Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
Gadjah Mada International Journal of Business May-August 2007.
Vol.
No.
2, pp.
253Ae272
STRATEGIC ALIGNMENT IMPACTS ON
ORGANIZATIONAL PERFORMANCE IN
INDONESIAN BANKING INDUSTRY*
Nofie Iman Jogiyanto Hartono Strategic alignment has attracted the attention of researchers and practitioners for the last 15 years.
This paper reports findings from a survey on the impacts of strategic alignment on organizational performance in the Indonesian banking industry.
The survey was conducted through internet-based and postal questionnaires sent to selected companies.
Structural Equation Modeling (SEM) is utilized to apprehend the strategic alignment concept as an emergent variable derived from the co-variation of level of business strategy and level of IS/IT Hence, we explore the role of this emergent concept as a determinant of organizational performance.
Analysis of the data reveals a generally positive impact towards the organizational Keywords: banking industry.
organizational performance.
strategic alignment * An earlier version of this paper was presented at the Simposium Nasional Akuntansi IX.
Padang.
Sumatera Barat, 23-26 August 2006.
Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
will let banks get closer to customers, deliver a wider range of services at lower costs, and streamline internal systems, so that all customer data is integrated and can be used to spot trends that can lead to new products.
The Web will offer banks great opportunitiesAeIt will be interesting to see which banks step up to this opportunity.
Ay1 Rationales With respect to a companyAos strategic policies.
ICT has played an important role in the organizationAos existence.
Previous research has found that the information system strategy is now considered equal with business strategy (Hirschheim and Sabherwal 2.
In other discussions, information systems are appreciated for making significant contributions to a companyAos strategic alignment (Camponovo and Pigneur 2.
Furthermore, an excellent strategic alignment of business strategy and information systems strategy will lead the information system to a crucial point, which eventually boosts business performance (Hirschheim and Sabherwal 2.
Strategic alignment of business strategy and information technology/ system strategy will respond to the challenge to the company faced with stiffer competition.
Teo and King .
assert that the importance and integration use of business planning- information system's planning (BPISP) has been empirically proven to increase the information systems contribution to company performance.
Unfortunately, the investment value of the information systems cannot be fully realized owing to the lack of strategic alignment between business strategy and information systems strategy in the company (Henderson and Venkatraman 1.
Hence, an increase in performance and competitive advantage will be difficult to accomplish.
This research assumes that the use of information systems is a fundamental issue in every business, especially in the banking sector.
Strategic alignment Aewhich is one of the hot topics in information systemsAe is also new and compelling, especially in terms of its implementation in Indonesia.
For that purpose, empirical evidence is required to assess the correlation of information technology/systems alignment to business strategy and organizational performance (Sabherwal and Chan 2.
Similarly.
Camponovo and Pigneur .
mention that analogous research on different environments and at different times is still needed to find the dynamic changes and to evaluate the general patterns that might emerge.
This research is expected to make theoretical and practical contributions.
Theoretically, this study tests the pre- Bill Gates.
AuNo one is really living a Web LifestyleAiYet,Ay New York Times.
July 29, available on w.
com/today/access/columns/0729bill.
Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
Figure 1.
Strategic Alignment Model
BUSINESS STRATEGY
INFORMATION SYSTEM STRATEGY
EXTERNAL
BUSINESS
SCOPE
DISTINCTIVE
COMPETENCIES
TECHNOLOGY
SCOPE
DISTINCTIVE
COMPETENCIES
AUTOMATION
STRATEGIC FIT
SYSTEMIC
COMPETENCIES
LINKAGE
INTERNAL
ADMINISTRATIVE
INFRASTRUCTURE
PROCESSES
INFORMATION
SYSTEMS
GOVERNANCE
ARCHITECTURE
SKILLS
ORGANIZATIONAL INFRASTRUCTURE AND PROCESSES
PROCESS
SKILLS
INFORMATION SYSTEMS INFRASTRUCTURE AND
PROCESSES
BUSINESS
INFORMATION SYSTEMS
FUNCTIONAL INTEGRATION
Source: Henderson.
, and N.
Venkatraman .
Strategic Alignment: Leveraging Information Technology for Transforming Organizations.
IBM Systems Journal, 32 .
: 4-16.
examine the strategic alignment concept and demonstrate that a positive linkage exists between alignment and The term Austrategic alignmentAy consists of the words AualignmentAy and Austrategy.
Ay Alignment is coordination achieved when the company information technology/systems strategy is derived from the organization strategy (Lederer and Mandelow 1.
, comprising:
A content linkage, referring to the consistency of business plan and information technology/systems plan.
