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ABSTRACT
The paper presents and analyzes the results of a multi-year study of strategic alignment. Data were obtained from business and information technology executives from over 500 firms representing 15 industries who attended classes addressing alignment at IBM’s Advanced Business Institute. The executives were asked to describe those activities that assist in achieving alignment and those which seem to hinder it. These enablers and inhibitors to alignment were then analyzed with respect to industry, to time, and executive position.
The results indicate that certain activities can assist in the achievement of this state of alignment while others are clearly barriers. Achieving alignment is evolutionary and dynamic. It requires strong support from senior management, good working relationships, strong leadership, appropriate prioritization, trust, and effective communication, as well as a thorough understanding of the business environment. Achieving alignment demands focusing on maximizing the enablers and minimizing the inhibitors. The data show these factors to be constant over time and to be nearly identical for business executives and for IT executives. Furthermore, the data validate published anecdotal descriptions of enablers and inhibitors.
I. INTRODUCTION
How can companies achieve alignment? This paper describes the activities consistently identified over the five years from 1992 to 1997 by both business and IT executives that enable or facilitate alignment and those that inhibit or hinder it. Anecdotal publications have described them (Wang, 1997). Our research studies, underway since 1992 (Luftman, Papp, Brier, 1995), identify these activities and establish benchmarks for exemplar organizations.
The survey data on which our findings rest were obtained
from executives from over 500 firms representing 15 industries (see Table
1 for demographics) attending classes at IBM’s Advanced Business Institute.
In addition to these surveys, we used interviews and the observations from
consulting engagements to confirm our results. Analysis of the survey data
shows that the six most important enablers and inhibitors, in rank order
are:
| ENABLERS | INHIBITORS | |
| Senior executive support for IT | IT/business lack close relationships | |
| IT involved in strategy development | IT does not prioritize well | |
| IT understands the business | IT fails to meet its commitments | |
| Business - IT partnership | IT does not understand business | |
| Well-prioritized IT projects | Senior executives do not support IT | |
| IT demonstrates leadership | IT management lacks leadership | |
Alignment’s importance is well known. IT's importance has been documented since the late 1970's (McLean and Soden, 1977; IBM, 1981; Mills, 1986; Parker and Benson, 1988; Brancheau and Wetherbe, 1987; Dixon and John, 1991; Niederman, et. al., 1991; Earl, 1983 and 1993). Alignment continues in importance today as companies strive to link technology and business (Papp, 1995, Luftman, 1996). Alignment addresses both doing the right things (effectiveness), and doing things right (efficiency).
Throughout the five-year research project reported here, the authors applied the strategic alignment model presented by Henderson and Venkatraman (1990). The components of our modifications of their model are shown in Figure 1. It is the relationships that exist among the twelve components of this model that define business-IT alignment.
| I. BUSINESS STRATEGY
1. Business Scope – Includes the markets, products, services, groups of customers/clients, and locations where an enterprise competes as well as the competitors, suppliers and potential competitors that affect the competitive business environment. 2. Distinctive Competencies – The critical success factors and core competencies that provide a firm with a potential competitive edge. This includes brand, research, manufacturing and product development, cost and pricing structure, and sales and distribution channels. 3.Business Governance – How companies set the relationship among management stockholders and the board of directors. Also included are how the company is affected by government regulations, and how the firm manages its relationships and alliances with strategic partners. II. ORGANIZATION INFRASTRUCTURE & PROCESSES 4.Administrative Structure – The way the firm organizes its businesses. Examples include central, decentral, matrix, horizontal, vertical, geographic, federal, and functional. 5.Processes - How the firm’s business activities (the work performed by employees) operate or flow. Major issues include value added activities and process improvement. 6.Skills – H/R considerations such as how to hire/fire, motivate, train/educate, and culture. III. IT STRATEGY 7.Technology Scope - The important information
applications and
8.Systemic Competencies - Those capabilities (e.g., access to information that is important to the creation/achievement of a company’s strategies) that distinguishes the IT services. 9.IT Governance - How the authority for resources, risk, and responsibility for IT is shared between business partners, IT management and service providers. Project selection and prioritization issues are included here (see Section IV). IV. IT INFRASTRUCTURE AND PROCESSES 10.Architecture -The technology priorities, policies, and choices that allow applications, software, networks, hardware, and data management to be integrated into a cohesive platform. 11.Processes - Those practices and activities carried out to develop and maintain applications and manage IT infrastructure. 12. Skills - IT human resource considerations such as how to hire/fire, motivate, train/educate, and culture. |
Figure 1. The Twelve Components of Alignment (Luftman 1996)
Much of this research, however, was conceptual. Empirical studies of alignment (Henderson and Thomas, 1992; Broadbent and Weill, 1993; Chan and Huff, 1993; Baets, 1996) examined a single industry and/or firm. Conclusions from such empirical studies are potentially biased and may not be applicable to other industries. It was the lack of consistent results across industries, across functional position and across time that was the impetus for our study.
