Chapter 06

1. Chapter 06 Information SystemsStrategy

2. Learning outcomes After this lecture, you should be able to: • Describe approaches for developing IS strategy; • Assess the suitability of tools for selection and generation of IS strategy; • Evaluate approaches by which IS can support and impact business strategy; • Explain how IS strategy can support information management and knowledge management strategies.

3. Management issues Typical questions facing managers related to this topic: • How should we align IS strategy with business strategy? • How can Information and Knowledge management strategies be integrated with IS strategy? • Who should be responsible for IS strategy within an organization? • How can organizations evaluate and control the effectiveness of IS strategy?

4. What is IS Strategy Doherty et al. (1999), describe IS strategy development as: ‘the process of identifying a portfolio of computer-based applications to be implemented, which is both highly aligned with corporate strategy and has the ability to create an advantage over competitors’.

5. A more information-centric definition Wilson (1989) : ‘An information systems strategy brings together the business aims of the company, an understanding of the information needed to support those aims, and the implementation of computer systems to provide that information. It is a plan for the development of systems towards some future vision of the role of information systems in the organization.’

6. Chapter structure 1. Strategic evaluation. What is the current status of IS Strategy and implementation within the organization and the use of information systems within the broader competitive environment? 2. Strategic objectives. What specifically is an organization seeking to achieve through IS strategy development? 3. Strategy definition. Which strategic approaches and analytical tools are available to help us formulate the IS strategy? 4. Strategy implementation. How should the strategy best be executed through IS projects to help achieve objectives? This is covered in Chapter 7 (and 8 to 12) of Business Information Management.

7. Elements of an effective IS strategy – a reminder 1. Help support the future direction of an organization. 2. Achieve advantage for the organization (strategic objectives). 3. Define the allocation of resources to achieve this advantage. 4. Be primarily driven by the needs of the organization, but also by the needs of stakeholders such as shareholders, customers, suppliers or employees. 5. Be responsive to the dynamic environment in which an organization operates.

8. Outputs of an IS Strategy process Ward and Peppard (2002) identify the following as key outputs of the IS Strategy process: 1. IS/IT management strategy. An overall IS strategy for the organization describing the current situation, vision and rationale for IS-related change and plans. 2. Business IS Strategies. In larger organizations, these specify how each business unit will use IS/IT to deliver its business objectives. This will be defined at the level of applications portfolios for the business and relevant information architectures. 3. IT Strategy. Policies for the management of specific hardware and software resources comprising the IT infrastructure. This usually also includes the provision of end-user support services such as the IT help-desk.

9. Strategic Information Systems Planning (SISP) Earl (1995) in a review of the SISP literature, suggests that SISP should target the following areas: 1. Aligning investment in IS with business goals; 2. Exploiting IT for competitive advantage; 3. Directing efficient and effective management of IS resources; 4. Developing technology policies and architectures.

10. IT Governance COBIT defines IT governance as: ‘a structure of relationships and processes to direct and control the enterprise [use of IT] in order to achieve the enterprise’s goals by adding value while balancing risk versus return over IT and its processes’

11. COBIT IT Governance framework Figure 6.1 COBIT IT governance framework Source: COBIT (2000)

12. COBIT example - Philips Philips used COBIT to establish organizational capabilities on a maturity level basis, giving a clear indication of where improvement is possible and how to effect improvement. To maintain its proactive approach to IT, Philips continues to focus on: • Assessing actual outcomes of the process (based on key goal indicators and maturity levels) • Identifying problem areas (for IT processes with low maturity scores) • Defining best practices (defined process maturity level and higher) • Improving management processes and actions • Benchmarking scores

13. IS control model Figure 6.2 A model for controlling the contribution of information systems to an organization Source: BIM

14. Information systems services and activities Figure 6.3 Information systems services and activities Source: BIM

15. IS activities examples – the UK NHS Figure 6.4 Information systems activities for the National Health Service Information Authority Source: www.nhsia.nhs.gov.uk

16. Requirements of IS Strategy • Achieves alignment of IS strategy with business strategy while identifying competitive opportunities available through IS. These are the two core goals of any IS strategy as explained at the start of this chapter. • Simplicity through well-defined stages. The process should possess clearly defined, repeatable steps or stages that can be performed in a logical order. Such simplicity can help senior business managers work together with technical IT managers to develop the strategy. • Continuous process with evaluation and improvement built-in. It should be recognised that the strategy development process is a repeatable process that will have strengths and weaknesses which should be evaluated at the end of each planning cycle and adjustments made accordingly. • Flexibility. The process should enable changes within the business environment to be reflected in updated IS plans.

17. Scope of IS Strategy • Timescale: • Relatively long-term (2–5 years) • Relatively short-term (6 months to 1 year) • Orientation: • Top-down • Bottom-up

18. Example of long-term IS Strategy

19. Top-down method of IS strategy definition Starts with the business objectives and then assesses which information systems can be used to help achieve these objectives. For example, if the Lo-cost Airline Company has a business objective of increasing the volume of repeat business through developing or enhancing a customer loyalty scheme, then IS such as customer relationship management systems can be developed or enhanced to help create this.

