CMIP6103

INFORMATION
SYSTEM PLANNING
Course Team

Developer: Prof Janice Burn, Edith Cowan University, Australia

Martin Barnett, Edith Cowan University, Australia

Designer: Dr Rex G Sharman, OUHK

Coordinator: Dr Chung Siu Leung, OUHK

Member: Dr Wan Hak Man , OUHK

External Course Assessor

Dr Sun Daning, Lingnan University

Production
ETPU Publishing Team

Adapted for Open University Malaysia

Prof. Dr Mohammed Bin Yusoff

Faculty of Information Technology and Multimedia Communication, OUM

Copyright © The Open University of Hong Kong and Open University Malaysia, Jan 2008,
August 2009, CMIP6103
All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia (OUM).
Table of Contents
Chapter 1: Introduction to the Business Organization 1
1.1 Nature of Business Organization 2
1.2 Functional Areas and Business Functions 6
1.3 Management Process and Business Process Re-Engineering 9
1.3.1 Basic Management Processes 10
1.4 Integration of Business Processes and Information System 15
1.5 Business Mission and Vision 17
1.5.1 Mission 17
1.5.2 Vision 21
1.6 Business Objective and Goals 24
Summary 27
Key Terms 27
References 27
Glossary 29

Chapter 2: Strategic Planning 33

2.1 Planning 34
2.2 Strategy 34
2.3 Strategic Planning 36
2.3.1 Need for Strategic Planning 38
2.3.2 Strategic Plan 38
2.3.3 Strategic Planning Process 39
2.3.4 Strategic Planning Tools 42
2.4 Forming Strategies 48
References 50
Glossary 52

Chapter 3: Strategic Use of Information Technology 56

3.1 Information System and Information Technology 58
3.2 IS and IT Strategies 59
3.3 Evolution of Information System 61
3.3.1 Centralization Era 61
3.3.2 Decentralization Era 62
3.3.3 Architecture Era 63
3.3.4 Internet Era 65
3.4 IT as a Strategic Resource 66
iv TABLE OF CONTENTS

3.5 IT and Competitive Strategy 68

3.6 Competitive Advantage and Competitive Necessity 70
3.7 Use of IT for Competitive Advantage by
Hong Kong Organization 71
3.8 Risk of Using IT Strategically 74
3.9 Inter-Organizational Information Systems (ISO) 75
3.10 Information Partnerships 77
3.11 IOS and Competitive Advantage 77
3.12 Opportunities for Strategic IT Application 78
3.13 Strategic Grid 79
3.14 Competitive Force Analysis 81
3.15 Value Chain Analysis 82
3.16 Customer's Resource Life Cycle Analysis 83
3.17 Strategic Options Generator 59
Summary 87
References 88
Glossary 89

Chapter 4: Nature of Information Systems Strategy 93

4.1 Stages of Growth Model 94
4.2 An Extended Enterprise 98
4.3 Information Systems Planning 99
4.3.1 Historical Evolution of IS Planning 100
4.3.2 Importance of IS Planning 105
4.3.3 Objective of IS Planning 107
4.3.4 Levels of Planning 109
4.4 Linking Business and IS Planning 113
4.5 Benefits of IS Planning 115
4.6 What Makes a Good is Planner? 118
Summary 120
References 121
Glossary 123

Chapter 5: Information System Strategic Planning 125

5.1 IS Strategic Planning 127
5.2 Critical Success Factors Analysis 129
5.2.1 Characteristics of CSFs 130
5.2.2 Sources of CSFs 131
5.2.3 Hierarchical Nature of CSFs 132
5.2.4 Measuring CSFs 133
5.2.5 CSF Analysis 134
 TABLE OF CONTENTS  v

5.2.6 Extended CSF Analysis 137

5.2.7 Use of CFS Approach at Boeing 139
5.3 Business System Planning 141
5.3.1 Major Activities in BSP 143
5.3.2 BSP Study Steps 144
5.3.3 Evaluation of BSP 153
5.4 Earl's Multiple Methodology 155
5.4.1 Top-Down Clarification 156
5.4.2 Bottom-Up Evaluation 156
5.4.3 Inside-Out Innovation 157
5.5 Choosing Methodologies for IS Planning 158
5.5.1 Common Weakness of IS Planning Methodologies 158
5.6 Recommendation IS Strategic Planning Methodologies 161
Summary 163
References 163
Glossary 166

Chapter 6: Implementing Information System Strategic Plan 168

6.1 The Implementation of an IS Strategic Plan 169
6.2 Documentation of the IS Strategic Plan 172
6.3 BSP Study Report 174
6.4 Project Management 176
6.4.1 Administration Project 177
6.4.2 Project Teams 179
6.4.3 Assessment 180
6.5 Outsourcing 181
6.5.1 What Drives Outsourcing 182
6.5.2 When to Outsource 182
6.5.3 Managing Outsourcing 184
6.6 Barriers to IS Strategic Planning 185
6.7 Earl's Framework for IS Strategic Planning Success 193
Summary 196
References 196
Glossary 198

APPENDIX A : CASE STUDY 200

Chapter  Introduction to
the Business
1 Organisation

CHAPTER LEARNING OUTCOMES

When you have completed this chapter you will be able to:
 Describe the nature of business organisation;
 Identify common business function in an organisation;
 Identify common business process in an organisation;
 Distinguish between business mission and vision; and
 Demonstrate the important of business objectives and goals.

TABLE OF CONTENTS
Introduction
1.1 Nature of Business Organisation
1.2 Functional areas and business functions
1.3 Management Processes and Business Process Re-engineering
1.3.1 Basic Management Processes
1.4 Integration of business processes and information systems
1.5 Business Mission and Vision
1.5.1 The Mission
1.5.2 Vision
2  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

 INTRODUCTION
“There is tremendous unused potential in our people”. Our organizations
are constructed so that most of our employees are asked to use 5 to 10 per cent of
their capacity at work. It is only when these same individuals go home that they
can engage the other 90 to 95 per cent to run their households, lead a Boy Scout
troop, or build a summer home. We have to be able to recognise and employ that
untapped ability that each individual brings to work every day.?

Percy Barnevik - ABB

Asea Brown Boveri has been judged Europe’s most successful company.

Sewell, Ron. Pillars of Business Success.

Milford, CT, USA: Kogan Page, Limited, 1997. p 12.

