The relationship of strategic business alignment and enterprise information management in achieving better business performance

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  • This article was downloaded by: [Dalhousie University]On: 03 October 2014, At: 06:04Publisher: Taylor & FrancisInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

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    The relationship of strategic businessalignment and enterprise informationmanagement in achieving betterbusiness performanceHonggeng Zhou a , David A. Collier b & Darryl D. Wilson ca Department of Decision Sciences , Whittemore School ofBusiness and Economics, University of New Hampshire , 15 CollegeRoad, Durham, New Hampshire, USAb Lutgert College of Business, Florida Gulf Coast University , FortMyers, Floridac Department of ITDS , College of Business and PublicAdministration, Old Dominion University , Norfolk, VirginiaPublished online: 03 Jul 2008.

    To cite this article: Honggeng Zhou , David A. Collier & Darryl D. Wilson (2008) The relationship ofstrategic business alignment and enterprise information management in achieving better businessperformance, Enterprise Information Systems, 2:2, 201-220, DOI: 10.1080/17517570802095226

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  • Enterprise Information SystemsVol. 2, No. 2, May 2008, 219237

    The relationship of strategic business alignment and enterpriseinformation management in achieving better business performance

    Honggeng Zhoua*, David A. Collierb and Darryl D. Wilsonc

    aDepartment of Decision Sciences, Whittemore School of Business and Economics, University ofNew Hampshire, 15 College Road, Durham, New Hampshire, USA; bLutgert College of

    Business, Florida Gulf Coast University, Fort Myers, Florida; cDepartment of ITDS, College ofBusiness and Public Administration, Old Dominion University, Norfolk, Virginia

    (Received 1 October 2007; final version received 10 February 2008)

    Four constructs are developed and five research hypotheses are tested in astructural equation model focused on the role of strategic business alignment andinformation management in achieving business performance. The data to developthe constructs and test the model are based on a survey of 226 manufacturingfirms in the US automobile components industry. The research is interdisciplinaryin nature with a focus on building theory in an under-researched area of study bytesting a causal model. The structural equation model analysis supports thegeneral theory that the degree of business strategy alignment affects enterpriseinformation management and time-related operating performance, and throughthese two intermediate constructs, improves business performance. Enterpriseinformation management is the key mediating variable in the causal model. Otherinsights based on statistical evidence are presented such as strategic businessalignment, which do not directly improve time-related operating performance butmust act indirectly through enterprise information management (the mediationconstruct) to improve performance.

    Keywords: strategic business alignment; strategic enterprise management; strate-gic information management; enterprise information management; time-basedperformance; structural equation models; interdisciplinary

    1. Introduction

    Aligning the organisations business and information strategy is an important determinantfor market and financial success (Woolfe 1993, Chan et al. 1997). A time-based orientationalso plays a major role in determining a firms business performance (Blackburn 1991,Fairhurst 1992, Bruce 1998). In addition, one of the key characteristics of the MalcolmBaldrige National Quality Award (MBNQA) Criteria (NIST 2002, p. 7) is alignment asnoted by the following MBNQA statement: The Criteria support a systems perspectivemaintaining organisation-wide goal alignment. Alignment in the Criteria is built aroundconnecting (cause-effect linkages) and reinforcing measures derived from your organisa-tions processes and strategy. These measures tie directly to stakeholder value and to

    *Corresponding author. Email: Honggeng.zhou@unh.edu

    ISSN 17517575 print/ISSN 17517583 online

    2008 Taylor & FrancisDOI: 10.1080/17517570802095226

    http://www.informaworld.com

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  • overall performance. Such alignment ensures consistency of purpose while also supportingagility, innovation, and decentralised decision-making.

    We investigate the performance relationships between strategic business alignment(SBA) and business performance (BP) through two intermediate endogenous variables,enterprise information management (IM), and time-related operating performance (TOP)as shown in Figure 1. Structural equation modelling techniques are used to examine theseperformance relationships (Hair et al., 1998). SBA is the exogenous latent variable andIM, TOP, and BP are endogenous latent variables. Also note in Figure 1 that enterpriseinformation management (to be defined shortly) has two ways it can influence businessperformance a direct performance relationship (IM!BP) and an indirect relationshipthrough time-related operating performance (IM!TOP!BP).

    The general theory being tested is that the degree of business strategy alignment affectsenterprise information management and time-related operating performance, and throughthese intermediate constructs, improves business performance. The theory is grounded inthe literature to be examined in detail later in this article. The literature review alsohighlights that little statistical evidence exists on the impact of information managementon time-based operation and business performance (Davenport 1992, Brynjolfsson andHitt 1996). Although some case studies such as McAfee (2002) explore the benefits ofinformation management, no empirical research tests the interdisciplinary hypotheses

    IM

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    Figure 1. Hypothesised covariance structure model.

    220 H. Zhou et al.

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  • tested here. This study contributes to theory building, theory testing, and tointerdisciplinary research by subjecting the hypothesised causal model shown inFigure 1 to the rigorous statistical methods of structural equation modelling (Bollen1989, Bollen and Long 1993, Hair et al. 1998).