20. Bottom-up method of IS strategy definition • Here the selection of the IS applications portfolio partially or completely determines the emphasis of IS strategy and how it impacts corporate objectives. • For example, different managers in the Lo-cost Airline Company such as the marketing manager, HR manager and E-commerce manager request different systems according to their own departmental or functional needs, then this helps determine IS strategy.

21. Mini-case study – Test Valley 1 The need for the IS strategy is explained as follows: ‘An I.S. strategy is a way of smoothly directing the decisions that the Council makes in its use of new technology. This will improve the services that we provide to our customers; the public, the Councillors and each other. The strategy has to address the present position and problems, the increasing dependence on IT by services, plan for the “foreseeable” technology, and allow for developments that may have not been thought of yet. There is certainty that change and new developments will take place. A function of the I.S. Strategy is to apply controls that will facilitate the management of these changes.’

22. Mini-case study – Test Valley 2 a. The Executive. b. The Information & Communications Board. c. The Management Team. d. The User Advisory Group (UAG). e. IS Working Groups. f. The IT Service management and staff. g. Internal Audit Section.

23. Mini-case study – Test Valley 3 The I.S. strategy has three major components: • Technology – Including operating systems, network and mobile technology. • Standards – standards that are driven by legislation, working trends or best practice. These include applications. • Security – To ensure information is safe, accurate and recoverable.

24. Mini-case study – Test Valley 4 Figure 6.5 Online payment services at Test Valley Borough Council Source:www.testvalley.gov.uk

25. Mini-case study – Test Valley 5 Figure 6.6 Components of Test Valley Council IS Strategy Source:www.testvalley.gov.uk

26. Approaches to strategy development

27. A generic IS Strategy development process model Figure 6.7 A generic IS strategy development process model Source: Chaffey (2002)

28. Options for control of IT • Appointing IS/IT Director to the board. 2. Other board member ultimately responsible for IS/IT (Sponsor). 3. Steering committee or special working group. 4. Business unit leader.

29. Research Insight • How company directors perceive IT managers • The research suggested that company directors see IT directors as ‘advisory figures, rather than people who are qualified to make important decisions on spending, according to recent research.’ • How IT managers perceive company attitudes to IT • The survey found that IT-related issues were a low priority (80% agreed) and this was attributed to senior managers not being able to comprehend the long-term implications of technology issues (41%) agreed. • IT Managers as board members • IT managers were unlikely to become board members. Less than a third of UK companies had an IT director on the board. Of the IT managers surveyed, only 5% thought that they had a very good chance of being promoted to the board within the next couple of years.

30. Situation analysis for IS • Internal organizational environment. • Internal IS environment. 3. External micro-environment (IS perspective). 4. External macro-environment (IS perspective).

31. Nolan’s stages of growth model Figure 6.8 Nolan’s stages of growth model Source: Galliers and Sutherland (1991)

32. Characteristics of stages of growth model 1.Initiation. The first use of applications within an organization. Characterised by lack of senior management interest, operational or simple office systems and transactional systems to reduce costs. 2.Contagion. Widespread use of applications as benefits are sought from automation and information management. Characterized by rapid growth in use of application with enthusiasm from departmental managers, overall control is limited. 3Control. This stage is a reaction against excessive and uncontrolled expenditures of time and money on computer systems from the contagion stage. It is characterized by introduction of plans, methodologies and expenditure controls, often resulting in an applications backlog. 4 Integration. This is a reaction against the use of departmental applications and data silos arising from earlier poor control. Traditionally characterized by use of databases, today the use of middleware and enterprise resource planning systems. Control continues to improve at this stage. 5Data administration. A change of emphasis to information management rather than focus on technology and applications. Databases and document / content management systems introduced to help achieve this. 6 Maturity. Information systems are put in place that reflect the real information needs of the organization. Characterized by planning and development of IS closely linked to business strategy.

33. Stages in adoption of different models Figure 6.9 Stages in adoption of different models Source: Galliers and Sutherland (1991)

34. COBIT maturity model Level 0 Non-existent. There is a complete lack of any recognisable IT governance process. Level 1 Initial /Ad Hoc. There is evidence that the organization has recognised that IT governance issues exist and need to be addressed. No standardized processes. Level 2 Repeatable but Intuitive. There is global awareness of IT governance issues. IT governance activities and performance indicators are under development. Level 3 Defined Process. The need to act with respect to IT governance is understood and accepted. A baseline set of IT governance indicators is developed, where linkages between outcome measures and performance drivers are defined, documented and integrated into strategic and operational planning and monitoring processes. Level 4 Managed and Measurable. There is full understanding of IT governance issues at all levels, supported by formal training. There is a clear understanding of who the customer is and responsibilities are defined and monitored through service level agreements. Responsibilities are clear and process ownership is established. IT processes are aligned with the business and with the IT strategy. Level 5 Optimised. There is advanced and forward-looking understanding of IT governance issues and solutions. Training and communication is supported by leading edge concepts and techniques. Processes have been refined to a level of external best practice, based on results of continuous improvement and maturity modeling with other organizations.