Look at the statement above, do you think that as an organisation we should implement certain
criteria to meet the organization vision and mission? So,what should the organisation do?

Many people set-up a business without knowing how to do it. They think it is as easy as
registering the company and start selling. This is when many businesses failed due to improper
planning. Hence, the objective of this topic is to introduce to you the elements of business
organisation, namely its purpose, mission, functional areas and business functions. It is also
going to discuss on management processes, business re-engineering, integration of business
processes and its information systems.

1.1 NATURE OF BUSINESS

ORGANISATION
You encounter the important characteristics of the
business organisation with respect to the nature of the
business, its mission, goals and objectives, and its business
environment. You need a very good understanding of the
nature and characteristics of the business of an
organisation before you can address the important issues
of its business planning and organisational strategic
Figure 1.1: Management meeting
planning processes. In particular, you need to understand
(Source: www.getfunnypictures.com)
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  3

the role of environmental analysis in long-range planning. Business plans form the major
inputs to information systems strategic planning, which you study in subsequent topics of this
course.

Every organisation has a purpose. Do not assume, though, that the purpose underlying most
organisations is profit-related, as many non-profit or charitable organisations exist.
Nevertheless, an organisation can be defined as a socio-technical system whereby people
work coherently to accomplish specific goals that evolve from the organisation’s purpose.
From a systems approach, organisations are now on open systems; they interact with the
surrounding environment.

Do you know what Open System is? Ok, let us take a look at this example, take a chess club
(a non-business and probably a non-profit organisation) where chess fans play chess and they
all have a common goal of promoting chess to the general public. The chess fans comprise the
social component of the organisation. The members gather regularly in the club that serves as
a catchment area for all people with a common aim. They interact with each other not only in
the game of chess but also in a social context. They develop their expertise in chess as well as
friendship, and they share a common vision in seeing the club grow. In addition to their interest
in chess, the executives of the chess club may aim at providing community leadership through
the organisation of a chess club. The chess pieces, chessboards, chess clocks and other
stationery represent the technical components of the organisation.

An organisation’s purpose leads logically to a vision and a mission statement of the way in
which the organisation plans to realise its stated purpose, and business organisations in
particular usually set certain goals and objectives to guide their operations. For instance, the
purpose underlying a software vending organisation is to sell software, but the vision of the
software vendor may be to become the most profitable company in the software industry. This
can be achieved through top quality programmes and after-sales service. Goals or aims are
general statements that chart the direction of a business organisation, whereas objectives are
more specific. Objectives are derived from goals where they have to be measurable and have
targeted timeline. For instance, "To increase sales by 100% in 2002". You’ll learn more about
vision, mission, goals and objectives in later sections.

A business organisation has a set of goals and objectives to be achieved. Hence, a business
organisation should be structured in the most effective and efficient way to fully utilise its
resources for example the capital, human resources, knowledge in products and services, and
both external and internal information in order to achieve its strategic goals.

Organisations can be structured in many ways, and there are many ways in which
communication networks can operate within them (and communication is the ‘glue’
4  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

that holds an organisation together). The structure of an organisation is usually depicted by its
organisation chart, which identifies its management structure according to the organisational
units, location, functions and their reporting relationships. You find the (formal) reporting
relationships or chain-of-command within the organisation from the organisation chart.

Two types of organisation charts:

Centralised Organisation
(Tall structure)

Decentralised Organisation
(Flat structure)
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  5

(a) Decision-making authority is usually controlled tightly by the top management

in a centralised organisation, but decision making itself is often delegated to
middle or lower management who are constrained by often exhaustive policy
and procedure packages. Not all organisational decisions must be made at the
top level · top management preempts this need through delegation and
regulation of certain types and levels of decision making.
(b) Decision making, which is often delegated to middle-level or lower-level
management in a decentralized organization, doesn’t mean that the top
management does not make decisions. In fact, coordinating decision making in
flat organisations is essential, as no part can become ‘greater’ than the whole.
Decisions in the units of a decentralised organisation must be kept in line with
the purpose, vision, mission, goals and objectives of the organisation as a
whole. It is interesting to note that departments in many flat organisations often
operate in a ‘tall’ mode, as many middle managers seem uncomfortable with
decentralisation.

The above descriptions represent some of the formal characteristics of organisations,

but apart from formal structure and organisation, informal organisation exists
among personal interactions and employee relationships (which are not shown by the
organisation chart). An informal communication network known as the grapevine,
which carries gossip and other information throughout an organisation, often supports
this.

This has been a very brief snapshot of organisations, but it needs perhaps a video
camera to capture the dynamic nature of organisations. Both organisations, and the
business environment in which they fight to achieve their purpose, are not static. The
purpose, vision, mission, goals, objectives, organisational structure, chain of
command, and especially personnel (managers and subordinates) do change in
response to the ever-changing environment. In a healthy business organisation, the
only constant is change · in ways of responding to the business environment at least.
A Manager needs to understand his or her functional role in the organisation in order
to fit into the dynamic business environment. Learning the relationship between the
function of MIS and the others is crucially important.

Self-Check 1.1
1. What is the difference between centralised organisation and
decentralised organization?
2. List down at least 3 advantages of having decentralised
organisation.
6  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

1.2 FUNCTIONAL AREAS AND

BUSINESS FUNCTIONS
A business organisation often includes:
(a) Functional areas such as administration, human resources, finance,
management information systems (MIS), production, marketing, sales and
purchasing.
(b) Business function is a group of activities and processes for supporting a specific
part of the mission of the enterprise, and each activity or process is usually
supported by a set of procedures.

You should
• Know that business functions are the basic building blocks of a business
enterprise and that they exist in various organisational structures.
• Study what a function does rather than how the function does it or where it is
done.

In this section, you will learn that some functions grouped under the usual functional
areas of marketing, human resources, finance, management information systems,
production and purchasing as presented below in Table 1.1.

Marketing
Human Resources

Finance Functional
Areas Production

Information System Purchasing

Figure 1.1: Functional Areas Group

1. Marketing is a functional area that performs marketing research to identify and

determine what products and services customers want. It is therefore necessary
for the marketing department to liaise closely with the production department so
that they will know and understand what the products will do or will work.
Marketing also initiates, plans and launches new products and
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  7

services supported by advertising and promotional programmes in collaboration

with advertising and public relations agencies and the media.