A timing linkage, referring to whether the information technology/systems plan is developed after, along with, or before the business plan is made.
A personnel linkage, referring to different participantsAo involvement degree in the planning of business and information technology/systems In the meantime, strategy can also represent AuobjectivesAy (Reich and Benbasat 1.
AuplanAy or AuplanningAy (Teo and King 1.
In this discussion, the strategy consists of:
A information technology/systems strategy, which is the main choice emphasizing the implementations and uses of technology-based information systems in a company Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
vantage will be attained, leading the banking sector to survive and thrive despite fierce competition.
The Effect of Strategic Alignment on Organizational Performance Much literature has also emphasized the effect of strategic alignment on organizational performance.
Chan et al.
states that AuCompanies that appear to perform best are companies in which there is alignment between realized business strategy and realized information systems strategyAy .
Luftman and Brier .
similarly declares.
AuCompanies that have achieved alignment can build a strategic competitive advantage that will provide them with increased visibility, efficiency, and profitability to compete in todayAos changing marketsAy .
Unfortunately, a positive correlation between strategic alignment and organizational performance tends to be diverse.
Sabherwal and Chan .
point out.
AuEmpirical research on the performance implications of this alignment has been sparse and fragmentedAy .
Likewise.
Brynjolfsson and Hitt .
AuWhile the average returns to IT investment are solidly positive, there are huge variations across organizations, some have spent vast sums on IT with little benefit, while others have spent similar amounts with tremendous successAy .
Therefore, evaluations on the effect of strategic alignment on organizational performance are still needed.
Bruce .
AuIf alignment is needed to facilitate optimum business benefit, how do we know when we have it? It is important to look at the impact IT is having on business resultsAy (P.
Delone and McLean .
add that an evaluation on information technology/systems performance in organization is still one of the pivotal topics in the field of information systems.
Research Model and Hypotheses Development The concept of strategic alignment is acquired from co-variation between a business strategyAos importance level attributes and information technology/systems strategyAos importance level attributes at a particular Business strategy, according to Porter .
, influences the companyAos positioning in its business Henderson and Venkatraman .
suggest that business strategy importance level is influenced by the companyAos strategic policies on Aumakeor-buyAy decisions, partnership [BS.
and alliance [BS.
Partnership refers to how much a companyAos business development depends on its strategic partners is.
Alliance is the extent of business developmentAos dependence on outsourcing activities.
In McFarlan et al.
Knight and Silk .
and Das et al.
Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
Figure 2.
Hypothetical Model
OP1
BS1
BUSINESS
STRATEGY
OP2
BS2
OP3
STRATEGIC
ALIGNMENT
ORGANIZATIONAL
PERFORMANCE
IS1
IS2
OP4
OP5
IS/IT
STRATEGY
OP6
IS3
IS4
naires developed and tested by Kefi and Kalika .
The questionnaires were based on literature and previous Convenience sampling and snowball sampling methods were applied in this study.
Two rounds of pretests .
nitial and pilot test.
were conducted before using the survey instrument for data collection.
All the variables .
ependent and interdependent variable.
were measured using a five-point Likert Reliability assessment was carried out using CronbachAos alpha in order to ensure that the variables comprising each proposed research construct were internally consistent.
The coefficient alpha determines reliability based on internal consistency ranging from 0 to 1.
a value between 0.
70 is the lowest acceptance limit for reliability (Hair et al.
Table 2 below shows that the reliability esti- mates are well above the acceptable Results and Analysis Data were collected using two methods mail- and internet-based.
One hundred and twenty questionnaires were delivered via postal mail to top management to be filled out and faxed E-mail invitations to participate in the survey were also sent to 320 bankers throughout Indonesia.
They could complete and return them by email attachments, or, they could fill it out through a web-based interface.
Five blank questionnaires were returned, with explanations pertaining to company policy or to confidentiality.
Forty-four usable questionnaires were returned, yielding a response rate of 10 percent.
This is considered adequate, keeping in mind that practitioners of infor261 Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
Table 2.
Variable Characteristics Variable Reliability* partnership strategy choice alliance strategy choice strategic role perceptions systematic competencies architecture choice work process choice cost reduction value-added innovation reactive ability responsiveness to customer needs collaborations with business partners * Reliability measure is CronbachAos Alpha mation technology/systems, especially CIOs, tend not to respond to questionnaires (Hind 2.
Chetty .
who conducted similar quantitative research on small- and medium-scale enterprises in New Zealand finds similar resistance.
Descriptive Statistics The majority of respondents .
71 percent of the tota.
are men.
The remaining 14.
29 percent are Most respondents .
86 percen.
hold an undergraduate degree.
