Analysis of IT infrastructure flexibility impacts on IT-Business strategic alignment

Isal, Yugo Kartono; Pikarti, Gayuh Prima; Hidayanto, Achmad Nizar; Putra, Edson Yahuda Article Analysis of IT infrastructure flexibility impacts on ITBusiness strategic alignment Journal of Industrial Engineering and Management (JIEM) Provided in Cooperation with: The School of Industrial, Aerospace and Audiovisual Engineering of Terrassa (ESEIAAT), Universitat Politècnica de Catalunya (UPC) Suggested Citation: Isal, Yugo Kartono; Pikarti, Gayuh Prima; Hidayanto, Achmad Nizar; Putra, Edson Yahuda (2016) : Analysis of IT infrastructure flexibility impacts on IT-Business strategic alignment, Journal of Industrial Engineering and Management (JIEM), ISSN 2013-0953, OmniaScience, Barcelona, Vol. 9, Iss. 3, pp. 657-683, https://doi.org/10.3926/jiem.1916 This Version is available at: https://hdl.handle.net/10419/188787 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/3.0/ Journal of Industrial Engineering and Management JIEM, 2016 – 9(3): 657-683 – Online ISSN: 2013-0953 – Print ISSN: 2013-8423 http://dx.doi.org/10.3926/jiem.1916 Analysis of IT Infrastructure Flexibility Impacts on IT-Business Strategic Alignment Yugo Kartono Isal1 , Gayuh Prima Pikarti1 , Achmad Nizar Hidayanto1 , Edson Yahuda Putra2 1Universitas Indonesia (Indonesia) 2Universitas Klabat (Indonesia) [email protected], [email protected], [email protected], [email protected] Received: February 2016 Accepted: June 2016 Abstract: Purpose: To explore the impacts of IT infrastructure flexibility components (connectivity, modularity, compatibility, and IT personnel flexibility) on IT-business strategic alignment using Luftman’s strategic alignment maturity model. Design/methodology/approach: A questionnaire was developed using 5-points Likert scale. The questionnaire was distributed to companies in Indonesia, where 48 companies filled the questionnaire completely. The data were analyzed using partial least squares (PLS) approach using WarpPLS version 3.0. Findings: This research found that amongst four components of IT infrastructure flexibility, only compatibility that gives a positive and significant impact to IT-business strategic alignment. This finding is remarkably in contrast to what had been found by Chung et al (2003) in which connectivity, modularity and IT personnel flexibility showed a positive impact on strategic alignment while compatibility did not. Research limitations: This research used small sample size. More respondents are required to obtain more general conclusions. -657- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 Practical implications: The findings of this study can be input for IT investment initiatives by first focusing on compatibility aspect of IT infrastructure which is considered having the most significant influence on strategic alignment. Originality/value: Previous study investigated IT infrastructure flexibility as a single concept, whereas our research investigated the components of IT infrastructure flexibility and their impact on strategic alignment. Keywords: IT infrastructure flexibility, IT-business strategic alignment, Luftman, partial least squares 1. Introduction In recent decades, the role of IT in business has significantly improved – it shifted vastly from cost center into investment center. IT is a valuable asset needed to help organization survive in this fastchanging environment. As the business needs tend to fluctuate in this dynamic setting, a flexible IT infrastructure is a must-to-have so that organization could be more responsive to the change of business demands. However, this requires no small investments. The urgency to provide a flexible – yet cost-efficient IT infrastructure makes IT infrastructure remains an important issue up to nowadays (Alaeddini & Salekfard, 2013; Gerow, Grover, Thatcher & Roth, 2014; Patten, Whitworth, Fjermestad & Mahinda, 2005). On the other hand, enhancement of the role of IT in business undoubtedly contributed to the increase in IT investment. Unfortunately, not all IT investments successfully deliver business value that is proportional to the amount of investment (Roach, 1991). This failure is believed by Henderson and Venkatraman (1993) motivated by the lack of alignment between business strategy with IT, or popularly as strategic alignment. Strategic alignment itself has been proven to provide value to the company, ranging from improving the effectiveness and performance of the company, increasing competitive advantage, increasing the return on investment and business value-IT and to maintain the stability of the company (Chan, Huff, Barclay & Copeland, 1997; Charoensuk, Wongsurawat, & Khang, 2014; Chiang & Nunez, 2013; Feidler, Gorver & Teng, 1995; Gerow et al., 2014; Kearns & Lederer, 2001; Labovitz & Rosansky, 