Relationship Between Business and IT Strategies at PRASA

Relationship Between Business and IT Strategies at PRASA 1 Introduction 4.1 BACKGROUND TO THE RESEARCH PROBLEM For almost three decades practitioners, academics, consultants, and research organizations have identified â€Å"attaining alignment between IT and business† as a pervasive problem, Luftman and Kempaiah (2007). Gutierrez,Nawazish,Orozco,Serrano and Yazdouni (2007) add that despite the wide acceptance of strategic alignment (the strategic use of Information Technology), there is no consensus on how to achieve alignment and with few references that detail the process, there is no common agreement on the term alignment. Terminology such as linkage Henderson and Venkatraman (1993) harmony, integrated, linked, and synchronocity Luftman and Kempaiah (2007) have been suggested and used. Steiner (1979b) points out that there no consensus as to the meaning of strategy in the business world. An example of the definitions which he uses include the following Steiner (1979a): Strategy is that what executives do they that empower the organization. Strategy is the direction the organization takes which is aligned with it’s purposes and missions. Strategy consists of the important activities necessary to realize these directions. Strategy answers the question: What should the organization be doing to achieve success? Strategy answers the question: What are the means to end? Mintzberg (1994), says that people use strategy in several different ways, the most common being: Strategy is a plan, a how, a means of getting from here to there. Strategy is a pattern in actions over time; for example, a company that regularly markets very expensive products is using a high end strategy. Strategy is perspective, that is, vision and direction. Strategy is position; that is, it reflects decisions to offer particular products or services in particular markets. Porter (1998) states that strategy positioning attempts to achieve sustainable competitive advantage by preserving what is distinctive about a company and that strategy, is the creation of a unique and valuable position, involving a different set of activities, requires that trade-offs be made in competing, to chose what not to do and involves creating â€Å"fit† among a company’s activities. Fit has to do with the ways a company’s activities interact and reinforce one another. To improve the strategic management of information technology, Henderson and Venkatraman (1993), developed a framework which they called the Strategic Alignment Model (SAM). This model was defined in terms of four fundamental domains of strategic choice namely business strategy, information technology strategy, organizational infrastructure and processes and information technology infrastructure and processes. The model is defined in terms of two fundamental characteristics of strategic management namely the strategic fit (the interrelationship between external and internal components) and functional integration (integration between business and functional domains). Luftman (2001) improved on the Henderson and Venkatraman (1993) SAM model by developing the Strategic Alignment Maturity Model (SAMM). The model measures IT–business alignment maturity. Six interrelated components for assessing alignment maturity are identified. These are communications, value, governance, partnership, scope and architecture and skills. The scores an organization achieves for these six components of maturity are then compared to a five-level maturity model to denote the organization IT-business alignment maturity Luftman (2001).The levels range from level one to level five where level five is the highest level of maturity. A higher alignment maturity correlates with higher firm performance measures Luftman (2001). Tying performance measures to strategic goals is a critical step Fonvielle and Carr (2001). A tool to measure performance and to align strategic goals within organisations is the Balanced Scorecard (BSC). The BSC was developed by Kaplan and Norton (1992) to overcome the business’s reliance on financial measures. They contend that reliance on only financial measures does not give a complete overview of the organisations measures. The BSC provided a framework to look at strategy, used for value creation from four different perspectives these being financial, customer, internal business process and innovation and learning Kaplan and Norton (1992).One of the principles recommended by the authors, is that for an organization to be focused on strategy, there needs to be alignment among departments to the strategy of the organisation. The alignment sequence recommended by Kaplan and Norton (2006) starts when the corporate headquarters articulates enterprise value proposition that wil l create synergies among operating units, support units and external partners. This sequence includes aligning IT strategy with the business strategy. 4.1 STATEMENT OF RESEARCH PROBLEM Business and IT strategies at PRASA need to be better aligned. 