2. Human Resource is a functional area that provides services in support of

business functions such as recruitment, selection, training, appraisal, and
promotion of staff. It also administers personnel records, salary structure, fringe
benefits and compliance with labour ordinances. It defines and revises job
specifications and, when requested by unit managers, creates new job
openings. Human Resources Department in medium and small organisations
often performs the administration function, which could be a separate
department in large organisations. The administration functions are responsible
for all support services including clerical, typing, filing, maintenance of the office
accommodation, transportation, reception, telephone, telex, facsimile and
communications systems, collection and delivery of documents, security,
advertising and other activities that are necessary for ensuring the smooth
running of the organisation. In certain organisations, administration may have
to deal with relevant legal matters and to liaise with MIS, purchasing, insurance
and share registrations.

3. Finance is a functional area responsible for financial accounting, management

accounting, and sometimes for corporate finance and investment management.
(a) The financial accounting section undertakes responsibilities in
bookkeeping, maintenance of audit trails, preparation of trial balances,
balance sheets, and profit and loss statements. Annual closing of books
and liaison with the company’s auditor are also part of the responsibilities
of financial accounting.
(b) Management accounting undertakes all tasks relating to management
reporting of labour and material costing, allocation of overhead
expenditure, job and process costing, cost-volume-profit analysis,
budgeting, variance analysis, capital investment decisions and
organisation controls.

For big corporations such as the MTRC (Mass Transit Railway Corporation), the
Finance Department also undertakes responsibilities in corporate finance and
investment of surplus funds. On one hand, the corporate finance section raises
capital for the corporation at the lowest possible costs. This could be achieved
through public flotation, rights issue, bonds, debentures, term loans and other
financial instruments in the foreign exchange, money and capital markets. On
the other hand, surplus funds can be deposited at a bank with a minimal return.
Alternatively, funds can be invested in the financial market to reap more profit;
this is the investment strategy of big corporations like Jardine Matheson, which
operates a dealing room within the company.
8  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

4. Management Information Systems (MIS) is a functional area charged with the

responsibilities of developing, maintaining and the smooth running of computer
systems that capitalises IT to achieve organisational objectives. Such computer
systems are classified into strategic planning, management control and tactical
planning, and operational control systems. In recent years, organisations
involved in online business might develop an e-commerce section under or
independent of the MIS function. For example, Qantas Airlines expanded its e-
commerce department in 1999 to take care of online alliances with other airlines,
e-ticketing and e-booking.

5. The Sales Department sells whatever products and services the business
organisation offers (produces). It forecasts the sales volume by products and
builds up a salesforce that provides the best coverage in all the sales territories.
The Sales Manager should maintain a close link with the production department
as well as with the marketing department.

6. Production is a functional area responsible for production operations (in

producing goods and services that meet the production plan) and quality
assurance. It also ensures the effective and efficient utilisation of the production
plant to meet customers’ orders, maintains an optimal level of work in progress
and minimises the reject level.

7. Purchasing is a functional area responsible for the sourcing, supply and

logistics of goods and raw materials that meet the stipulated cost, quality and
inventory policy requirements while matching the production schedule.

Note that the aforementioned seven functional areas are described mainly from a staff
perspective; you may see that functional managers are responsible for the routine
operations within their functions and translate decisions from strategic management
to tactics or operational solutions. However, functional managers are also responsible
for making their own decisions; that is, they have a ‘line’ function and are making
decisions that affect their own unit or department.

Activity 1.1

1. Identify the major functions within a functional area (e.g. finance,

human resources, marketing, etc.) within your own organisation or
your department if your organisation is very large (such as the
government or HSBC).
2. Describe the business (enterprise) functions and the major
processes and procedures within that functional area.
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  9

It is thus the strategic management’s capacity to identify business functional areas and define
the roles of functional managers. You must also be able to analyse the processes involved in
each function before seeing how they could work collaboratively to achieve the aim(s) of the
organisation. In the following section, you’ll study the generalized management processes in
business functions.

1.3 MANAGEMENT PROCESSES AND

BUSINESS PROCESS RE-
ENGINEERING
All business organisations should have a pre-defined set of
goals and objectives whilst individual business functions
should also have their own sets of goals and objectives. When
competent managers strive hard to perform their duties in the
specific business functions, their work is usually appraised
by the extent to which the organisation can meet its goals and
objectives. Managers need to carry out certain processes in
order to achieve these ends; that is, their business functions
can be subdivided into management processes · procedures
that make up the basic duties of a business manager. Figure 1.2: Business Process Re-
engineering
(Source: www.isogenix.com)

You should not confuse the term ‘management process’ with ‘business process’. The
latter, according to Davenport and Short (1990) refers to:

A set of logically related tasks performed to achieve a defined business outcome.

Business process has two characteristics:

(a) It has customers (internal or external);
(b) It crosses functional boundaries (i.e., it communicates between functions through its
inputs and outputs).

By using the well-known value chain method by Porter and Millar (1985) we can identify
business processes in an organisation.

Today’s management theories see business processes as the building blocks to support the
organisational strategy. To aim for a dramatic increase in competitive advantage, management
may consider a radical re-engineering of business processes. ‘Re-engineering’ means:
10  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

When applying the word ‘re-engineering’, the usual methods of rationalisation and automation
are no longer appropriate. The application of business process re-engineering (BPR) has
brought tremendous success and profits to many organisations. However, you should
understand how much the success of these BPR exercises is related to the information systems
strategies of those organisations. The information systems are being looked upon as an
effective and efficient way to implement management and business processes.

1.3.1 Basic Management Processes

Let’s look at what are processes involved in managing a company or business Figure 1.2.
There are four generic management processes involved.

PLANNING ORGANISING DIRECTING CONTROLLING

Figure 1.2: Generic Management Processes

(a) Planning
(Source: www.planonline.org)

Planning is the decision of who is going to do what by

when, or what is going to be done when by whom,
depending whether the management style is process-
oriented or product-oriented. Planning charts the course
for a business function in a rapidly changing business
environment as the function supports the organisation to
move forward to where it wants to go. Hence, the first

step in a planning process is the definition or a clear understanding of the functional

goals. Sometimes goals are not available; then, you should delineate goals from the
corporate mission statement or corporate goals and objectives.

Objectives must be targets that are measurable within a certain time frame. For instance,
the goal of a business process plan might be to develop a computer-telephony integration
(CTI) system to replace the slow-responding call centre in the service department and
the objective might be to provide an automated response to any customer’s call within
one second.