1997; Orozco, Tarhini, Masa'deh & Tarhini, 2015; Tallon, Kraemer & Gurbaxani, 2000; Tarhini, Ammar, Tarhini & Masa'deh, 2015; Sari, Hidayanto & Handayani, 2012; Yayla & Hu, 2012). Considering this, it is no wonder that companies are trying to increase the maturity of its strategic alignment with the hope that the more mature strategic alignment will provide better IT-businesses value. -658- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 However, the strategic alignment in practice is not easy to achieve (Luftman, 1996). Over the last four decades, the strategic alignment remains a top issue faced by executives (Henderson & Venkatraman, 1993; Kempaiah, 2008). Luftman (1996) argues, strategic alignment will always have its own urgency for IT is still involved in the business. One of the biggest challenges that must be faced in aligning business strategy with IT is a change, be it changes in terms of business strategy, customer demand, as well as changes in prices (Luftman, Papp & Brier, 1999; Mendelson & Pillai, 1998). This is where the flexibility of the IT infrastructure needed to answer this challenge. Duncan (1995) even stated that the alignment of business strategy with IT only reached if the company already has a flexible IT infrastructure. Although the influence of IT infrastructure flexibility to strategic alignment has been investigated in a number of literature (Akhtar & Mittal, 2014; Chung, Rainer Jr. & Lewis, 2003; Jorfi, Nor, Najjar & Jorfi, 2011; Tallon & Kraemer, 2003), the analysis conducted generally model the IT infrastructure flexibility just as first-order variable without any study deeper about how significant the effect that occurs between the components of the IT infrastructure flexibility with aspects of strategic alignment. Not all organizations have the ability to develop a flexible IT infrastructure due to limited resources, budget, and human resources, so it needs to look at which IT infrastructure flexibility components that should be the focus of the organization to achieve strategic alignment. Unfortunately, in-depth research to discuss the issue are limited, so the research question posed in this study is: what is the relationship between the components of IT infrastructure flexibiltity to strategic alignment?. Strategic alignment that will be used in this study refers to the model proposed by Luftman (2000). The rest of the paper will be organized as follow. Section 2 discusses theoretical background underlying this research which include IT infrastructure flexibility, IT-Business strategic alignment and hypotheses development. Section 3 explains the methodology used in this research, which include data collection procedures and research instruments. Section 4 presents our research results. Section 5 discusses our research result and its implication. Last, we highlight the conclusion of this research. 2. Literature Review 2.1. IT Infrastructure Flexibility IT infrastructure is the foundation of IT capability that is shared, standardized, and functioned as a business process enabler (McKay & Brockway, 1989). While several literatures define IT infrastructure from technical perspective i.e hardware, core applications, communication technologies and data (Earl, 1989; Duncan, 1995), some others view IT infrastructure as a multifacet concept by highlighting the importance of human IT components (i.e skills, expertise, competency, commitment, value, norm, -659- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 knowledge, etc.) as well as the technical components (Henderson & Venkatraman, 1993; Broadbent, Weill, & Neo, 1999; Byrd & Turner, 2000). In terms of flexibility, IT infrastructure is considered to be flexible if it is able to effectively control the external environment (De Leeuw & Volberda, 1996), do various tasks, be responsive to change, and can be easily transformed (Gross & Raymond, 1993). It also can be represented as the degree to which IT resources are shareable and reusable (Duncan, 1995). Based on the concept of reach and range (Keen, 1991), Duncan (1995) defines flexibility in terms of three technical components, namely connectivity, modularity, and compatibility. Connectivity represents IT components ability to communicate with other components, both internally and externally. Modularity is the ability to easily reconfigure (add, modify, or remove) technical IT components with little or no major impact. Compatibility denotes the ability to distribute any type of information across any technology component. In respect to the findings found by Lee, Trauth and Farwell (1995) and Broadbent, Weill, O'Brien and Neo (1996), Byrd and Turner (2000) added IT personnel flexibility as another complementary dimension of IT infrastructure flexibility. According to Masrek and Jusoff (2009), IT personnel flexibility