PERSPECTIVES ON THE EFFECTIVE USE, PLANNING,
AND IMPACT OF INFORMATION TECHNOLOGY
Stuart E.
March 1987
*
II·
____
___1__11_1_______-.--
Madnick
#WP 1868-87
Version:
7:00 am
2/16/87
PERSPECTIVES ON THE EFFECTIVE USE, PLANNING,
AND IMPACT OF INFORMATION TECHNOLOGY
Stuart E.
Madnick
INTEGRATING INFORMATION TECHNOLOGY INTO CORPORATE STRATEGY
(IT)
Information technology
as
limelight
major
force
to
moved
demonstrably
"strategic computing,"
exploit
into
the
be reckoned with in corporate
Offering promises of "competitive advantage"
America.
that
a
has
examples can be
in all the major business publications.
those
to
found cited
One of the earliest, and
now classic, examples is American Hospital Supply
[1]:
and
manufacturer
American Hospital Supply (AHS), a leading
doctors,
for
of
products
a
broad
line
of
distributor
an
1976
evolved
since
has
hospitals,
laboratories, and
links the
that
directly
system
distribution
order-entry
4,000
Over
AHS
computers.
to
majority of its customers
terminals at various locations are linked today to
customer
as
providing
As well
the American Hospital Supply system.
the
customer
with
direct
access
to
the
AHS
orderdistribution process, the system allows customers to perform
themselves,
for
control,
inventory
such
as
functions,
The
for AHS.
revenues
incremental
generating
thereby
American Hospital Supply system has been successful because
reduces
for
customers,
processes
ordering
it simplifies
customer, and allows AHS to
the
AHS
and
both
costs
for
develop and manage pricing incentives to the customer across
As a result, customer loyalty is high,
lines.
product
all
and AHS market share has been increasing.
In seeking success for the corporation
1
information
there are three factors that must be considered
technology,
Figure
through
[2]).
applications
and
Obviously,
information
an
understanding
technology
is
of
(see
strategic
critical.
But, a
third, and oft overlooked, critical dimension is the need to plan
the
organizational
changes
-
_
I
n
^P_
necessary
if stategic applications
1 -
__
III
using
information
technology
are
to
succeed.
This
planning
activity is the focus of this paper.
Figure 1
Factors critical to success
Strate~
I
II
I
I
I
I
II
II
II
I
olov10
-4-.
z
,,,,,,,,,
/
_____________~~~~~~~~~~~~~~~~~~~
I
Organization Ptanninl
Framework for Integrating IT into Corporate Strategy
Top management needs a framework to understand how
to
integrate
information technology into its corporate structure and an action
plan to seize the opportunities made possible.
A starting point for such a framework is
Porter's
for
any
work
on competitive strategy [3,4].
company,
diminishing
significant
strategic
in
Michael
He suggests that,
actions
consist
of
supplier or customer power, holding off new entrants
into its industry, lowering the possibility of
its
found
products,
substitution
for
or gaining a competitive edge within the existing
- 2 -
industry.
four
All
case.
Supply
Hospital
American
Porter's
of
elements
strategy
This generic
the
in
appear
framework can be
more
extended in various ways to focus on information technology
directly.
The strategic opportunities matrix in Figure 2
a
simple,
[1]
provides
but powerful, way of thinking about the strategic use
of IT.
Figure 2
Strategic Opportunities Matrix
STRATEGIC OPPORTUNITIES
h-Internal ---
ARENA
External --Competitive Marketplace
Internal Operations
T
Traditional
Products &
Processes
Low
AMERICAN HOSPITAL SUPPLY
-- expanded order-entry
system
XEROX
-- improved field
service dispatch
I
system
ORGANIZATIONAL
CHANGE
Significant
High
MERRILL LYNCH
DIGITAL EQUIPMENT
Structural
-- automated
-- merged securities and
Change
("expert system")
for designing
computer
banking through cash
management account (CMA)
configurations
occur
The opportunities arena may
within the corporation, such as Xerox's
system,
in
or
suppliers,
the
operations
improved service-dispatch
with
customers
and/or
organizational
change
brought
about
or
by the IT may be fairly low, as in case of Xerox and
American Hospital
Digital's
internal
as in the American Hospital Supply order-entry system.