The structure and format of the plan may vary from one function to another depending
on the needs of the function and the functional manager. For example, sometimes it is
the duty of branch (or unit) managers to undertake
 CHAPTER 1 INTRODUCTION TO THE
BUSINESS ORGANISATION  11

the planning and they need to negotiate a satisfactory plan structure with each
other and with their superior function manager. It may be a collection of business
procedures, each of which has its objectives, to be accomplished in sequence
or in parallel. The resulting business plan (or a draft) should include the following
information:
• plan objectives;
• core activities (tasks) and procedures;
• initiatives and requirements; and
• key performance indicators and appraisal methods.

Keep in mind, especially if you work in a decentralised (flat) organisation, that

any planning decisions you make could significantly influence the operations
and planning of other functional areas. Planning is not an isolated business
process; it requires collaboration with other functions.

(b) Organising
After the objectives or plans have been line-up, managers need to organise their
own and their subordinates’ activities to accomplish the objectives of the plan.
This process includes obtaining necessary resources like finance and
equipment, and organising and scheduling each facet of the plan.

Organising is Deciding what task is to be achieved by when.

Develop an “action plan”.

It is usually required to break tasks into smaller units (the sub-tasks) and
allocate sub-tasks to capable individuals with definite completion dates. The
managers of each unit must develop an action plan which can help to
coordinates and orchestrates the entire project on paper to allow the task to be
completed on time.

Keep in mind that organising might require the support of other functions such
as human resources (HR). For example, if you were planning to expand your
department, you might need HR to help you in recruiting, training and
performance appraisal of employees in your department. Therefore, HR’s
planning must be formulated, in part, based on the plans of your function. To
coordinate with your plan, HR has to include in its own plan a recruiting
12  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

exercise to advertise the job vacancies and to find the right applicants whose
personality profile, character, values, beliefs, qualifications and experience,
upbringing and skill set match with both the job specification and the corporate
culture. You usually interview to select the right person. For certain jobs · a
computer programmer for instance · the applicants may be required to take an
aptitude test.

There are several dimensions in training, which include job-related training and
induction courses. Job-related training could be on-the-job training within the
organisation, or it could be specialised training courses offered by an outside
training company. In-house induction courses aim to familiarise the new
employee with the company’s rules and regulations, policies, environment and
corporate culture.

Performance appraisal is conducted regularly for employees who are evaluated on

the extent to which they achieve certain mutually agreed objectives. They are given
a total score that is a reflection of their performance during the period. The score is
also a basis for salary increases and promotion.

You should perceive in this example that there is a continual need for
coordination of activities between functions. As each function has to plan and
organize its own business processes, the collaboration and is necessary to
ensure that each process does not get in the way of others and every process
is accomplished towards the goal of the organisation.

(c) Directing
Following the organising stage, the activities of the
plan are carried out in the directing stage. The
managers implement or execute the plan as it was
organised, and resources and personnel are deployed
according to the pre-determined time sequence. The
process leader (who may not be the functional
manager) leads, motivates, delegates and coordinates
in order to complete the process.

It is often argued that a leader is born but the leadership that a manager
possesses can be trained through management development and training
programmes such as an MBA (Master of Business Administration) degree.
Studies distinguish two leadership models:

(i) transactional leadership: routine business process

(ii) transformational leadership: a process bringing great change to a
function which needs a leader who is an expert.
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  13

There are a variety of ingredients that lead to effective leadership. The

‘leadership effectiveness framework’ depicted in Figure 1.3 shows some of the
elements.

Leadership tasks Situational factors Leadership styles

Work orientation Organisation Directive

 goal emphasis  available decision time  autocratic
 work facilitation  organisational culture  benevolent autocratic

People orientation Work to be done Interactive

 interaction  degree of task  consultative
facilitation  programmability  participative
 supportive behaviour
 personnel People doing the work Nondirective
development  potential for job  consensus
autonomy  laissez faire

Leadership style-situation fit

Leadership effectiveness

Figure 1.3: Leadership effectiveness framework. (From Sutcliffe,-e 188)

Motivation, on the other hand, requires an in-depth analysis of the factors that might
motivate an employee; those factors may include the sense of achievement,
recognition, responsibility, the work itself, and personal growth and development. A
competent manager should be able to motivate his or her subordinates to consistently
perform at their highest potential. It is not easy to handle the subordinates as each
and every one of them has different personalities and behaviours. As a manager, he
or she has to learn and understand the characters in order to work hand in hand
towards achieving company’s objectives.

To direct a task or duty, the manager often needs to delegate the duty or task to other
people. Whether the process is successful is largely dependent on the right
delegation. The leader who is responsible for completing a process on time must
assign the work (tasks or subtasks) and transfer her authority and responsibility to
her subordinates in the working team. How to delegate is an art, though. A manager
must take into account how critical the sub-task is, the capability of the subordinate,
the subordinate’s work history, motivating factors and the completion date. Although
responsibility is passed on from the superior to subordinates, the superior is still held
responsible and is still accountable.
14  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

When the process is divided among small groups of individuals, each group may have
different requirements concerning information and other resources. The manager
should have the basic skill of coordination to ensure tasks are accomplished in a
logical and efficient way · with an acceptable degree of waste or delay.

(d) Controlling
As soon as managers have implemented a plan, they need to know the extent
to which they have accomplished their missions. In other words, they need to
find out what the gap is and then take action to bridge or close the gap.

In controlling any task or duty, if a variance is beyond the pre-defined tolerance

level, some adjustments or remedial actions must be arranged. The standard
could be a capital budget, sales volume or defect level. The variance is a
measure of how the actual performance deviates from the standard, or the
budgeted amount. Managers can then investigate the causes of the deviation,
and determine any corrective action. The proposed actions act as feedback
information that may revise the standard or budgeted amount. Hence,
controlling is often an iterative process.

To review briefly, apart from the generic management processes, business

processes are usually more specific to the particular functions they support. A
business function is a group of activities and processes for supporting a specific
part of the mission of the enterprise. It is ‘a specific ordering of work activities
across time and place, with a beginning, an end, and clearly identified inputs’
and outputs · a structure for action’ (Davenport 1993, 5). Each process is
supported by a set of specifically designed procedures.

Now you should understand some basic management processes and should
have noticed their universality among many business processes. In the
following section, you’ll see how information systems are being used to help
smooth management processes and integrate with one another to achieve the
corporate goals.