represents the ability of IT personnel in dealing with changes in business needs and to work cooperatively across functional units by using various technology platforms. Those four components (connectivity, modularity, compatibility and IT personnel flexibility) are adopted in this study to provide a comprehensive view on IT infrastructure flexibility. The importance of IT infrastructure flexibility has been emphasized on previous studies. Allen and Boynton (1991) argue that efficiency and flexibility are two important factors for IT systems. IT infrastructure requires to be flexible so that customer demands could be well-handled without any additional costs (Weill, 1993). In addition, flexibility is a parameter of IT infrastructure effectiveness and should be viewed as corporate core competence (Davenport & Linder, 1994). In a similar vein, Henderson and Venkatraman (1993) suggested flexibility and the pace of IT implementation as the main focus of IT infrastructure. 2.2. IT-Business Strategic Alignment The concept of IT-business strategic alignment has been around since the 1980s and becomes corporate main concern in the 1990s (Brancheau, Janz & Wetherbe, 1996; Plowman, 1998). It is etymologically formed from the term “strategy” and “alignment”. “Strategy” is defined either as formulation and implementation (Henderson & Venkatraman, 1993), plan (Teo & King, 1997), or objective (Reich & Benbasat, 1996), while “alignment” is coordination achieved when information systems strategy is derived from corporate strategy (Lederer & Mendelow, 1989). Terminologically speaking, IT-business strategic alignment is defined as the degree to which business mission, objectives and plans supported and are -660- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 supported by IT mission, objectives and plans (Reich & Benbasat, 1996). In a similar vein, Sabherwal and Chan (2001) define strategic alignment as the degree of congruence between business and IT’s strategic orientation. In 1993, Henderson and Venkatraman (1993) proposed Strategic Alignment Model (SAM), a model that can be considered as the founding father in conceptualizing strategic alignment. They believe that strategic alignment is the missing link between IT and business that underlies the failure of IT investments in delivering appropriate business value. SAM has been extensively accepted and validated for its good conceptual and practical values (Avison, Jones, Powell & Wilson, 2004). As depicted in Figure 1, SAM comprises four domains, namely: business strategy, organizational infrastructure and processes, IT strategy, and IS infrastructure and processes, with each domain consists of three components. Figure 1. Strategic Alignment Model (Henderson & Venkatraman, 1993) Numerous literatures have agreed on the importance of IT-business strategic alignment in improving business performance (Chan & Huff, 1993; Henderson & Venkatraman, 1993; Kearns & Lederer, 2000; Croteau & Bergeron, 2001). Galliers and Newell (2003) argue that strategic alignment is the central principle of IS theories and practices. Though the importance of strategic alignment is well-understood, achieving and sustaining strategic alignment are still remaining two persistent issues. Previous studies shown that 72% of 594 IT executives consider IT-business strategic alignment as their main focus (Plowman, 1998) and it also has been top-ranked for the last ten years as important issue faced by executives (Henderson & Venkatraman, 1993; Kempaiah, 2008). -661- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 As aforementioned, the next important thing to focus on is how strategic alignment can be achieved and nurtured. Several strategic alignment frameworks have been proposed (Rockart & Short, 1989; Hammer & Champy, 1993) yet most of them were lack in providing a thorough roadmap to improve strategic alignment. An assessment framework also has been proposed by Reich and Benbasat (2000) yet it puts more focus on tactical level. Amongst strategic-level IT-business alignment frameworks (such as Segars, Grover & Teng, 1998; Sabherwal & Chan, 2001; Cragg, King & Hussin, 2002; Kearns & Lederer, 2003); Strategic Alignment Maturity Model (SAMM; Luftman, 2000) is considered as the most comprehensive one (Belfo & Sousa, 2012). It has been validated to 25 Fortune 500 companies and used by 50 companies during its first year of publication (Luftman, 2000). In this approach, IT-business strategic alignment maturity is measured based on six criteria as listed in the following Table 1. SAMM consists of 39 items in total: 6 Communication-related items, 7 Value Measurement-related items, 7 Governance-related items, 6 Partnership-related items, 5 Scope and Architecture-related items, and 8 Skills-related items. Based on those six criteria, IT-business strategic