Business & IT alignment and Competitive Advantage

I have recently been contacted my former colleagues with whom I worked in a Motorola authorized reseller in China. My first placement there was to implement an ERP system and I was told that they were getting more and more used to it. While still remembering the frustrations and resistiance we all shared, this makes me want to introduce some thoughts about the use of information technology in modern organizations.

The term "alignment" usually can be explained as a smooth integration between two or more than two things. The motivation behind pursuing effective business-IT alignment is probably the great challenge faced by companies in the 21st century. Michael Porter (1985) suggested that a firm’s competitiveness ultimately falls into cost advantage, differentiation and focus. Firms pursuing the focus on both low cost and differentiation will face a dilemma. However, it is arguably true that many firms have achieved both through smooth business-IT alignment. For example, Amazon.com, the largest online book retailer, uses data mining technologies and the Web to delivery low price books while offering personalized features for customers.

Advantages created by technologies also raise the question of being either technological leadership or follower. Earl(1998) suggested that: ”The firm that pursues a strategy of being an IT follower may be able to improve considerably on the design of a predecessor’s system and, with fourth-generation productivity tools, might do so in short order.” However, there have been tons of online retailers who tried to create uniqueness by following the Amazon model but yet not quite successful. Porter (1985) also indicated: “Firms tend to view technological leadership primarily as a vehicle for achieving differentiation, while acting as a follower is considered the approach to achieving low cost.” This answer suggests the success of utilising technologies to drive business must depend on a firm’s understanding of its position in an industry, which corresponds to Porter’s five-force analysis.

On the other hand, companies tightly aligning business with IT may neither improve competitiveness nor reduce it or it could distract a firm from achieving competitive advantage. Davenport (1998) indicated that the failure the enterprise systems in Apple computer did not affect its competitiveness because of its strong brand and unique operating system. He also warned that companies that compete on cost may lose the initial advantage because of implementing costly ERP applications.

The complexity of ERP applications in today’s enterprises may also make the usefulness of the alignment model questionable. eweek (2003) reported that increased strategic alignment could be harmful if it restricts IT infrastructure flexibility. For example, Dell’s implementation of SAP conflicted with its flexible business model because the standardized application prevented regional managers from responding to their local markets. Problems become even more complicated when considering ERP implementation in a different cultural context. Xue (2003) argued that the unique Chinese culture could dramatically cause unpredictable under-performance of Western ERP systems and cultural issues should be tackled first when introducing ERP to Chinese enterprises.