Most companies believe that information technology goals must be
aligned with business goals to create value. Far fewer understand
that alignment alone does not 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 as a leader in online trading. By the early part of
this decade, however, IT had actually become a detriment: a
patchwork of custom systems was snarling operations and big new
IT-based products were delayed, disappointing valuable customers.
Worse, Schwab was spending 18 per cent of revenue on IT, while
three of its leading competitors were spending 13 per cent 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 realisation we have found among
companies we work with 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 organisations are
well-aligned with the units they support, business performance
dependent on IT sometimes goes sideways, or even declines. How?
To improve alignment, IT organisations often deploy enterprise
resource planning systems or develop best-of-breed solutions
designed to serve each business's unique needs. Meanwhile, they
overlay complexity on older legacy systems, postponing
infrastructure improvements and leaving significant scale benefits
untapped. Costs rise, delays mount, and fragmentation undercuts
co-ordination across business units. Aligning a poorly performing
IT organisation to the right business objectives won't get the
Further warnings emerged when we surveyed more than 500 senior
business and technology executives: few rate their IT capabilities
highly. We queried them about both alignment and effectiveness, 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 add much value. Such
companies recorded a slower rate of growth—2 per cent below the
three-year average in the survey—while spending on IT was the same
as the average.
More troubling was the 11 per cent of companies in which IT was
highly aligned but not highly effective. Surprisingly, these
companies fared much worse. Their IT spending was 13 per cent
higher than average, and their three-year growth rates were 14 per
cent lower. These firms were in the "alignment trap".
Only 8 per cent believed IT was highly effective, but not highly
aligned. They delivered projects with promised functionality,
timing and cost. These we categorised as "well-oiled IT
organisations". Significantly, high effectiveness made a
substantial economic difference: these companies were spending 15
per cent less than average, and their growth rates were 11 per cent
The rarest breed was both highly aligned and effective. These
"IT-enabled" organisations—only 7 per cent of all
respondents—recorded a three-year growth rate 35 per cent higher
than the survey average, while spending 6 per cent less.
These findings make clear that getting IT right is critical. For
most companies, the foremost task is to focus first on increasing
the effectiveness of the IT organisation. For IT to enable growth,
that first critical move is the one that companies often get wrong.
Applying three key principles can help move organisations to high
Simplify. Simplifying the IT function may mean delaying
incremental spending to upgrade customised legacy systems and
committing instead to a standardised new infrastructure. Such an
approach requires a greater investment of time and money up front,
as standard systems are rolled out across the enterprise, but will
lead to lower costs later.
"Rightsource" capabilities. Effective IT requires capabilities
ranging from help desks to creating innovative business
applications. Today, nearly all are available from low-cost IT
specialists offshore. One useful way to guide sourcing choices is
to decide what needs to be proprietary. In-house development makes
sense for applications that are strategic or critical to
Focus on value delivery. To be highly effective, IT must
complete projects on-time, on-budget, and with functionality that
the business needs. To meet these challenges, IT must be equipped
with the right objectives, processes, and resources. For example,
without a business case and key performance indicators for IT
projects, it is difficult to measure and improve the value IT
Schwab proves both IT alignment and effectiveness can be
attained. Indeed, it quickly re-established these tandem goals and
is getting results: per trade costs have decreased more than 50 per
cent, while average time to execute trades at peak periods
decreased 80 per cent.
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 helping Schwab to grow.
Rudy Puryear is a partner in the Chicago office of Bain
& Company and leader of the firm's Global IT Practice. Steve
Berez and Sachin Shah are Bain partners in Boston and London,