business operation had startedjust a few years earlier, there were no long established,documented working routines or processes. Also, thebusiness strategy was mainly held informally withinthe top management team. This is a characteristic forSMEs, which tend to be organic with informalmanagement structures built around small managementteams [8]. Due to this fuzziness, the consultants foundit difficult to document the business objectives,structure, processes, etc., an important and integratedpart of the applied framework.

The management team on the other hand, had anopposite view of the fizziness of the business domain;they rather saw it as an opportunity. Management had,based on the company s limited supply of skills andresources, understood the need to extensively useCOTS-components in order to limit the risks coupledto extensive software development and integration. Bysearching for a vendor with extensive knowledgeconcerning the business conditions in which thesystems should be installed and with a system based onlarge grained COTS -components, management saw anopportunity to find not only a system but also keybusiness processes that were matched and aligned tothe system and suitable for an electricity retailer activein the deregulated Swedish electricity market.

Rather early in the process, the scope of the appliedmethod became large and difficult to grasp. Also,activities and outcomes failed to win the support orinvolvement of the organization at large. Furthermore,when the conclusions were presented, they were foundto be on a too abstract level. Also, as the consultantfirm was the driver of the SISP exercise, they had asubstantial influence on the recommendations, and theobjectivity of some of the recommendations becamequestioned. Although different design alternatives werepresented, the results did not provide information aboutthe complexity of the proposed solutions or theresources needed for implementation and training.Neither, did the conclusions take enough notice of thespecific characteristics of the organizational settings,e.g. the need to extensively use well-proven COTS-

components, nor they provided guidance concerningthe trade-offs between for example, change impact onprocesses versus software systems, solution flexibilityversus versatility, solution simplicity versusintegration, implementation time & costs versusoperational costs, for the different alternatives.Therefore, management found it difficult to sort outand prioritize the most important parameters of asuccessful ES S for their specific situation.

After a few months of intensive work, managementconcluded that the applied method could not help themin their mission and the SISP initiative was canceled.Instead, the company decided, due to shortage of timeand resources, to launch a pre-study with the purposeof preparing the procurement of an ESS suitable fortheir business operations. However, the method did notfail completely. As a result of the exercise, themanagement team increased their awareness of theproblems with the existing legacy ESS and it showedthe need for explicit business strategies.

Analysis of the SISP initiative

Based on the results from the case study, one canconclude that implementation of a formal SISPinitiative in a SME is not an easy undertaking. It isfound that the planning framework applied was usefulin increasing the awareness of the top management interms of interdependencies between different elementsof the organization. However, several obstacles arosein trying to fully implement the.framework.

Firstly, during the process it became clear that theapplied method was designed primarily with bigorganizations in mind. Thus, the amount of resourcesneeded both in terms of personnel, money, and time,was found to be a major problem for the studiedcompany. Neither, did the method take advantage ofthe informality of the business strategy, nor did itaddress the supply strategy based on COTScomponents properly. Thus, the results highlight thedangers of assuming that current SISP methods are ofone size fits all variety. Similar shortcomings ofpresent SISP methodologies have also been reported inseveral other studies [23,24].

Secondly, the method was found to be based on anunderlying assumption that strategic planning is arational process and as such it assumes that managersinvolved in the process are perfect, rational andpurposive beings who are technological experts,, andalso that the adoption and implementation of variouschanges in processes, structures, and systems are astraightforward and predictable process where themeans to specific ends are known, and where theoutcomes of the organizational actions are in line withthe involved actors intentions [25]. However, theresearch shows that a strategic alignment initiative isnot primary a rational, analytical, and certainly not onlya technical activity. Potential success is highly


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dependent on the communication skills of all involved.During the SISP process, business managers and ISplanners did show that they were unable to expressthemselves in a common language, necessary to copewith the absence of rationality and analyzability.

