Most companies already believe that information technology goals must be aligned with business goals to create value. Yet far fewer understand that alignment alone doesn't guarantee improved business performance. In fact, it can be a trap.

Charles Schwab & Co., for instance, gained prominence in financial services because of its IT mastery, first as a discount broker, then a leader in online trading. By the early part of this decade, however, IT had actually become a detriment: A patchwork of custom systems snarled operations, and big, new IT-based products were delayed, disappointing valuable customers. Worse, Schwab was spending 18 percent of revenue on IT, while three of its leading competitors spent 13 percent or less, an annual disadvantage of hundreds of millions of dollars.

That tech-savvy Schwab found itself in this predicament is instructive. It signals a growing realization that the usual diagnoses-and fixes-of IT's troubles are often misguided. Indeed, our work with dozens of IT and business executives reveals that even when IT organizations are well aligned with the units they support, business performance dependent on IT sometimes goes sideways, or even declines. How?

	"In order for IT to enable growth, that first move is critical-and it's the one that companies often get wrong." - Rudy Puryear
View a slide presentation on attaining both IT alignment and effectiveness.

To improve alignment, IT organizations often deploy enterprise resource planning (ERP) systems or develop best-of-breed solutions designed to serve each business's unique needs. Meanwhile, they hold off on standardization and upgrading of legacy systems. They overlay complexity on old systems, postponing infrastructure improvements and leaving significant scale benefits untapped. Costs rise; delays mount; and fragmentation undercuts coordination across business units.

This kind of focus on business alignment hurts the units instead of helping them. Defining the alignment trap, Richard F. Connell, senior executive vice present and CIO of Selective Insurance Group, told us, "Aligning a poorly performing IT organization to the right business objectives still won't get the objectives accomplished."

Another warning emerged when we surveyed senior business and technology executives at more than 450 companies: Few organizations rate their IT capabilities highly. We queried them about both alignment and effectiveness (such as, doing a good job on IT projects), and found that they fell into four camps.

Nearly three-quarters believed their IT capability was neither highly aligned with their business goals nor highly effective. These companies occupy what we call the "maintenance zone." Minimal budgets keep systems running, but IT doesn't offer much added value and often isn't expected to. Such companies recorded a slower rate of growth-2 percent below the three-year average in the survey-while spending the same as the average every year on IT.

More troubling was the 11 percent of companies in which IT was highly aligned but not highly effective. Surprisingly, these companies fared much worse. Their IT spending was 13 percent higher than average, and their three-year growth rates were 14 percent lower than average. These firms were in the "alignment trap."

Only 8 percent believed IT was highly effective, but not highly aligned. They delivered projects with promised functionality, timing and cost. These we categorized as "well-oiled IT organizations." Significantly, high effectiveness, on its own, made a substantial economic difference: These companies spent 15 percent less than average, and their growth rates were 11 percent higher.

The rarest breed was both highly aligned and highly effective. Such "IT-enabled" organizations amounted to only 7 percent. But they recorded a compound three-year growth rate 35 percent higher than the survey average. Moreover, they spent 6 percent less on IT than the average respondents.

Achieving the best of both worlds
These findings make it clear that getting IT right is critical. For the majority of companies, the single most important task is to forget about enhancing alignment for the moment and to focus first on increasing the effectiveness of the IT organization. In order for IT to enable growth, that first move is critical-and it's the one that companies often get wrong. Three key principles are useful in moving organizations to high effectiveness:

Simplify. Raising effectiveness usually involves simplifying the IT function. That may mean delaying some division-specific applications custom-tailored on legacy systems. Such an approach requires a greater investment of time and money up front but will lead to lower costs later.

"Rightsource" capabilities. Effective IT requires capabilities ranging from managing efficient help desks to creating innovative business applications. Today, IT specialists in India, China, Brazil and Eastern Europe can provide nearly all of these capabilities. One useful way to guide sourcing choices is to decide what needs to be proprietary. For instance, in-house development makes sense for applications that are strategic or critical to competitive differentiation.

Focus on value delivery. To be highly effective, IT must complete projects on time, on budget, and with IT functionality that delivers what was requested by the business (with agreed-upon modifications). To meet these challenges, IT must be equipped with the right objectives, skills, processes and resources. For example, without a business case and key performance indicators (KPIs) for IT projects, it is difficult to measure and improve the value delivered by IT.

Schwab proves the value of attaining both IT alignment and effectiveness. Indeed, it quickly reestablished these tandem goals and is getting results: Per-trade costs have decreased more than 50 percent, while average time to execute trades at peak times decreased 80 percent.

Best of all, as Schwab climbs out of the alignment trap, clients are rewarding it with increasing trades and assets. In other words, IT is once again igniting Schwab's growth.

David Shpilberg is a senior adviser to Bain & Company. Steve Berez is a partner with Bain in Boston. Rudy Puryear is a Bain partner in Chicago and leader of Bain's Global IT Practice. Sachin Shah is a Bain partner in London.

For more information on IT alignment and effectiveness, read "Avoiding the Alignment Trap in IT," by David Shpilberg, Steve Berez, Rudy Puryear and Sachin Shah in the Fall 2007 issue of MIT Sloan Management Review.