MANAGING ORGANIZATIONAL CHANGE IN BUSINESS-IT ALIGNMENT PROCESSES

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MANAGING ORGANIZATIONAL CHANGE

IN BUSINESS-IT ALIGNMENT PROCESSES

Master Thesis, MscBA, specialization Change Management

University of Groningen, Faculty of Economics and Business

October, 2010

Arjan Rozendal

Student number: 1753142

Buiten Nieuwstraat 109-1

8261 AT Kampen

Tel.: +31 (6) 20802496

E-mail: j.w.rozendal@student.rug.nl

Supervisor University

Assistant Professor C. W. Tan

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ABSTRACT

Investments in information technology will only contribute to organizational performance whenever the technological spending will complement corporate objectives. In order to create this alignment between the business and IT domain in organizations we will focus this research on the social dimension of business-IT alignment. By synthesizing extant literature on business-IT alignment and organizational change management we constructed an analytical framework that identifies the impact of change enablers and inhibitors on constituent components of business-IT alignment. Case study research within UtilServ revealed that the change process that will culminate in business-IT alignment, with its constituent economic, knowledge, cultural and social components, is enabled by clear assessment criteria, information exchange, managerial role model, involvement and IT implementation history. Conversely we uncovered that empire building, different professional language, lack of open communication climate and wrong technological expectations inhibit the change process leading to business-IT alignment.

Keywords: Business-IT alignment, Managing organizational change, Change enablers,

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1. INTRODUCTION

Investments in Information Technology (IT) are substantial (Luftman & Brier, 1999). To justify the scale of such investments, IT should be deployed by organizations in ways that improve business performance. Past research has demonstrated that technological investments contribute to organizational performance whenever there is synergy between business and IT strategy (Sabherwal & Chan, 2001). For this reason, the alignment of technological planning with corporate objectives has been a top priority of business and IT executives (Preston & Karahanna, 2009b). That is, it is up to both parties to ensure that technological spending complements corporate objectives. Although the importance of business-IT alignment has been emphasized by numerous scholars (e.g. Luftman & Kempaiah, 2007; Reich & Benbasat, 2000; Sabherwal & Chan, 2001), its realization remains a persistent and elusive challenge (Preston & Karahanna, 2009b).

Business-IT alignment can be construed as “the congruence between an organisation’s business strategy and IS strategy” (Preston & Karahanna, 2009b p. 162). In extant literature a distinction has been drawn between the intellectual dimension and the social dimension of business-IT alignment (Reich & Benbasat, 2000). Whereas the intellectual dimension emphasized the alignment of functional elements within organizations (e.g., strategy, structure, planning, infrastructure and processes), its social counterpart accentuates the alignment of business and IT actors with respect to their mutual understanding of each other’s domain, their communication with each other and their commitment to the mission, plans and objectives on both fronts (Reich & Benbasat, 2000; Preston & Karahanna, 2009b). With this distinction in mind, we contend that modifying the functional elements of an organization is inadequate in attaining business-IT alignment. Rather, there must be an equal emphasis on changing the relationships among social actors within the organization (Reich & Benbasat, 2000).

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6 that business-IT alignment may be realized through change-oriented factors such as communication, involvement, leadership, participation, and management support (e.g., Reich & Benbasat, 2000; Preston & Karahanna, 2009a, 2009b; Luftman et al., 1999), none has established a clear connection to contemporary literature on organizational change. Arguably, in dealing with the social aspect of business-IT alignment, insights from past research on organizational change may yield a lucid picture of the factors affecting business-IT alignment. The link between these two seemingly diverse research streams can be found in a comparison of the dimensions of business-IT alignment and the premise of organizational change. Armenakis et al. (1993) defined organizational change as “the need to implement changes in

strategy, structure, process, and culture” in order to cope with an increasingly dynamic market environment (p. 681). In this sense, business-IT alignment and organizational change share commonalities on two levels. Not only do both espouse an intellectual (e.g., strategy, structure and process) and a social dimension (e.g., culture) in their conceptualization, they also place equal emphasis on the necessity of leveraging these dimensions in pursuit of corporate objectives (Armenakis et al. 1993; Reich & Benbasat, 2000). Based on these similarities, we maintain that business-IT alignment is enabled through organizational change such that factors from the latter can act as salient drivers for the former.

McAllaster (2004) attested to the criticality of organizational change by stating that “change

is ever present in society and its organizations” (p. 318). The importance of paying attention to organizational change is further highlighted by Beer & Nohria (2000), who claimed that about 70% of all change initiatives fail.

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7 alluded to ‘readiness to change’ as a cognitive precursor to these two opposing behaviours. Consequently, if business-IT alignment is the change to be attained within an organization, it is imperative to identify change enablers that strengthen support for the change as well as change inhibitors that breed resistance to the change. The purpose of this thesis is to synthesize extant literature on business-IT alignment and organizational change management in constructing an analytical framework to examine the impact of change enablers and inhibitors on constituent components of business-IT alignment.

1.1 Research Questions

This thesis advances knowledge in the management of business-IT alignment by investigating how change enabling and inhibiting factors may impact the success of alignment efforts. Specifically, we endeavour to provide answers to the following research questions:

1. What organizational change management factors are pertinent in understanding the process of business-IT alignment?

2. How do these factors impact the process of business-IT alignment?

To answer these questions, we will construct an analytical framework that synthesizes concepts from change management and business-IT alignment. Following which, the framework will be applied in the case study of an organization that is currently undergoing a change process to enhance business-IT alignment.

1.2 Research Objectives

Based on the research questions, we identified six primary research objectives as follows:

1. To review and synthesize extant literature on business-IT alignment and organizational change management.

2. To identify change enablers and inhibitors affecting business-IT alignment within organizations.

3. To construct an analytical framework.

4. To adopt case study as the methodological technique for data collection in order to unravel the interaction between business-IT alignment and organizational change. 5. To analyze and report lessons pertaining to the management of organizational change

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8 6. To draw implications for future research along this direction.