Self-Check 1.2

1. Explain in your own words the 4 business management processes.

2. List down the leadership styles that you have learned.
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  15

Activity 1.2

If the manager does not do good ‘planning’, do you think employees can
perform their duties effectively? Why?

1.4 INTEGRATION OF BUSINESS PROCESSES

AND INFORMATION SYSTEMS
You have learned in the previous section on the management processes. You should
know that any business process (e.g. product development, claims processing, or
supply fulfilment) could be organised as an architecture of subtasks, delegated
personnel, and management processes (planning, organising, directing, and
controlling).

All organisations are supported by 3 architectures:

  process architecture,
  organisation architecture
 information architecture

Cule (1995) proposed

(a) What is organisation architecture?

• It is something that represents the governance of the company, its culture,
human resource policies, and internal relationships between employees and
between functions.
• It is human-centered.
• It influences the skill set of managers, their management processes, and
the success of business processes.

(b) What is information architecture?

• Orchestrating business processes.
• It acts as a bridge between the architectures of organisation and process.
• The planning and implementation of the information structure (the
database), the information technology (IT) infrastructure, and the
information systems (IS) applications will result in the Business Process Re-
engineering (BPR) exercise.

The value of the information architecture in Cule’s theory is mainly attributed to its
capacity of being used as an efficient means of communications. There are intra-
16  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

and inter-organisational communications. According to Benbasat and DeSanctis

(2000) communications can also be divided into transactional and relational. You
should now go through the following reading in your textbook and see how IT units
and business units are strategically integrated through communications.

Reading 1.1

Dickson and DeSanctis (eds), Chapter 6: Communication Challenges, by

Benbasat, I and DeSanct is, G, 144–60.

Note that the three architectures in Cule’s theory are inter-related. Even though
designing an information architecture is central to a BPR project, management needs
to review the organisational and departmental mission statements, business goals,
functions, processes and procedures while planning, analysing, and designing an
information system. Changes to a business function or a process may also affect the
organisational structure.

With advances in information systems (particularly database, artificial intelligence and

client-server computing) management finds information possessed by the
organisation as a valuable asset. The term ‘knowledge management’ (KM) suddenly
becomes fashionable. Even at the level of business processes, applying the right kind
of knowledge is regarded as being key to the success of the processes. Maintaining
and enhancing the quality of knowledge in an organisation is crucial to its survival in
an increasingly competitive marketplace. For example, successful management of a
supply chain may depend on the knowledge of raw materials, planning, manufacturing
and distribution; and a product development process requires knowledge of consumer
requirements, application of new technologies, and marketing research, etc.

The following article will give you a brief account on knowledge management.
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  17

Reading 1.2
Edwards, JS and Kidd, J (2001) ‘Knowledge management when „the times they
are a-changing‰’.

Questions for discussion:

1. The authors mention processes, knowledge, and learning are the three
elements in KM. In most of the business organisations today (e.g. the one you
are working with) how is KM perceived? Is it linked to processes or learning?
2. How do you think learning in alliances is feasible?
3. What should be the best catalyst for learning? Top? Bottom?

Source: Proceedings on 2nd European Conference on Knowledge Management (Bled School of

Management, Bled, Slovenia, 8-9 November 2001) <[email protected]>

Today, BPR and KM are common practices with the availability of networking and
databases. These practices help to build infrastructure and link the departments’
processes and functions within the company. The BPR and KM are used a tool to
increase strategic advantages to an organisation. However, this cannot be done
without first understanding the strategic needs of the organisation. Although the
strategic needs may change from time to time, they usually conform to the mission
and vision of the company, which are subjected of the next section.

1.5 BUSINESS MISSION AND VISION

Remember that every organisation has a purpose · a reason for being. Businesses
seek to provide profits for their shareholders, hospitals seek to care for health of
patients, universities seek to discover and disseminate new knowledge, and
government agencies seek to help the public.

1.5.1 Mission
Every organisation also has a mission, so what is mission? Mission is –

“A view of how it will achieve its purpose, or an

overall statement of its business direction”.
18  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

• A broad ‘philosophical’ statement that ties an organisation to certain activities

and to economic, social, ethical or political ends.
• It represents a general framework within which the organisation operates, and
may contain statements of ‘what we believe in’, ‘who we are’, or ‘what we do’
at a very general level, or statements of an inspirational nature such as ‘To be the
World’s Number One Airline’.
• Organisation’s character, identity and reason for existence.
• In fact, many organisations have very detailed mission statements drawn up by
their top management.
• Mission is still a relatively neglected area of management, and there seems to
be no clear agreement on what it encompasses.
• Some management thinkers view mission as an esoteric and somewhat irrelevant
preoccupation that haunts senior managers, whereas others see it as the bedrock
of an organisation’s strength, identity and success · its personality and character
(Campbell and Young 1991b).
• Purpose and mission are related but they are not the same things. To illustrate
the difference between purpose and mission, consider two watch manufacturing
companies · Timex and Rolex. Both have the same purpose · to make money by
selling watches · but they have very different missions. Timex emphasizes low-
cost, reliable watches that can be purchased anywhere. But Rolex sells high-
quality fashion watches for high prices only through selected stores.

Despite the diversity of opinion about mission, there are two broad approaches to
describe mission:

1. according to business strategy

− mission is a strategic tool that defines the business’s commercial rationale
and target market.
− is linked to strategy but at a higher level.
− It exists to answer two fundamental questions: ‘What is our business?’ and
‘What should it be’? According to Levitt (1960) most companies tend to
define their businesses either wrongly or too narrowly.

2. according to philosophy and ethics.

− mission as the cultural ‘glue’ enabling an organisation to function as a
collective unit.
− This cultural glue includes strong norms and values that influence the way
in which people behave, how they work together, and how they pursue the
goals of the organisation (Campbell and Yeung 1991b).
− Mission in this form is more like a business philosophy helping employees
perceive and interpret events in the same way and speak a common
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  19

language. The example of Shui On’s mission statement is a good reflection

of the organisational culture, values, beliefs, business ethics and social
responsibilities.

However, it is important for an organisation to define its business mission correctly so

that it may focus on ‘customer need’ rather than on production technology. Such a
mission statement should include a clear description of what are the current and the
future expectation of the company. This is expressed as a broad description of the
products, markets and geographical coverage of the business today and within a
reasonable short time frame, commonly three to five years. The statement of business
scope is informative not only for what it includes but also for what it leaves out.
Examples of such mission statements are given below

At IBM, we strive to lead in the creation, development and

manufacture of the industry’s most advanced information
technologies, including computer systems, software networking
systems, storage devices and microelectronics. We translate these
advanced technologies into value for our customers through our
professional solutions and services businesses worldwide. (Mission
statement of IBM.)