STRATE GIC ALIGNMENT - A PRAGMATICAPPROACH circumstances.

objectives). The second perspective is business process.This focuses on understanding the work processes toappreciate whether information flows inhibit businessactivities, and also to identify changes that might bemade as a result of introduction of IS. Finally, thestrategic content embodies the vision for change andthe practicality of its introduction given organizational

From the results of the case study, it is apparent that thetraditional SISP methods that share the underlyingassumption that IS planning is aimed at merelytranslating an organization s business strategy andobjectives into an IS structure is impractical, especiallyfor use in SMEs. The failure of SISP exercises toprovide strategic directions for IS projects implies thatthe relation between a specific project and theorganization s overall business strategy might not beclear for all involved parties. This might lead tocontradictions, disagreements, and/or lack of policiesconcerning the strategic business level and the need forIS support, during the project, which might obstruct theachievement of alignment [26]. Thus, there is a needfor an alternative approach for strategic alignmentefforts, which is based on the special characteristics ofSMEs taking account of e.g. their informal approach tobusiness strategy, their operational focus, their limitedexpertise in IS, and their limited supply of resources. Inline with Ciborra, we argue the relation between an ISrelated project and an organization s overall businessstrategy should be considered part of every specific ISproject [61.

In the alternative project-based approach, business

StrategicContent

Figure 3: The four themes of theproposed framework

Based on the four perspectives of the framework, analternative SISP process is proposed. Compared to theconventional topdown IS planning process, thealternative process is a more iterative, goal-onented,and evolutionary process of organizational learning, i.e.an approach that corresponds with what Earl refers toas the organizational approach [28]. Although theproposed process model consists of four sequentialsteps, the process to develop, implement, and assess anESA is typically iterative.

1. Definition of scope aims at defining the scope of theundertaking including elicitation of objectives, goals,

Ihe approach is by a requirements, constraints, but also documentation ofexisting legacy systems. Stakeholders from differentparts of the organization are enlisted in a cross-

strategies, processes, and actions concerning the ESSare defined and aligned concurrently within an IS

strong focus on teamwork as user participation helps toensure fast and effective implementation. The approach

is based on a framework in which an architecturallifecycle model for Software functional team to ensure effective implementation.(EsA) is a central part. ESA is i n extension of thetraditional concept of software architecture to includethe interconnected system of software systemscharacteristics. As such, ES A provides a conceptualmodel of an organization s software systems withoutfocusing on specific software technologies andfunctionality. The ESA is described using properties,normally addressed as quality attributes (or systemiccompetencies [SI) and can be defined as non-functionalcharacteristics of a component or a system, such asflexibility, integrability, modifiability, reliability, oravailability [27].

2. Scenario construction aims at visualizingdependencies between business strategy, businessprocesses, and software systems. Also, the scenariosare used to make sure that the planning results areunderstood early on by making the deliverables visibleand tangible. Although scenario construction shouldstart from existing business vision or businessprocesses, the scenarios are also made possible, evensuggested, by emerging technologies. Typically,scenarios are extracted through changing or addingcomponents in the architecture.

3. Representation and analysis of ESA alternativesaims at evaluating feasible architectural alternativesbased on the proposed scenarios. The altematives arecharacterized in terms of functional and qualitativerequirements based on existing legacy systems andrelevant COTS components. The design alternativesare then reviewed whether the advantages of

In order to stress the importance of alignment, the

framework also adapts Walsham s three themes, orperspectives, for IS strategy, see Figure 3 [IO]. First,the business context provides the understanding of thebusiness environment in which the SM E operates witha particular focus on the market, the relationship withcustomers and suppliers (business strategy and


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appropriate technological opportunities are considered,and that other perspectives of the framework areproperly aligned (business context, business process,and strategic content). Here, functional mappingcombined with the quality attributes of the ESAprovides a conceptual yet structured, and analyzableview of the complexity of different solutions.

