Influence of Incentive Policy in the Alignment of Business and Information Technology

Abstract: The chief executive officers from many of world’s largest companies are aware that new technologies are redefining value chains and that companies need to take account of this if they wish to remain viable in the market. Modern businesses must combine their business needs with innovative information technologies. In fact, business and IT alignment (BIA) has constantly been regarded as one of most important concerns facing top IT executives. This concern may well be supported by the conviction, which is corroborated by a significant number of studies, that achieving a better alignment can positively influence business performance. In fact, this alignment can be viewed as one of most important areas of IT governance and its importance is recognized by some of most important IT frameworks, such as COBIT, ITIL or TOGAF. Although alignment has attracted the attention of numerous research studies in the past, the ongoing concern with this question in the last decade suggests there is a real need to explore this issue in greater depth. This study is based on the premise that alignment is made by people and, the more people are motivated in organizations, the more effectively they will work. The influence that incentives have on the behavior of managers and, thus on their professional activities and productivity, has been widely addressed in the literature. Indeed, it is a common practice among companies to offer a range of incentives to their executives, which are preferably aligned with their objectives. This work investigated the influence of incentive policies on forging a better alignment. As well as reviewing the key areas in the literature, it sets out a new model for relating incentives with the alignment of business and IT. It also devised a new instrument to measure the maturity of incentives, as well as employing an existing instrument to measure the maturity of alignment of an organization. After some preliminary stages, such as pretesting and pilot testing, the instruments were administered to a large sample, through an online survey platform. The sample, which was selected by Informa Dun & Bradstreet, was expanded with the help of the social network LinkedIn, and employed the snowball sampling method, which helps in the study of “hard-to-reach” populations. Responses were collected from more than four hundred business and IT managers, working in more than two hundred medium-sized and large Portuguese companies, and, as far as is known, this is the most wide-ranging survey ever conducted in Portugal on the alignment between business and IT. The hierarchical component model was estimated by means of a structural equation model (SEM) with partial least squares (PLS) regression technique. The reliability and validity of the measurement (reflective) model were ensured, after some indicators had been removed. The assessment of the model concerning the higher-order (formative) components was assured through robust content validity procedures involving incentive and alignment constructs. The main findings are analysed from different angles which can be listed as follows: the functional area of the respondents, the gender of the respondents, their generation differences, the economic activities of the companies, their size differences and the manifest variables of incentive and alignment. Finally, the results of the proposed model are discussed and interpreted. By proposing a direct explanation of the alignment with just one variable as the incentive, this thesis probably proposes one of the most parsimonious models of the alignment employed until now. The study also supports its possible greatest contribution, which is the fact that alignment can be largely explained in terms of incentives. Some recommendations are also made for putting these ideas into practice and conducting future research in this field.

Keywords: Business-IT alignment; incentive, total rewards; structural equation model; SEM; PLS.