- May 18, 2012
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Another Alignment Trap?
Back in 2007, MIT’s Sloan School decided to ask what seems like a basic and reasonable question about IT: Do those organizations that spend more on IT have better business results to show for it?
Of course, the devil is entirely in the details, but they decided to make it simple. To make “spend more on IT” objective and measurable, they used IT budget as a percentage of annual sales. To make “better business results” objective and measurable, they used compound annual growth rate of sales over three years. Then, for the 500-odd companies they surveyed, they plotted the results on a chart.
What they expected to see (and what you would expect to see) was a high degree of correlation: the companies that spend more on IT (compared to the average) had better business results (compared to THAT average), and those that spent less had worse business results. But no. Instead, the results were all over the map. They then wondered if there were other factors that were missing that needed to be considered.
After much additional head-scratching, they concluded that the two other factors were: how well IT was aligned with the business (or not), and how efficacious (how efficient) IT was. It was only then that the pattern (shown below) emerged.
The Sloan Study concluded that companies that had efficient and aligned IT organizations did in fact outperform their peers, both in spectacular revenue growth while underspending on IT. This quadrant they called “IT-Enabled Growth.” They also found that ¾ of those surveyed had inefficient and unaligned IT organizations, and had the mediocre business results to show for it – “Maintenance Zone.” These are the companies Nicholas Carr was referring to when he wrote “IT Doesn’t Matter,” because to these organizations, it doesn’t.
Above and below this correlation, they found two more results that tell an even more interesting story. The “Well-oiled IT” organizations, by being less aligned with the business, didn’t have the business results the “Growth” companies did, but spent 15% less on IT than the average because their IT organization was effective at what it did.
The most interesting quadrant is the “Alignment Trap,” that spent the most on IT relative to the average, but had the worst business results to show for it.
They concluded that the problem was attempting to align IT to the business before the IT organization had its own house in order, thus the businesses failed precisely because they tied the business to an ineffective IT organization. They felt this result was so important that they titled their report “How to Avoid the Alignment Trap.”
Enter Big Data
So, what does Big Data have to do with all this? Turns out, exactly the same thing. Read More.