Hello, I'm Rudy Puryear, and I lead Bain's global IT practice. Our research into IT enabled business growth across more than 450 companies has uncovered a very interesting dilemma which we call the IT alignment trap. When a company is trapped, their IT costs rise and business performance actually suffers. Today, I'm going to explain the alignment trap and share Bain's experience in helping companies break out of the trap.

The alignment trap is the situation that companies that find themselves in when they try to improve IT performance through increased IT and business alignment and the IT performance actually gets worse: the harder they try, the worse it gets. IT should enable business growth and performance, but in the alignment trap, IT is more of a barrier than an enabler. Everything about IT seems to cost too much and takes too long. Our client experience has demonstrated that the best way out of the alignment trap is to first get effective and then get aligned. Most companies that have followed this guidance have enjoyed outstanding business performance and lower IT cost.

Companies that find themselves in the alignment trap often experience many of the issues on the slide. For example, IT is blamed for the lack of business performance or many of the valuable data assets, especially those containing deep insights about customers, are locked up and virtually inaccessible. Often IT systems and solutions have been over-customized. If some of these apply, your company may be trapped.

Bain conducted its IT enabled growth research to better understand the link between getting IT right and the result on business growth and performance. Two very interesting conclusions resulted from the research. First, getting IT right does, in fact, enable business growth and lowers IT cost, and the second is the evidence of the alignment trap. Over-investing in alignment can be hazardous to a company's health.

Our research was plighted on two dimensions: IT alignment along the vertical axis and IT effectiveness along the horizontal axis, and then the companies were placed in the four quadrants. We also then plighted in each quadrant the IT spend and the three-year business growth of the companies in the quadrant. Let's take a closer look at each quadrant.

Almost 75% of the companies fell in the lower left quadrant, where IT is neither highly aligned nor highly effective. We call this quadrant the maintenance zone, where a significant amount of the IT resources are focused on keeping the lights on. In the maintenance zone, most companies are close to the average on IT spend and business performance. Although most companies find themselves in the lower left quadrant, the other three quadrants actually yield far more interesting findings and insights.

Approximately 8% of the companies fell into the lower right quadrant where IT is highly effective but not highly aligned. In this quadrant business growth is 11% above the average and IT costs are 15% below the average. In this quadrant, IT really delivers business results in spite of not being highly aligned.

Now let's turn to the upper left quadrant where IT is highly aligned but not highly effective. This is where many companies find themselves in the alignment trap as a result of the unintended consequences of over-alignment: highly fragmented, redundant, over lapping and sub-scale IT solutions which have been highly customized and tailored in an attempt to more completely align them with the business. In this quadrant, companies have often been unsuccessful at taking advantage of shared-in-common and off-the-shelf IT solutions. This manifests itself in multiple billing systems, multiple manufacturing platforms and on and on. The result is that IT costs are 13% above the average and business performance lags. Now, by comparison, the well-oiled IT quadrant is actually a much more attractive place to be than the alignment trap quadrant because IT costs are lower and business performance is stronger.

But now let's look at what happens when you get IT right: highly effective IT that is highly aligned. Those companies fall into the upper right quadrant which we call the IT enabled growth quadrant where business performance is 35% stronger than average and IT costs are lower than average. In this quadrant, IT is an enabler of business growth and performance.

Let's now look at how many companies get trapped. Most companies find themselves in the lower left quadrant where IT is neither highly aligned nor highly effective and more often a barrier to business growth than an enabler.

Conventional wisdom suggests that pursuing deeper alignment is the answer. Wrong. In fact, it often backfires with the unintended consequences I described earlier. The harder companies try, the deeper they sink, almost like IT quicksand!

We have found that the first move for companies needs to be to get more effective and then get more aligned in order to avoid the alignment trap.

For companies that are in the alignment trap we have found that the key is to focus on getting effective even if it means temporarily sacrificing some degree of alignment and then introduce the appropriate levels of alignment to ultimately move to IT enabled growth.

 
Schwab is a great example of a company that worked its way out of the alignment trap. The result of being trapped was that Schwab was at a competitive disadvantage. Schwab elected to get effective by simplifying and rationalizing its applications portfolio, by appropriately and effectively right-sourcing its IT capability and then it focused on introducing the appropriate level of alignment and as you can see the results were quite impressive. Schwab is just one example of many.

 
So, if getting effective is clearly the first step towards IT enabled growth, what does this really mean? IT environments by definition are complex and getting more complex by the day. Some of the complexity is necessary and required and yet much of the complexity is unnecessary. The first thing a company needs to do is to eliminate as much of the unnecessary complexity in the business and in the IT environment as possible.

The second thing that a company must do is effectively and appropriately source its IT capabilities from the right source, the right shore at the right cost.

And third, they must enable a world-class IT delivery capability that can predictably deliver anticipated business results on time and on budget. That's what it means to get effective.

 

After companies get effective, then they can focus on getting aligned. But what does this really mean? First, a company must take steps to sync up the business and IT strategy such that the business strategy is continuously driving the IT strategy and the IT capability is continuously enabling the business strategy.

Second, the company must gain agreement on where to invest by paying particular attention to focus IT where it really matters.

And third, the company must ensure that the right governance and the right accountability models are in place. That's what it means to get aligned.

 
When a company gets IT right, the result is increased business performance and lower IT cost. Companies that are struggling to improve the business impact of IT must first get effective and then get aligned in order to avoid what I call "the dark side of alignment:" the alignment trap.