Strategic planning

Each company should define its strategic goals clearly in order to remain a successful player in the
market in the future. These goals and requirements should be aligned with an overarching vision and
mission. In defining strategic goals, we can apply the SMART principles. According to these principles,
objectives should be:
Specific,
Measurable,
Achievable,
Realistic and
Time related.
To evaluate the business objectives with regard to these five criteria, factors such as market metrics
(e.g. market share, brand, corporate image, sales figures), financial metrics (e.g. revenues, return on
investment/ROI, cash flow, profitability) or operational metrics (e.g. capacity, lead time, inventory
levels) are used.
Strategic planning consists of two main steps:
Strategy formation
Strategy evaluation
Strategy formation starts with analysing the existing situation (internal and external), continues with
specifying goals and finally results in a strategic plan. Strategy evaluation means reviewing strategic
options based on three central criteria for success
1
:
Suitability (will it work?)
Feasibility (can it actually be implemented?)
Acceptance (will it be accepted?)
Information technology (IT) offers numerous options for attaining the strategic objectives and targets.
However, IT must already be taken into account at a very early phase of strategic planning.


1
Johnson, Scholes, and Whittington, Exploring Corporate Strategy: Text & Cases, 2008.
Aligning the IT strategy with the corporate strategy
When aligning the IT strategy for small and medium-sized enterprises (SMEs), the focus is on practical
benefits of IT and associated concepts. However, even for SMEs, the interaction of business strategy,
IT strategy, IT architecture and business architecture has to be taken into account. The following figure
explain these relationships.

Figure 1 - Overview of strategies and architectures

The business strategy describes which medium to long-term financial goals the company is pursuing.
To stick with our example of Charly's service shop, one of Charly's financial strategy objectives is to
reach more customers to ensure optimal utilisation of his shop.
The IT strategy is derived from the business strategy. Charly's IT strategy might be increasing his
online marketing presence to reach more customers and thus better utilise his shop. Conversely,
however, an IT strategy can have implications for the business strategy. New technologies evaluated
as part of the IT strategy can enable new products or services and thus have an impact on the future
business strategy. In our sample company, Charly expands his business by not only offering a
reservation system, but also by successfully setting up a spare parts marketplace.
The IT architecture, in turn, results from the IT strategy. To improve his online presence, Charly has to
provide and manage new hardware and software. As in the architecture of buildings, essential
considerations include function, extensibility and structural stability (in the case of IT, however, we are
more likely to talk about data security and availability). Thus the IT architecture describes the dynamic
interaction of all IT components to support the IT strategy. Of course, an IT architecture also has an
effect on the IT strategy. Let's stay with our example of building architecture: it is very difficult to take a
building originally designed as a residence and turn it into a hotel/restaurant. Similarly, great effort is
required to centralise a decentralised IT architecture. In other words: an IT architecture should be as
flexible as possible in order to provide the best possible support to changes of IT strategy.
The business architecture defines the business processes and how they interact to support the
corporate strategy. Optimisation of these business processes can be attained with changes in the IT
architecture. On the other hand, technical limitations can be an obstacle to this optimisation.
In terms of supporting the business strategy with IT-related investments, the value contribution of IT
is of central importance for the company.
To gain a complete understanding of the value contribution of IT, we must first consider the subject
from various perspectives. First, we have to consider whether using IT brings optimal results with a
defined effort and/or expense. Secondly, we have to consider whether companies are able to create
competitive advantages using IT and attain higher profits with IT investments. Thirdly, the effect of the
company on its customers must be considered, and we have to ask to what extent the benefits are
passed on to the customers or demanded by the customers.
To align IT with business goals and/or the existing business processes, management should
concentrate on the following areas:
Strategic alignment with the primary goal of ensuring the correct link between business plans
and IT plans. To do so, the additional value created by IT must be defined, safeguarded for the
long term and reviewed. In addition, IT workflows and operational workflows must be attuned to
each other.
Value delivery here, the focus is on practical use of the additional value created. This
guarantees that the IT actually delivers the promised strategic benefits, chief among them cost
optimisation.
Resource management with the primary goal of optimising investments in IT-related
resources and/or management of these resources. These include applications, information,
infrastructure and employees. This focuses in particular on optimising knowledge and
infrastructure.
Risk management here, the focus is on creating risk awareness throughout the organisation,
from top management down to the last employee. In this context, it is necessary to understand
compliance requirements and assign responsibility for risk management within the company.
Performance measurement this involves tracking and monitoring a variety of tasks and
projects related to implementing strategies, utilising resources and provisioning services. Various
tools, such as balanced scorecards, can be used to ensure that strategic requirements are
implemented in measurable targets.
The alignment of business and IT begins at the top level of management during the strategy formation
process. In doing so, multiple requirements should be taken into account
2
:
The alignment must make quantifiable improvements to a business planeach proposed project
should contain financial metrics related to the associated costs and revenues (e.g. discounted
cash flow, expected financial earnings). Those who are proposing the project should be
responsible for its documentation. In addition, the results should be reviewed on a regular basis.
The alignment must always be kept up to date based on business trends and developments: All
changes within the company and in its surroundings have an effect on the actual project.
Provision should already be made for changing circumstances in the project, and this should be
taken into account in the project's scheduling and budgeting. Information must be exchanged
between the IT department and the rest of the company, as otherwise "technologists will drift
away from the business and misalignment will prevail."

