Chapter 1

The Evolving Role of IS/IT in Organizations : A Strategic Perspective

CHAPTER 1

Strategic Planningfor Information

Systems

John Ward and Joe Peppard

Third Edition

Most organization (all sectors) dependent on their IS

Introduction

IT has become inextricably intertwined with business (Rockart, 1988)

Depends on the effective applications of IT

With e-Commerce, use of technology is accepted (indeed expected) way of conducting business

Support existing business operations.

Source for competitive advantage

IS & IT needs to be managed strategically

Helpful to understand how the role of technology-based IS has evolved in organizations.

Less strategic approach legacy system

Learning from experience – the success and failures of the past – is one of the most important aspects of strategic management.

Forces Affecting the Pace & Effectiveness of Progress in Using IT/IS & in Delivering Business Benefits:-1. The capabilities of the technology;

2. The economics of deploying the technology;

3. The applications that are feasible;

4. The skills & abilities available – in-house or external sources to develop the applications;

5. The skills & abilities within the organization to use the applications;

6. The pressures on the particular organization or its industry to improve performance.

IS and IT• IT/ICT refers specifically to technology, essentially hardware,

software and telecommunications networks.

– Tangible (e.g. servers, PCs, routers, cables), and– Intangible (e.g. software)

• IT/ICT facilitates the acquisition, processing, storing, delivery and sharing of information & other digital content.

• IS – the means by which people & organizations, utilizing technology, gather, process, store, use & disseminate information (UK Academy of ISs)

• Some IS are totally automated by IT.

IS ≠ IT

Application• Application refers to the use of IT to address a business activity or

process.Two types of applications:-• General uses of IT HW & SW to carry out particular tasks such as

word processing, electronic mail or preparing presentation materials.

• Use of technology to perform specific business activities or processes such as general accounting, production scheduling or order processing.

• Pre-packaged, pre-written SW programs or be developed in-house or outsourced. e.g. ERP packagesIn order to create a system that effectively supports users, it is first necessary to conceptualize that which is to be supported (the IS), since the way it is described will dictate what would be necessary to serve or support it (the IT).

More terms• E-commerce refers to the conduct of commerce or business

electronically –essentially using Internet technologies.• M-commerce refers to the use of mobile devices for the conduct of

business transactions while t-commerce refers to a similar use of television.

• E-business refers to the automation of an organization’s internal business processes using Internet and browser technologies.

This is how Internet should be viewed:Internet is an enabling technology – a powerful set of tools that can be used, wisely or unwisely, in almost any industry and as part of almost any strategy; not the business strategy.

Pervasive, interactive, a new medium – the market space.

Why Organizations Fail to Realize Benefits from Investments in IT?

• Investments made only in technology;

• Not understanding or analyzing the nature of activities that the technology is to support – strategically or operationally – in the organization;

Early Views and Models of IS/IT in Organization

• Early 1950s: use of computers in business• Mid to late 1960s: computers usage became more

significant with the development of multi-purpose mainframe computers

• Batch processing of tasks and activities in organizations became possible through– Increase in processing speed– Cheaper memory– Useful of magnetic disc and tape storage– Better programming language

Continue…

• 1970s: Minicomputers used for a variety of business applications

• But IS/IT still viewed as a centralized, integrated concept derived from mainframe

• Gibson and Nolan (1974) modeled evolution of IS/IT in an organization, based on Anthony’s (1965) hierarchical application portfolio model.

Application Portfolio Model

• Described by R. N. Anthony (1965)

• Structure of information system in an organization is based on a stratification of management activity into different levels:– Strategic planning– Management control– Operational control

Typical Planning, Control and Operational Systems

Nolan And Gibson’s 6-stage Model For Evolution of IS/IT

Considered 6 aspects of IS/IT management

• The rate of IS/IT expenditure;• The technological configuration;• The applications portfolio;• The Data Processing (DP) or IT organization;• DP/IT planning and control approaches;• User-awareness characteristics.

