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0018-8670/99/$5.00 © 1999 IBM IBM SYSTEMS JOURNAL, VOL38, NOS 2&3, 1999 HENDERSON AND VENKATRAMAN REPRINTED FROM IBM SYSTEMS JOURNAL, VOL32, NO 1, 1993; © 1993, 1999 472
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Avoiding the Alignment Trap in Information Technology FALL 2007 VOL.49 NO.1 REPRINT NUMBER 49102 David Shpilberg, Steve Berez, Rudy Puryear and Sachin Shah Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the ar- ticle appears as originally published.
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FALL 2007 MIT SLOAN MANAGEMENT REVIEW 51 harles Schwab & Co., the big financial services com- pany, grew up around its information technology capabilities. IT was the key factor that allowed the young discount-brokerage house to offer customers lower prices on trades than traditional brokers. Later, as discount brokerage became more of a commodity business, Schwab trans- formed itself into a full-service, online broker, and by 1998 it was earning a significant share of its profits in the online trading busi- ness. But in the next few years competitors caught up to Schwab, and some surpassed it. Several brokerage houses, both discount and full service, were frequently able to beat Schwab on price. Surprising as it seems, given the company’s strategy of using tech- nology to distance itself from competitors, IT had become part of Schwab’s problem. By the company’s own reckoning, IT staffers’ re- sponses to business requests had become slow and expensive. IT engineers had to spend more time than ever fixing bugs in the systems. Meanwhile, several big, ambitious projects were overdue — including the tax-lot accounting system Schwab had envisioned to serve its most profitable customers — and the slow progress of these projects was preventing the company from responding effectively to competition. Still, the company kept throwing money at projects because it didn’t see an alternative. “We said, we have to keep spending money because we’re half pregnant and you can’t be half pregnant,” recalls Deborah McWhinney, president of Schwab Institutional. A red flag went up when Schwab found itself spending 18% of revenue on IT while three of its leading competitors were spending 13% or less, a cost disadvan- tage amounting to hundreds of millions of dollars annually. The fact that a company as tech savvy as Schwab could find itself in this predicament is instructive. It underscores a growing realization we have found among the companies we work with that the usual diagnoses of IT’s troubles — and the usual prescriptions for fixing those troubles — are often misguided. For many years now, companies seeking to deliver higher business perfor- mance by harnessing IT have focused on alignment. By alignment, we mean the degree to which the IT group understands the priorities of the business and expends its resources, pursues projects and provides information consistent C David Shpilberg is a senior adviser to Bain & Company. Steve Berez is a partner with Bain in Boston. Rudy Puryear is a Bain partner in Chicago and leader of Bain’s Global IT Practice. Sachin Shah is a Bain partner in London. Comment on this article or contact the authors through [email protected] INFORMATION TECHNOLOGY Avoiding the Alignment Trap in Information Technology Information technology remains a terrible bottleneck to growth in most companies, mainly because executives focus on the wrong remedy for their IT problems. David Shpilberg, Steve Berez, Rudy Puryear and Sachin Shah
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