The objectives of the seminars were to assist executives in assessing the positioning and contribution of IT in their organizations, and to identify their personal role in aligning their organizations. The seminars were addressed to senior business executives from various functional areas (e.g., finance, marketing, H/R) of private and public sector organizations. Representative titles included President, Chief Operating Officer, Chief Financial Officer, Chief Information Officer, General Manager, Director of Human Resources, General Manager, Senior Vice President of Sales and Marketing, Physician in Chief, Provost, and State Senator. A cross-section of industries was represented, including insurance, health, finance, education, government, utilities, transportation, and manufacturing. Table 1 describes the demographics of the research population.
|
|
Survey Percentage |
| Finance/Banking |
|
| Health/Health Services |
|
| Insurance/Real Estate |
|
| Manufacturing |
|
| Refining |
|
| Pharmaceuticals |
|
| Public Administration |
|
| Educational Inst. |
|
| Government/Defense |
|
| Business/Consulting |
|
| Agriculture/Forestry |
|
| Utilities |
|
| Transportation |
|
| Commerce |
|
| Misc. Services |
|
Many of the questions were revised based on the feedback from this pilot study. Several iterations were necessary to identify and modify ambiguous and troublesome questions. As a result of these assessments, we are confident in the results obtained. The results presented in Section III are based on data taken between 1993 and 1997.
The questionnaire asked the respondents to identify the three top enablers and the three top inhibitors to achieving alignment between business and IT. The questions were open-ended. As a result, the executives could give a free expression of their opinions on factors from their own experience within their firms rather than being limited to ideas generated by the researchers.
Before responding, each executive had spent a day in the seminar discussing strategic alignment within the twelve-component alignment framework presented in Figure 1. The purpose of the discussions was to establish a common understanding of each component of the model. Practical examples of each component were discussed to help in developing a working definition that could be used by each individual to apply the model in their own organization. Thus, each had a frame of reference from which to respond to the survey questions.
The executives were then asked, within the context of their function (business or IT), to identify the three key enablers and inhibitors to achieving alignment in their organization. This subjective assessment was used to determine which specific considerations the executives believed aided and hindered alignment. Separating the responses between business and IT respondents tested the hypothesis that the respondent's functional area influences the enablers and inhibitors described.
In all, 1,232 questionnaires were filled out, of which 1,051 proved usable. Of these, 527 came from IT executives and 524 came from non-IT executives. The respondents listed a total of 3,153 enablers and 3,153 inhibitors
As in any open-ended questionnaire, it is necessary to group the responses so they fall into recognizable categories. The responses were analyzed for similar keywords or phrases that would aid in the grouping process. For example, references by respondents to effective or non-effective dialogue between IT professionals and their business partners were sorted into "Good IT/business communication" or "IT does not communicate well" in the final list of categories. This was done with the answers obtained. The categories, which are listed in Tables 2 and 3, had been established over a number of years. Once all the questions had been categorized, the percentage in each category was determined.
In addition, the executives categorized their firm into a specific industry. This classification was checked against the organization's SIC code to place it into an appropriate industry.
| Senior executive support | IT/non-IT lack close relationship |
| IT involved in strategy development | IT does not prioritize well |
| IT understands business | IT fails to meet its commitments |
| IT, non-IT have close relationship | IT does not understand business |
| IT shows strong leadership | Senior executives do not support IT |
| IT efforts are well prioritized | IT management lacks leadership |
| IT meets commitments | IT fails to meet strategic goals |
| IT plans linked to business plans | Budget and staffing problems |
| IT achieves its strategic goals | Antiquated IT infrastructure |
| IT resources shared | Goals/vision are vague |
| Goals/vision are defined | IT does not communicate well |
| IT applied for competitive advantage | Resistance from senior executives |
| Good IT/business communication | IT, non-It plans are not linked |
| Partnerships/alliances | Other |
| Other |
III. STUDY RESULTS
In response to the overall question as
to whether their own companies are aligned:
This result indicates that only half
of the firms believe they have a synergistic, cooperative business-IT relationship.
The perceived lack of alignment was the impetus for the next part of the
study, the identification of factors that aid or hinder alignment.