The second largest percentage .
hold masterAos degrees, fol- lowed by the diploma holders .
The largest percentage of the respondents .
43%), come from national banks, while 8.
57 percent are from international banks.
Regional banks, retail banks, and Bank Perkreditan Rakyat (BPR) comprise 86 percent of all respondents.
The remaining, 11.
43 percent are from other 3 The survey inquired into respondentsAo spending in IT investment, their perception of strategic alignment, and the dominant aspects of strategic alignment .
efer to Table .
These categorizations are based on banking classification formed by Bank Indonesia .
Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
Structural Equation Model Evaluation This research model has been examined by structural equation modeling, using AMOS 6.
The constructs of business strategy.
IS/IT strategy, and organizational performance are considered non-observed or latent variables, measured by specific observed The model proposed in the structural equation is estimated to acquire the goodness-of-fit value.
An estimation on the model is summarized in Table 4.
Table 5 shows that all fit criteria have marginal estimation results.
criterion relatively close to the cutoff value is GFI, which is 0.
The AGFIAos estimation result is 0.
81 and that of TLI is 0.
74, while the recommended value is more than or equal to 0.
the meantime, the RMSEA criterion is 10, whereas the recommended value is equal to or less than 0.
The constructsAo causal relationship tests are shown by regression weight value in the critical ratio .
column, which are identical with testing results, t-count, using statistical The conclusion is summated by comparing c.
value with its critical value (A1.
on five-percent significance rate.
H1A states that the level of business strategy has a direct influence on strategic alignment.
H1B affirms that the level of information systems/technology strategy also has a direct influ- Table 4.
Structural Equation Model Evaluation Criterion Chi-square (A.
Significant probability RMSEA
GFI
AGFI
TLI
Cut-off Value Estimation Result C 0.
C 0.
C 0.
C 0.
C 0.
Evaluation Marginal Marginal Marginal Marginal Marginal Table 5.
Regression Weight Calculation Results H1A
H1B
SA < BS
SA < IS
OP < SA
Estimate Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
broad range and potential advantages.
In the banking sector, strategic alignment is apparently feasible in the financial services industry,5 manufacturing process .
ombined with balanced scorecar.
,6 procurement domain,7 and higher education.
8 Grant .
, for instance, conducted research on the implementation of strategic alignment and enterprise systems.
Bleistein et al.
also studied strategic alignment through goal modeling and the problem diagram approach.
However, like every other piece of research, this research has several limitations which can affect the findings.
First and foremost, more reliable measures of the strategic alignmentAos impacts on organizational performance need to be improved since the subjectivity and indirect measurement do not provide the same strength as the direct objective measure does.
More efforts are required to advance the theoretical development and enhance it through empirical validation.
Subsequent research should develop a larger sample such that the reliability and model-fit value can be A site visit is also suggested as it will enable future researchers to obtain more comprehensive information.
Site visit to the observed object using qualitative approach is highly recommended (Kefi and Kalika Future researches can also include contingency factors .
uch as management style.
IT functionality, environment, etc.
) and use a qualitative approach .
, case stud.
means of theory expansion and development, a greater number of and more convenient theoretical and practical contributions are possible.
Conclusions This research examines the relationship among strategic alignment factors and its influence on organizational performance in the banking sector.
The research is based on Henderson and VenkatramanAos .
strategic alignment model, on Van de Ven and DrazinAos .
, and on VenkatramanAos .
co-variation perspective model.
This study elaborates on previous research on strategic alignment and Teubner.
& Mocker.
Strategic Information Planning Ae Insight from an Action Research Project in the Financial Services Industry.
Working paper No.
European Research Center for Information Systems.
Eds.
Becker.
et al.
April 2005.
Decoene.
& Bruggeman.
Strategic Alignment of Manufacturing Processes in a Balanced Scorecard-based Compensation Plan: A Theory Illustration Case.
Working paper at Facultiet Economie en Bedrijfskunde.
Gent.
Belgium.
October 2003.
Versendaal.
Beukers.
& Batenburg.
Business Alignment in the Procurement Domain.
Paper submitted to and discussed in Workshop Inkoop Onderzoek Nederland (WION).
Lunteren.
Netherlands.
January 18-19, 2005.
Pirani.
& Salaway.
Information Technology Alignment in Higher Education.
Educause Center for Applied Research (ECAR) Key Findings.
June 2004.
Iman & HartonoAiStrategic Alignment Impacts on Organizational Performance.
The final, and the most important, point is that executives in the information technology/systems realm should share responsibility with senior execu- tives in other fields, because strategic alignment has been proven to improve the organizational performance.
References