4.1 What is passenger rail agency of south africa (PRASA)? Appendix A, gives a comprehensive overview of the historical context and the introduction of PRASA taken from the companie’s business plan. Following is a summary of the key issues PRASA was created by Government to advance its agenda for the transformation of the public transport system into a vibrant, efficient one, As part of its strategy, PRASA (2009), to secure the future of its business, PRASA will focus its resources and energies during the current medium term expenditure framework (METF) on the following three Strategic Priorities: Service Excellence within Metrorail, Shosholoza Meyl and Autopax Property and Asset Development, and Technology Upgrade or Modernization of its key transport systems The key objectives identified by Government in addressing the challenges of passenger rail transport moving forward PRASA (2009) are as follows: Sustainable passenger rail service delivery; Improved performance of passenger rail services in terms of the quality and levels of services to passengers; Improved efficiency in the delivery of services; Improved effectiveness of asset management; Effective targeting of subsidies to achieve desired socio-economic transport objectives; Improved oversight by Government; and Improved accountability to the users. 4.1 Why prasa? PASSENGER TRANSPORT CHANGE IMPERATIVES 1..1 The Public Transport Challenge After many years of neglect, the existing commuter transport system, inherited from the apartheid past, has reached saturation levels and is unable to satisfy passenger demands while its infrastructure is not able to meet the requirements of a rapidly changing and modern society. The dysfunctional institutional arrangements have meant poor accountability in the provision of public transport services, which were found to be largely disempowering. Government’s socio-economic and transport policies could not be supported adequately by such institutional arrangements. The country is seeking to move away from the current commuter-based transport provision into a more integrated public transport system that meets growing and changing passenger demands in an efficient, effective and sustainable manner. The twin challenges for public transport is to simultaneously transform through meaningful integration whilst at the same time enhancing capacity through upgrading and modernization to meet long-term need PRASA (2009). 1..2 Inadequate Passenger Service Provision Passenger rail in South Africa faces many challenges as a result of a long history of inadequate investment in rail rolling stock, infrastructure and operations as well as the loss of appropriate managerial and technical (engineering) skills within the industry. The shortage of such critical skills has a direct negative impact on the delivery of services. In the urbanising metropolitan areas the provision of new rail corridors has not kept pace with the rapidly changing urban landscape resulting in limited coverage in key areas of urban expansion with the consequential loss of significant market share. Over time, commuter rail services have continued to fail to respond adequately to changing passenger demands PRASA (2009). 1..3 Customer-Centric Delivery A dynamic and customer-centric public transport system is required where passengers contribute to and shape the service delivery agenda. The need for a Passenger or Quality Charter and the emergence of strong, vibrant structures championing both the interests of passengers and public transport transformation are vital to the development of a public transport system that will effectively respond to the travelling needs of passengers. The past few years has seen the emergence of vibrant, community-based structures championing public transport transformation and demanding quality services from Government and transport service providers. This movement seems to be growing and shows the determination of South Africans to participate in the construction of a transport system that will effectively respond to their demands PRASA (2009). 4.1 PRASA Vision, Mission Values Vision A provider of integrated public transport solutions for improved mobility Two fundamental principles underpin the vision:- Integration – PRASA should facilitate integrating individuals and communities, enabling a better quality of life through access to socioeconomic opportunities Mobility Solutions – PRASA should connect individuals and communities through the provision of public transport solutions that are founded on an integrated network of mobility routes PRASA (2009) Mission Sustainable Public Transport Solutions through Service Excellence, Innovation and Modal Integration PRASA (n.d.) The mission reflects four key intentions:- Service excellence – superior performance that is safe, reliable and affordable, that makes a lasting impression, and builds brand loyalty – both internally (employees) and externally (customers) – that adds benefit to the passenger. Sustainability a focus on sustainable development in business that considers not just the financial ‘bottom line’ of prosperity and profit, but also the other ‘bottom lines’ of environmental quality and social equity. Mobility solutions – reframing the basis of business delivery, favouring innovation, integration and partnerships Integration – safe, seamless dignified travel experiences across all modes of public transport, PRASA (n.d.) Values The values that will guide PRASA, which will underpin the performance ethos of the organization derived from and are guided by the fundamental and progressive human values of the Constitution of the Republic of South Africa:- Service Excellence, Participation, Integrity, Fairness and Innovation, PRASA (2009) 4.1 OPPORTUNITY FOR Passenger Services 1..1 Commuter Rail Services The provision of efficient and affordable public