alignment is classified into five maturity stages, that are: (1) Initial/Ad-hoc Process, (2) Committed Process, (3) Established Focus Process, (4) Improved/Managed Process, and (5) Optimized Process. SAMM’s Criteria Description Communication (COM) Effective exchange of ideas, information and knowledge between IT and business to ensure that both parties have fully understood the strategy, priorities, processes and environmental organizations required to obtain results desired. Six related attributes are: understanding of IT by business and vice versa, inter/intra organizational learning, protocol rigidity, knowledge sharing, and liaison effectiveness. Value Measurement (VAL) The use of measurements to illustrate IT contribution to the organization in terms that the business understands. Seven related attributes are: IT and business metrics, balanced metrics, service level agreements, benchmarking, formal assessments, and continuous improvement. Governance (GOV) The process of delegating IT decision making in management and the way business and IT managers in prioritizing and allocating IT resources. Seven related attributes are: business and IT strategic planning, organization structure, budgetary control, IT investment management, steering committee, and prioritization process. Partnership (PRT) The relationship between IT and business including IT involvement in determining business strategy, the degree of trust among them and how each values the contribution made by the other. Six related attributes are: business perception of IT value, role of IT in strategic business planning, shared goals, risk and rewards, IT program management, relationship style, and business sponsor. Scope and Architecture (ARC) IT ability in providing a flexible architecture, evaluating and implementing the technology, enabling and controlling the business process, and providing solutions that can be customized to meet internal needs and customer needs. Five related attributes are: the role of IT systems, IT standards articulation, integration or IT architecture, architectural transparency and flexibility. Skills (SKI) All activities related to training, performance feedback, encouraging innovation and providing employment opportunities. This criterion also includes IT’s readiness for change and ability to create new ideas. Related attributes are: innovation and entrepreneurship, locus of power, management style, change readiness, career crossover, education and cross-training, and social environment. Table 1. IT-Business Strategic Alignment Maturity Model’s Criteria (Luftman, 2000) -662- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 3. Hypotheses Development Prior research has highlighted the relationship between IT infrastructure flexibility and IT-business strategic alignment. IT infrastructure is considered to be flexible if it enables the creation of strategic innovation in business process (Duncan, 1995). Henderson and Venkatraman (1993) identify IT infrastructure flexibility as mechanism needed to achieve strategic alignment. Both IT infrastructure flexibility and strategic alignment are necessary to predict the future business value (Tallon & Kraemer, 2003). Furthermore, a positive relationship between IT infrastructure flexibility and IT-business strategic alignment also has been identified (Tallon & Kraemer, 2003; Ness, 2005). Specifically, Chung et al. (2003) pinpoint a positive and significant impact from connectivity, compatibility, modularity and IT personnel flexibility to IT-business strategic alignment. Therefore, we propose the following hypotheses: H1: IT infrastructure connectivity has a positive impact on IT-business strategic alignment H2: IT infrastructure modularity has a positive impact on IT-business strategic alignment H3: IT infrastructure compatibility has a positive impact on IT-business strategic alignment H4: IT personnel flexibility has a positive impact on IT-business strategic alignment This study aimed to explore the impacts of IT infrastructure flexibility on IT-business strategic alignment. Four previously discussed components of IT infrastructure flexibility (connectivity, modularity, compatibility, and IT personnel flexibility) are applied as exogenous (independent) latent variables. ITbusiness strategic alignment is modeled as a second-order endogenous latent variable, composed of six Luftman’s strategic alignment maturity criteria as its first-order variables. Reflective approach is used in modeling the relationships between variables and their indicators as the indicators used are the manifestation of their variables, rather than defining them (Jarvis, Mackenzie & Podsakoff, 2003). The conceptual model of this study is presented in Figure 2. Figure 2. Conceptual Model -663- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 