1.3 Organizational Case

The analytical framework is applied to the case of UtilServ (UtilServ is not the real name of the organization which the analytical framework is applied to, but is a feigned name to guaranty the privacy of the organization in which the case study took place). UtilServ is a company that is active in utility services and has numerous clients across a large part of the Netherlands. The shares of this public company are owned by provinces and municipalities. Within UtilServ, business and IT domains are poorly aligned with each other. The business domain comprises the departments that deal with the primary business process (e.g. Distribution, Infrastructure and Production) and the non-IT staff departments (e.g. Human Resources and Finance). Conversely, the IT domain comprises the two departments ICT Operations and IT Projects & Architecture. The poor alignment between the business and IT domain often translates to suboptimal results for both entities. In a bid to resolve the misalignment, the organization has embarked on a restructuring of the IT domain. With a Business-Demand-Supply architecture, UtilServ intends to bridge the longstanding gap between business and IT domains. The newly created Demand department is meant to realize this goal. However, the mere implementation of a novel architecture will not automatically culminate in business-IT alignment. Instead, insights into the factors around managing organizational change are required to ensure that the restructuring of the IT domain will lead to an informative approach towards attaining business-IT alignment.

1.4 Contribution

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9 structured to manage the change process in aligning business-IT functions. Third, findings from this study may also inform practitioners who are engaged in comparable change initiatives to attain business-IT alignment within their respective organizations.

1.5 Thesis Structure

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2. THEORETICAL DEVELOPMENT

Given the research objectives of this thesis, this chapter will outline the theoretical foundation upon which we base our proposed analytical framework for deciphering the intricate relationship between business-IT alignment and organizational change management. We begin by reviewing extant literature to identify constituent components of business-IT alignment. We then draw on previous research in organizational change to yield insights into how contemporary change management practices may be leveraged within organizations to realize business-IT alignment. Specifically, we endeavor to identify change enablers and inhibitors that affect the alignment of business and IT functions within organizations.

2.1 Business-IT Alignment

Despite extensive scholarly deliberations on the conceptualization of business-IT alignment, multiple definitions continue to exist. As stated by Preston & Karahanna (2009b), “no

agreed-on definitiagreed-on or model has emerged” for business-IT alignment (p. 161). The same sentiments were expressed by Chan et al. (1997), who claimed that “alignment is a nebulous concept that

is difficult to understand” (p. 126). To arrive at a viable working definition for business-IT alignment, we review and synthesize past theorizations of business-IT alignment as summarized in table 2.1.

Table 2.1: Business-IT Alignment as Defined in Extant Literature Author(s) Definition

Luftman & Brier, 1999; Luftman et al., 1999

Applying IT in an appropriate and timely way and in harmony with business strategies, goals, and needs

Preston & Karahanna, 2009a, 2009b

Congruence between an organization’s business strategy and IS strategy

Luftman & Kempaiah, 2007 Alignment must focus on how IT and the business are aligned with each other

Reich & Benbasat, 1996 The degree to which the IT mission, objectives, and plans support and are supported by the business mission, objectives, and plans

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11 not unidirectional in reality. Luftman & Kempaiah (2007) contended that although business-IT alignment is often associated with the alignment of technology with business, it should also reflect how business is aligned with technology: “Alignment must focus on how IT and the

business are aligned with each other” (p. 166). Arguably, a core premise of business-IT alignment resides in the reciprocal relationship between the two entities. Reich & Benbasat (1996) has also alluded to this symmetrical relationship by highlighting that IT should support and be supported by the business.

In defining business-IT alignment, attention must be paid to the various facets of business-IT alignment (Reich & Benbasat, 1996, 2000). Particularly, the intellectual dimension of business-IT alignment is distinguishable from its social dimension (Reich & Benbasat, 2000). Whereas the intellectual dimension denotes the alignment of technology with business strategy (Chan et al. 1997; Henderson & Vankatraman, 1993; Sabherwal & Chan, 2001), planning (Reich & Benbasat, 1996), infrastructure, and process (Henderson & Vankatraman, 1993), its social counterpart is concerned with achieving consensus among organizational actors in terms of bilateral communication and mutual understanding. (Nelson & Cooprider, 1996; Reich & Benbasat, 2000). Conceivably, business-IT alignment has to deal with both ‘hard’ and ‘soft’ elements within organizations.

In aligning business and IT, there should be a reciprocal relationship between the two entities. To ensure that IT will support and in turn be supported by the business, congruency between business and IT planning should occur. Preston & Karahanna (2009a) iterated this point when they define IS strategic alignment as “the congruence between an organization’s business

strategy and IS strategy” (p. 1). Besides the aforementioned congruency in intellectual dimensions, the conceptualization of business-IT alignment should include considerations for the social dimension as well (Reich & Benbasat, 2000). That is, actors involved in the process of strategic planning for business and technology must express a willingness to realize this congruency. In combining both the intellectual and social dimensions of alignment, we expand on previous theorizations by defining business-IT alignment as follows:

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12 Based on our definition of business-IT alignment, we will take a closer look at its constituent dimensions. Table 2.2 offers an overview of the different dimensions of business-IT alignment that have been identified in extant literature.

