"The debate about business and IT alignment is over. Eight of 10 C-level executives agree that information technology is strategic to the success of their business, and that IT could significantly alter their core products or services," said John Sviokla, Diamond's Vice Chairman and Managing Director of Innovation and Research. "But we found huge gaps that explain why companies still find it hard to translate good intentions into real results when they invest in IT."

For example, IT is still not integral to strategic planning. The Diamond study found that only 30 percent of C-level executives believe that their company CIO is involved in the strategic planning process.

In addition, both business and IT leaders underestimate the importance of some key management practices that are fundamental to getting value from every dollar spent on IT. About half of the respondents downplayed the importance of enterprise architecture (EA) planning and design, program management skills, and the governance required to convert business/IT alignment into high-value IT investments.

"The result," said Chris Curran, Chief Technology Officer at Diamond, "is that far too many IT projects fail to deliver as promised. About half (47 percent) say one in five projects fails to meet initial user expectations."

The Diamond Digital IQ study surveyed 456 C-level business and technology executives at large companies (90 percent of the companies represented had annual revenues greater than $1 billion) to measure attitudes about a variety of strategy, management and technology issues. To obtain a copy of the complete report, send an email to digitalIQ@diamondconsultants.com.

The research yielded a variety of surprising findings, including:

Business Leaders Lack Confidence in M&A IT Integration

Attitudes about the role of technology in merger and acquisition activity underscore the finding that business/IT alignment doesn't necessarily lead to demonstrable value. Fewer than six of 10 C-level respondents ranked their last post-M&A IT integration effort as effective. Similarly, only 61 percent agreed that their business integration efforts were effective.

"Technology is often a land mine between the strategic intent of a deal and actually getting the cost-savings and the new capabilities that were the original rationale," Sviokla said. "In many deals, the single biggest risk is properly assessing what it takes to get acquired companies on a common business platform, whether it is for serving customers, rolling out new products, using new marketing channels or expanding into new markets.

"If the CEO or leader of a leveraged buyout isn't thinking about technology upfront -- and doesn't have the CIO in those discussions -- chances they won't deliver the value shareholders are expecting," Sviokla said.

Room for Improvement in Strategic Planning Process

Just 19 percent of the respondents "totally agree" that their company's strategic planning process is highly effective. Only about one in four of the respondents "totally agree" that strategic planning helps them forecast the opportunities and threats to the business that information technology will introduce.

Healthcare, Financial Services Firms Have a High "Digital IQ," Utilities Lag

By analyzing the responses from 10 different industries across two dimensions -- strategy and operations -- Diamond was able to calculate how different industries stack up in terms of their commitment to information technology. Healthcare and pharmaceutical companies tend to view IT of both strategic and operational importance and are confident in their ability to harness IT to power their companies. Financial services, insurance, and high tech firms also demonstrated a high Digital IQ. The average utility industry Digital IQ was lower than any other industry.

"Companies with the highest Strategic IQ scores focused on how technology might force them to change their core products or services," said Curran. "They clearly understood IT's potential impact on operations. And they placed high importance on providing excellent after-sale customer support.

"Companies with a high Operational IQ reported their IT operations have changed significantly over the past three years, and they intend to continue innovating in that area," Curran added.

IT Flexibility Indicator of a High Digital IQ

Sixty percent of IT respondents and 57 percent of business executives feel their systems are totally or somewhat flexible when it comes to adding features and functions. A deeper analysis of the responses found a high correlation between system flexibility and attitudes toward strategic planning. Companies that ranked high in flexibility were more likely to be effective strategic planners that take into account IT's impact on the business, have an executive charged with integrating business and IT, and a CIO who is very involved in business strategy.

Impact of Emerging Technologies

Data mining/data analysis is the tool most often cited (25 percent) as a means to transform the business. Approximately 40 percent of respondents believe that several technologies -- including data mining/analysis, search technologies, and service-oriented architecture -- are ripe for growing the business. Finally, biometric identification/identity management and virtual collaboration/presence technologies are more commonly viewed as technologies with the potential to help run the business more efficiently.

Outsourcing to Free Internal Resources for Strategic Initiatives

While only 9 percent of respondents say that greater than 50 percent of their company's IT operations are outsourced, 21 percent expect that a majority of IT operations will be reassigned to a third party vendor by the end of the decade. Similarly, 22 percent of the respondents outsource somewhere between 26 percent and 50 percent today. By 2010, that number will be 28 percent. Further, the percentage of companies that outsource 25 percent or less of their IT operations will decline in both product and service companies.