Strategic Operations Management: Investigating the Factors Impacting IT-Business Strategic Alignment

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1 Available online at Procedia Social and Behavioral Sciences 24 (2011) th International Strategic Management Conference Strategic Operations Management: Investigating the Factors Impacting IT-Business Strategic Alignment Saeid Jorfi a, Hassan Jorfi b, a a,b Universiti Teknologi Malaysia (UTM), Kuala Lumpur, 81310, Malaysia Abstract In today's complex global environment IT- business strategic alignment remains a key topic of concern among managers worldwide. The paper is undertaken to understand the role of IT flexibility, IT capability, and communications effectiveness to improve strategic alignment in the Agricultural Bank of Iran. Data (N = 82) for this study were collected through questionnaires and the participants were managers in Agricultural Bank of Iran The results showed that IT flexibility, IT capability, and communications effectiveness have a positive impact on strategic alignment and strategic information systems planning (SISP) moderates the relationships. Keywords: IT Flexibility, IT Capability, Communications Effectiveness, Strategic Information Systems Planning, IT-Business Strategic Alignment Published by by Elsevier Elsevier Ltd. Ltd. Open Selection access under and/or CC peer-review BY-NC-ND license. under responsibility 7 th International Selection and/or peer-review under responsibility of 7th International Strategic Management Conference Strategic Management Conference 1. Introduction As Grembergen and Haes truly observe, information technology and the use of it in business settings have undergone drastic changes in the past few decades [10]. In the case of successful IT management, the question of the IT s role in attaining the organizational strategic objectives arises. In an attempt to answer this question, Franz and Klepper claimed that generally adjustment to or alignment with the strategic goals of an organization epitomizes the proper role of IT in that institution [9]. The literature indicates, various factors have been identified, by academic researchers and business practitioners, as effective issues in the strategic alignment. In this research, the main factor that is considered to be the most Corresponding author. Tel fax address:said_jorfi@yahoo.com Published by Elsevier Ltd. Open access under CC BY-NC-ND license. Selection and/or peer-review under responsibility of 7th International Strategic Management Conference doi: /j.sbspro

2 Saeid Jorfi and Hassan Jorfi / Procedia Social and Behavioral Sciences 24 (2011) influential in creating the strategic alignment is IT flexibility. Additionally, other factors such as IT capability, and communications effectiveness factors will be studied as effective factors on strategic alignment. By reviewing the existing literature, the researcher aims at identifying some relationships, and introducing the findings as the conceptual model. On the other hand, Communication plays an important role in the management of professional organizations and their achievement of success. Communication effectiveness has long been held to be a success factor for managers. Effective communication can add value to organizations [27]. Fisher states that communication effectiveness is a vital factor in the workplace, in relationships, and in everyday life [8]. Communication effectiveness in organizations can unite the managers, workers, decision making, and improve teamwork [27]. 2. Literature Review And Hypotheses 2.1. IT-Business Strategic Alignment The strategic alignment refers to the degree that business mission, objectives and plans support and, at the same time, are supported by information technology mission, objectives and plans [21]. Strategic alignment is very vital and its importance was mentioned since the past decades, as Papp observes, the importance of strategic alignment has been substantiated since 1980 s [20]. Review of the aforementioned studies reveals that the importance of the strategic alignment is due to its impact on a number of its principle business deeds, like gaining competitive advantage, competing in a tough competitive market, imposing positive effect in the performance of a company, highest return on IT investment, competing in a diverse market, supporting business strategies and contributing to business value achievement, resulting in better performance, introducing flexibility in response to new opportunities. All in all, the aforementioned issues suggest that strategic alignment is important due to the fact that organizations compete in a competitive turbulent market full of changes which needs IT to be flexible in order to adapt with predicted changes and unforeseen. Consequently, IT flexibility could be considered as a crucial competitive tool IT Flexibility In the era where change has become a life style, it becomes even more difficult for companies to foresee changes in their respective competitive contexts. IT investments need to continue in this uncertain environment [19]. If IT is slow to change, it cannot be a source of sustainable advantage. On the other hand, if IT is responsive to change, firms are less likely to experience a decline in firm performance. Pervious researches of Davenport and Linder, Keen, Tallon, Weill and Broadbent, among others, recognize the importance of applying an IT infrastructure which is flexible, in supporting organizational goals [16], [28], [29], [4], [30], [32]. Duncan, and Byrd and Turner s explorations conceptualize the flexibility of IT infrastructure in terms of four constructs: hardware compatibility, software modularity, network connectivity, and IT skills adaptability [6], [1]. These four constructs define IT infrastructure, autonomously and collectively, as the IT infrastructure ability in scaling and evolving easily, quickly and in accordance with the requirements of the market. Therefore, in the case that hardware is incompatible, networks cannot scale, software cannot be easily customized or changed, and skills are proprietary or linked to a specific technology platform and, with little relevance elsewhere, rigidity traps occur IT capability Some of the researchers in the many information system (IS) literature have conceptualized the capability of IT from different angles. In one of the researches [19], IT capability is defined as a type of ability organizations have that can support the activities and work processes in the organization by arranging and

