Understanding the Relationship Between Business Strategy and IT Strategy
Before discussing IT strategy, it is crucial to understand the relationship and differences between IT strategy and business strategy. This post aims to explore this relationship rather than define strategy or reiterate existing definitions. To differentiate and relate them, let us first examine what is already said about strategy.
What Is Strategy?
What does the term "strategy" mean on its own? Here are some common definitions:
A plan to achieve specific goals
A long-term plan to accomplish significant objectives
A structured approach to achieving long-term success
These definitions can be limiting and may cause confusion. Consider strategy in various contexts:
Strategy in games (e.g., chess)
Strategy in military operations
Strategy in business
IT strategy, which is a support function for business rather than a standalone business itself
While "long-term" is often mentioned in strategy definitions, strategy can exist at different levels—high or low, broad or specific. One certainty about strategy is that it aims to achieve an objective (or multiple objectives). To accomplish these objectives, strategy involves:
A plan
Methods selected from multiple alternatives
Environmental or competitive analysis
It is essential to distinguish "strategy" from "planning" or even "strategic planning."
Who Should Develop and Use Strategy? And When?
Strategy can exist at any organizational level. It is a misconception that only top management should develop strategies. Teams within an organization can have their own strategies, and even individuals may develop personal strategies to achieve their objectives.
If an organization considers strategy as only a top-level activity, it assumes that leadership creates strategy for everyone, leaving the rest as mere followers. This approach would imply that intelligence exists only at the top, while others simply execute orders. However, in a functional organization, leaders provide broad strategic direction, allowing teams to develop their own micro-level strategies. Otherwise, the organization risks becoming a rigid structure run by a dictator rather than a dynamic, adaptable entity.
How Strategy Is Practically Implemented
Many organizations create strategies only at the top level, expecting lower-level employees to follow them. This approach often leads to failure or, if successful, relies on "individual heroes" at different levels who develop their own strategies informally. In some cases, organizations experience a disconnect between high-level strategies and their execution at lower levels. In contrast, successful organizations encourage strategic thinking at multiple levels. They define overall objectives, provide strategic direction, and empower teams to craft their own strategies to achieve assigned objectives.
IT Strategy vs. Business Strategy
Understanding the relationship between IT and business strategy is essential. IT exists to support business operations. Therefore, IT strategy should align with business strategy. However, business strategy may involve competition, whereas IT does not have competition in the same way—its role is to enable business competitiveness. In many cases, business strategy focuses on market positioning, and IT acts as a tool or enabler to support these strategic goals.
Theories and Principles Related to Strategy
To better understand IT and business strategy, let's review key strategic management frameworks and examine how they apply to IT:
1. Michael Porter’s Three Generic Strategies
In his paper "What is Strategy?" Michael Porter outlined three primary strategic approaches:
Cost Leadership Strategy – Competing by minimizing costs
Differentiation Strategy – Creating unique offerings to stand out
Segmentation (Market-Focused) Strategy – Targeting specific customer segments
2. Balanced Scorecard Approach
Developed by Kaplan and Norton, the Balanced Scorecard is a performance framework that evaluates organizational success beyond financial performance. It includes four key perspectives:
Financial
People (Learning and Growth)
Customer
Processes (Internal Business Processes)
This framework highlights the importance of investing in long-term capabilities and customer relationships alongside financial gains.
3. The Six P’s of Marketing Strategy
The Six P’s framework helps analyze product strategies in different markets:
Product
Place
Pricing
Promotion
People
Process
4. Competitive Advantage Theory
Michael Porter’s model for competitive strategy outlines five forces that shape industry competition:
Bargaining power of buyers
Bargaining power of suppliers
Threat of new entrants
Threat of substitute products or services
Rivalry among existing competitors
5. Ansoff Matrix
Igor Ansoff introduced the Ansoff Matrix, which presents different growth strategies based on existing and new products and markets. The matrix is structured as follows:
| - | Existing Market | New Market |
| Existing Products | Market Penetration | Market Development |
| New Products | Product Development | Diversification |
Based on this matrix a company can decide on its strategy to focus on market penetration, product development, market development or diversification.
6. Strategic canvas
| - | Performance criteria |
Current | Desired |
| Product | Criteria1, Criteria2, Criteria3, etc | ||
| Process | Criteria1, Criteria2, Criteria3, etc | ||
| People | Criteria1, Criteria2, Criteria3, etc | ||
| Price | Criteria1. Criteria2. Criteria3, etc |
Conclusion
Understanding the distinction between IT strategy and business strategy is crucial for organizations aiming for long-term success. While IT strategy must align with business goals, it is a support function rather than a standalone competitive force. Organizations that encourage strategic thinking at all levels—rather than limiting it to top management—are more likely to succeed. Applying established strategic frameworks can help both business and IT teams create more effective strategies for achieving organizational objectives.
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