Strategic Planning

for Information
Systems
Third Edition
CHAPTER 1

John Ward and Joe Peppard

The Evolving Role of IS/IT
in Organizations : A
Strategic Perspective
 Introduction
IT has become inextricably intertwined
with business (Rockart, 1988)

Depends on the
effective
applications of IT
Most organization (all sectors)
dependent on their IS
Support existing
With e-Commerce, use of business operations.
technology is accepted (indeed
expected) way of conducting Source for competitive
business advantage

Learning from
IS & IT needs to be experience – the
managed strategically success and failures
of the past – is one of
Less strategic the most important
approach  legacy  Helpful to understand how the aspects of strategic
system role of technology-based IS has management.
evolved in organizations.
 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 packages
In 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).
 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) Transition from DP to
Management MIS
– Initiation • Change in how IS/IT
– Contagion resources were
– Control managed
• Information Systems • Change in how the
Management role of IS/IT is
– Integration evaluated
– Data management • Strategy for
– Maturity management of IS/IT
 Nolan’s Stages of Growth Model
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:

• Initiation
• Contagion
• Control
• Integration
• Data Management
• Maturity
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
increased 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
 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
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 (Membership
site,webinar,cheatsheet, live events)
• 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

Strategic High Potential

Applications which Applications which
are critical to may be of important
sustaining future in achieving future
business strategy success

Applications on which Applications which are

the organisation valuable but not critical
currently depends for success
for success

Key Operational Support

Developed from Ward Fig., 1.8 which is sourced from McFarlan
 IS Application Portfolio
Evolutionary Stages
Strategic Turnaround

Stage 5 Stage 4

?
Stage 3
Stage 2 Stage 1

Key Operational Support

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 Defining Detailed IS Strategic/ Linkage to

application business planning competitive business
mapping needs advantage strategy

Key Management Agreeing Balancing the Pursuing Integrating

objective Understanding priorities portfolio opportunities IS and
business
strategies

Direction IT led Senior User and IT Executive/ Coalition of

from management together senior users/manage
initiative management ment and IT
and users

Main Bottom-up Top-Down Balanced top- Entrepreneurial Multiple

approach development analysis down and (user method at
bottom-up innovation) same time

Summary “Technology “Method “Administrative “Business led” “Organization

description led” driven” ” led”
Strategic Alignment Maturity (SAM):
Luftman, 2000
Optimized Level 5
Process

Improved/
Managed Level 4
Process

Established
Focused Level 3
Process

Committed Level 2
Process

Initial/AdHoc Level 1
Process
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 Criteria
Communications Competency/value Governance
measurements
· Understanding of · IT metrics · Business strategic planning
business by IT · Business metrics · IT strategic planning
· Understanding of IT by · Balanced metrics · Organization structure
business · Service level agreements · Budgetary control
· Inter/Intra organizational · Benchmarking · IT investment management
learning/education · Formal assessments/ · Steering committee(s)
· Protocol rigidity reviews · Prioritization process
· Knowledge sharing · Continuous improvement
· Liaisons effecitveness

IT Business Alignment Maturity Criteria

Partnership Scope & Architecture Skills

· Business perception of IT · Traditional, enabler/driver, · Innovation,

value external entrepreneurship
· Role of IT in strategic · Standards articulation · Cultural locus of power
business planning · Architectural integration: · Management style
· Shared goals, risk, - Functional organization · Change readiness
rewards/penalties - Enterprise · Career crossover training
· IT program management - Inter-enterprise · Social, political, trusting
· Relationship/trust/style · Architectural transparency, interpersonal environment
· Business sponsor/ agility, flexibility · Hiring and retaining
champion · Manage emerging technology
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/ 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

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
\
/0

Adapted from : Strategic Planning for Information Systems Ward

- et al pg 44