3 1608 Saeid Jorfi and Hassan Jorfi / Procedia Social and Behavioral Sciences 24 (2011) bringing together other resources that are important. In another study [30] IT capability is described as the ability that can incorporate other resources of the organizations through the usage and allocation of IT resources in an organization. According to Tuli, Kohli, and Bharadwaj, IT resources can be split into three groups, which are IT intangible assets, IT infrastructure and IT human resources [30]. When literature related to IT was examined, there were six other studies that were found to have dimensions that underlies the capability of IT construct [24], [25], [23], [1]. The ensuing dimensions that were put together from all these studies are 1) IT architecture, (2) IT infrastructure, (3) Human IT resource, and (4) IT relationship resource Strategic Information Planning System Hartono et al. define strategic information systems planning (SISP) as the process of identifying a portfolio of computer-based applications that will assist an organization in executing its business plans and realizing its business goals [15]. Previous research indicate that information systems (IS) planning success is the result of capabilities such as problem identification, environmental scanning, and ability to embrace change, and an ability to use these capabilities for aligning IT with business strategy [7], [26]. As it is mentioned before, the literate on IT flexibility indicate that organizations with flexible IT infrastructure might sustain a tight link between IT business strategy, and communications effectiveness since they are better able to support a change in business strategy. IS planning might contribute in maintaining the relationship through creating a platform for firms to scrutinize environmental or market factors which might result in a change in the business strategy Communication Communication plays an important role in the management of professional organizations and their achievement of success [3]. Within the modern world, as technology advances, avenues of communication continue to grow. Only a few decades ago, society had available what might be considered limited means of communication in comparison to what might be termed the modern day. De Vito suggests that communication is an act by one or more persons of sending and receiving messages that are disturbed by noise, occur within a context, have some effect and provide some opportunity [5] Communication Effectiveness According to Campbell communicative effectiveness is deliberate behavior aimed at augmenting the result of an interpersonal meeting [2]. Similarly, the expression communication effectiveness is often replaced by, effective communication [12], [13], [14]. A high level of communication effectiveness leads to a high degree of similarities of understandings between the sender and the receiver [13]. In this case, the communication effectiveness of the group managers has positive correlation with maximizing understanding or minimizing misunderstanding of group workers with strategic alignment. According to Campbell communicative effectiveness is deliberate behavior aimed at augmenting the result of an interpersonal meeting [2]. In the study, communication effectiveness includes: skill, motivation, and knowledge, that these dimensions have direct relationship with strategic alignment. Locke proposed these steps (motivation, knowledge and skill) for achieving communication effectiveness and competence in the organizations. Motivation occurred through challenging biased assumptions; knowledge occurred through presenting virtual knowledge and information about a special process; and skill occurred through recognizing correct events based on suitable awareness and precise knowledge [11]. A high level of communication effectiveness leads to a high degree of similarities of understandings between the sender and the receiver [13]. In this case, the communication effectiveness of the group managers has positive

4 Saeid Jorfi and Hassan Jorfi / Procedia Social and Behavioral Sciences 24 (2011) correlation with maximizing understanding or minimizing misunderstanding of group workers with strategic alignment [17]. 3. Development of Hypotheses The model for this paper is composed of four key constructs (see Figure1) including IT flexibility, IT capability, communications effectiveness, and IT-business strategic alignment. Based on the existing literature-as stated earlier- there is a positive relationship between IT infrastructure flexibility and strategic alignment with strategic information systems planning (SISP) serving as a moderator of this relationship. Also, reviewing the literature showed that strategic information systems planning (SISP) serving can help communications effectiveness. Moreover, based on powerful arguments IT capability can improve the strategic alignment and this link has not been studied in prior studies. Therefore, we can propose that strategic information systems planning (SISP) moderators the link between IT flexibility, IT capability, and communications effectiveness with strategic alignment. Good communication is one factor that has been found to affect strategic alignment [22], due to this; the researcher proposed the definition of good communication in current study is communication effectiveness, which has a relationship with strategic alignment. Another variable that has relationship with strategic alignment is IT flexibility that this connection in current study is logic and IT flexibility can impact o strategic alignment [19]. From the model, the following hypothesis is derived: H1: Communications effectiveness will have a significant relationship with IT-business strategic alignment. H1a: Skill will have a significant relationship with IT-business strategic alignment. H1b: Motivation will have a significant relationship with IT-business strategic alignment. H1c: Knowledge will have a significant relationship with IT-business strategic alignment. H2: IT flexibility will have a significant relationship with IT-business strategic alignment. H2a: Modularity will have a significant relationship with IT-business strategic alignment. H2b: Compatibility will have a significant relationship with IT-business strategic alignment. H2c: Connectivity will have a significant relationship with IT-business strategic alignment. H2d: IT capability will have a significant relationship with IT-business strategic alignment. H3: SISP moderates the relationship between communications effectiveness and IT-business strategic alignment. H4: SISP moderates the relationship between IT flexibility and IT-business strategic alignment. H5. SISP moderates the relationship between IT capability and IT-business strategic alignment. 4. Methodology 4.1. Research Goal In this survey we aim to identify the relationships between independent variables IT capability, communication effectiveness (i.e. skill, knowledge, and motivation) and IT flexibility (i.e. modularity, compatibility, and connectivity) with dependent variable (IT-business strategic alignment) in Agricultural Bank of Iran. From the results of the study, we can conclude that the Agricultural Bank of Iran should pay

