IT performance can improve through aligned business strategy

20 September 2017 4 min. read

To create value in a changing business environment, IT departments may need to better align their strategy with the wider business. A new report finds that IT departments that do so, particularly those that report directly to the CEO, tend to be the most effective.

IT is expected to see considerable changes over the coming five years, as business models shift and IT becomes increasingly integrated with wider business processes. The function is not always equally effective in value creation at present, and a new report from McKinsey & Company looks at various ways in which companies might align business and IT strategy to improve that overall performance. The report is based on a survey of 709 participants, with 395 of whom had a technology focus, while the remaining 314 were C-level executives representing other functions.

The expectation is that the value proposition of IT is set to shift considerably in the coming five years. Respondents project to see the field move away from business-process enablement, with 45% stating IT is presently aimed at business-process enablement, falling to just 17% saying as much in the next 5 years. Respondents also suggest that there will be a strong move away from IT creating the most value for organisations in terms of operational stability and management, from 39% today to 7% five years from now.

Executives expect IT value proposition to shift in coming five years

The research from the strategy consulting firm notes that, in five years time, the most important facets of IT will be integrating technology solutions and innovation, at 23% and 26% of respondents respectively, down and up from 33% and 23% of respondents respectively.

As it stands however, the majority of respondents do not see IT as well positioned in relation to how respondents map out its future value proposition for in five years’ time. The area in which IT is seen as, relatively, the least effective, is ‘leading design of e-commerce, online experience, with 23% saying IT is somewhat effective and 8% very effective. IT is also not seen as particularly effective at developing ‘cutting-edge or innovative technologies’, with 25% saying IT is somewhat effective and 12% saying they are very effective. In terms of leading digital transformations across businesses, 27% said that IT was very effective and 12% said very effective.

IT performance not characterised as very effective

Across all other areas, however, 39% of respondents said that their IT organisation was somewhat effective, while 16% said that it was very effective.

Improving effectiveness

According to respondents, one correlated way to improve the effectiveness of IT organisations is to align business strategy and digital strategy, through the involvement of chief information officers (CIOs) in business strategy. In terms of an increase in the likelihood that an organisation is very effective, such engagement increased by 2.5x, from 6% of respondents were CIO was not involved to 15% where a CIO was involved.

In a similar way, the likelihood that business impact of digital strategy is significant role considerably between orgnissations that did have a CIO engaged in business strategy, at 44% of respondents, relative to a CIO that was not, at 24%.

CIOs that are involved in business strategy report to CEO

The research also explored to whom CIOs reported directly at organisations in which CIOs are involved in the shaping of the organisation’s business strategy and agenda. Interestingly, reporting directly to the CEO saw the largest number of respondent note very involved in shaping the organisation’s business strategy and agenda, compared to 19% if the direct report was to a business-leader. Reporting to key executives, CFO, COO and CTO, each increased the respective engagement of the CIO with business strategy.

Respondents also noted a number of areas in which moves can be made to address underlying weaknesses in the IT function, with the biggest issues cited as a lack of clear priorities for the IT function, weakness in IT’s operating model, and talent issues. Further issues related to ineffective governance and work-intake processes. In addition, respondents said that there is also weak alignment between business and IT, as well as unclear roles and responsibilities.