passenger transport services is integral to Government’s drive to create employment opportunities, stimulate economic development and reduce levels of poverty. Enhanced mobility will facilitate greater access to socio-economic opportunities for the urban and rural poor whilst contributing to an efficient transport system to the benefit of all South Africans – highlighting the need for a vibrant public passenger transport network to support sustainable growth and development PRASA (2009). Commuter rail has the potential to be the most efficient, affordable and safe mode of travel. It plays a significant role in key Metropolitan areas such as Cape Town and has the potential to become an important public transport player in all metropolitan areas, significantly contributing to an efficient and reliable public transport system in these areas. Despite the acknowledged increase in the growth of car-ownership and usage, public transport and walking continue to dominate the mobility needs of the majority of South Africans and this is likely to continue for the next decade. Metropolitan areas in South Africa are experiencing rapid urbanization. Rail is in a unique position to facilitate greater integration between land use planning and transport infrastructure provision, and providing security, to private and public sector investment, of stable long-term public transport provision. This is vital to creating sustainable communities where peoples access to economic and social o pportunities is improved. In this context, railway lines need to be positioned, located, aligned with evolving spatial developments and formalised within the statutory planning processes undertaken primarily by local government. The creation of PRASA and the integration of rail and road-based transport services will, over time, provide the user with public transport choices – moving away from a market of captive users to one where dignified travel choice is a real option PRASA (2009). 1..2 Inter-City / Regional Passenger Services Historically, long distance rail and road based services have not received the attention required to make them demand responsive in key market areas including migrant workers, students, tourists and occasional travellers. The Department of Transport’s Public Transport Strategy Action Plan notes that: There is a significant potential for the growth in migrant worker long distance public transport provision. The dominant generators of migrant movement are Gauteng and KZN The increase in tourism provides opportunities for segmenting the market that build upon the strengths of both long distance rail and coach operations. Rural areas in South Africa are undergoing a process of economic and social restructuring with a shift in emphasis towards rural trade and agro-processing. These factors reinforce the need for a public transport service sector that responds to the emerging needs of these rural / regional development nodes since transport links between the rural trade areas and t he rural regions (hinterlands) remains unreliable, rendering access to services and emerging economic opportunities extremely difficult. This lack of access will continue to trap many in the poverty cycle. Government’s decision to consolidate passenger rail entities and road-based long distance bus services into a single entity, PRASA, reporting to the Department of Transport are underpinned by a number of key drivers. The recognition by Government that rail consolidation was required to deal with the under-performance of rail passenger services as well as the historical under-investment in the passenger rail business. Institutional arrangements did not promote efficiency and accountability and significant change was required to overcome the inherent institutional dysfunctions that had been created. Confusion existed between the contractor and regulatory functions implicitly embodied in the SARCC/Transnet relationship PRASA (2009). The critical need for sustainable funding to reverse the decline in commuter rail levels of service being experienced by commuters has been identified. This funding profile was captured in the National Rail Plan, which was accepted by Cabinet in December 2006, where the funding and investment requirements were identified for passenger rail over the following ten years PRASA (2009). 4.1 PRASA Objective PRASA (n.d.) primary objective is: To ensure that at the request of the Department of Transport, rail commuter services are provided within, to and from the Republic in the public interest; and To provide, in consultation with the Department of Transport, for long haul passenger rail and bus services within, to and from the Republic in terms of the principles set out in section 4 of the National Land Transport Transition Act, 2000 (Act No.22 of 2000)†.. 4.1 Strategy of prasa PRASA (2009) objectives are supportive of the Board of Control’s (BOC) key performance areas as seen in figure 2 below Figure 2 Key Performance Area and Strategic Objectives 4.1 CHALLENGES FACING PRASA 1..1 Consolidation / Turnaround / Restructuring The sequential amalgamation, in quick succession, of the SARCC, Metrorail, Shosholoza Meyl and Autopax bring with it the normal challenges that are posed when merging disparate organizations in related but different operational arenas. A key driver in Government’s decision to consolidate these entities into a single delivery arm of the DOT was to effect operational and asset â€Å"turnaround† of what were acknowledged to be declining businesses, albeit, some with the potential for growth. Linked with both these processes is the need to internally restructure the various businesses to align them with the new mandate given to PRASA through the amendment to the Legal Succession Act that was promulgated on 23 December 2008 PRASA (2009). 