Stages of Evolution

• Computer (DP) Management– Initiation

– Contagion

– Control

• Information Systems

Management– Integration

– Data management

– Maturity

Transition from DP to MIS

• Change in how IS/IT resources were managed

• Change in how the role of IS/IT is evaluated

• Strategy for management of IS/IT

Nolan’s Stages of Growth Model

• Initiation

• Contagion

• Control

• Integration

• Data Management

• Maturity

A formative influence on much information systems planning was Nolan’s stages of growth model (Nolan, 1979) in which businesses were described as being within one of six stages of data processing growth as follows:

Nolan’s Stages of Growth Model

Initiation

• Computer-based IT had recently been introduced, often in the accounting and finance areas; initial applications were replacement of rule-based labor-intensive computational activities such as payroll, accounts and ledger; analysis and design activities were not formalized and were left to the initiative of a programming unit; project planning and scheduling were undeveloped.

Contagion

• Users became aware of possibilities, and began agitating for applications, which proliferated in an uncoordinated manner; the data processing department’s profile increased, it maintained control of the apparently arcane procedures necessary for implementing software, but its promise of new systems exceeded its capacity to produce them.

Control

• Budget overruns, implementation failures, and senior management disenchantment, led to stronger financial control, project planning, and a greater attempt to meld management of IT with understanding of business processes, resulting in introduction of management information systems terminology

Integration

• Technological progress produced database driven solutions for business processes, which could now be brought together from their disparate and often uncoordinated applications; management information systems were becoming more generic information systems, and decentralized; end user computing began its development and facilities such as information centers were formed for user support.

Data administration

• Recognition of the information resource becomes widespread; the orientation of systems becomes one of data use; information management becomes a means of assuring data quality through information repositories, and user responsibility and ownership of information.

Maturity

The information resources are managed with the strategic planning framework of the enterprise, and there is representation on the senior management group, perhaps under a designated chief officer.

View from a More Distant Perspective

• The six stages of the model divide into 2 larger ‘eras’, separated by a transition point between stages 3 and 4

• Transition from computer (DP) management to information (systems) management

• Major changes occur in who managed what for whom, and how

Transition between Computer and Information Management

Rationale of the Transition

• Delivery

• Reorientation

• Reorganization

Rationale of the Transition: Delivery

• Improving the ability to deliver and support the systems and technology.

• Achieving top management credibility as a valuable function is a prime objective.

Improving delivery performance, not necessarily providing users with what they really need.

Rationale of the Transition: Reorientation

• Establishing good relationships with the main business functions, supporting business demands through the provision of a variety of services as computing capability spreads through business.

Extended outside the DP department to provide a valued service to all business function management. Different areas will benefit differently without regard to business importance.

Rationale of the Transition: Reorganization

• The high level of awareness created both ‘locally’ in the business area and ‘centrally’ in senior management creates the need for a reorganization of responsibilities designed to achieve integration of the IS investment with business strategy and across business functions.

Becomes the best way of satisfying each of the differing business needs through a coalition of responsibilities for managing information and systems.

2 Eras from 1960 to early 1980

• DP era

• MIS era

Differences b/w DP and MIS

DP Lessons• need to understand the process of developing complete

information systems, not just the programs to process data.

• more thorough requirements and data analysis to improve systems linkages and a more engineered approach to designing systems components

• more appropriate justification of investments by assessing the economics of efficiency gains and converting these to return on investment

• less creative, more structured approaches to programming, testing and documentation to reduce the problems of future amendments, more discipline was introduced with “change control procedures” and sign off on specifications and tests

DP Lessons

• extended project management which recognized the need for coordination of both user and DP functions and the particular need to establish user management in a decisive role in the systems development – the user had to live with the consequences

• the need for planning the interrelated set of systems required by the organizations, better planning produced overall improvements in systems relevance and productivity

MIS Lessons

• justification of IS investments is not entirely a matter of return on investment / financial analysis

• databases require large restructuring projects and heavy user involvement in data definition – data integration had been weak based on the project by project DP approach