4. Methodology 4.1. Research Stages As seen in Figure 3, this research generally consists of five stages. The first stage is the preparation, which at this stage we formulate the research problems and the scope to be studied, review the literature to explore concepts related to our research, and formulate the hypotheses. The second stage is the research design, which at this stage we determine population and sample, develop research models, prepare research instruments, and conduct a pilot study. The third stage is the data collection, which includes the distribution of questionnaires to a sample as well as verification of collected data. Stage four is the data analysis stage, which at this stage we test the reliability and validity of the measurement models and structural models. The fifth stage, we draw conclusions based on analyses that have been done as well as formulate recommendations for future research. Figure 3. Research stages -664- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 6. Discussion and Implications 6.1. Discussion Based on the analysis performed, only compatibility has positive and significant impact on strategic alignment. In the Luftman strategic alignment model, strategic alignment is measured in detail by paying attention to the technical aspects (scope and architecture for example) as well as humanist (expertise) aspect, both in business and IT. As a humanist component of the IT infrastructure flexibility, this study found that the adaptability of IT personnel only shows a strong positive influence on the governance and expertise aspects. This is not surprising given that these aspects are focused on competence and participation of IT and business personnel. This study shows that only compatibility a positive influence on strategic alignment. This indicates that the ability of the organization to be able to distribute the appropriate information to the organization's internal and external parties is a determinant of achieving strategic alignment. The availability of such information allows the business can take many important decisions, to achieve the desired performance by business. In addition, compatibility also enables IT personnel become powerful, allowing IT capability in the organization to be improved. Improved IT capability certainly had an impact on business, as more and more business activities that can be supported by IT. This led to a business view that IT has given value to the business that led to their good relationship between business and IT. Here elaborated further on the influence exerted on each component of the IT infrastructure flexibility. 6.1.1. Connectivity - Strategic Alignment Connectivity represents the extent to which the IT infrastructure components are connected to each other both in the internal and external companies (Duncan, 1995). This component also represents a degree of coverage area that can be reached by a technology platform (Keen, 1991). In general, the study found that connectivity does not have a significant positive effect on the strategic alignment. This is in contrast with the findings of Chung et al. (2003) which states that connectivity provides significant positive influence on the strategic alignment. Connectivity allows a faster response to changes in business strategy. A high level of connectivity facilitates the exchange of ideas and information in a more easily so that it is expected to increase the maturity of communication in the organization. In addition, the higher level of connectivity indicates better IT capabilities and an integrated system that positively affects the scope and architecture maturity. However, this study showed that connectivity has a significant negative relationship to the strategic alignment. -671- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 6.1.2. Modularity - Strategic Alignment Modularity represents the ability to reconfigure the software, hardware and data with ease and without cause fatal damage to meet business needs (Duncan, 1995). Similar to connectivity, modularity also found not to give a significant positive effect on the strategic alignment. It is also contrary to the findings of Chung et al. (2003) that show modularity has a significant positive influence on strategic alignment because it allows a faster response to changes in business strategy. In this study, modularity actually has a positive influence on strategic alignment, but the effect is not significant. Although modularity is found not to give significant influence, higher IT systems modularity are expected to be better enabling IT personnel to more easily develop technical solutions according to business unit requests. It can stimulate understanding and a better appreciation of the contribution made by both sides so that the maturity of the partnership of business and IT is expected to increase. 