Furthermore,
facilitated
relationships
external
in
or
Supply,
restructuring
process or in Merrill
of
it
its
may
be
computer
Lynch's expanded
role
services through its cash management account
- 3 -
significant,
as
in
configuration-design
into
(CMA).
many
banking
11
Positioning IT in the Organization
Technological myopia can
seize
top
new
stifle
an
organization's
ability
to
opportunities. John Wyman [5] notes the importance of
management
organizational
positioning.
level
and
He
role
cites
of
a
the
top
survey
IT
of
the
position that
reflects the corporation's attitude toward information technology
(see Figure 3).
Figure 3
Strategic Positioning Matrix
High
4
Full
+$500M
Sample Sales
Top IS
Planning
Position
Role
Attitude
8%
17%
CIO
Strategic
Priority
27%
30%
VP, MIS
Tactical
Necessary Investment
27%
17%
Dir, MIS
Operational
Necessary Expense
38%
36%
Mgr, DP
(or TP.OA)
Budgeting
Expense to Control
Low
At the lowest tier in this
office automation
matrix,
data
(OA), and telecommunications
processing
(TP) are perceived
as three separate islands, each with its own manager and
The
(DP),
budget.
firm sees these three distinct functions as expenses in need
of control.
In contrast, at the highest level, the management of what is
now integrated technology, moves to the senior officer level -- a
chief information officer
financial
officer.
Here,
(CIO),
the
a
counterpart
the
chief
planning task is to develop the
firm's strategic use of information technology.
is
of
When information
viewed in this context it becomes very valuable, something to
- 4 -
be treated as a priority investment equal in importance to
or
capital.
Wyman reported that the larger organizations, those
with over $500 million in sales, were twice
established
labor
already
a
CIO
position
as
likely
to
have
compared with the smaller
organizations surveyed.
Matching IT to the Organization's Corporate Strategy
It is not sufficient merely to identify
and
establish
a
supportive
strategic
opportunities
structure.
organizational
It
is
important that the information technology strategy selected match
the
organization's
of such a
L.
Lederer
strategic posture as well.
strategy are
identified by
large
Systems
numbers
(e.g.,
Camillus and Albert
[6]:
(1) Transaction Processing
Support
John C.
Three dimensions
an
(DSS):
of
A
or
intended to aid
managerial
TPS-DSS
actually
(TPS)
vs.
efficiently
reservation
decision
represents
and
hand,
is
accurately
system).
making.
A
DSS is
Although
the
a continuum, the TPS is
inherently oriented toward programmed decisions;
other
Decision
TPS is a system set up to process
transactions
order-entry
choice
Systems
DSS,
on
the
more appropriate for semistructured problems
and nonprogrammed decisions.
(2) Mainframe vs.
scale
mainframe
Independent
computer
can
Microcomputers:
provide
a
A
large-
high-performance
centralized data-base capability, such as may be needed for an
airline
the
reservation
other
hand,
system.
may
- 5 -
.-X--XI
be
Independent microcomputers, on
appropriate
in
a
consulting
Ill
organization where each specialist has very different data and
analysis needs.
(3)
Strict
acquisition,
vs.
data
control,
strict or flexible.
defined
Flexible:
The
staffing,
etc.,
for
may
Where efficient execution
of
hardware
be either
a
clearly
strategy is important, a comprehensive and strict set
of policies is probably warranted.
these
policies
policies
would
promote
A
flexible
approach
to
creativity, independence, and
adaptive behavior.
These three dimensions are independent and
an
organization
could select a separate position on each; however, matching these
information technology strategies with corporate strategies leads
to
certain
likely
relationships, as suggested in Figure 4 [6].
In this figure the key elements of strategy alternatives proposed
by Glueck (a) [7], Porter (b) [3], and Miles and Snow (c) [8] are
depicted.