MIS Lessons

• the IS resource needs to move from a production to a service orientation to enable users to obtain their own information from the data resource – the information centre concept

• need for organizational policies, not just DP methodologies

• personal computers and office systems enable better MIS to be developed, provided that users and IS people both focus on the information needs rather than the technology

Three Era Model

Objectives of the three eras: -• Data Processing (DP) Era

– To improve operational efficiency by automating information-based processes

• Management Information Systems (MIS) Era– To increase management effectiveness by satisfying their

information requirements for decision making

• Strategic Information Systems (SIS) Era– To improve competitiveness by changing the nature or

conduct of business –IS/IT as a source of competitive advantage

Trend in the Evolution of Business IS/IT

Main Types of Strategic System• Share information via technology-based systems with

customers/consumers and/or suppliers and change the nature of the relationship– Linking to Customers and Suppliers

• Produce more effective integration of the use of information in the organization’s value-adding processes– Improved Integration of Internal Processes

• Enable the organization to develop, produce, market and deliver new or enhanced products or services based on information– Information-based Products and Services

• Provide executive management with information to support the development and implementation of strategy.– Executive Information Systems

Other Classification: Notowidigdo, 1984

• Internal systems that have direct benefit for the company

• External systems that have direct benefit for the company’s customers

Venkatraman, 1991: 3 Types of Revolutionary Use of IT

• Business process redesign– Using IS/IT to realign business activities and their

relationships to achieve performance breakthroughs.

• Business network redesign– Changing the way information is used by the

organization and its trading partners, thereby changing how the industry overall carries out the value-adding processes

• Business scope redefinition– Extending the market or product set based on

information or changing the role of the organization in the industry.

The Different View of SIS

Success Factors in SIS

• External, not internal, focus– Looking at customers, competitors, suppliers, other

industries

• Adding value, not cost reduction– Doing it better not cheaper

• Sharing the benefits– Buy in, commitment to success, a switching cost

• Understanding customer– What they do with the product– How they obtain value from it– What problems they may encounter

Success Factors in SIS

• Business-driven innovation, not technology-driven– The new or existing technology provides or

enables a business opportunity or idea to be converted into reality

– Major failures in using IT are often based on much better technology and bad business vision.

• Incremental development– Doing one thing and building on and extending

the success by a further development

Success Factors in SIS

• Using the information gained from the systems to develop the business– Product and market analyses plus external

market research information can be merged and then recut in any number of ways to identifying more appropriate marketing segmentation and product mix.

The Relationship b/w the Business, SIS, MIS and DP

The Management Implications

• We must manage IS/IT and its various applications in accord with the type of contribution it is making- improving efficiency, effectiveness and/or competitiveness through business change

• We should treat IS/IT like other part of the business => develop strategies for information systems and technology that are derived from and integrated with other components of the strategy of the business.

The Relationship b/w Business, IS and IT Strategies

IS Application Portfolio

High PotentialStrategic

Key Operational Support

Applications which are critical to sustaining future business strategy

Applications on which the organisation currently depends for success

Applications which may be of important

in achieving future success

Applications which are valuable but not critical

for success

Developed from Ward Fig., 1.8 which is sourced from McFarlan

IS Application PortfolioEvolutionary Stages

TurnaroundStrategic

Key Operational Support

Stage 5

Stage 3

Stage 2 Stage 1

Stage 4

?

Source: Ward et al page 39

What is an IS/IT Strategy

• IS/IT strategy is composed 2 parts: an IS component and an IT component

• The IS strategy defines the organization’s requirement or ‘demand’ for information and systems to support the overall strategy of the business.