Table 2.2: Dimensions of Business-IT Alignment as Defined in Extant Literature Author(s) Overview Dimension Definition

Reich & Benbasat, 1996, 2000

Two approaches to the subject of alignment: the intellectual dimension and the social dimension

Intellectual dimension

State in which a high-quality set of interrelated IT and business plans exists Social

dimension

State in which business and IT executives within an organizational unit understand and are committed to the business and IT mission, objectives, and plans

Preston & Karahanna, 2009b

Social alignment, especially shared understanding, as an important antecedent of intellectual IS strategic alignment IS strategic alignment

Congruence between and organization’s business strategy and IS strategy

Shared understanding

Degree of shared cognition between the CIO and the TMT on the role of IS in the organization Preston & Karahanna, 2009a Visioning mechanisms enable IS strategic alignment, channelled through a CIO-TMT shared IT vision

Knowledge Knowledge exchange and integration

Management of expectations

Management of expectations with respect to IT value propositions

Trusting relationship

Informal contacts, common interests and trust between CIO and top management team Luftman &

Kempaiah, 2007

Alignment involves interrelated capabilities that can be gauged by measuring six components

Communications Exchange of ideas, knowledge, and information between IT and business

Value Contribution of IT to the business

Governance Authority to make IT decisions and allocate IT resources

Partnership Relationship between business and IT Scope &

architecture

IT’s ability to provide valuable solution concerning infrastructure, emerging technologies and business processes

Skills HR practices, readiness for change, capability for learning and ability to leverage new ideas Luftman et

al., 1999

Alignment comprises effectiveness and efficiency

Effectiveness Doing the right things Efficiency Doing things right

Despite the diversity of dimensions for business-IT alignment advanced in contemporary literature, they can essentially be categorized into four unique components, namely economic,

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13 however, do not literally incorporate these six dimensions into our analytical framework, because in comparison with previous studies, it would appear that the six dimensions put forward by Luftman & Kempaiah (2007) are not necessarily orthogonal in nature. For example, communications and skills can be conceived as overlapping in that they both deal with the transfer of knowledge among individuals. Apart from overlapping dimensions, not all dimensions of Luftman & Kempaiah (2007) are suited for our research. In this thesis, we want to focus on the social, or human, aspect of business-IT alignment. Within this focus, a component like scope and architecture is less relevant, because this component deals primarily with the technological and structural aspect of business-IT alignment. The next few sections will describe the four components of business-IT alignment advocated in our analytical framework.

The first component we identify is in line with the value dimension of Luftman & Kempaiah (2007). They identified the contribution of technology to the business as a dimension of business-IT alignment. The importance of a value dimension is also underlined by Luftman et al. (1999) when they say that alignment should address both effectiveness and efficiency. In this research we will also pay attention to this subject by exploring the economic component of business-IT alignment.

The second component we want to focus on in this research deals with the exchange of knowledge between the business and IT domain (Preston & Karahanna, 2009a). Developing a fundamental understanding across different entities of an organization is underlined in literature as an important dimension of business-IT alignment (Reich & Benbasat, 1996, 2000; Preston & Karahanna, 2009b). This understanding will be enabled by ‘the exchange of

ideas, knowledge, and information between IT and business organizations’ (Luftman & Kempaiah, 2007, p. 166). This dimension will be depicted in this research as the knowledge component of business-IT alignment.

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14 The fourth component we want to examine is in line with the fostering of a trusting relationship that Preston & Karahanna (2009a) have identified. The importance of trust between the business and IT domain is also underlined by Luftman & Kempaiah (2007) who identified trust as an important part of the partnership dimension. We will attempt to highlight the social component of business-IT alignment by paying attention to how a trusting relationship can be cultivated between the business and IT domain. We will elaborate on these components in the following part of this paper.

Economic component

The first component we have identified is the economic component. This component is based on the belief that in order to align the business and IT domain, the added value of the alignment should be clear. In literature, perceived benefit is identified as an important determinant of the willingness of organizations to embrace a new way of working (Chwelos et al., 2001; Iacovou et al., 1995). O’Callaghan et al. (1992) and Premkumar et al. (1994) found that relative advantage is a strong predictor of the intention of employees to adopt a new way of working. Examples of benefits can take the form of improvements to internal efficiency, business processes or relationships (Iacovou et al., 1995). While these benefits for the organization might be clear, there should also be benefits for the individuals who have to make changes in their roles and responsibilities. As Armenakis & Harris (2009) pointed out, there should be something in it for the change recipients themselves. This implies that besides clarity about the added value of the alignment for the organization, the added value of the alignment for individual actors should also be clear. If we translate this to business-IT alignment we can say that alignment should be beneficial to both the business and IT domain. We therefore define economic-based business-IT alignment as:

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Knowledge component

The second component we have identified is the knowledge component. We believe that knowledge of each others’ domain contributes to the alignment of the business and IT domain. Preston & Karahanna (2009a) mentioned that IT managers should gain strategic knowledge about business strategy and environment in order to shape a shared IT vision that will lead to alignment. They added that it is not only about the ability of the IT domain in organizations to understand the business domain, but also vice versa (Preston & Karahanna, 2009b). We think this mutual relationship is important. Mutual understanding between the two business domains is identified by Luftman et al. (1999) as an important enabler of business-IT alignment. We have to keep in mind that ‘simply communicating facts is not

sufficient. A deeper level of knowledge must be shared to achieve mutual understanding.’

(Nelson & Cooprider, 1996). Combining this mutual relation and the need to share a deeper level of knowledge, we define knowledge-based business-IT alignment as:

Degree to which business and IT have mutual understanding of each other’s domain

Cultural component

The third component we have identified is the cultural component. We live in a world where globalization plays an important role in information technology. Actors from different backgrounds are involved in information technology, which results in the increasingly important role of culture (Walsham, 2002). Kappos & Rivard (2008) underline the importance of culture in managing information technology. The role of culture is not only relevant for managing information technology, but also for business-IT alignment. Reich & Benbasat (2000) underline that differences in culture between organizational members from IT and business domains are the major cause of system development failures. Taking this into consideration, we believe that culture plays an important role within organizations. Changing organizations has to do with changing the way individual organizational members work (Elving & Bennebroek Gravenhorst, 2005). We believe that in order to align the business and IT domain, the organizations need to cultivate an environment where collaboration and cooperation are the norm. We hence define cultural-based business-IT alignment as:

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Social component

The fourth and last component we identify is the social component. This component is grounded on the belief that a good relationship between the domains of business and IT contributes to the alignment of both. Even when a mutual understanding of each other’s domain is achieved, business and IT departments will never be able to attain a level of familiarity about the other domain as they would about their own. Both need to have the feeling that the other is using its knowledge in a way that is mutually beneficial. Preston & Karahanna underlined this by stating that: ‘Trust in the CIO (Chief Information Officer) is

therefore critical to the CIO-TMT (Top Management Team) relationship.’ (2009a, p. 4). We think trust is not only important in the relationship between the CIO and the TMT, but also more generally in the relationship between the domains of business and IT within the organizations. Luftman & Kempaiah (2007) identified partnership, including trust between the business and IT domain, as a component that determines the maturity of alignment in organizations. Consequently, we define social-based business-IT alignment as:

Degree to which there is a trusting relationship between business and IT

Our proposed definitions of business-IT alignment and its components are summarized in table 2.3.