Activity 1.3
Visit the website at <http://www.shuion.com.hk/eng/group/gcms .htm> in
which you will find a very comprehensive mission statement. The corporate
mission statement is usually a good reflection of the corporate culture,
values, beliefs, business ethics and social responsibilities. The Shui On
website clearly lays out the group’s corporate mission, which may be
summarized as:
Profit · to achieve sufficient profit to provide an attractive return to our
shareholders and to finance future growth.
Customers · to provide our clients with quality service and products.
Our people · to provide an environment whereby our people can excel,
grow and develop with the company.
Management philosophy · to provide an environment that encourages and
rewards merit and team effort.
Corporate culture · to cultivate a set of shared beliefs on which all our
policies and actions are based.
20  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

Both these approaches to defining mission are apparently incomplete and need to be
synthesized to provide a holistic framework. This is because mission is about culture
and strategy. In fact, a mission exists when strategy and culture are mutually
supportive (Campbell and Yeung 1991a). In fact within this holistic framework,
purpose becomes part of mission, which is divided into four interrelated elements:
purpose, strategy, behaviour standards and values (Figure 1.2).
1 Purpose, as stated above, addresses why an organisation exists. For whose
benefit is all this effort being put in?
2 Strategy provides the commercial logic for the organisation. It considers the
nature of the business, the desired positioning versus other companies, and the
source of competitive advantage. Purpose and strategy alone are empty
intellectual thoughts unless they can be converted into action, and into the policy
and behaviour guidelines that help people decide what to do on a day-to-day
basis.
3 Thus, behaviour standards are the norms and rules of ‘the way we do things
around here’ (Campbell and Yeung 1991a, 1991b). As an example of how an
organisation’s purpose and strategy could be successfully converted into
tangible behaviour standards and actions, consider British Airways. It promotes
itself as the ‘world’s favourite airline’ and declares its aim as ‘To be the best and
most successful company in the airline industry’. The strategy to achieve this is
based on providing good value for money, overall service that is superior to its
competitors and friendly, professional managers who are in tune with the staff.
These strategic objectives are translated into policies and behaviour guidelines
such as the need for in-flight services to be at least as good as those of
competing airlines on the same route, and the requirement that managers and
employees should be helpful and friendly at all times. By translating purpose
and strategy into actionable policies and standards, top management at British
Airways was able to dramatically change the airline’s performance. Central to
this effort was the training and behaviour change connected with the slogan
‘Putting People First’.

Purpose

Strategy MISSION Values

Behaviour
Standards
Figure 1.2: A holistic model of an organisation’s mission
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  21

4 Finally, values are the beliefs and moral principles that lie behind the behaviour
standards or the organization’s culture. In many organisations, corporate values
are not explicit and can only be understood by perceiving the philosophical
rationale that lies behind management behaviour. For instance, in British
Airways, there is a good business reason for Putting People First’, but there is
also a moral reason; we are all people and life would be better for all of us if we
take a little more care of each other. This moral rationale was put high on the
agenda when 35,000 British Airways staff were trained on the Putting People
First programmes.

Mission provides a rationale for action. It links behaviour standards with purpose in
two ways:
1 the strategy link explains that certain behaviour will help make the organisation
successful; and
2 the values link explains that certain behaviour is morally the right way to
behave.

A strong mission exists when the four elements reinforce each other. This can be
easily seen by looking at the links between the strategy and the value system and
whether both can be acted out through the same behavioural standards.

1.5.2 Vision
Another term that is often used to guide an organisation’s strategy is vision. A vision
is required when an organisation wants to change itself in some radical way. In the
past, organisations that have been most successful in changing their performance
radically, are those that have been successful in convincing their employees about
the need for change’s and provide them with a vision of what the organisation needs
to become. By expressing the vision statement, this forces management to think
clearly about the purpose of their change programme and about the extent of the
change that needs to be effected.

A vision statement describes the image of an organisation’s possible and desirable

future state.

• Represents a view of a realistic, credible, attractive future for the organisation · a

condition that is better in some important ways than what exists at present
(Campbell and Yeung 1991a).
• Describes how the company is going to operate and outlines the kind of results it
must achieve (Hammer and Champy 1993, 154).
22  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

• It is both a qualitative and a quantitative statement, which a company can use

again and again, before and during change, as a reminder of the objectives for
change, as a yardstick for measuring progress of the change, and as a prod to
keep the change action going.
• A powerful vision statement contains three elements:
− Focus on operations
− Contain measurable objectives and metrics
− It should change the basis for competition in the industry (Hammer and
Champy 1993, 156)

o Example of a simple and powerful vision statement

Federal Express
‘We will deliver the package by
10:30 the next morning’.

Theoretically, a vision and a mission can be one and the same if the possible and
desirable future state can include all four elements of mission. But vision and mission are
not fully overlapping concepts. Vision refers to a future state, whereas mission more
normally refers to the present (Campbell and Yeung 1991a).

For example, Kowloon Canton Railway Corporation (KCRC), Hong Kong, defines
its mission as:

‘to provide a safe, reliable, profitable and integrated railway network meeting the
increasing demand for territorial, cross-boundary and inter-city railway services
(<http://www.kcrc.com/eng/company/index.html>)’
 CHAPTER 1 INTRODUCTION TO THE
BUSINESS ORGANISATION  23

But, its vision is: ‘to be a world leader in providing quality transport services on the
basis of prudent commercial principles. A vision is more associated with a goal,
whereas a mission is more associated with a way of behaving. Though mission is a
timeless explanation of the organisation’s identity and ambition, in times of change, a
new mission is difficult to distinguish from a vision because the new mission is a
mental image of a desirable future state.

Now try Activity 1.4 on mission and vision.

Activity 1.4
⁄ Canon’s business philosophy is to manufacture unique and excellent
products which will be reliable for consumers all over the world, thus
contributing to the enrichment of their lives, and to build an ideal corporation
that will bring prosperity to all its employees (Nakahara and Isona 1992).

What would you call this statement: a mission or a vision? Why? Evaluate the
statement for its completeness if you consider it as a mission or for its power if
it is a vision.