    Also note in Figure 1 that a direct performance linkage between SBA and BP is nothypothesised because SBA alone accomplishes very little. That is, business strategyand alignment do not directly achieve business results but require execution of thestrategy through information management and time-related operating performance.As John Trani, head of General Electrics medical systems business (Schneier et al.1991) states, At best the plan and strategy is 20 percent of the game. Execution is80 percent of it.

    This article is organised in the following way. Section 2 presents a review of theliterature that establishes the content validity for the four constructs and provides supportfor the theory, research hypotheses, and the structural model. Section 3 describes thesample data and research methodology. Section 4 discusses the results of a structuralequation model analysis of the hypothesised model in Figure 1. The paper concludes witha summary and directions for future research.

    2. Literature review and hypotheses

    This research uses structural equation modelling to test the relationships among four keyconstructs (SBA, IM, TOP, and BP). Each construct has three to five indicators as shownin Figure 1 and the Appendix. The five research hypotheses shown in Figure 1 are stated asfollows:

    H1: Strategic business alignment (SBA) has a positive statistically significant relationshipwith enterprise information management (IM). [140]

    H2: Strategic business alignment (SBA) has a positive statistically significant relationshipwith time-related operating performance (TOP). [240]

    H3: Enterprise information management (IM) has a positive statistically significantrelationship with time-related operating performance (TOP). [140]

    H4: Enterprise information management (IM) has a positive statistically significantrelationship with business performance (BP). [240]

    H5: Time-related operating performance (TOP) has a positive statistically significantrelationship with business performance (BP). [340]

    The literature review helps establish the content validity of each of the four constructs andprovides support for the five research hypotheses tested.

    2.1. Strategic business alignment

    The importance of alignment is firmly established in the literature. In addition, there ismuch evidence to support SBA being a key exogenous construct. For example, in an articletitled The Age of Alignment, Berger et al. (1991) conclude that the Chief ExecutiveOfficers (CEOs) job should be restructured and re-labelled as the Chief AlignmentOfficer. Gale and Wood (1994) argue that the primary reason total quality management(TQM) initiatives fail is due to lack of alignment. They cite 14 reasons why TQMinitiatives fail and then ask: What do these reasons have in common? The answer is,

    Enterprise Information Systems 221

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  • People and processes in organisations that fail simply are not aligned to pursue the goal ofserving customers in a unified way.

    Several studies support the hypothesis that only when business strategies are alignedare information capabilities fully utilised (i.e. SBA! IM in Figure 1) (Li et al. 2008). Forexample, strategic information alignment, as described by Woolfe (1993), is the state inwhich the goals and activities of the business are in harmony with the information systemsthat support them. Henderson and Venkatraman (1993) propose a strategic alignmentmodel, which suggests that the choices made in business strategies will impact theinformation systems strategy. Chan et al. (1997) find that alignment between businessstrategic orientation and information system strategic orientation positively affects theinformation system effectiveness. Gupta et al. (1997) identify the need for establishing alink between a firms information management strategy and business strategy. They find adirect linkage between business strategy and information management.

    The literature also documents that strategic business alignment contributes to beingfast and directly affecting time-related operating performance (i.e. SBA!TOP inFigure 1). Bruce (1998), for example, suggests that todays hyper-competitive marketsbring pressure for firms to shorten the product life cycles and quickly increase time-basedoperational efficiencies. Droge and Germain (2000) study the influence of informationtechnology on electronic data interchange and time-based operation performance. Li et al.(2008) suggest that when enterprise information systems are integrated properly withmanufacturing infrastructure, they can support a firms market competitiveness, improveproduction performance, and achieve better financial results. Other studies examine theimpact of time-based practices on firm performance, such as Blackburn (1991), Fairhurst(1992), Bruce (1998), Koufterous et al. (1998), and Rondeau et al. (2000). Hence, there issubstantial support in the literature for H1 and H2.

    The strategic business alignment (SBA) construct has three indicators:

    (1) work unit performance measures linked to strategies,(2) short term strategic plans alignment, and(3) long-term strategic plans alignment (see the Appendix).

    Linking work unit performance measures to the strategies of the organisation is animportant step to link business unit strategy to information management and time-relatedoperating performance results. Cross and Lynch (1992), for example, propose a paradigmcalled the performance pyramid, which contains the objectives and measures that link afirms daily operations to its strategic vision. The top level of the pyramid is theorganisations strategic vision. The second level is the business unit and includes keybusiness unit level performance measures such as market and financial performance(Li et al. 2008). The bottom level is the day-to-day operational measures, many of whichfocus on time-related performance. The study finds that the decision to emphasisea particular aspect of performance (time, cost, quality, etc.) depends on business unitstrategies and their alignment.

    In the SBA construct, the second and third questions are about the alignment ofbusiness unit strategies over the short- and long-term, respectively. Among the alignmentof all business unit strategies, the alignment between manufacturing strategy andmarketing strategy is critical. Crittenden (1992) provides insights into the short-termalignment issue when he cites what managers say about the value of integrating theproduction and marketing information systems. For example, one marketing managersaid, When both sides, marketing and production, see the profit implications of our

    222 H. Zhou et al.

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  • varying decisions, we begin to work together on a daily basis in a much better...

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