• IT strategy is concerned with outlining the vision of how the organization’s demand for information and systems will be supported by technology.– It addresses the provision of IT capabilities and

resources and services

The Strategic Alignment Model: Henderson and Venkateaman, 1993

Business Strategy

Organizational Infrastructure and Processes

IT Strategy

IS Infrastructure and Processes

Increasing Organizational Maturity with Respect to IS planning : Earl, 1993

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Main task IS/IT application mapping

Defining business needs

Detailed IS planning

Strategic/ competitive advantage

Linkage to business strategy

Key objective

Management Understanding

Agreeing priorities

Balancing the portfolio

Pursuing opportunities

Integrating IS and business strategies

Direction from

IT led Senior management initiative

User and IT together

Executive/senior management and users

Coalition of users/management and IT

Main approach

Bottom-up development

Top-Down analysis

Balanced top-down and bottom-up

Entrepreneurial (user innovation)

Multiple method at same time

Summary description

“Technology led”

“Method driven”

“Administrative”

“Business led” “Organization led”

Strategic Alignment Maturity (SAM):Luftman, 2000

Initial/AdHoc Process

Committed Process

Established Focused Process

Improved/Managed Process

Optimized Process

Level 1

Level 2

Level 3

Level 4

Level 5

Strategic Alignment Maturity (SAM):Luftman, 2000

• 6 IT-business alignment criteria:– Communication Maturity: Ensuring ongoing

knowledge sharing across organization– Competency/Value Measurement Maturity:

Demonstrating the value of IT in terms of contribution to the business

– Governance Maturity: Ensuring that the appropriate business and IT participants formally discuss and review

Strategic Alignment Maturity (SAM):Luftman, 2000

– Partnership Maturity: How each organization perceives the contribution of the other; the trust that develops among the participants and the sharing of risks and rewards

– Scope and Architecture Maturity: the extent to which IT is able to:

• Go beyond the back office and into the front office of the organization

• Assume a role supporting a flexible infrastructure that is transparent to all business partners and customers

• Evaluate and apply emerging technologies effectively• Enable or drive business processes and strategies as a true

standard• Provide solutions customizable to customer needs

Strategic Alignment Maturity (SAM):Luftman, 2000

– Skills Maturity: Going beyond the traditional considerations such ad training, salary, performance feedback, and career opportunities are factors that enhance the organization’s culture and social environment as a component of organization effectiveness.

Strategic Alignment Maturity CriteriaCommunications

· Understanding of business by IT

· Understanding of IT by business

· Inter/Intra organizational learning/education

· Protocol rigidity· Knowledge sharing· Liaisons effecitveness

Competency/value measurements

· IT metrics· Business metrics· Balanced metrics· Service level agreements· Benchmarking· Formal assessments/

reviews· Continuous improvement

Governance

· Business strategic planning· IT strategic planning· Organization structure· Budgetary control· IT investment management· Steering committee(s)· Prioritization process

IT Business Alignment Maturity Criteria

Partnership

· Business perception of IT value

· Role of IT in strategic business planning

· Shared goals, risk, rewards/penalties

· IT program management· Relationship/trust/style· Business sponsor/

champion

Scope & Architecture

· Traditional, enabler/driver, external

· Standards articulation· Architectural integration: - Functional organization - Enterprise - Inter-enterprise· Architectural transparency,

agility, flexibility· Manage emerging technology

Skills

· Innovation, entrepreneurship

· Cultural locus of power· Management style· Change readiness· Career crossover training· Social, political, trusting

interpersonal environment· Hiring and retaining

Strategic Alignment Maturity (SAM):Luftman, 2000

• Initial/Ad Hoc Process: Business IT not aligned or harmonized– Communications: business/IT lack understanding– Competency/value: some technical measurements– Governance: no formal process, cost center,

reactive priorities– Partnership: conflict; IT a cost doing business– Scope and architecture: traditional (e.g.,

accounting, e-mail)– Skills: IT takes risk, little reward; technical

training

Strategic Alignment Maturity (SAM):Luftman, 2000

• Committed Process: The organization has committed to becoming aligned– Communications: limited business/IT

understanding– Competency/value: functional cost efficiency– Governance: tactical at functional level,