ENABLERS AND INHIBITORS
The results of the analysis of enablers and inhibitors are shown in Figures 2 through 5. Figures 2 and 3 distinguish between business and IT executives and Figures 4 and 5 examine the effect of time. Visual examination of Figures 2 and 3 indicates that there is little difference between the rankings by business executives and IT executives for both the enablers and inhibitors. To test whether this observation is correct, t-tests and an analysis of variance (anova) were performed on the enablers and the inhibitors. The results, presented in Appendix A, indicate no significant difference between the IT and non-IT participants' perceptions of enablers and inhibitors in terms of mean scores and variances. This suggests that each group viewed the enablers and inhibitors in the same way and hence the relative ranking of the enablers and inhibitors is the area of primary importance. This finding underscores the importance of each group's collective assessment of the specific factors that aid or hinder the alignment of business and IT strategy development.
Over the five-year span of the study, the
ranking of importance for the enablers and inhibitors remained relatively
consistent (Figures 4 and 5). That is, the factors are constants, rather
than changing with fashion.
Figure 2. Enablers to Alignment; Business vs. IT Executives 1993-1997
Figure 3. Inhibitors to Alignment; Business vs. IT Executive 1993-1997
Figure 4. Enablers of Alignment by Year
Figure 5. Inhibitors of Alignment by Year
In this section, we discuss the six most frequently
identified enablers and inhibitors that were listed in Section 1. For convenience,
they are repeated below.
| ENABLERS | INHIBITORS |
| Senior executive support for IT | IT/business lack close relationships |
| IT involved in strategy development | IT does not prioritize well |
| IT understands the business | IT fails to meet its commitments |
| Business - IT partnership | IT does not understand business |
| Well-prioritized IT projects | Senior executives do not support IT |
| IT demonstrates leadership | IT management lacks leadership |
ENABLERS TO ALIGNMENT
Support from senior non-IT executives was
ranked as the top enabler by both IT and non-IT executives. Non-IT executives
ranked this enabler even higher than IT executives. This important finding
highlights the need for business to be aware and supportive of technology
innovations. Important considerations include having business executives:
Lack of support may translate into lack of funding
and missed opportunities for innovative application of information technologies.
Insurance giant CIGNA, for example, migrated their entire enterprise to
a PC-based Windows NT system running Microsoft’s Office 97 Suite. The IT
team saw this investment in technology as paramount to the success of the
firm. CIGNA lost over half a million dollars in 1993 whereas its 1997 profit
was around $100 million. CIGNA management’s financial support and recognition
of the strategic value of such technologies resulted, at least in the short-term,
in increased efficiency and productivity of end-users, faster development
of in-house applications, and increased understanding among employees.
Some important considerations (based on our experiences) include:
C-Cube, which designs and markets digital compression hardware and software, used a cross-functional team to derive their client/server strategy. Senior representatives from functional departments including sales, marketing, and finance were chosen to participate in the evaluation process. The team narrowed the list of vendors and chose the one that met the needs of the firm as a whole. C-Cube’s CIO believes this participation allowed the firm to obtain buy-in from all the groups using the system. The firm created a specialized, functional system that meets everyone’s needs. The CIO also maintains a good relationship with the CEO, which helps gain the needed senior executive support for IT.
Both IT and business executives contend that IT
needs to understand the firm’s business environment (customers
and competitors). Important considerations include:
In the last decade IT understanding of the business
has been crucial to firms in the trucking industry. The Motor Carrier Act
(1980) changed the face of competition. This act was designed to enhance
the transportation of goods and property by promoting an efficient and
competitive transportation industry. The industry that previously had relied
on regulated income had to compete in a market of falling demand and competitive
pricing. C.R. England and Sons Trucking Company responded by using information
technology to manage these efforts. Based in Salt Lake City, Utah, the
company’s IT organization commits itself to enhancing the ability of the
business to deliver leading customer service. One such application, their
Quick Trace Program, allows customers to dial directly into C.R. England’s
system and review the status and locations for any delivery. Satellite
technology enables the company to pinpoint truck locations, allowing information
to be collected to provide this service to customers while supporting business
process measurements. This data is continually analyzed to enhance results.
"If we can measure it, we can manage it" is the motto at C.R. England,
and is a reflection of their success in alignment.