2
Strassmann, What Is Alignment? Alignment Is The Delivery of the Required Results, 1998.
During implementation, obstacles to alignment have to be overcome. The discrepancy between
project design and reality are not visible until execution. Initial project plans should be based on
the objectives that can be attained during execution. All problems that arise should be
documented and reviewed from the perspective of the overall project.
The alignment has to be plannedthe original project plan requires documented agreements for
all changes in order to remain up-to-date. During the execution phase, the project plan must be
updated continuously in terms of scheduling, budgeting, scope, processes etc. This plan should
be the central source of knowledge pertaining to the progress of the project and any changes to
it.
For IT projects, the focus has to be on requirements of the users; this has to take into account
the benefits for users and for the company. IT cannot solve any of a company's problems on its
own. From a financial perspective, IT mostly means costs, but positive effects on business can
justify the outlay for IT. The topic of "How much should we spend on IT?" is not so much a
question as an answer to: What benefits does IT provide?

To measure the alignment of IT with the business, and thus to determine how well the areas work
together for technical and business processes in the company, we should take into account the
following factors and associated questions
3
:
Maturity of communication how well do employees in the technical and business areas get
along? Is communication frequent and problem-free? Does your company communicate
effectively with consultants, suppliers and partners? Is value placed on conveying knowledge
internally?
Maturity of competence/value measurement how well does the company measure its own
performance and the value of its own projects? After projects are closed out, does it evaluate
what went well and what not so well? Does it improve its internal processes so that the next
project can go better?
Maturity of governance how well does the company bring its business strategy into line with
priorities with regard to IT, technical planning and budgeting? Are the current projects based on
an understanding of the business strategy? Do they support this strategy?
Maturity of partnership to what extent do the business and IT departments have a genuine
partnership based on mutual trust and are ready and willing to share the risks and rewards?
Maturity of the scope and architecture to what extent has the technology evolved to deliver
more than simply supporting business processes? How has this contributed to the company's
growth, competitiveness and profits?
Maturity of competence do the employees have the competencies they need to work
effectively? How well do the technology employees understand the central factors that have an
impact on the business, and how familiar are they with corporate business processes? How do
the employees of the business departments understand the relevant technology concepts?

3
Luftman, Measure Your Business-IT Alignment, 2003.
IT-related investments require careful financial management to attain the planned benefits. In
addition, the priorities in terms of the scope of the IT projects must be defined appropriately. For the
specific activities for managing IT investment, these are
4
:
Framework for financial management required the for managing and maintaining the IT
investments and costs of IT facilities and services. This should be done with consideration of the
portfolio that includes the IT-related investments, business scenarios and IT budgets.
Setting priorities within the IT budget a decision-making process is required in order to set
priorities when allocating IT resources. The resource allocation is necessary for workflows,
projects and maintenance. The objective of this process should be to attain the maximum
possible return on investment from the company's portfolio of IT-related investment programs
and IT services.
IT budgeting the budget must be created based on priorities specified by the portfolio of IT-
based investment programs. The budgeting process should include costs for operating and
maintaining the current infrastructure. The budget workflows should enable a company to
develop the overall IT budget and budgets for individual programs. In doing so, the ability to
continuously review, refine and approve all types of budgets should be provided.
Cost management each company should implement a process for cost management that
compares the actual costs with the allocated budget amounts. There should be a way to monitor
the costs and create reports. Any deviations should be identified at an early stage, including a
review of their effect on the programs. This would enable the company to take suitable
countermeasures and, if necessary, update the business scenario for the program.
Benefit managementa process for monitoring the benefits provided by provisioning and
maintaining the IT capabilitiesshould be implemented. The company should determine and
document the contribution of IT to the business. This can be based on the direct effect on the IT-
based investment programs or on the indirect contribution as a part of support of regular
business workflows. The reports should be monitored and reviewed so that the company can
make suitable changes to improve the contribution made by IT, either with IT investments or
associated programs.


4
IT Governance Institute (ITGI), COBIT 4.1, 2007.