1..2 Sustainable Funding The ability to provide the requisite level of funding (substantial) to address both the investment capital and rapidly expanding operational requirements to affect the mandate is fundamental to the successful performance of PRASA. The integrated passenger transport plan requirements will need to be developed. Fully motivated funding requirements, covering both operations and investment capital, in line with the 5-year financial plan requirements of the various Integrated Transport Plans (ITPs), will be developed to begin to align the funding requirements with statutory plan requirements. The approved funding base makes no provision for two key activities that need to be accommodated: The incorporation of Autopax, an operating company that is currently materially dependent upon Transnet Limited for funding to re-capitalize and sustain the business going forward. The acquisition of new rolling stock. Analysis has indicated that the rolling stock refurbishment and upgrading programs are not maintaining pace with the requirements to buy time before the inevitable purchasing of new fleet becomes unavoidable. While the profile reflects a rising trend in investment funding support, the allocation of these funds to the different asset classes (Rolling Stock Infrastructure) will need to be reviewed. A careful balance needs to be struck to ensure that the sustainability of the asset base is not compromised PRASA (2009). 1..3 Ageing Rolling Stock and Infrastructure PRASA (2009) reports that the prolonged under-investment in passenger rail of almost thirty years is manifestly experienced in the deterioration of the general rail asset i.e. Rolling Stock and Infrastructure (Signalling and telecommunications, electrical systems, perway). This has resulted in a situation where services are experiencing continued decline, primarily due to poor availability and reliability of rolling stock and ageing infrastructure. The lack of investment in the asset base has also had a negative impact in the skills base of the passenger rail industry over a period of time. For example, the average age profile of commuter coaches is 40 years and has been left behind by international advancements in rail technology over the past few decades. The life expectancy of railway rolling stock is of the order of 54 years. The railway industry norms are that the coaches will be upgraded at half life (27 years) and overhauled every 9 years, so as to ensure the structural and su b-systems integrity is not compromised by metal fatigue, age, wear and tear or environmental condition. Thirty-three percent (33%) of the commuter rail fleet is already above 36 years and therefore would be uneconomical to upgrade. 1..4 Human Capital Development Human capital development is generally understated and under-rated in supporting the development of an organization. It is a multi-faceted process that requires clear understanding to enable human capabilities to be built that will support the key performance drivers of the business and ultimately the business results that can be expected from that performance. The key challenge for PRASA is to formulate human capital development processes that facilitate and fast-track the appropriate human capital capabilities at all levels within the organization that will enable delivery on the key drivers of which, in the case of PRASA are : increased productivity (operational efficiencies), improved service quality (service excellence), customer focus and innovation in the provision of integrated public transport solutions The nature of the various operational divisions, while related and providing synergistic opportunities for service co-operation and delivery, are by their very nature, different business environments, each requiring a specific set of human capabilities to perform optimally. PRASA needs to provide guidance in the process framework that delivers this requirement PRASA (2009). 1..5 Change Management The finalisation of the PRASA consolidation process, the turnaround and restructuring necessitate that a number of parallel change management processes are undertaken. Numerous change management processes will be identified that are needed to combine the five organizations into a consolidated organization. The very ability of PRASA to ensure effective implementation of such processes becomes critical as is the capacity of the organization (including divisions and subsidiaries) to manage them successfully PRASA (2009). 1..6 Leadership Skills Development There is currently an acknowledged shortage of key skills as well as a lack of depth of skills in critical areas within the organization. For PRASA to meet the expanded mandate of supporting government’s socio-economic and transport objectives in both urban and rural contexts, the organization will need a focused approach to human capital development, on leadership development, talent management and the progressive training of a strong base of key skills that will lay the foundation for sustaining rail passenger transport sector PRASA (2009). 