McGraw-Hill is another example of an IT organization that understands its business. At McGraw-Hill, custom publishing for the college textbook marketplace is focused on materials compiled in their PRIMIS application. PRIMIS lets college instructors create a customized textbook tailored to the specific needs of a course. Developed under the direction of McGraw-Hill editors, the PRIMIS database contains core chapters and sections from existing textbooks, journals, and articles. The professor selects and determines the sequence of the material. Professors can also add their own material and notes. The database of information and the supporting technologies represent an IT-based business strategy. PRIMIS facilitated McGraw-Hill's strategy of building a product tailored to specific requirements. In the context of strategic alignment, there are important considerations for integrating the infrastructure. The traditional "assembly-line" processes for textbook publishing (acquisition, writing, editing, manufacturing, selling, and distributing) have been replaced by processes designed to take advantage of the opportunity to build a customized book electronically and produce it on paper where needed. The IT infrastructure identifies standards, processes, and skills that support this new "book-building" infrastructure for the college textbook business.
A company that has done this successfully is Delta Airlines, who applied IT to develop a mission-critical system. Because of a strong IT-business relationship, the project was given top priority and financial backing by top management at Delta. This led, in turn, to effective project prioritization and resulted in a strong competitive position for the airline and a saving of more than $20 million. The system allows Delta to receive updates on weather conditions, forecast traffic delays, and reroute passengers from problem areas. The system has become such a vital part of the airline's operation that it is the single most important strategic IT investment at Delta. 'If the operations center went offline, the entire airline would shut down,' according to the Delta project manager.
Frequently the important leadership role that IT can play is only recognized after a competitor has applied IT innovatively. IT innovation is occurring at an increasing pace across all industries. Examples include automated teller machines, airline reservation systems, leveraging data mining point of sale information, and using the web to become an overnight success (e.g., Amazon.Com).
Many of the key inhibitors are the inverse of the enablers. The order of importance of the inhibitors is clearly different from the order of the enablers. The most frequently cited inhibitors, by both IT and non-IT executives, are IT activities. IT executives overwhelmingly rated the lack of a close working relationship as the number one inhibitor. This result is not surprising, given that in most organizations IT executives do not participate in strategy formulation.
Business executives have to provide direction for IT initiatives. They have to set policies for the acquisition, use, and retirement of company information assets. Business priorities are set where value is expected to be realized. Only business executives (as sponsors or champions) can drive the realization of value from IT related projects. IT unto itself cannot provide the value. Therefore, business policies must translate into priorities and projects for the IT organization. It is critical to have this partnership to ensure that the correct IT priorities are set. The vehicles for this governance process include steering committees, IT-business liaisons, budget and human resource allocation processes, IT organization, and value assessments.
IT executives, however, need to do their part to effectively prioritize their workload, which was ranked as a top inhibitor by non-IT executives.
Bristol-Myers Squibb’s use of IT-business liaisons, described earlier, exemplifies an effective implementation of one aspect of IT governance. Our experience suggests that there is no one silver bullet for addressing this important inhibitor. However, it is the effective use of all of the vehicles for governance that lead to success. One should note that as difficult as it is to establish these vehicles, it is even more difficult to maintain their effectiveness.
Business understanding information technology
and IT not understanding business can have negative effects for
IT. Organizations are providing sufficient training and support to create
growing ranks of empowered, computer-literate knowledge workers. As a result,
in some firms IT’s role as the primary systems developer is being supplanted
by end-user development using new, sophisticated application tools. Telecommunications
giant BellSouth is experiencing this shift. Tired of large backlogs and
missed deadlines, it implemented a client/server system that stores electronic
images of company documents. The $3.45 million dollar project saves BellSouth
approximately $17.5 million every year. They also cut the time required
to create a new form down to 24 hours instead of 10 weeks. Such innovative
use of IT is only possible when senior business management understands
and supports IT endeavors. Also, IT did not understand the
business until they were forced to do so.
Schwab has to continually revisit and revise their strategy. Through the Internet, the dynamics of the brokerage industry (and all industries for that matter) are rapidly changing. E*Trade is an Internet based brokerage firm that is competing with Schwab and others on pricing and service. Since costs are more variable then they were in the past and industry entry can be achieved with far less trading volume, competition is growing and innovative. Schwab has responded with its investing website, the latest in a list of technology initiatives. For Schwab, the IT strategy is integrated with the strategy for the business.
VI. CONCLUSIONS
Business-IT alignment remains a major issue. Over a thousand executives from different industries identified similar enablers and inhibitors to alignment consistently over the five years studied.
Executives need to work toward minimizing activities
that inhibit alignment and maximize activities that bolster it. The results
show that they should:
Editor’s Note: This paper was received on September 5, 1998 and published on March 3, 1999. It was with the authors for revisions for approximately three months.
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1. these links existed as of the date
of publication but are not guaranteed to be working thereafter.
2. the contents of Web pages may change
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versions may not contain the information or the conclusions referenced.
3. the authors of the Web pages, not
CAIS, are responsible for the accuracy of their content.