Table 2.3: Definitions of Business-IT Alignment and its Components Construct Definition

Business-IT alignment Degree of congruency in strategic planning between business and IT and the willingness of parties involved in each dimension to realize this congruency Economic component Degree to which congruency in strategic planning between business and IT

adds value to both sides

Knowledge component Degree to which business and IT have mutual understanding of each other’s domain

Cultural component Degree to which there is a corporate environment of cooperation and collaboration between business and IT

Social component Degree to which there is a trusting relationship between business and IT

2.2 Managing organizational change

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17 insights from contemporary literature on managing organizational change complements the attainment of business-IT alignment. We base this belief on the parallel nature of the dimensions of business-IT alignment and those associated with organizational change. Both definitions deal with similar concepts. To align the business and IT domain in an organization, one must focus not only on changing strategy, structure, planning, infrastructure, and processes, but also on changing the hearts and minds of the organizational members (Reich & Benbasat, 2000; Preston & Karahanna, 2009b). From such a perspective, business-IT alignment can be construed as the eventual outcome of organizational change in that the latter can be seen as "the need to implement changes in strategy, structure, process,

and culture" in order to cope with the increasingly dynamic environment (Armenakis et al., 1993, p. 681). Our review of literature indicates that in both fields, both intellectual (strategy, structure, and process) and social dimensions (e.g. culture) play important roles. These similarities suggest that business-IT alignment can be enabled by similar strategies espoused in previous studies of organizational change.

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18 insights in antecedents that enable change processes, which leads to support, and antecedents that inhibit change processes, which leads to resistance.

Previous research suggests that engendering the environment for change can be found for using both enables and inhibitors (Cenfetelli, 2004). Although a lot of attention has been paid to enablers, inhibitors must also be taken into consideration. Cenfetelli (2004) defined enablers as "external beliefs regarding the design of functionally of a system that either

encourage or discourage usage, dependent on valence" (p. 475). This denotes factors which by their existence will encourage change processes and which by their nonexistence will discourage the change process. Then again, there are also factors that are "uniquely negative

and thus discourage use" (Cenfetelli, 2004, p. 475). These factors are called inhibitors. Inhibitors will only discourage change processes when they exist. However, their nonexistence will not necessarily encourage the change process. The importance of distinguishing between enablers and inhibitors is underlined by Cenfetelli (2004), who claimed that they are not opposites of each other. They are independent of each other and they may have distinctively different antecedents and consequences. In line with the aforementioned distinction, we endeavor to identify, in subsequent sections, change enablers and inhibitors affecting business-IT alignment in organizations.

2.3 Change enablers

Change enablers are factors that will positively affect the alignment between business and IT. When a change enabler is managed well within an organization, organizational members will be motivated to support the change initiative. A review of contemporary literature uncovered five major change enablers that could positively affect business-IT alignment.

Clear assessment criteria

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19 assessment criteria can prevent this problem. Assessment criteria allows organizational members to understand what is expected of them and what the anticipated outcomes would be. In developing the assessment criteria it is important that these criteria are formulated in a way that it is measurable. As stated by Bertsch & Williams (1994): "Formulating appropriate

corporate objectives is ineffective if they cannot be reviewed in a meaningful way" (p. 15). We therefore regard clear assessment criteria as a change enabler and define it as:

Degree to which measurable milestones are visible to both business and IT

Information exchange

Information exchange is the second enabler we have identified. Information exchange accentuates the importance of exchanging information to enable successful change processes. Elving (2005) stated that "communicating is vital to the effective implementation of

organizational change" (p. 129) and that "the first goal of organizational communication

should be to inform employees" (p. 131). Past studies have attested to information sharing as a salient antecedent to building commitment towards change initiatives (Elving, 2005 ; Kanter, 1985). Armenakis et al. (1993) identified persuasive communication as an influential strategy to create readiness for a change initiative because it "is primarily a source of explicit

information regarding discrepancy and efficacy" (p. 688). They view the exchange of information as an important tool to give employees insights into the need for the change initiative and also into their own ability to make the desired change outcome happen. Kotter & Schlesinger (1979) reinforced such an argument when they stated that "communication of

ideas helps people see the need for and the logic of a change" (p. 109). During the process of managing change, it is vital to share information about the goals, the content and the planning of the change process (Elving & Bennebroek Gravenhorst, 2005). Besides accuracy and relevancy of the shared information, the timing of sharing the information is also important. Kanter (1985) maintained that "it is important to not only provide employees with information

to build commitment to change, but also to arrange the timing of the information" (p. 54). She underscored that timing of when to share information gives employees the chance to adjust their thinking (Kanter, 1985, p. 54). Extrapolating the above logic to the alignment between business and IT, we define information exchange as:

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Managerial role model

The third enabler that we have identified has to do with the role managers play in change initiatives. To ensure the success of change initiatives the managers should be personally involved (Bertsch & Williams, 1994). "Active and visible support from organization

management" is an important success factor in dealing with change initiatives (Chrusciel & Field, 2006, p. 506). Managers have to show their commitment to the change initiative (Heracleous, 2002; Kanter, 1985; McGreevy, 2009). If managers are not willing to change, employees are also likely to follow suit. Ackerman-Anderson & Anderson stated that “change

sticks to the degree that leaders model it” (2009, p. 3). This underscores the pivotal position of managers as role models for the new behavior that is desired to let the change initiative succeed (McAllaster, 2004). Managers need to become the visible champions of change initiatives (Duck, 1993). We hence define managerial role model as:

Degree to which senior management visibly supports alignment in the organization

Participation & Involvement

Participation and involvement represent the respective fourth and fifth change enablers we have identified. It is natural to discuss participation and involvement concurrently given their theoretical proximity and interchangeable usage in pre-existing studies. Both enablers are grounded on the belief that it is important in change initiatives to "give people a say in

shaping their future" (Ackerman-Anderson & Anderson, 2009, p. 4). The basic belief of participation in change processes is grounded on the research of Coch & French (1948), who discovered that the participation of employees eliminates resistance to change initiatives. Indeed, Bartlem & Locke (1981) noted that employees' participation in the decision-making process culminates in, if not indirectly, successful change outcomes, which in turn leads to better organizational performance. Kanter (1985) explained that the reactions of organizational members to change initiatives depend on their evaluation of the controllability of the situation. Involving people in the change process accords feelings of greater control in the change process. As alleged by Kanter (1985), "giving people chances for involvement can

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21 here. Such a distinction can be found in the work of Chawla & Kelloway (2004) who differentiated between decision- and process-control. Whereas decision-control refers to

"control over actual decisions made", process-control denotes "the opportunity to simply state

one’s case" (Chawla & Kelloway, 2004, p. 488). Building on Chawla & Kelloway's (2004) study, we define participation as:

Degree to which employees possess the ability to make decisions in the alignment process and influence the direction of this process

Additionally, we define involvement as:

Degree to which employees are consulted in the alignment process and are able to give their opinion

We have summarized the definitions of these change enablers in table 2.4.

Table 2.4: Definitions of Change Enablers Change Enabler Definition

Clear assessment criteria Degree to which measurable milestones are visible to both business and IT Information exchange Degree to which quality information (i.e. accurate, relevant and timely) is

exchanged between business and IT

Managerial role model Degree to which senior management visibly supports alignment in the organization

Participation Degree to which employees possess the ability to make decisions in the alignment process and influence the direction of this process

Involvement Degree to which employees are consulted in the alignment process and are able to give their opinion

2.4 Change inhibitors

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Empire building

The first inhibitor we identify is empire building. In changing organizations, it is important to acknowledge that not every member necessarily has the organization’s best interests at heart. In theory this problem is known as the agency problem. The agency relationship can be defined as: "a contract under which one or more persons (the principal(s)) engage another

person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent" (Jensen & Meckling, 1976, p. 308). Within this relationship, the agent might not always act in the best interest of the principal, which is termed as the agency problem (Jensen & Meckling, 1976). The agency problem occurs "when

cooperating parties have different goals" (Eisenhardt, 1989a, p. 58). While the agency theory is grounded on the economic relationship between a principal who is providing capital to an agent, the agency theory can also "be applied to employer-employee, lawyer-client, buyer

supplier and other agency relationships" (Eisenhardt, 1989a, p. 60). Given the self-serving motives of agents, it is important to bear in mind that organizational members may try to create as much value as possible for their own interests. Managers may try to entrench themselves and increase their own bargaining power by undertaking IT investments in a way that bolsters information asymmetries to their advantage (Li, 2009). If organizational members try to influence organizational decisions to further their own personal agendas and augment their bargaining positions, there will be a loss of efficiency (Li, 2009). We thus define empire building as:

Degree to which employees pursue partisan interests at the expense of the organization

Different professional language

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23 language as an antecedent of shared understanding in that it is critical for a well-functioning relationship between business and IT managers. They underline that a shared language between business and IT managers “is essential in communication meaning, allowing for

knowledge integration, providing convergence of meanings and opinions about situations, and creating a shared understanding among key organizational members.” (p. 163). Taking all this into consideration, we argue that change initiatives aimed at aligning the business and IT domain is inhibited by the existence of a different professional language. We thus view the existence of different professional languages as a change inhibitor and define it as:

Degree to which business and IT embrace different terminologies in their communications

Lack of resources

The third inhibitor we have identified has to do with a shortage of resources. Organizational change usually involves additional work for the organisational members involved. This might be a source of resistance (Kanter, 1985). Ackerman-Anderson & Anderson (2009) reinforced this by saying that "loading change on top of day-to-day workloads adds to stress, poor

morale, and lower performance" (p. 3). In managing organizational change, it is clear that an important role of managers is to provide enough resources for the change initiative (Graetz, 2000; McAllaster, 2004; McGreevy, 2009). Organizational members have to be compensated for the extra effort they have to put in the change process. When this happens resistance can be alleviated. We define the lack of resources as:

Degree to which inappropriate and/or insufficient resources are provided

Lack of open communication climate

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24 Gravenhorst, 2005), "foster favourable attitudes towards change" (Chawla & Kelloway, 2004, p. 487) and "helps to foster a sense of fairness and procedural and interactional

justice" (Difonzo & Bordia, 1998, p. 299), which in turn leads to the acceptance of the change initiative. We thus contend that the absence of an open communication climate will inhibit organizational change and it is defined as:

Degree to which employees display apprehension and hesitancy when interacting with one another

Table 2.5 summarizes the definitions of the four change inhibitors.

Table 2.5: Definitions of Change Inhibitors Change Inhibitor Definition

Empire building Degree to which employees pursue partisan interests at the expense of the organization

Different professional language

Degree to which business and IT embrace different terminologies in their communications

Lack of resources Degree to which inappropriate and/or insufficient resources are provided Lack of open communication

climate

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3. METHODOLOGY

Data is collected via case study research. Eisenhardt (1989b) stated that case study research

"is especially appropriate in new topic areas" (p. 532) and enhances the generation of "novel

theory" (p. 546). Given the paucity of studies that examine the factors influencing organizational change management, the case study methodology is suited to our research. Researching the direct relationship between business-IT alignment and change management can generate propositions that contribute to new theory.