1..7 Rail Technology Development PRASA, of necessity, will need to become a technology based organization that blends best practice policies with intelligent asset management philosophies to leverage organisational productivity and efficiency gains to provide shareholder value. PRASA recognises that technology upgrade is critical to the modernisation of South Africa’s railways and is well aware that the capacity for technology upgrade may not be immediately available in South Africa or the African Continent as a whole. Technological obsolescence is a major factor that will inhibit PRASA from delivering on its mandate. A rail technical strategy that guides technological renewal, upgrading, replacement and development over the next 30 years is a critical requirement. The average age of the metropolitan rail commuter networks/system in South Africa ranges between 60 80 years and still supports 1940/50’s technology. The system in SA is showing serious age related condition decline with increasing systemic risks and technological obsolescence. Railway systems are designed for an extended economic life, but it is acknowledged that the current ad hoc investment flows into the ageing system in South Africa are not productive in terms of future demand, operational performance requirements and escalating maintenance costs. Global technology advancement in rail has moved beyond the limited application of heavy rail, regional and long distance passenger rail. Various new rail based technologies of alternative applications have evolved globally to ensure the competitiveness and attractiveness of rail solutions. If South Africa is serious about ensuring environmentally friendly and energy efficient transportation for its cities to counter growth in private vehicle travel, congestion and spiralling cost of fossil fuels, a selective conversion of appropriate new and improved rail based and mass transit technologies needs to be evaluated, introduced, and established in South Africa ensuring that these take their place in the hierarchy of public transport service provision. The technological needs of PRASA over the next 30 years need to be clearly articulated and incorporated into PRASA’s long-term planning if passenger rail is to be sustained over the longer-term. The development of a rail technology strategy, together with the appropriate migration requirements over this period will assist in guiding decision-making in much critical technology upgrade or replacement areas within the organisation. The phased implementation of the strategy will be captured in each of the Business Plans roll-outs over time PRASA (2009). 4.1 RESEARCH AIM, QUESTION, SUB-QUESTIONS AND OBJECTIVES Research Aim The aim of this research is to understand to what extent alignment between Business and IT strategies exists, at the Passenger Rail Agency of South Africa (PRASA). Research Questions The research question derived from the problem statement is What can PRASA do to improve business and IT strategies, alignment? The sub questions to answer the main question are: What are business and IT strategies? What is alignment between business and IT strategies? What factors contribute to an alignment gap between business and IT strategies? What factors contributes to an improved alignment between business and IT strategies? Objectives of the research Based on the sub questions the objectives of the research are to 1. Analyse the Business’s and IT strategy 2. Carry out a literature review on the alignment between Business and IT strategies. 3. Analyse the factors that contribute towards Alignment Gap 4. a. Establish strategic alignment best practice. b. Formulate a methodology for aligning Business and IT strategies. c. Propose recommendations to improve PRASA’s Business and IT strategies alignment. 4.1 CURRENT STATUS OF THE RESEARCH AREA The literature review will be based on the research into alignment of business and IT strategies. There is a plethora of research available on the alignment of business and IT strategies. Chan and Reich (2007) have carried out comprehensive research on this topic. 4.1 Business and IT strategies 1..1 Business Strategies Croteau and Bergeron (2001) define business strategy as â€Å"the outcomes of decisions made to guide an organisation with respect to the environment, structure and processes that influence it’s organisational performance†. Hambrick (1980) states that business strategies may be textual, multivariate or typological. Henderson and Venkatraman (1993) architects of the SAM model, view strategy as involving both strategy formulation (decisions pertaining to competitive, product market choices) and strategy implementation (choices that pertain to the structure and capabilities of the firm to execute it’s product market choices).The SAM model presents two business strategy perspectives where business strategy is the driver namely strategic execution, and technology transformation. figure 3 presents the key attributes of these perspectives. Figure 3 Attributes of Business Strategy perspectives (Henderson Venkatraman 1993) One of the six components of the SAMM Luftman and Kempaiah (2007), is partnership which includes IT’s role in defining the business’s strategies. Both of these models (SAM and SAMM) are about aligning business and IT strategies and can be criticised because it does not define what business strategy is. Kay (1996) says that there is much debate on the substance but that