35. Figure 6.10 Adoption steps of e-business services

36. The Wayback machine Figure 6.11The Wayback machine Source:www.archive.org

37. Two alternative models of the value chain: (a) traditional value chain model (b) revised value chain model Figure 6.12 Two alternative models of the value chain: (a) traditional value chain model (b) revised value chain model Source: Chaffey (2004)

38. Figure 6.13 Five forces model with questions that can be asked to assess the impact of information systems or e-commerce Source: BIM

39. Enhancements to Sainsbury supply chain Figure 6.14 Enhancements to Sainsbury supply chain Source: BIM

40. Changes in adoption of Mobile phone, Internet and digital TV services in the United Kingdom 1997-2004 Figure 6.15 Changes in adoption of mobile phone, Internet and digital TV services in the United Kingdom 1997-2004 Source: E-MORI Technology tracker, www.mori.com/emori/tracker.shtml

41. Snapshot example of the adoption of the Internet for different uses across different social groups Figure 6.16 Snapshot example of the adoption of the Internet for different uses across different social groups Source: BIM

42. CSFs and KPIs The use of critical success factors (CSFs) is valuable in helping to align new systems with business objectives. Critical success factors are those factors that determine whether business objectives will be achieved. Key performance indicators (KPIs) are then used to set targets for CSFs and assess whether these have been achieved. COBIT defines KPIs as ‘the lead indicators that define measures of how well the IT process is performing in enabling the goal to be reached’.

43. Example

44. Sample COBIT KPIs 1. Improved cost-efficiency of IT processes (for example, cost per head of delivering IS applications and the return on investment of individual applications). 2. Increased utilization of IT infrastructure (for example, proportion of staff using applications). 3. Increased satisfaction of stakeholders (through surveys of satisfaction levels and number of complaints). 4. Improved productivity of staff (this includes both IS staff, e.g. number of support calls answered and business staff, e.g. call resolution times in a call centre). 5. Increased availability of knowledge and information for managing the enterprise (this tends to be an intangible measure, i.e. types of information available, but COBIT recommends assessing standard attributes of information quality i.e. effectiveness, efficiency, confidentiality, integrity, availability, compliance, reliability).

45. The balanced scorecard Balanced scorecard A framework for setting and monitoring business performance. Metrics are structured according to customer issues, internal efficiency measures, financial measures and innovation • Customer concerns. These include time (lead time, time to quote etc.), quality, performance, service and cost. • Internal measures. Internal measures should be based on the business processes that have the greatest impact on customer satisfaction: cycle time, quality, employee skills, productivity. Companies should also identify critical core competencies and try to guarantee market leadership. • Financial measures. Traditional measures such as turnover, costs, profitability and return on capital employed. For publicly quoted companies this measure is key to shareholder value. • Learning and growth: innovation and staff development. Innovation can be measured by change in value through time (employee value, shareholder value, percentage and value of sales from new products).

46. IT Scorecard case study – Booz Allen Hamilton 1 • Booz Allen Hamilton created an IT scorecard with metrics relevant to different audiences such as corporate and business unit management and both senior and junior IT staff. He describes the resulting scorecard as: ‘multi-layered; the top layers have relatively few items and are focused on service offerings – the services users want and are willing to pay for. Examples are collaboration and communication, telephones, order processing and financial accounting. Business users find the highest levels of the scorecard most useful. Technology staff use the scorecard’s lower layers to track the status and performance of each service offering and technology components, such as e-mail applications, directory services, WANS, LANS, servers, storage systems and so on.’

47. IT Scorecard case study – Booz Allen Hamilton 2 • Within each layer of the scorecard, Booz Allen Hamilton distinguishes between key performance indicators (KPIs) which give an indication of effective or efficient delivery of IT services and performance measures (PMs) which are the reporting measures used to assess progress to delivery of KPIs. • KPIs include sales growth, customer satisfaction and e-mail availability. The corresponding PMs are sales order totals, the percentage of survey respondents who were favourable about the service and the percentage availability of e-mail services. • There are 14 indicators at Level 1, with more detail of 140 measures at level 2; around 10 measures for each of the level 1 indicators. Levels 1 and 2 are circulated to the business unit managers each month. Levels 3 and 4 focus on the technology components and there can be hundreds of data points managed through one IT manager and reviewed more frequently.

48. IS Strategy defined • The IS strategy involves setting relative investment priorities for applications, support services and infrastructure. The infrastructure includes both hardware and network architecture, but also information architecture (and information management).

49. Business alignment With the business alignment approach to IS strategy definition, the selection of the application portfolio is driven primarily by the business objectives and information needs. Enterprise resource planning to support, for example financial applications is an example of this approach.

50. A problem with the alignment mindset? Computer Weekly (2003) reported the comments of Jean-Louis Previdi, director of research at analyst group Meta which suggests the danger of this approach. He said: ‘IT directors need to change business perceptions of IT as a cost centre or face having their IT departments outsourced.’ He told IT directors to manage the expectations of the whole enterprise and stop trying to align IT with the business, adding: ‘A chief financial officer will never say he is aligning finance with the business IT is the business.’ ‘CIOs are change agents for the enterprise and should speak in terms of value, accountability, finance and return on investment across the whole business.’