3.1 Data collection

The case study was conducted at a utility service organization in the Netherlands. Data was gathered over a five-month period, from February till June 2010, using several methods. Besides observing the organization, reading relevant company documents (e.g. documents concerning UtilServ’s IT strategy and documents concerning the change program that is taking place within UtilServ) and interacting with the employees while I was an intern at the organization, semi-structured interviews were carried out with 28 employees of the organization.

Although there is extensive debate on the relative merits of the interpretivist versus the positivist approaches in information systems (Walsham, 1995a), we adopt an interpretive approach in executing our research due to its explanatory nature (Walsham, 1995b). We are not trying to identify objective cause-effect relationships in this case study, but we are trying to get a better understanding of the context and the process of business-IT alignment and how the context influences and is influenced by the process of business-IT alignment (Walsham, 1995b).

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26 level of the organization has also been taken into consideration. The interviewees came from several hierarchical layers in the organization. Director, managers and team leaders were included. In selecting interviewees the size of business, staff, and IT departments have been taken into consideration. The bigger the department, the more interviewees were selected. An overview of the distribution of interviewees can be found in table 3.1.

Table 3.1: Interviewee Distribution Hierarchical

Level

Primary Business Process Departments Client Support Department Non-IT Staff Departments IT Domain Total Director 2 2 Manager 3 3 1 3 10 Team leader/ Employee 5 2 2 7 16 Total 10 5 3 10 28

Due to privacy reasons, confidentiality was assured at the start of the interview. In doing so, we attempted to create an environment that is conducive for the interviewees to express their opinions freely. This, in turn, safeguards against the possibility of interviewees giving socially desirable answers. An interview lasted between 1 and 1 ½ hours. All interviews, conducted in the Dutch language, were digitally recorded to enhance the transcribing process. During the interviews, notes were kept for referencing purposes during transcription. Interviews were transcribed as literally as possible to prevent loss of information by biased selecting. Later on, the participating interviewees were given the opportunity to review the transcript of their interview to verify whether the transcript corresponded to the interviews. This opportunity was used by 26 interviewees.

3.2 Data analysis

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27 earlier. If this was not the case, a separate group was created. After analyzing the transcribed interviews the data was separated in four classifications that were concerned with the components of business-IT alignment, six classifications concerned with change enablers and five classifications concerned with change inhibitors. In table 3.2 a summary can be found of these classification. The table also highlights the number of interviews in which a particular classification was discussed and the intensity of the quotes related to the classification in the interviews. But before we present the table we first want to give an impression of our analysis method by working out an example of one of the constructs. We will take the construct empire building as an example.

Throughout the interviews different patterns are identified that point out that employees can pursue partisan interests at the expense of the organization. Some interviewees underline that the organization has different separate units that are only focuses on their own unit. This appears for example in the following quote:

“At this moment we are way too busy with creating value for our own departments.”

(Manager primary business process department)

Other interviews highlight that the different departments within UtilServ are living on separate islands, on which they do not take the interests of other departments into consideration. This is emphasized in the following quote:

“A factor that will inhibit the creation of added value, is the culture of separated islands within UtilServ. People are strongly focused on their own process area and making sure that things are going fine only in their own area.” (Employee IT domain)

There are also interviewees who recognize that managers are trying to build their own kingdom within the organization to create as much value for themselves as possible. One of the interviewees for example said that:

“There is a risk that individual managers will make choices that are suboptimal for the integrated business processes. They might make decisions that will gain the manager himself extra money, but that will cost money to two peer managers.”

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28 All these patterns are taken together in the classification ‘empire building’. In 25 of the 28 interviews we spoke about patterns that are in the area of empire building. Within these 25 interviews, 49 times an interviewee mentioned a quote concerning empire building. We applied this approach to all of the different classifications, which results in table 3.2.

Table 3.2: Analyses Overview

Theme Frequency Intensity

Business-IT Alignment Components:

Economic component 28/28 44/556 Knowledge component 26/28 50/556 Cultural component 26/28 41/556 Social component 23/28 36/556 Change Enablers: Assessment criteria 24/28 46/556 Information exchange 24/28 54/556 Managerial role model 25/28 32/556 Participation & Involvement 27/28 52/556 IT implementation history 17/28 27/556

Change Inhibitors:

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4. CASE DESCRIPTION

The case study was conducted in UtilServ, a company that is active in utility services and has a lot of clients in a large part of the Netherlands. The shares of this public company are owned by provinces and municipalities. Figure 4.1 illustrates the organizational hierarchy of UtilServ.

Figure 4.1 Organizational chart UtilServ

At the moment, a major change program is taking place within UtilServ. Under the leadership of a new CEO the organization tries to change both its structure and its culture. The intention is to transform UtilServ from an internally focused organization to an externally focused one. By implementing this change UtilServ tries to restructure its internal organization to be adaptable to the expectations of its clients now and in the future. In light of this major change program, special attention is paid to the IT department and the relationship between the business and IT domains.

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30 always understood each other. Business departments accused the IT department of pushing systems and applications in the organization that do not fit with the requirements of the organization. Conversely, the IT department still claims that the business departments are not capable of translating their demands and wishes into comprehensible requirements, which can act as input for devising suitable solutions for the entire organization. The IT function used to be fragmented throughout the organization. Different business departments pressed the IT department to implement systems and programs that would contribute only to their departmental objectives. Demands and wishes from the different business departments have not been analysed and integrated in a way that solutions can serve UtilServ as a whole.

In order to improve the alignment, UtilServ embarked on the restructuring of the IT domain. In a period of 1½ years the IT department has made plans, with the help of external consultants, for restructuring the IT Domain of UtilServ. With a Business-Demand-Supply structure, the organization intends to bridge the gap between the business and IT domain. The new Demand department will be installed in the organization in order to realize this goal. In the new structure, the different business departments have to go to Demand with their questions about information technology. The business departments are responsible for communicating clear demands and wishes, concerning information technology, to the Demand department. Demand will translate the demands and wishes of the business departments into requirements. These requirements will be the input for Supply. Supply in its turn translates the requirements into system solutions which will fit in the IT policy of UtilServ.