4. Architectural modification aims at decidingwhether to conclude the analysis and proceed withimplementation or to refine the architecture byadditional iterations. The rationale for iteration is theneed of supporting the gradually increasing awarenessduring any SISP activities. Reasons for adding iterationcycles might be that the architectural description isconsidered insufficiently detailed or that the even mostfavorable design alternative constitutes a dead-end ineither a business, organizational, or technicalperspective, so that a totally new alternative must betested and analyzed.

Application of the alternative approach

The alternative approach has been tested in theelectricity retailer that was part of the case study, as analternative to the partly failed SISP initiative. Theapproach was used as a strategic decision tool during apre-study preceding procurement of an ESS. A cross-hctional team complemented with two externaladvisors carried out the pre-study and the focus was onboth strategic and operational issues. In the process, thescenarios were found to facilitate effectivecommunication between stakeholders. Also, theiterative and evolutionary characteristics of the processallowed incorporation of good ideas that lubbled upfrom the operational levels as well as ideas suggestedby vendors and other partners. Furthermore, theapproach effectively helped management to makenecessary trade-offs concerning the ESA includingtranslation and interpretation between strategic andoperational business requirements and architecturalrequirements, as well as between identified technologyopportunities and risks, and business opportunities andrisks.

CONCLUSIONS

This paper addresses the important issue of strategic ITand business alignment in the context of small andmedium sized electric utilities. Based on a case study,the potential benefits and the obstacles in applying awellestablished strategic alignment framework arehighlighted. The research shows that the frameworkwas useful in increasing the awareness ofinterdependencies between different elements neededto achieve alignment. However, several obstacles arosein trying to fully implement such a framework. Forexample, the framework required many resources in theplanning process and a stable business environment.Also, other important IT issues such as ESA or the useof COTS-software were not addressed properly. To

circumvent some of the obstacles with the presentstrategic alignment methodologies, a pragmatic project-based approach is proposed based on the specialcharacteristics of SMEs. In the approach, businessstrategies, processes, and actions concerning the ESSare defined and aligned concurrently within an ITproject. The approach have been tested in the casestudy and proved to be more appropriate and moreacceptable by the management compared to a previousmore formal SISP initiative.

REFERENCES

1. Eason K., 1995, Information Technology andOrganizational Change, Taylor & Francis Publication,UK

2. Glass Robert L., 1998, Software Runaways:Lessons Learned from Massive Software ProjectFailures, Prentice -Hall Publication

3. Thorp J.,1998, The Information Paradox: Realizingthe Business Benefits of Information Technology,McGraw-Hill Publication

4. Standish Group, Perils in Gas & Electricity,Available on line at: http:Nstandishgroup.com/.

5. Luftman J.N. (Editor), 1996, Competing in theInformation Age - Strategic Alignment in Practice,Oxford University Press

6. Ciborra C. and Jelassi T., 1994, StrategicInformation Systems - A European Perspective,Wiley Series in Information Systems

7. Levy M. et al, 1999, Assessing InformationSystems Strategy in SMEs, Information &Management. Vol. 36, 247-261

8. Levy M. and Powell P., 2000, Information SystemsStrategy for Small and Medium sized Enterprises: AnOrganizational Perspective, Journal of StrategicInformation Svstems. 9, 63-84

9. Yin R., 1994, Case Study Research: Design andMethods, 2nd Edition, SAGE Publications

10. Walsham G., 1993, Interpreting InformationSystems in Organizations, John Wiley & Sons,England

11. Dick Bob, 1999, What is action research?Available on line at:http://www.scu.edu.au/schoolslgcm/ar/whatisar.html

12. Galliers R.D. et al, 1999, Strategic Information

Management - Challenges and Strategies in ManagingInformation Systems, 2d edition, Butterworth-Heinemann
http:///reader/full/Nstandishgroup.comhttp://www.scu.edu.au/schoolslgcm/ar/whatisar.htmlhttp://www.scu.edu.au/schoolslgcm/ar/whatisar.htmlhttp:///reader/full/Nstandishgroup.com

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