Figure 4
Matching IT Strategy and Corporate Strategy
INFORMATION TECHNOLOGY STRATEGY ALTERNATIVES
(1) TPS <
(2) Mainframe <
(3) Strict <
-
> DSS
> Micro
> Flexible
i
(a) Stability <---> Retrenchment <--> Growth
(b) Cost Efficiency <-> Focus <
> Differentiation
(c) Defender <
> Analyzer <--- > Prospector
CORPORATE STRATEGY ALTERNATIVES
A stability (a), cost-efficiency (b), or defender (c) stance
mandates
an
orientation
that
increase in volume of activity
- 6 -
can
--
enhance
suggesting
profits without an
a
TPS
mainframe
information
technology with strict policies.
a growth (a), differentiation (b), or
strategy
might
be
best
On the other hand,
prospector
(c)
corporate
accomplished by a flexible orientation
utilizing micros with DSS capabilities.
Each situation, of course, must be examined separately,
this
framework
helps
but
to structure the evaluation process.
important point is that an
explicit
matching
be
done
importance
of
matching
The
between
corporate strategy and IT strategy.
Control of IT
The
previous
corporate
section
and
the
noted
IT
the
strategies.
accomplishing this goal, ranging
There
from
Turner [9]
are various ways of
very
integrated corporate/IT strategy planning.
the
informal
to
fully
Henry C.Lucas and Jon
suggest the alternatives listed in Table 1.
Table 1
Integration of Information Technology
and Corporate Stategies
Level
f
Integra ttion
Primary Objective
I.
Indep)endent
II.
Polic :y
sup )port
III . Fully
int .egrated
Secondary Objective
Operational
Managerial
efficiency
information
Aid decision
Understand problem
making
dynamics
Open new products, Change decision
markets,
process, consider
directions
alternatives
In the independent situation, information
linked
to
tasks with
traditional
any
corporate
operational
payroll,
efficiency;
_ _
__·_____I__________·_II______
are
not
other than to perform their
this
corresponds
inventory, and order-entry systems.
- 7 -
*
strategy
systems
to
most
In the
III
policy-support situation,
develop
help
corporate
by producing sales forecasts and testing
for instance,
strategy,
IT is used to
assumptions during the planning process.
Explicit control
formulation
strategy
are
exploitation
successful
extreme
of IT and full
cases,
IT
of
strategy
necessary
IT
illustrated by the following case
the
corporate
prerequisites
strategic
is
into
integration
to
opportunities.
strategy,
corporate
the
In
as
[9]:
strategy
corporate
Information Resources, Inc. developed a
The firm
is
intertwined with information technology.
that
purchased grocery-store point-of-sale scanning equipment and
it free to fifteen supermarkets in two towns, selected
gave
There were
2,000
on the basis of their demographic makeup.
using the
the
two
test markets
in
each
of
households
an
recorded
on
purchases
were
scanning equipment: their
Since
each
in
Chicago.
computer
Information
Resources
product
code,
the
universal
was
marked
by
product
a family's purchases by price,
could
pinpoint
researchers
information
brand, and size and then correlate the purchase
such as coupons, free samples, price
with
any
promotions,
adjustments, advertising, and store displays.
Resources
can
Information
This technology means that
conduct
economical scientific tests of marketing strategies
customers.
to determine the most effective approach for its
cooperation with a cable TV network,
example,
through
For
TV
spots
to
selected
the
firm
can
target
different
The
purchases.
analyze
the
resulting
and
households
allowed
the
in
fact,
imaginative use of this technology,
better
lead
over
larger,
a
competitive
firm
to
gain
established market research firms.
Assuming that one
seize
such
strategic
is
advantages,
corporation's information
process
appropriately
systems
how
motivated
does
organization
to
want
to
one structure the
and
develop
a
for planning for this new era of information technology?
These issues are addressed in the next section.
- 8 -
PLANNING FOR THE NEW ERA OF INFORMATION TECHNOLOGY
Role of the Chief Information Officer
The
role
of
the
fundamentally
top
changing
1960s and 1970s to a
1990s.
But
how
orientation,
information
from
systems
the "technical"
executive
orientation of the
"managerial" orientation for the
does
is
1980s
and
the IS executive develop this managerial
focus energy
and
efforts,
and
develop
effective
relationships with peer executives?
A powerful tool for helping
these
needs
is
the
key
areas
of
identify
Critical Success Factors
developed by John F. Rockart
few
to
[10,
activity
11].
in
ways
of
meeting
(CSF) methodology
CSFs help identify
which
favorable
those
results
are
absolutely necessary for a particular manager to reach his or her
goal.