Every organisation has a purpose. It may be profitability in profit-making

organisations, or service quality in non-profit organisations.

An organisation also has a mission, which specifies how it will achieve its purpose.
The mission of an enterprise is the highest level of its objectives. Most mission
statements reflect the organisation’s future aspirations or its culture, values, beliefs,
business ethics and social responsibilities. However, such statements are
incomplete, as a mission should include both of these aspects. Thus, a mission
should include four interrelated elements: purpose, strategy, behaviour standards and
values. A strong mission would exist when these four elements reinforce each other.

An organisation may also have a vision if it is planning for a radical change. A vision
statement describes the image of an organisation’s possible and desirable future
state. A powerful vision statement should have three characteristics: it should focus
on operations, it should include measurable objectives and metrics, and it should
change the basis for competition in the industry.

Mission and vision are not fully overlapping, as mission focuses more on an
organisation’s behaviour whereas vision is more associated with a goal. However, in
times of change, a new mission may coincide with the organisation’s vision, as both
will refer to an image of the organisation’s desirable future state.
24  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

Self-Check 1.3

Could you explain the difference between purpose, mission, and vision?

1.6 BUSINESS OBJECTIVES AND GOALS

A business enterprise needs guidance and a direction in which to go in order to
perform successfully. The first task, therefore, in the organisational planning process
is to set goals and objectives for the enterprise.

Goals are general statements about the direction in which a business enterprise
intends to go, without stating specific targets to be reached by particular times.

Thus, the mission of an enterprise is the highest level statement of goals (and
objectives) as it gives a broad description of the purpose and policy of the enterprise.
Business goals of an enterprise are usually described by reference to profitability,
growth, market share, diversification, employment and social responsibility. An
example of an organisational goal might be to increase its market share. This goal
can be given specificity by translating it into objectives.

As an example, refer to the mission of the KCRC, Hong Kong, given in the previous
section. To fulfil this mission, the corporation has defined the following as its goals
(<http://www.kcrc.com/eng/company/index.html>):
• serve customers and meet performance pledges
• fulfill both Government and corporate objectives
• maintain financial strength
• develop sound business partnerships
• build teamwork and commitment in staff
• encourage initiative and reward success.

Objectives are precise, well-specified targets that are measurable, and a

business enterprise intends to achieve them by a given time.

One target (goal) may give rise to several objectives. An objective is thus an
operational transformation of one or more business goals. An airline may have as its
 CHAPTER 1 INTRODUCTION TO THE
BUSINESS ORGANISATION  25

goal: ‘Define more profitable route structure’, which may lead to the objective:
‘Eliminate all routes with an average seat occupancy of less than 40% by the end of
the year’.

It is desirable for an enterprise to analyse its goals and objectives and put them in
writing, because if everybody understands them clearly, the enterprise is more likely
to achieve them. Objectives should be worded to express a precise course of action.
A vague statement such as ‘Be a market leader’ could at best be a goal but it is not
an objective. However, ‘increase sales by 40% per year’ is a precise objective. Thus,
objectives should be precise where possible, they should focus on results, and
they should breakdown into work that has to be done.

Objectives should be measurable. Sometimes this measure could be a binary one:

either the objective has been achieved or it has not. For example, ‘Appoint a new Financial
Controller has a binary measure. It is also a hard measure (hard here means ‘real,
‘tangible’ or ‘factual’) because it could be obtained directly and precisely. Where possible,
a hard measure should be applicable to an objective. But sometimes a soft measure, i.e.
one that is indirect and imprecise, may have to be used due to the nature of the objective.
For instance, ‘Improve market image of the enterprise’ may only have a soft measure.
The extent to which such an objective has been met may be established only through
marketing research interviewing techniques.

Different goals can have different times within which they should be achieved. Based
on this period, usually called the planning horizon, goals may be classified into
several levels:
1. Long-term goals relate to extended periods, usually five years or more into
the future.
2. Intermediate goals (or possibly objectives) deal with one to five years.
Organisations usually have several different intermediate goals related to
different business areas. For instance, marketing’s intermediate objective might
be to increase sales by 3% in two years, human resources might seek to cut
turnover by 10% in two years, and finance might aim for a 3% increase in return-
on-investment in three years.
3. Short-term objectives for the very near future, usually less than, or up to, one
year. These objectives are also developed for a variety of different areas in order
to cater for their existing problems and/or opportunities. Examples of such
objectives might be ‘Increase sales by 2% by the end of year’, ‘Cut costs by 1%
by the end of next quarter’, etc.

Some examples of goals are given in Table 1.1 below:

26  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

Table 1.1

Goal area Indicator Objective (1 year) Long-term (5 years)

Market share Per cent 10% 35%
Growth $ sales $400 million $600 million
Profitability ROI 0.12 0.15
Debt D/E ratio 0.40 0.30
Stockholder EPS $2.40 $4.80
Employee Turnover < 12% < 8%
Society Charitable gift $5 million $10 million

The level of the goals determines who in the organisation will set them. For
example,
Mission statement Board of Directors
Long-term goals Top managers
Intermediate goals Middle managers (with Top Managers)
Short-term objectives First-line managers (with Middle Managers)

Now try Activity 1.4 on goals and objectives.

Consider Canon’s business philosophy stated in Activity 1.3. Suggest at least one
goal and an objective for Canon’s production department.

Activity 1.4

Consider Canon’s business philosophy stated in Activity 1.3. Suggest at

least one goal and an objective for Canon’s production department.
 CHAPTER 1 INTRODUCTION TO THE
BUSINESS ORGANISATION  27

• Goals are clearly defined general statements that are attainable in the future.
They do not, however, state specific targets to be reached by particular times.
• Objectives are specific targets that a business enterprise intends to achieve by
a given time. Objectives should specify a precise action and should be
measurable.
• Goals are classified into three levels on the basis of their planning horizon. Long-
term goals usually relate to a planning horizon of five years or more. Intermediate
goals deal with planning horizons of one to five years; and short-term goals (likely
objectives) deal with period of less than or up to a year. Goal setting is the process
of defining goals (and ultimately objectives) at various levels of the enterprise.

Organisation Decision Making Mission

Vision Dicentrelised Centrelised
Goals Objectives

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Andrews, K R (1980) The Concept of Corporate Strategy, Homewood, IL: Richard D

Irwin.