6.1.3. Compatibility - Strategic Alignment Compatibility represents the ability to distribute any information either internally or externally (Duncan, 1995). Unlike the two previous components, compatibility shows a significant positive influence on strategic alignment. Interestingly, these findings again in contrast to the results of Chung et al. (2003) which states that of the four components of the IT infrastructure flexibility, compatibility not only has a significant positive effect on the strategic alignment. In his research, Chung et al. (2003) measured strategic alignment by the degree of business-IT alignment strategy, user participation in IT planning, the degree of alignment of IT investments and spending towards business objectives and priorities, as well as the degree of integration of the IT Division to the overall structure of the organizational structure. Chung et al. (2003) argued that the indicators used to measure the compatibility of the research are of a technical nature while the strategic alignment indicator is otherwise so that the respondent may argue that this is too technical aspect and has nothing to do with the business (strategic alignment). This is different from this study where strategic alignment is measured by considering the technical aspects as well as business aspects so that the influence of compatibility can be detected. -672- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 6.1.4. The Adaptability of IT Personnel - Strategic Alignment Adaptability of IT personnel represents the ability of IT personnel to adapt to changes in business strategy and work cooperatively across functional units (Masrek & Jusoff, 2009). The analysis result showed that the adaptability of IT personnel does not show a significant positive effect on the strategic alignment. In Chung et al. (2003) findings, this component has positive influence on strategic alignment as it is considered to facilitate connectivity and modularity so that the company can respond to changes quickly. Adaptability of IT personnel actually had a positive influence nearly as significant (path coefficient = 0.09), however the coefficient is a little below the threshold (0.100) so that the effect is considered not significant. 6.2. Implications As one of the efforts to achieve strategic alignment, building a flexible IT infrastructure requires significant investment. The findings of this study can be input to get around the lack of investment by first focusing on the development of IT infrastructure components which are considered having the most significant influence on strategic alignment. Among the four components of the IT infrastructure flexibility, only compatibility is proven to have a significant positive effect on strategic alignment so that the compatibility component should receive more attention in order to achieve strategic alignment. From theoretical aspect, the results of this study confirm earlier findings that IT flexibility is one of the key factors to achieve business-IT strategic alignment. 7. Conclusion The main objective of this research was to explore the impacts of IT infrastructure flexibility components on IT-business strategic alignment. This study found that amongst four components of IT infrastructure flexibility, only compatibility that has a positive and significant impact on IT-business strategic alignment. The other three components actually demonstrated a positive impact on IT-business strategic alignment, yet the impacts given are insignificant. However, we suggest that a flexible IT infrastructure is still important in fostering alignment between IT and business strategy. This study is limited to two remarkable points. First, though the samples used in this study has satisfied the minimum requirement, the sample size, however, is quite small. Using a larger sample size and a better sampling technique could improve the reliability of the findings. Second, the research used single- -673- Journal of Industrial Engineering and Management – http://dx.doi.org/10.3926/jiem.1916 source data in which each respondent represents different company. A multi-source data would be preferred to provide a more dependable result. This study uses the Luftman strategic alignment model which assessing the strategic alignment based on the level of maturity of the components of strategic alignment. There are other models of strategic alignment as proposed by Tallon-Kraemer which looking at the strategic alignment as the interaction between business and IT on six key areas of the value chain. For further research, we can compare the results obtained from both models, so that the effect of IT infrastructure flexibility to strategic alignment can be seen with more detail. 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