occasional responsive– Partnership: IT emerging as an asset; process

enabler– Scope and architecture: transaction (e.g., ESS,

DSS)– Skills: differs across functional organizations

Strategic Alignment Maturity (SAM):Luftman, 2000

• Established Focused Processes: SAM established on business objectives– Communications: business/IT lack understanding– Competency/value: some technical measurements– Governance: no formal process, cost center,

reactive priorities– Partnership: conflict; IT a cost doing business– Scope and architecture: traditional (e.g.,

accounting, e-mail)– Skills: IT takes risk, little reward; technical

training

Strategic Alignment Maturity (SAM):Luftman, 2000

• Improved/Managed Process: Reinforcing the concept of IT as a “Value Center”– Communications: bonding, unified– Competency/value: cost effective; some partner

value; dashboard managed– Governance: managed across the organization– Partnership: IT enables/drives business strategy– Scope and architecture: integrated with partners– Skills: shared risk and rewards

Strategic Alignment Maturity (SAM):Luftman, 2000

• Optimized Process: Integrated and co-adaptive business and IT strategic planning– Communications: informal, pervasive– Competency/value: extended to external

partners– Governance: integrated across the organization

and partners– Partnership: IT-business co-adaptive– Scope and architecture: evolve with partners– Skills: education/careers/rewards across the

organization

Why have an IS/IT Strategy?

• Systems investments are made that do not support business objectives.

• Loss of control of IS/IT.• Systems are not integrated.• No means for prioritizing investments.• No mechanisms for deciding optimum

resource usage.• Poor management information.• Misunderstandings between users and IT

specialists.

Cont…• Technology strategy is incoherent and constraints options.• Inadequate infrastructure investments made.• Problems caused by IS/IT investments can become a

source of conflict.• Localized justification of investments can produce benefits

that are counterproductive in the overall business context.• Systems, on average, have a shorter than expected business

life and require, overall, considerably greater IS/IT spending to redevelop more frequently than should be necessary.

The Context for IS/IT Strategy

• Internal context

• External context

The Context for IS/IT Strategy: Internal Context

• Infusion- the degree to which an organization becomes dependent on IS/IT to carry out its core operations and manage the business.

• Diffusion- the degree to which IT has become dispersed throughout the organization and decisions concerning its use are devolved.

4 Environments of IS/IT Strategy: Low Diffusion/Low Infusion

• highly-centralized control of IT resources, and IS is not critical to the business

• traditional environment typical of companies using IT to improve efficiency on a system-by-system basis.

4 Environments of IS/IT Strategy: Low Diffusion/High Infusion

• highly-centralized control, and IS is critical to business operations and control.

• The business could be seriously disadvantaged if systems fail.

• High-quality systems are needed with a high degree of integration.

• The systems have become part of the ‘backbone’ of the organization.

4 Environments of IS/IT Strategy: High Diffusion/ Low Infusion

• Largely-decentralized control, giving business managers the ability to satisfy their local priorities.

• Any integration of system occurs due to user-user cooperation, not by overall business or IT design

4 Environments of IS/IT Strategy: High Diffusion/ High Infusion

• Largely-decentralized control but the business depends on the systems for success, both in avoiding disadvantage and in achieving its overall business objectives.

Environments of IS/IT Strategy

The Context for IS/IT Strategy: External Context

4 th Era: An Organizational IS Capability

• Use of standard application packages => can limit an organization’s ability to innovate

• What distinguishes organizations with high performance IT is not technical but the way they manage their IS/IT activities.

• For an organization to apply IT to enhance competitiveness, it must develop an effective ‘IS capability’.

Summary

We need to take a strategic view.

 … IS as value adders rather than costs sinks..

integration between IS and the business

The integration of business strategy, IS and IT needs to be much closer.

The Central Theme of this Lecture

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Adapted from : Strategic Planning for Information Systems -Ward et al pg 44

The . . obvious conclusion about the evolution of the management of IS/IT is that it has crept unerringly away from the computer room, through the IS department and is now clearly a process that depends on users and senior management involvement for success