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5. RESULTS

In this chapter of the thesis our analytical framework will be applied to the case of UtilServ to decipher the enablers and inhibitors of business-IT alignment. First, we want to pay attention to whether the components of business-IT alignment, which were identified in extant literature, are recognized in the case of UtilServ. Subsequently, we will take a look at the change enablers and change inhibitors depicted in our analytical framework and how they relate to the various components of business-IT alignment as highlighted in the case of Utilserv,

5.1 Components of business-IT alignment

In this section we want to look at the economic, knowledge, cultural and social component of business-IT alignment. We want to take a look at the insights in these components which we gained from the interviews that were held within UtilServ.

Economic component

The first component of business-IT alignment identified in the analytical framework is the economic component. The importance of economic-based business-IT alignment is underscored in the interviews. The interviewees highlighted the importance of having insight into the benefits and costs in order to get a clear picture of the added value of aligning the business and IT domain. The kind of resources (e.g. time or money) to be expended in aligning the two domains and the benefits to be gained from the alignment such as extra productivity or improved working relationships, should be clear to both business and IT departments. The quote below indicates that expended resources and probable gains are crucial in making people aware of the added value. The interviewee underlines that he has no idea about the costs (i.e. the required resources) that need to be incurred in order to benefit from the alignment between business and IT:

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32 From the following quote it appears that if organizational members do not have insight in the costs of their technological demands and wishes, added value will not be created optimally. The interviewee emphasizes that the organizational members are not aware of the resources that are needed to receive the gains out of the information technology. Because this lack of awareness, organizational members just ask all sorts of things from the IT department without taking the costs of their requests into consideration:

"At this moment IT is a store where nobody has to pay. That makes shopping very easy." (Manager IT domain)

From the interviews, it is evident that insight into the added value is needed in order to create congruency in strategic planning between the business and IT domain.

Knowledge component

The second component of business-IT alignment identified in the analytical model is the knowledge component. The importance of knowing each others' domain is partly confirmed in the interviews. It can be inferred from the interviews that basic knowledge of each others' domain is critical. The following quote underlines that both the business and IT domain have to know how they can contribute to each other:

"Business and IT need at least some basic level of knowledge of each others’ domain. IT needs to know what the business wants. The business needs to know what IT can do." (Manager staff department)

Although the importance of shared knowledge is underlined, the interviewees highlight that this knowledge is especially valid in areas where business and IT departments interact with each other. Organizational members from business departments do not necessarily need to know exactly how the IT department operates and vice versa. What they do need to know is how they can collaborate with the other department to create value for UtilServ as a whole. The following quote underlines this by stating that mutual knowledge must, at the very least, be fostered in the field of the interaction between the business and IT domain:

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33 This quote underlines that organizational members from business departments do not need to have knowledge about the IT systems. In turn the IT departments do not need to have knowledge about specific technical implications in the business domain. The next quote highlights that, in business-IT alignment, parties involved do not necessarily require mutual technical knowledge, but they need knowledge about how they influence and interact with each other:

"In order to drive a car, I do not need to know how my car is constructed. I do not need to know the technical specifications, but I have to have good driving skills. This works the same in business and IT. Business needs to know what function IT has in business. Business needs to have insight in their own processes and the role of IT in these processes." (Manager primary business process department)

Collectively, it can be deduced from the interviews that the importance of shared domain knowledge is partly underlined. That is, there needs to be a basic level of knowledge in order for business and IT departments to attain mutual understanding and provide common grounds for interaction with each other. This is needed to successfully align the business and IT domain.

Cultural component

The third component of business-IT alignment identified in the analytical framework is the cultural component. The interviews point at the importance of a culture of cooperation in aligning the business and IT domain. The interviewees within UtilServ experience the importance of collaboration in their own organization, because they have to deal with an organization that has a history of mergers. Due to these mergers, organizational members have become more dependent on each other, but this has not resulted in optimal cooperation until now. Organizational members therefore underlined the importance of cooperation as can be seen in the following quote:

"Cooperation is important, because we are very dependent on each other." (Team leader client support department)

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"The different departments within UtilServ need to pay more attention to the impact of their own departments on other departments. Cooperation is very important, because departments are related to each other in a complex way." (Team leader client support department)

Overall, the interviewees strongly underline the importance of a culture of cooperation. Due to a history of mergers and a low level of integration in the past, they now recognize that cooperation is instrumental in establishing business-IT alignment.

Social component

The fourth component of business-IT alignment identified in the analytical framework is the social component. The social component is revealed in the interviews as an important component in business-IT alignment. The significance of a good relationship between the business and IT domain, in which is mutual trust, is acknowledged by a lot of the interviewees. The following quote highlights the importance of trust in order to prevent separation between the business and IT domain:

"If the business does not trust IT, a separation between business and IT will occur."

(Manager client support department)

Although trust is deemed as crucial in business-IT alignment, the interviewees recognize that trust within a relationship is hard to create. The following quote underlines that creating a relationship with mutual trust needs time:

"Trust is an intangible thing. It is something that has to grow in time." (Director)

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5.2 Change enablers

Now that we have gained some more insights from the interviews about the components of business-IT alignment, we will take a closer look at the change enablers we identified in the analytical framework and what is said about these enablers in the interviews.