5 1610 Saeid Jorfi and Hassan Jorfi / Procedia Social and Behavioral Sciences 24 (2011) much attention to both communications effectiveness and IT flexibility, and IT capability as they could lead to maintain strategic alignment Sample and Data Collection The target population in this paper includes 30 states of Agricultural Bank of Iran. Sample was drawn from a population of employees working in the Agricultural Bank of Iran. The sample size was calculated and the number of the population to be assessed and interview was 82 employees and managers. From 502 individuals, 82 were selected through simple random sampling method using random table. The manager and employee communication was collected for one year that is Measures The construct validity for questionnaires was tested using Cronbach s alpha test. The result of the test showed that some of the questions had Cronbach coefficient alpha less than 0.80 and those questions were removed from the questionnaire. The data was processed by applying Kendall s coefficient of concordance was applied to understand the comparison between variables. 5. Analyses and Results The purpose of this applied study and correlation in this research is the assessment of this connection between variables and making on these predictions the researcher looks for a probable relation between IT flexibility, IT capability, communications effectiveness, IT strategic planning, and strategic alignment in Agricultural Bank of Iran. Statically group consists of 502 subjects sample volume of about 82 people. Libraries have been used to collect data; sources like: books, journals, magazines, newspapers, scientific reports, organizations archives, field studies and questionnaire by making use of evaluated specter of Likerts spectrum. For hypothesis test first the average of questions selected to each variables were specified then the software package (SPSS, Ver16) analyzed the connections between both groups of variables. The validity of the questionnaire was evaluated by Cronbach alpha is formula for measuring the amount of which was 78% which is acceptable. The consistency of the questionnaire was announced by seven authorities at the average at 95%. Statistic methods were used to analyze and explain the present research such as: analyzed via Kendall s coefficient of concordance by the use of (SPSS, Ver16) was performed the results given below were obtained: H1: Kendal s coefficient between major variables (communications effectiveness) and dependent variable (IT-business strategic alignment) is equal to 86%. H1a: there is a significant relationship between the skill of communication effectiveness and ITbusiness strategic alignment. The correlation coefficient is 0.69 out a significant level of H1b: there is a significant relationship between motivation of communications effectiveness and ITbusiness strategic alignment. The correlation coefficient is 0.86.

6 Saeid Jorfi and Hassan Jorfi / Procedia Social and Behavioral Sciences 24 (2011) H1c: there is a significant relationship between knowledge of communications effectiveness and ITbusiness strategic alignment. The correlation coefficient is H2: Kendal s coefficient between major variables (IT flexibility) and dependent variable (IT-business strategic alignment) main hypothesis is equal to 63%. H2a: there is a significant relationship between modularity and IT-business strategic alignment. The correlation coefficient is H2b: there is a significant relationship between compatibility and IT-business strategic alignment. The correlation coefficient is H2c: there is a significant relationship between connectivity and IT-business strategic alignment. The correlation coefficient is 0.58, thus, the third hypothesis has been validated. H3: there is a significant relationship between IT capability and IT-business strategic alignment. The correlation coefficient is 0.64, thus, the third hypothesis has been validated. H4: Kendal s coefficient between moderator variables (SISP) with relationship between communication effectiveness and IT-business strategic alignment is equal to 60%. H5: Kendal s coefficient between moderator variables (SISP) with relationship between IT flexibility and IT-business strategic alignment is equal to 55%. H6: Kendal s coefficient between moderator variables (SISP) with relationship between IT flexibility and IT-business strategic alignment is equal to 63%.

7 1612 Saeid Jorfi and Hassan Jorfi / Procedia Social and Behavioral Sciences 24 (2011) In accordance with the Kendal s Coefficient analyses results, research model is being shaped as it has been shown at Figure 1 below: IT flexibility Software modularity Hardware compatibility Network connectivity Strategic Information Systems Planning IT capability IT-business strategic alignment Communications Effectiveness Skill Motivation Knowledge Fig 1. Final Research Model 6. Conclusion Over results have shown there is a significant and positive relationship between independent variables communication effectiveness (i.e. skill, knowledge, and motivation) and IT flexibility (i.e. modularity, compatibility, connectivity), and IT capability with dependent variable (strategic alignment) in Agricultural Bank of Iran. From the results of the study, we can conclude that the Agricultural Bank of Iran should pay much attention to both communications effectiveness and IT flexibility, and IT capability as they could lead to maintain strategic alignment. We encourage future research to replicate our findings in wider samples in organizations of Iran. Acknowledgements The authors would like to thank Universiti Teknologi Malaysia (UTM) for its invaluable help in developing and setting up the social tag infrastructure, and in post-processing the raw data. The authors are grateful for the organizations and support they received from Agriculture Bank and of Iran.

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