In
a
survey of nine major companies that generally were
regarded as outstanding in their use
[10],
the
CSFs
of
summarized
into
the
communication,
IS
the
top
IS
following
human
of
information
executives
four
resources,
were elicited and
key
and
technology
CSFs:
service,
repositioning
the IS
function.
A general profile of successful IS executives
this
study.
managers,
the
not as information systems technicians.
systems
success of the company --
crisp,
short,
function
as
and they are
perspective to others.
very
They also
see
significant to the
constantly
communicating
Each IS executive interviewed had a
clear view of his or her own critical success factors.
all
from
These executives see their role as general business
information
this
emerged
In
had well-defined perspectives on IS technology and a
-9-
III
clear vision of where their corporations
be
should
with
going
that technology.
spoke
Finally, almost all of the executives interviewed
Emphasis was often placed on the need
from a "rational" one.
to
individuals
"power"
key
get
"political" perspective as well as
a
from
organizations
their
tool
for
both
planning
for
the
effective
an
starting
the
methodology
CSF
information
of
exploitation
goal and
this
accomplishing
to
in ways
act
and
understand
The use of the
beneficial to the organization.
is
of
technology within the firm.
An Assessment of Critical Success Factors for Planning
analyst and a CEO,
an
between
interviews
Originally the CSF procedure, which involved
was intended to identify critical areas of
concern for that executive and to provide initial descriptions of
Subsequently Bullen and Rockart
and
CSFs
When used in this
must
into
synthesized
a
of
be used as an MIS planning tool.
from
managers
hierarchy
organization's
CSFs are
way,
[12] broadened the definition
they
that
proposed
needs.
critical
these
reflect
that
measures
information
of
levels
multiple
an
be interviewed and the resulting
collective
set
for
the
entire
organization.
A
these
a
number of organizations have employed CSFs successfully in
ways.
Boynton and Robert W.
Andrew C.
study to determine the
strengths
and
Zmud
weaknesses
[13]
conducted
of
the
CSF
methodology as applied to MIS planning and requirements analysis.
They suggest that the CSF method has two key strengths that
it
successful.
First,
-
10
it
-
generates
user
acceptance
make
at the
senior-manager level.
thrust
Senior managers intuitively understand the
of the method, and consequently they strongly endorse its
application as a means of identifying important areas
attention.
Second,
the
CSF
method
attention
on
a
It
design
to
be
initially
focuses
a
core set of essential issues and
then proceeds to refine the issues in a
evolving
need
facilitates a structured,
top-down analysis or planning process.
participant's
that
examined
manner
that
allows
an
continuously for validity and
completeness.
In strategic planning, CSFs form a bridge between
strategic
interests
and
information function.
strategic
Since an
planning
organization's
corporate
efforts
CSFs
of
are
the
those
factors that must go well for the organization to succeed, a link
is provided between
an
organization's
tactical
and
strategic
In their study of CSF effectiveness, Boynton
and
Zmud
planning objectives.
did
find that the more removed managers and other personnel were from
the senior management level, the
develop
findings
meaningful
about
corporatewide
critical
success
weaknesses (see Table 2).
-
____
I
sl_
11
-
more
difficult
CSFs.
factors
it
became
to
They categorized their
into
strengths
and
Table 2
Strengths and Weaknesses
of CSF Method
STRENGTHS:
. Provide effective support to planning processes.
• Develop insights into information services
that
can
impact firm's competitive position.
. Are received enthusiastically
by
senior
management
who identify with the thrust of the CSF concept.
. Serve as the top level of a structured
analysis
and
promote structured analysis process.
WEAKNESSES:
. The more removed managers are from senior
positions
within the
organization, the more difficult it is for them
to identify meaningful organizational CSFs.
. Managers not involved with
strategic
and tactical
planning
can
experience
difficulty
in
dealing
with the
conceptual nature of CSFs.
. It is difficult for
certain
managers
to
ascertain
their information needs using only CSFs.
By understanding these strengths
method
can
and
weaknesses,
the
CSF
be effectively applied to help a corporation perform
strategic information technology planning.
