Not long ago, I watched a major IT initiative fail disastrously. Oh, it wasn't a debacle in any obvious way. According to prevailing IT management theories, the company did everything right. You could even call the results highly successful -- if, that is, you were using conventional benchmarks.

Here's the story: In the mid-1990s, this particular company, a $US7.8 billion Fortune 50 manufacturer, was spending upward of $US100 million a year on IT. Then it decided it needed to standardise its IT operations to complement its increasingly global business. Nothing unusual here. The company began an $US80 million re-engineering effort to standardise its financial, marketing and manufacturing operations and to implement a global IT infrastructure. Following a rigorous review of methodologies and related costs, the company chose a leading enterprise resource planning (ERP) package. A detailed return on investment (ROI ) analysis -- part of the re-engineering methodology -- predicted substantial savings due to increased operational efficiencies if the software was used throughout the enterprise.

Yet even though such things as projected ROI and quality checkpoints were smack on target, even though everybody said they were satisfied and even though the completed project was aligned appropriately with the company's strategic objectives, it was a failure. And not just a minor failure, but a failure with enormous negative implications for the business.

Why? Even as it re-engineered, the company continued to lose market share. Shareholder value dropped. Yes, profit margins remained stable. But this was 1996, and the World Wide Web had just emerged as a commercial force. The company's competitors were using intranets to link suppliers and customers and to streamline distribution and manufacturing operations. While the company was focusing on optimising each internal process in its supply chain, some competitors were trying to eliminate distributors, and others were bypassing traditional distribution channels and outsourcing other components of their supply chains. The company's stable margins were laughably small compared with what the competition was showing to be possible.

Stuck in the ‘90s

How could this happen? The fault lay in a business-IT alignment method that's wrong for the times.

Alignment first became an important issue in the late 1980s. Back then, it meant formulating a solid business strategy and then inviting the IT folks in to make sure it could be implemented as efficiently as possible. In the mid-1990s, alignment was perceived as a joint effort between business departments and information technology. Planning horizons tended to be long term and assumed a fairly straightforward and singular vision of the competitive landscape. It was assumed that the vision could be planned for and the success of the plan subsequently measured.

But in an economy that is becoming predominantly digital and in a business climate where performance is valued more highly than physical assets, following this tried-and-true method no longer guarantees success.

So what does constitute a successful alignment strategy at the millennium? Take Dell Computer, for example, which encourages its customers to tailor its products to their individual needs. The company allows for just-in-time manufacturing and supports Internet communication with suppliers, customers and service providers. While his competitors were concentrating on cutting costs, CEO Michael Dell integrated suppliers, customers and distributors in a holistic information ecosystem. Customers could design their own machines, down to specific hardware components and installed software. This would not be possible without the thorough integration of business objectives (what do our customers want?) and IT capabilities (what is possible given opportunities offered by emerging technologies and practices?).

A Brave New World

So what do you have to do to achieve this kind of integration between IT and the business?

Measure the shareholder value -- not just the potential ROI -- of each initiative and align it with your strategic objectives. Any one IT investment may promise a good ROI, but tying up valuable financial or personnel resources may not be worthwhile when bigger issues are at stake.

Integrate IT into the business strategy process. That is, use technology not just to support what you want to do but to enable new capabilities and initiatives. Decide where to place the right bets, where you need to lead and where you can be a quick follower.

Apply IT to make the best use of your external relationships and resources. Right now, the digital economy is having the greatest impact in its ability to create new and powerful bonds between customers, suppliers and business partners. More than outsourcing, these relationships -- with companies that possess unique market channels and proprietary solutions -- allow a company to play a role in the digital economy.

This last point might seem the most risky to traditional people within management: after all, investing in technology that facilitates relationships rarely has as direct an ROI as technology that serves to reduce internal costs. Nevertheless, strategic or virtual relationships in the digital economy are the keys to success.

Quadraphenia

Try to see double -- and triple and quadruple. It's simply not possible to succeed with a singular strategic view of the future. In the digital economy, it will be far more prudent to develop scenario-based plans and the multiple technology strategies that align or enable them. From an IT perspective, first look for commonality: are there some things that should be done regardless of which scenario comes true? Beyond that, it becomes management judgement.

That means that making the right bets becomes one of the primary functions of IT strategy development -- and moves IT alignment from something a company does once every few years to a continuous process.

One company I know fine-tunes its IT alignment by revisiting the scenarios and their probability every month, asking questions such as, Are certain scenarios becoming more likely or more unlikely? Should we continue with the IT projects that hedge our bets? How much do we want to invest consistently with the likelihood of a competitive move? Do we want to make a pre-emptive strike? I would say that three months is probably the longest length of time that should elapse before the CIO double-checks his assumptions about where the business is heading.

All of this sounds daunting, and it is. This kind of strategic process management takes a commitment of money, time and involvement of management at the highest corporate levels. And it requires a major cultural change because traditionally IT solutions have been slow to evolve, take years to implement, are subject to the whim of business sponsors, get cut when economic conditions change and, even worse, often continue after it becomes obvious that they are no longer valid for the way business is currently conducted.

As for the Fortune 50 company mentioned earlier, new management came in and challenged the direction before sending more money -- and time -- down the IT drain. It regrouped, backed off globalising all processes and directed attention to higher-value areas that extend the enterprise, such as strategic sourcing and electronic procurement. It then took its key IT people -- those who knew the business -- and challenged them to find ways of working with business people on strategic issues, merging technology and business opportunities in ways that would not have been possible without true collaboration.

In the digital economy, speed and agility are paramount. Business success is not based on correctly preparing for one future but on developing scenarios for as many plausible versions of the future as possible. Remember, everything is up for grabs: distribution channels, product definitions, competition. It's essential to devise an IT strategy that can accommodate this increasingly fluid business planning process.

Tom Nickles, vice president of The Concours Group in Cambridge, Massachusetts, specialises in e-business strategies, value analysis and solution design.