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Research Briefing

Don’t Align—Coevolve!

Seeking alignment between an organization’s IT investments and the business is an outdated objective that actually sets up IT and the CIO to fail.
Abstract

Aligning the organization’s portfolio of IT investments with the strategy of the business has long been seen as one of the core objectives for any CIO. However, our research reveals that seeking alignment with the business is an outdated objective that actually sets up IT and the CIO to fail. In our research we are finding that some CIOs have reframed the narrative from aligning IT with the business to focusing on coevolving digital with customers and ecosystem partners.

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Aligning the organization’s portfolio of IT investments with the strategy of the business has long been seen as one of the core objectives for any CIO. In fact, for the last thirty-eight years, achieving business-IT alignment has persisted as one the top three most important IT management issues in the annual IT Trends Study from the Society of Information Management (SIM). Most CIOs devote considerable time and effort to alignment, yet they are dissatisfied with the outcome (as are their business colleagues). Our research reveals that seeking alignment with the business is an outdated objective that actually sets up IT and the CIO to fail.

Some CIOs have reframed the narrative from aligning IT with the business to focusing on coevolving digital with customers and ecosystem partners.[foot]We interviewed fifty-six CIOs and senior business leaders globally between February and August 2018 as part of MIT CISR’s 2018 Mapping the Future IT Unit research project.[/foot] These CIOs report that the best way for their organization to stay relevant is to shift focus away from the technology requirements of the business to the needs of customers. Their organization and the external environment are dynamically connected; technology is embedded in products, processes, work practices, and customer engagement. Moreover, they acknowledge the folly of managing IT from within a box on the organization chart, rather than seeing technologies and associated information as part of the fabric of a modern digital organization. This is a profound shift and has significant implications for how organizations approach technology and how they organize for IT.

Some CIOs have reframed the narrative from aligning IT with the business to focusing on coevolving digital with customers and ecosystem partners.

THE ENDURING CHALLENGE OF ACHIEVING ALIGNMENT 

The challenge of alignment stems from when IT was significantly more expensive and less accessible, and its applications were limited to a small set of business needs that were best defined by operational experts. Systems were developed and implemented, often over many years, by a separate group of technical experts. Alignment was sought to maximize the business value of IT investments, as it provided guidance for the so-called “strategic plan” for technology that framed the work of the IT unit.[foot]This was typically referred to as strategic information systems planning (SISP). Some of the pioneering research around alignment was done at MIT CISR during the 1980s, culminating in the well-known Strategic Alignment Model (SAM). See J. C. Henderson and V. Venkatraman, “Strategic Alignment: A Framework for Strategic Information Technology Management,” MIT Sloan CISR Working Paper No. 190, August 1989.[/foot]

Since then, digital technologies and their uses have changed tremendously. As IT and information have become pervasive, and their uses more dynamic, the value of business-IT alignment has become diluted and even misguided. 

The major problem with traditional approaches to alignment is that IT is construed as being subservient to the primacy of the business strategy: a strategy is developed and IT enables it. Liaisons, in roles such as business relationship manager, interface between the IT unit and the rest of the business, acting as interpreters of business strategies and deciphering requirements. Indeed, when some IT executives speak about customers they invariably mean their internal customers. In contrast, a CIO from a global chemical company emphasized an external focus: “We didn’t say we would like to be closer to our business. That’s obvious! We wanted to take it one step further and be closer to the customer.”

COEVOLVING WITH AN AGENDA 

Coevolution occurs when two or more genetically unrelated species reciprocally affect each other’s evolution as they interact with each other in their environment.[foot]Douglas J. Futuyma and Montgomery Slatkin, Coevolution (Sunderland, MA: Sinauer Associates, 1983).[/foot] A common example of coevolution is fruit-eating birds and the plants that generate the fruits they eat for nourishment. Plants have evolved to make it easier for birds to find their fruit and facilitate seed dispersal, and the behavior and diets of the birds have responded to those changes. 

Several of the CIOs that we spoke to were recognized by their peers as especially accomplished. Although none of them used the label “coevolution” to describe their approach to digital, the majority emphasized that the organization must be capable of continuously changing with the increasingly dynamic needs of its customers. None would claim to have yet found the answer as to how to organize for digital. These CIOs see themselves on a journey of continuously trying things, assessing the impacts and adjusting accordingly. The process put in place by a CIO from a global energy company involves setting “some simple key levers, [let them] start to work, and then make adjustments during the journey [based on] what went well, what went wrong.” 

If alignment is focused on developing a plan for implementation of technology, coevolution is more about creating an agenda for persistent engagement with customers and the ecosystem. Strategic agendas frame the “rules of the game” for testing and learning.[foot]N. O. Fonstad and J. W. Ross, “Learning How to Test and Learn,” MIT Sloan CISR Research Briefing, Vol. XVIII, No. 2, February 2018.[/foot] While the items on this agenda remain constant over long periods, the conversations taking place within each item evolve continuously. With an overall vision for digital, the CIO of a UK property company referred to this agenda as providing “freedom within a framework,” guiding learning in targeted areas.

COEVOLVING WITH CUSTOMERS AND ECOSYSTEMS AT ALLIANZ 

The Allianz Group, the world’s largest insurer, is striving to coevolve with customers and selected ecosystems. In 2015, when Oliver Bäte took over as CEO, he established what he called the Renewal Agenda. Shifting from its former model of simply pushing traditional insurance products to customers, Allianz is creating an ecosystem of services with customers at its center.[foot]See “Digital” (presentation, Allianz Capital Markets Day, Munich, Germany, November 30, 2016), https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/investor-relations/en/conferences/capital_markets_days/documents/16-11-30-CMD-2016-presentation.pdf.[/foot] This ecosystem consists of four segments: life/ health, mobility, smart home, and enterprise. The company’s vision is for Allianz to be the platform connecting customers and insurance services in these segments, becoming their partner for life. 

