Alignment of business strategy and IT strategy in small businesses

Strategic use of IT among SMEs has gained much attention recently as both reseachers and practitioners view this as one of the avenues for smaller firms to compete successfully. However, very little empirical work has been done to understand the issue. This study helps to fill this gap in the important research area by exploring the alignment of business strategy and IT strategy among UK man facturing firms with less than 150 employees. A mail survey of Chief Executive Officers generated 256 responses to an eight page questionnaire. Factor analysis of the nine business strategy and the nine IT strategy variables yielded three business strategy factors and three IT strategy factors which could be sensibly identified with strategy areas and which clearly showed a fit between the two sets. Based on these two set offactors, the measurement of IS alignment was explored using two methods: (1) the 'moderation' or interaction approach, and (2) the 'matching' or difference approach. The finding of this study provides support for past observation that the `moderation' approach of measuring fit' is more meaningful when the performance criterion is included in the research model. By using a multistep cluster analysis, two distinct groups of SMEs are identified based on the alignment between quality-oriented, product-oriented, and market-oriented business strategy and IT strategy which support these strategies. The group of SiviEs which has a high degree of alignment for the three strategy areas are found to achieve better organisational performance than the group of SÄLIEs with a low degree of IS alignment. Interestingly, the findings of this study also indicate that the degree of alignment between business strategy and IT strategy is related to the level of IT sophistication and the level of CEO's commitment to IT. In summary, this study has extended our understanding of IS alignment and has provided useful insights for CEOs of small and medium-sized companies in planning their IT utilisation.