Top Management Participation
As the
previous
discussions
participation,
indicated,
direction,
and
support
strategic use of information technology.
accomplish
this,
John
F.
Rockart
and
active
are
top-management
crucial
to
There are many ways
Adam D.
Crescenzi
the
to
[14]
propose a three-phase process:
I.
Critical Success Factors
II.
Decision Scenerios
III. Prototyping
The use of critical success factor analysis in Phase
only
provides
the
linkage
between
business
information technology, but it also establishes the
management
participation
-
12 -
I
not
strategy
and
active
top-
needed to carry through with Phases II
and III.
The decision scenerios explored in Phase II have
goals:
to
confidence
develop
that
the
systems
priorities
systems
two
major
and to gain managerial
priorities
will
support
the
corporation's key objectives.
Phase III
actual
involves
systems.
A
creating
prototype
prototypes
provides
and
enormous
reducing monetary risk, reducing business risk,
manager
to
inspect,
implementing
benefits
and
by
allowing
a
work with, and actively participate in the
development of the system.
Portfolio of Systems Planning Methodologies
A variety of systems planning
over
the
the years.
Infusion
Two
important
refers
information technology into
focus
has
been
proposed
Each can serve an important role depending upon
circumstances.
diffusion.
methodologies
to
the
factors
the
degree
organization,
are
infusion
and
of penetration of
usually
on decreasing costs and/or increasing revenues.
refers to how widely the information technology is
with
a
Diffusion
decentralized
and disseminated.
Using these two dimensions, Cornelius H. Sullivan, Jr.
identifies
four
planning
environments
methodology for each (see Figure 5).
- 13 -
___________
and
[15]
the most promising
III
Figure 5
Technology Planning Environments
High
SYSTEMS
DIFFUSION
(DEPLOYMENT)
"Federation"
(Critical Success
Factors)
"Complex"
(Eclectic)
"Traditional"
(Stages Of
Growth)
"Backbone"
(Business Systems
Plan)
Low
Low
--
SYSTEMS INFUSION
The Stages of Growth
twenty years ago,
(SOG)
(IMPACT) --
method,
High
first
suggests that the changes
proposed
almost
introduced by IT must
be assimilated by organizations through a predictable sequence of
stages,
starting
with
initiation
consolidation and maturity.
changed
by
increasing
This
expansion,
situation
infusion
viable and appropriate in
and
and
is
followed by
rapidly
being
diffusion, but it remains
"traditional"
environments
with
low
infusion and diffusion.
The Business Systems Plan
on
conceptualizing
resource.
where
designing
the
This approach works well
in a
computing
and
(BSP), developed by
is
strategic
to
overall
IBM,
focuses
corporate data
"backbone"
environment
the company, yet it is still
centralized in the manner of its deployment
and
operated
in
a
manner analagous to a factory.
The Critical Success Factor
ability
to
departments,
be
customized
(CSF) approach, because
to
individual
is ideal in the environment in which
of
its
executives
and
technology
is
to be distributed among communicating "federations".
No
single
environment
of
method
high
appears
diffusion
to
and
complex corporations draw upon these
- 14
-
dominate
in
the
high infusion.
three
methods
complex
Thus, many
to
develop
their
own
unique
eclectic
additional factors, such as
approaches,
data-resource
often
incorporating
management,
network-
resource management, and new organizational designs.
Pressures on the Information Systems Organization
There are two
systems
important
organizations
forces
at
work
in
most
information
that must be realized and addressed.
traditional information systems organization, depicted in
6(a),
The
Figure
could be divided into three levels of management hierarchy:
the head of IS,
the
middle-level
operations management.
IS
management,
and
the
IS
This organizational structure is evolving
through the <1> the elevation of the CIO and <2> the introduction
of information centers
(IC), as depicted in Figure 6(b).
Figure 6
Pressures on the Information Systems Organization
Head
Head
<1> CO Elevation
Middle
Management
Middle
Management
Operations
Management
Operations \ <2> IC
Management \Introduction
(a) Traditional
(b) Evolving
Information Systems
Organization
Information Systems
Organization
In other words, as information technology has
increasingly
important
strategic
taken
has
been
elevated
- 15 -
I_
_^ I
II__IPI_
_III___
an
role, the head of Information
Systems, increasingly being called the chief information
(CIO),
on
officer
in the organization's hierarchy.