Clear assessment criteria

The first change enabler identified in the analytical framework as influencing business-IT alignment is clear assessment criteria. The importance of having clear assessment criteria in aligning the business and IT domain is broadly acknowledged in the interview. The following quote underlines this:

"It is important that the criteria to assess each other are clear." (Team leader client support department)

From the following quote it appears that within UtilServ it is not always clear for the IT department what the business departments expect of them:

"Business for example expresses that they expect of an IT system to always work. In return, IT is wondering whether business really means that the system should work 100 percent of the times, or that 90, 95, or 99 percent of the times will also be acceptable." (Director)

If these criteria are clearer to both business and IT departments, the business departments will be able to assess the IT departments in a better way according to the following quote:

"By defining objective norms and monitoring them in a proper way, business will be able to assess IT in a better way." (Manager IT domain)

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"The added value can be made more concrete by showing that the system results in time savings, simplification of the working processes and risk reduction. By setting clear criteria in advance you know what the added value will be." (Director)

The following quote indicates that having good service level agreements can be an example of how assessment criteria can be made clear to both business and IT departments:

"In order to get more insight in the added value of IT it is important to have good service level agreements." (Employee IT domain)

Information exchange

The second change enabler identified in the analytical framework as influencing business-IT alignment is information exchange. The interviews underlined that in order to align the business and IT domain, it is very important to communicate with each other and share useful information. It appears that exchanging information will support the alignment by creating understanding of each other, as is shown by one of the team leaders:

"Exchanging information with each other will breed acceptance and understanding."

(Team leader primary business process department)

The following quote underlines the importance of interacting with each other in order to share information:

"In order to create useful information exchange it is important to interact directly with each other and to ask the right questions to each other." (Employee IT domain)

The interviews make clear that the exchange of information creates mutual knowledge. With the help of this mutual knowledge, business and IT departments are better able to understand each other. This mutual understanding of each other enables business-IT alignment. The following quote underlines the relationship between information exchange and mutual domain knowledge:

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37 Besides the relationship between information exchange and the knowledge component, another relationship was identified in the interviews. It appeared that there is a relationship between the exchange of information and the social component of business-IT alignment also. Exchanging information gives people insight into what the other knows and does, which increases mutual trust in each other’s capabilities. Besides that, exchanging information makes organizational members feel in control. The business departments know what the IT departments are doing and vice versa. If enough information is shared, both departments know what the other is doing which prevents unexpected surprises that could damage the social relationship in business-IT alignment. The following quote underlines the importance of exchanging information in order to create trust:

"Mutual trust needs to be created from the beginning. Communication, and exchange of information are very important in doing this." (Manager staff department)

Managerial role model

The third change enabler identified in the analytical framework as influencing business-IT alignment is managerial role model. The interviewees also emphasized that it is very important for managers to act as role models of the alignment. The idea that managers should take a leading position in the change process is underlined by the following quote:

"In cultural change, management should take a leading position." (Manager staff department)

The following quote highlights the importance of the managerial role model in a change initiatives:

"Management has to show that they have a positive attitude towards the change. They have to be a role model of the change." (Team leader staff department)

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“Managers have a crucial role in cooperation. Managers are the chairmen of their departmental meetings, in this meetings they also have to deal with complains about IT. The way managers react in these situations is crucial for the image of IT within that department. A negative attitude of the management will result in a negative attitude of the complete department.” (Employee IT domain)

In the interviews it became clear that that cooperation only occurs when accidents (e.g. emerging damages in the distribution network that could possibly harm the living environment of the clients) happen. This impermanent cooperation can turn into a lasting one when managers act as role models of the cooperation, as is stated by one of the team leaders:

“Cooperation only occurs when accidents happen. In cooperation, managers should be acting more as a role model.” (Team leader primary business process department)

Participation & Involvement

The fourth and fifth change enabler identified in the analytical framework as influencing business-IT alignment are participation and involvement. In the interviews a strong separation has been made between participation and involvement. The following quote underlines the interviewees belief that not everybody needs to be able to make decisions. The possibility to share ideas will be enough:

“Not everybody needs to be able to make decisions. This will only slow down the decision making process. Nonetheless people should have the opportunity to share their ideas on a topic.” (Employee IT domain)

Although it is underlined in the interviews that decision making power is not necessary, organizational members on lower hierarchical level do appreciate the ability to be involved:

“My experience is that people on a lower hierarchical level in the organisation also appreciate it when they are being involved.” (Employee IT domain)

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“The ability for employees to make decisions is not necessary. Although they should be able to give their advice. The decision maker has to listen to the employees, because they possess a lot of practical knowledge. By listening to their advice, employees have the ability to influence the decision making process.” (Employee IT domain)

The following quote shows that it depends on the subject at hand whom of the organizational members should be involved in the decision making process:

“If decisions have to be made about the vision and the IT-landscape it is important to involve managers. If decisions consider operational issues, users should also have to be involved.” (Team leader staff department)

From this quote we can conclude that the ability to be involved should be linked to the hierarchical position of organizational members. In the interviews a connection between involvement and the social component is emphasized. The interviewees highlighted that the ability to be involved is an important driver of trust. This is also underlined by the next two quotes:

“In order to create trust it is very important to involve people.” (Team leader IT domain)

“By involving people in the process, trust can be built up.”(Employee IT domain)

The following quote underlines that the ability to give an opinion about subjects increases trust:

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5.3 Change inhibitors

Now that the results from the interviews concerning the change enables are clear we will take a closer look at the change inhibitors we identified in the analytical framework and what is said about these inhibitors in the interviews.

Empire building

The first change inhibitor identified in the analytical framework as influencing business-IT alignment is empire building. Empire building is broadly acknowledged as a change inhibitor in aligning the business and IT domain. UtilServ experienced that organizational members are primarily focused on their own department. This becomes clear in the following quote:

“At this moment we are way too busy with creating value for our own departments.”

(Manager primary business process department)

From the following quote we can conclude that in order to create alignment, departments should not work separately:

“If you want to create alignment, there should not be separated department next to each other. There has to be an overlap between the departments in which alignment can be created.” (Manager client support department)

In the next quote the danger of empire building is underlined. When everybody is making choices in favor of their own departments, the results for the entire organization can be suboptimal:

“There is a risk that individual managers will make choices that are suboptimal for the integrated business processes. They might make decisions that will gain the manager himself extra money, but that will cost money to two peer managers.”

(Manager IT domain)

Apart from the interests of the departments, individual benefits of the change also play a role according to the following quote:

MANAGING ORGANIZATIONAL CHANGE IN BUSINESS-IT ALIGNMENT PROCESSES