4. the author(s) of this article,
not CAIS, is (are) responsible for the accuracy of the URL and version
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0.962239975
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1.703288035
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0.905806938
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2.051829142
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| The t-test performs a paired two-sample t-test to determine whether a sample's means are distinct. This t-test form does not assume that the variances of both populations are equal. | ||
Table A-2. ANOVA of Business and IT Participants
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Table A-3. ANOVA of Enablers and Inhibitors to Alignment
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| Senior executives support IT |
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| IT involved in strategy develop. |
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| IT understands business |
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| IT, non-IT have close relationship |
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| IT shows strong leadership |
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| IT efforts are well prioritized |
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| IT meets commitments |
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| Other |
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| IT plans linked to business plans |
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| IT achieves its strategic goals |
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| IT resources shared |
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| Goals/vision are defined |
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| IT applied for competitive advantage |
|
|
|
|
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| Good IT/Business communication |
|
|
|
|
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| Inhibitor |
|
|
|
|
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| IT, non-IT lack close relationship |
|
|
|
|
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| IT does not prioritize well |
|
|
|
|
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| IT fails to meet its commitments |
|
|
|
|
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| IT does not understand business |
|
|
|
|
||||||||
| Senior execs. do not support IT |
|
|
|
|
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| IT management lacks leadership |
|
|
|
|
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| IT fails to achieve strategic goals |
|
|
|
|
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| Other |
|
|
|
|
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| Budget & staffing problems |
|
|
|
|
||||||||
| Antiquated IT infrastructure |
|
|
|
|
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| Goals and visions are vague |
|
|
|
|
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| IT does not communicate well |
|
|
|
|
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| Resistance from senior execs. |
|
|
|
|
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| IT, non-IT plans are not linked |
|
|
|
|
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| Source of Variation | SS |
|
|
|
|
|
||||||
| Between Groups |
|
|
|
|
|
|
||||||
| Within Groups | 10955 |
|
|
|
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|
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|
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| Total |
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| The analysis of variance (ANOVA) is used to test the hypothesis that means from two or more samples are equal (drawn from populations with the same mean). This technique expands on the tests for two means, such as the t-test. | ||||||||||||
ABOUT THE AUTHORS
Dr. Luftman’s research papers have appeared in several professional journals and he has presented at many executive and professional conferences. His book, "Competing in the Information Age" recently published by Oxford University Press, has been greatly received by industry and academia. His doctoral degree in Information Management was received at Stevens Institute of Technology.
Raymond Papp is an assistant professor with the Department of Management Information Systems at Central Connecticut State University. Dr. Papp completed his doctorate in Information Management at Stevens Institute of Technology. His dissertation, "Determinants of Strategically Aligned Organizations: A Multi-industry, Multi-perspective Analysis" is an empirical investigation into the determinants of strategic alignment, specifically addressing the impact of title/function, industry, and firm performance. His research has appeared in professional journals and he has presented research at numerous professional and executive conferences. He has worked as a computer analyst, corporate trainer, and an independent consultant.
Tom Brier is a consulting instructor on the faculty of the IBM Advanced Business Institute in Palisades, NY. and an adjunct professor in the School of Computer Science and Information Systems at Pace University in White Plains, NY. He specializes in methodologies to align information technology strategy to organizational goals and in approaches to managing the human aspects of change. He has facilitated planning sessions for senior management teams, using business analysis techniques to aid in developing organizational strategies. His research has centered on the role of the Chief Information Officer, the behavioral aspects of new technology implementation and the skill requirements for workers in a networked world.
EDITOR
Paul Gray
Claremont Graduate University
AIS SENIOR EDITORIAL BOARD
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University of Minnesota |
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Southern Methodist University |
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University of Arizona |
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Delft University |
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University of Hawaii |
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University of San Francisco |
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California State University |
Tung Bui
University of Hawaii |
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Abo Academy, Finland |
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Chung
California State University |
Omar El Sawy
University of Southern California |
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Bentley College |
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Queens University, Canada |
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University of Arizona |
Chris Holland
Manchester Business School, UK |
Jaak Jurison
Fordham University |
George Kasper
Virginia Commonwealth University |
| Jerry Luftman
Stevens Institute of Technology |
Munir Mandviwalla
Temple University |
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Claremont Graduate University |
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University of Denver |
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University of Auckland, New Zealand |
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University of Northern Iowa |
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Agder College, Norway |
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National University of Singapore,Singapore |
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Carlisle Consulting Group |
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City University of Hong Kong, China |
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University of Georgia |
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Georgia State University |
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Syracuse University |
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University of New South Wales, Australia |
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