As
early as the Fall of 1984 the CIO function was identified
percent
of
elevation,
produces
the
Fortune
however,
not
100
companies
only
raises
surveyed
in
30
[17].
This
but
also
expectations,
disappointment, especially if the lower levels of an IS
organization hierarchy continue to operate as if
no
change
had
occurred.
Another major change has grown out of the information center
(IC)
concept.
Conceived
by
IBM
Canada in 1976, this concept
envisages an organization that supports technology for end users.
In
over
a 1983 study by the Diebold Group of New York, noted in [16],
66
percent
information
of
the
centers.
companies
Today,
surveyed
had
introduced
these information centers provide
end users with increased self-sufficiency and productivity
aids,
thereby reducing the amount of traditional IS resources needed.
The information center's predominant focus has been
use
of
technology,
usually
without
on
explicitly addressing the
management of technology.
Thus, the operational level of the
hierarchy
responsibilities
has
technologies
broader
--
yet
often
without
the
for
supporting
corresponding
IS
new
management
adjustments.
The combination of
introduction
is
organizations.
CIO
leading
elevation
to
and
disruptions
information
within
center
many
IS
What is needed is recognition of these forces and
adjustments to the organization to support the CIO's new role and
to manage the technology.
An example of
such
a
structure
has
been proposed by Darrell E. Owen [16].
Besides the internal concerns, such as the IS organization's
structure,
a
corporation
- 16 -
must
also
be
cognizant
of
the
environment in which it exists and its
employees
responsibilities
of the organization and to society.
to
the
Specific examples
of these issues are highlighted in the next section.
RESPONSIBILITIES TO THE ORGANIZATION AND SOCIETY
The
pervasive
and
necessitates
critical
certain
role
of
information
responsibilities
to
customers,
organization, the industry, and society at
large.
Akers,
"if
President
of
IBM,
states
[18],
ourselves responsibly, governments and
other
erect
our
barriers
that
could
restrain
technology
As
the
John
F.
we don't conduct
institutions
will
growth and limit the
effectiveness of our industry."
One particularly important area to
security
--
that
is,
the
policies
consider
is
and procedures adopted by
management to determine authorization and to ensure the
of
managerial
security
their data and the computer installation against unauthorized
access or modification.
A framework to categorize management policies and procedures
has been developed by Madnick [19].
primary
impact,
areas:
organizational
economics,
and
This article identifies four
considerations,
objectives
Accountability warrants special
attention
organizational
and
accountability.
since
assignment
of
accountability is often not explicitly performed or monitored.
Philip Adler, Jr., Charles K.Parsons,
[20]
address
these
administration.
implications
and
issues
Their research
concludes
-
17 -
in
the
identified
and
Scott
context
of
specific
B.
Zolke
personnel
management
with the development of a four-step
Ill
proposal:
1. Develop a formal practices plan
2. Encourage active employee involvement
3. Accumulate only relevant and recent data
4. Carefully control and monitor release to the outside
Although externally developed social, legal,
influence
may
factors
or
upon
propel
us
information
toward
an
ever
technical
constrain options, primary decisions
continue to be based on internal management
reliance
and
As
decisions.
our
technology continues to heighten and
more
"information
comprehensive
these issues will become increasingly critical.
society,"
CONCLUSIONS
a
Corporations stand at the threshold of
new
age.
Confronted
with worldwide turbulence and competition, information technology
is the new weapon that is capable of
balance
of
power.
needed
to
changing
the
An effective battle plan and the ability to
mobilize resources are essential.
steps
dramatically
This paper has
presented
the
integrate IT into the corporate strategy, plan
the changes to the organization, and be alert to the impact
upon
society at large.
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R. I. Benjamin, J. F. Rockart, M. S. Scott
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A
Morton,
and
Strategic Opportunity,"
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"Gaining
Strategic
E. Madnick and Y. R. Wang,
[2]
S.
Advantage Through Composite Information Systems", Working Paper,
February
(Cambridge, Mass.),
Sloan School of Management, MIT
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[3]
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19 -
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- 20 -