The impact of environmental uncertainty on business–IT alignment: A study in Sri Lanka

Abstract

Despite the widely held belief that organisational performance can be enhanced through the alignment of information technology (IT) and business strategy, alignment remains a top concern for IT and business executives. This means that the challenges of attaining strategic alignment have not been overcome. Environmental uncertainty, in particular, is one of the key challenges to achieving strategic alignment.

Organisations continually adapt their strategies due to rapid changes in the market, technology and regulations. Either the business strategy changes and the IT strategy has to adapt to remain in alignment, or new IT emerges and business and IT strategies have to be revised to seize opportunities. Changes in the regulations can also have a significant impact on organisational strategy. Uncertainty increases the difficulty of understanding the environment and places executives in a challenging situation with regard to strategic decision making. It is thus important for executives to develop an understanding of the effect of environmental uncertainty on strategic alignment.

This issue has received little attention in the alignment literature. The literature presents mixed arguments on the effect of environmental uncertainty on strategic alignment. There is literature which explain the implications of the antecedents of strategic alignment; however, it does not consider these antecedents in the context of a highly uncertain environment. Hence, the objective of this research is to identify the extent of the impact of environmental uncertainty on strategic alignment and to determine how this affects the impact of other antecedents.

This research adopts a post-positivist approach. Using the perspectives of the resource-based theory and the knowledge-based view of the firm, a conceptual model is presented which examines the impact of antecedents and environmental uncertainty on strategic alignment. Three antecedents – shared domain knowledge, relationship management, and prior IS success – were selected as key antecedents. Environmental uncertainty was also proposed as an antecedent. This research assumes that the effect of these antecedents on strategic alignment is mediated by two managerial practices: communication and planning connection. Based on data collected from 212 organisations in Sri Lanka, the conceptual model is tested against the research objective. As a developing country, Sri Lanka has a highly turbulent environment and thus provides a suitable setting in which to examine the impact of environmental uncertainty on strategic alignment. Partial Least Squares structural equation modelling is used to test the conceptual model.

The results reveal that environmental uncertainty has a positive impact on strategic alignment and that it is mediated by managerial practices. All the antecedents were also found to have a positive effect on managerial practices. As a managerial practice, planning connection has the stronger influence on strategic alignment, while communication plays a contingent role in the alignment process. Moreover, organisation size also has an influence on the alignment process. The relative influence of antecedents and environmental uncertainty differs between SMEs and large organisations. This suggests that the mechanisms used to attain strategic alignment vary by organisational size.

The findings contribute to the literature and practice of strategic alignment in several ways. One of the contributions is the introduction of environmental uncertainty as an antecedent to strategic alignment and the identification of the influence of three sources of uncertainty: market uncertainty, technological uncertainty and regulatory uncertainty. Another contribution is a theoretical explanation of the strategic alignment process using the resource-based theory and the knowledge-based view of the firm. Further, this research extends the validity of the alignment process to a developing country context. From the practitioners’ point of view, this research provides valuable guidance about aligning IT strategy with business strategies in an uncertain environment. Moreover, this research provides prescriptive insights for attaining business–IT alignment for both SMEs and large organisations.