To realize the Renewal Agenda, Allianz is undergoing significant transformation to leverage digital in increasing and as yet unforeseeable ways. A core transformation lever is to become “Digital by Default.” Simplified products and processes and the deployment of common technologies and platforms are key in the ongoing digitalization of the company. 

To become digital by default, Allianz established five customer- and ecosystem-facing units, each focused on a distinct agenda item (see figure 1). In so doing, the company shifted responsibilities from the traditional IT function, but also created new mandates.

Global Digital Factory (GDF): With customer centricity at the heart of the Renewal Agenda, the GDF was established to redesign the company’s interactions with customers from scratch. To accomplish this, Allianz is reimagining its customers’ journeys to accommodate the capabilities of new technologies. Digital assets created in the factory to shape these new journeys are made available to all operating entities (OEs) from an Allianz platform with a user-friendly interface.[foot]“Allianz Digital Asset Library: Our global hub for sharing and reusing digital in-house solutions,” The GDF Blog, Allianz, August 4, 2018, https://globaldigitalfactory.allianz.com/blog/allianz-digital-asset-library--our-global-hub-for-sharing-and-re.html.[/foot]

It’s a very important principle at Allianz: the digital transformation is not driven by technology—it is driven by our desire to be the best with our clients. 

OLIVER BÄTE, CHIEF EXECUTIVE OFFICER, ALLIANZ[foot]Oliver Bäte, “Allianz Capital Markets Day 2016,” filmed November 30, 2016 in Munich, Germany, Munich Germany, video, https://youtu.be/uudONdypqW4?t=169.[/foot]

Global digital partnerships: Allianz wants to become a key player and partner of choice in the ecosystems it is targeting. The aim has been to develop enduring relationships with a few key partners by making operational integration as seamless, effortless, efficient, reliable, and secure as possible. 

Digital pure play: The objective of this agenda item is to develop digital-only customers via new direct-to-customer channels and digital offerings and fully digital distribution models. Premium income from digital-only channels is small, but globally is showing explosive growth. 

Allianz X: While Allianz has pursued partnerships with big tech platforms, it is also seeking strategic benefits from start-ups. Allianz X was established as the venture unit of the Allianz Group. Through this unit, the company looks to invest in digital growth companies in the ecosystems related to insurance. The goal of Allianz X is to identify and invest in digital front-runners that are strategically relevant for the group. Sitting at the interface between portfolio companies and the digital ecosystem, it also seeks to drive innovation across Allianz’s OEs and global lines of business. 

Advanced business analytics: This agenda item applies analytics to enhance and transform the Allianz value chain. It supports OEs in building and enhancing their analytical capabilities. It also facilitates the exchange of analytical solutions and best practices across the Allianz Group. 

These five units enable Allianz to engage continuously with customers and partners in a variety of ways, thereby strengthening the company’s capacity to sense and respond to evolving needs. For example, in summer 2016, GDF started working with a number of OEs and some of their customers to improve the motor claims customer journey, simplifying and facilitating the process of filing an insurance claim after a car accident.[foot]“Motor Claims Customer Journey: From Local Needs to Global Solutions,” The GDF Blog, Allianz, July 26, 2018, https://globaldigitalfactory.allianz. com/blog/motor-claims-customer-journey--from-local-needs-to--globalsolut.html.[/foot] Digital solutions now enable personalized customer onboarding, access to coverage details, and easy claims notification. GDF involves user experience (UX) researchers in developing such new solutions to identify user needs, evaluate user experiences, and conduct UX tests.[foot]“UX Research at the Global Digital Factory: From User Needs to Engaging Digital Customer Experiences,” The GDF Blog, Allianz, July 18, 2018, https://globaldigitalfactory.allianz.com/blog/ux-research-in-the-global-digital-factory-.html.[/foot]

The company personalized the journey, clarified coverage and how it worked, made it all available via an app, and reduced the claims process to pushing a few buttons and taking a few pictures using the app. By spring 2018, the claims solution had been rolled out to specific types of customers (e.g., retail, fleet, general aviation) in some of Allianz’s largest markets. Meanwhile, in addressing this customer journey, Allianz improved a broader set of interrelated experiences, from buying car insurance to filing claims. 

ALIGNMENT OR COEVOLUTION: YOUR COMPANY’S FOCUS 

With the arrival of electricity and the light bulb, there was little use for candles beyond their aesthetic value and scent. To embrace digital, many organizations are unfortunately attempting to build a brighter candle by focusing on the redesign of their IT organization to somehow make it more effective. This is only serving to reinforce the alignment model. There is now something akin to a light bulb emerging. 

As Allianz’s experiences make clear, transforming an organization into one that can coevolve is a complex process. At this stage in our research, we have discovered that we can assess whether a company is focused on alignment or coevolution is by listening for how strongly the customer voice influences the company in prioritizing, developing, and stopping innovation efforts, whether those efforts target improved operations or revenue. As top-performing companies look to coevolve with customers and ecosystem partners, they are focusing not on the IT organization but on how they can best organize for digital.

Figure 1: Organizing for Coevolution: Allianz’s Multifaceted Single Digital Agenda

Source: “Digital,” Allianz Capital Markets Day presentation, November 30, 2016, page A15.

© 2018 MIT Sloan Center for Information Systems Research, Peppard and Fonstad. MIT CISR Research Briefings are published monthly to update the center's patrons and sponsors on current research projects. 

About the Authors

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Nils O. Fonstad, Research Scientist, MIT Sloan Center for Information Systems Research (CISR)

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