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Information Systems - Business Strategy Alignment The dynamics of Alignment: Insights from a punctuated equilibrium model CIS 590 Professor Jongwook Woo Presented By: Vaidhyanathan Raman Slide 2 Introduction This research has used a Punctuated Equilibrium Model to examine the dynamics of alignment. Many case studies were used to understand the way in which alignment evolves through modifications to an existing alignment pattern, punctuated by periodic revolutions. Slide 3 Punctuated Equilibrium Model Strategic IS Management can be studied using Punctuated Equilibrium Model, in which periods of gradual evolution are 'punctuated' by sudden revolutionary periods of rapid change. The punctuated Equilibrium Model differs from lifecycle theories as it neither assumes that the same stages are universally followed nor implies a 'forward' direction of change toward a desired end goal. Slide 4 Evolutionary Periods and Alignment Miles and Snow suggested that evolutionary periods are characterized by high levels of alignment. In our case study, one of the cases differs from this finding by suggesting that Long evolutionary periods may sometimes have low alignment. Slide 5 Revolutionary Periods There is a strong reluctance by companies to make revolutionary changes. All revolutions require some combination of five strong triggers Environmental Shifts Sustained Low Performance Influential Outsiders New Leadership Perception Transformation Slide 6 Revolutionary Periods Revolutions may be followed by Post- revolution adjustments to the Strategic IS management, either to reinforce them or to take a step back towards pre-revolution situation. Revolution may take organization too far in another direction, and new alignment direction may be in-appropriate for its competencies, causing organization to modify alignment pattern. Slide 7 Strategic IS Management Profile Slide 8 The alignment between Business and IS Strategies is 'Strategic Alignment'. The alignment between Business and IS Structures is 'Structural Alignment'. The alignment between Business Strategy and Structures is 'Business Alignment'. The alignment between IS Strategy and Structures is 'IS Alignment'. The alignment between 'Business Structure and IS Strategy' and 'Business Strategy and IS Structure' is 'Cross-Dimensional Alignment'. Slide 9 Theory Based Ideal Alignment Process Slide 10 There were many case studies conducted to see if changes occur over time in an alternatively evolutionary and Revolutionary fashion as suggested by Punctuated Equilibrium Model. Slide 11 Theory Based Ideal Alignment Process There were many companies which were studied for understanding the Punctuated Equilibrium Model. LEASE is a Company located in US. Slide 12 Case Study : LEASE LEASE was started in 1976 as an equipment sales company. It became an independent Equipment leasor in 1983. Our case covers the period from 1986 to 1996. Net worth grew from $25 million to $100 million and the no of employees ranged from 90 to 275. This study examined 2 revolutions that occurred in 1990 and 1993, and three Evolutionary stages. Slide 13 Case Study : LEASE Slide 14 Evolutionary Period 1 LEASE pursued a prospector Business Strategy. It grew quickly by aggressively pursuing a number of products. It operated with Organic and decentralized business structure, with few standards and minimal concern for proper records. Functional areas operated as 'little fiefdoms'. As, it was not affiliated with a bank, it faced few external controls. A Perception of IS as non-strategic was accompanied by a Centralized IS management structure. Slide 15 Evolutionary Period 1 In 1986, when Tax Reform Act was passed, certain tax benefits applicable to leasing business were repealed. As a result, the buyers that formerly bought those deals from LEASE, no longer had an appetite, for those previously profitable arrangements. However, LEASE did not react to this changing environment quickly. It also failed to recognize the sharp decline in mainframe prices due to ascent of personal computers. In October 1989, the company hired a new SVP and started recognizing that it was in trouble. Slide 16 Revolutionary Period 1 Following the recognition of LEASE's financial troubles, LEASE was asked to do monthly compliance reports by its lender banks. It hired a banker as its CEO. New CEO changed business strategy to Defender. LEASE stopped growing and started cutting costs. Senior executives believed that CEO had a plan to cut costs, but lacked a plan to get the company back on track once costs were cut. They replaced the CEO with a new CEO Garcey. Slide 17 Revolutionary Period 1 Garcey quickly centralized business structure, instituted quick lines of reporting. Changes in top management, strategy and structure on business side were accompanied by major changes in IS. New IS director was hired. He shifted the previously centralized IS management to a more shared form, moving 4 IS employees to user areas and arranging weekly communication meetings. Slide 18 Evolutionary Period 2 In August 1991, the banks gave LEASE an extension. They had greater confidence in LEASE as several mechanistic controls, including a monthly flash report to management were established. Transaction review committee met daily and approved all bids, credits and major sales. Finally in April 1992, LEASE reported profits, which led to banks granting it a 30-month extension, and allowing it to keep a certain formula amounts of cash flow to invest in new business. This was a major landmark as it allowed LEASE to generate new business. Slide 19 Revolutionary Period 2 Following turnaround LEASE made major changes in business and IS Strategies In addition to Traditional Leasing of Computer Equipment, it began leasing Forklifts, trucks and other equipments. Business Strategy changed back to Prospector. Lack of attention to mechanistic controls re-emerged Clear reporting structures and Well defined roles were being blurred Business structure shifted to a Semi structured and Hybrid form The Importance of IS was reduced again. IS was now non-strategic again. Slide 20 Evolutionary Period 3 LEASE entered another period of minimal change. It sought to build back sales to enhance profitability. IS director left company and IS management became decentralized. Reduced Role of IS in company. Slide 21 Conclusions Revolution 1 was triggered by changes in environment like: Changing tax laws Computer Industry Economics deteriorating business performance changes in top management recognition of importance of IS This led to Increased alignment and improved business and IS performance. Slide 22 Conclusions Unfortunately, once the performance improved and banks relaxed their controls, LEASE underwent another revolution, reverting back the changes in strategic IS management to the profile before the first revolution. Importance of IS was dismissed again, IS Staff was drastically reduced, and the focus on sales without systems and controls resurfaced. Although company was still performing well, there were concerns about its long-term future. Slide 23 Questions and Answers Thank You Any Questions?