Ansoff, H I (1984) Implementing Strategic Management, Englewood Cliffs, NJ:

Prentice Hall.

Broadbent, M, Weill, P and St Clair, D (1999) ‘The implications of information

technology infrastructure for business process redesign’, MIS Quarterly, June:
159–82.

Camillus, J C (1986) Strategic Planning and Management Control: Systems for

Survival and Success, New York: Lexington Books.
28  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

Campbell, A and Yeung, S (1991a) ‘Brief case: mission, vision and strategic intent’,
Long Range Planning, 24(4): 145–47.

Campbell, A and Yeung, S (1991b) ‘Creating a sense of mission’, Long Range

Planning, 24(4): 10–20.

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Davenport, T H (1993) Process Innovation: reengineering work through information

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Hammer, M and Champy, J (1993) Reengineering the Corporation: a manifesto for

business revolution, New York: HarperBusiness.

Hax, A C and Majluf, N S (1984) Strategic Management: an integrative perspective,

Englewood Cliffs, NJ: Prentice Hall, Chapters 3–4, 7–9.

Hussey, D E (1991) Introducing Corporate Planning: guide to strategic

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28(4): 4–5.

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Asian perspective, Singapore: Prentice Hall.

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Lo, H P, Ng, T K Y, Ling, T W C and Lo, C N (1992) ‘Use of quantitative techniques

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Migliore, R H (1990) Strategic Planning and Management, London: Kogan Page.

Nakahara, T and Isono, Y (1992) ‘Strategic planning for Canon: The crisis and the
new vision’, Long Range Planning, 25(1): 63–72.
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  29

Richardson, B and Richardson, R (1989) Business Planning: an approach to strategic

management, London: Pitman.

Rowe, A J, Mason, R O and Dickel, K (1982) Strategic Management and Business

Policy: a methodological approach, New York: Addison Wesley.

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Stahl, M and Grigsby, D W (1992) Strategic Management for Decision Making, New
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European Management Journal, 11(1): 38–45.

The glossary provides brief definitions or descriptions of the main technical terms you
encountered in the topic.

Business functions are the basic building blocks of an enterprise and they must be
present, regardless of what the organisational structure is. Business functions are
usually grouped under different functional areas such as human resources, finance,
marketing and MIS. Each business function consists of a group of business processes
that are supported by their respective business procedures.

Business process · A specific ordering of work activities across time and place,
with a beginning, an end and clearly identified inputs and
outputs · a structure for action.
30  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

Business strategy · Strategy for achieving the goals of a particular business

within a corporation.

Centralized · Decision-making authority is usually tightly controlled by

organisation top management in an organisation (often result in a tall
structure).

Chain of · Reporting relationships within an organisation; the flow

command of decision-making power within a firm.

Corporate · Strategy concerned with what businesses a corporation

strategy does and does not wish to enter.

Decentralized · Decision-making authority is usually delegated to

organisation middle-level or lower-level management (often result in a
flat structure).

Function · A function (within a functional area) or business function

is a group of processes for supporting a specific part of
the mission of the enterprise. For example, accounts
receivable and accounts payable are some of the business
functions within the functional area, finance.

Functional area · A group of related functions or organisational functional

group such as finance, human resources, and marketing.

Functional · Strategy dealing with a functional area of the business

strategy enterprise.

Goals · General statements about the direction in which a

business enterprise intends to go.

Goal-setting · Process of defining goals at various levels of the

enterprise.

Informal · A network of personal interactions and relationships

organisation among employees (which are not shown by the
organisation chart). This is often supported by an
informal communication network called a grapevine,
which carries gossip and other information throughout an
organisation.

Intermediate · Goals which have a planning horizon of one to five years.

goals
 CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION  31

Internal resources · Matters inside an organisation that are important to

future success. These could be physical resources such as
machines, buildings, etc.; human resources, systems, and
intangibles such as an organization’s image and know-
how.

Knowledge · The explicit and systematic management of vital

management knowledge and its associated processes of creating,
gathering, organizing, diffusion, use and exploitation. It
requires turning personal knowledge into corporate
knowledge that can be widely shared throughout an
organisation and appropriately applied.

Level of a goal · Classification of goals on the basis of the planning

horizons.

Long-term goals · Goals that extend over a period of five years or more into
the future.

Mission · A view of how an organisation will achieve its purpose.

Objectives · Specific targets that a business enterprise intends to

achieve by a given time.

Organisation · A physical depiction of an organization’s formal structure

chart showing employee’s titles and their relationship to one
another.

Organisational · Internal scrutiny of the organisation for determining its

analysis strengths and weaknesses.

Organisational · The specialization of the jobs to be done within an

structure organisation and how these jobs relate to one another.

Plan · A plan is the outcome of the planning process.

Planning · Planning is the design of a desired future and of effective

ways of bringing it about.

Planning horizon · Period within which a goal is intended to be achieved.

Policy · It represents an overall guide by setting up boundaries

that provide general limits to managerial action and
directions in which it will take place.
32  CHAPTER 1 INTRODUCTION TO THE BUSINESS ORGANISATION

Procedure · A detailed description of how to carry out the supporting

work of a process.

Process · A structured, measured set of business activities that are

designed to produce a specified output for supporting a
business function. It defines what to do together with
prescribed inputs and outputs but it is independent of the
organisational structure. The strong emphasis on input.
Outputs prescribes a collaboration among business
processes to achieve the organisational goals.

Purpose (of an · A reason for the existence of the organisation.

organisation)

Short-term goals · Goals which have a planning horizon of less than, or up

to, a year.

Strategic goals · Long-term goals derived directly from the organisation’s

mission statement.

Strategic plan · Document produced as an outcome of strategic planning

giving details of the strategic objectives, goals, policies
and other action programmes.

Strategy · A means of achieving a desired end (objectives), generally

concerned with the effective adaptation of an organisation
to its environment through time.

Vision · A mental image of a possible and desirable future state of

the organisation.
Chapter  Strategic
Planning
2

CHAPTER LEARNING OUTCOMES

When you have completed this chapter you will be able to:
 Discuss the concept of strategic planning

 Discuss the benefits of strategic planning

 Discuss the components of strategic planning

 Discuss the strategic planning process

 Discuss the strategic planning tools available, such as Boston
Consulting Group and Porter's Competitive Strategy framework

TABLE OF CONTENTS
Introduction
2.1 Planning
2.2 Strategy
2.3 Strategic Planning
2.3.1 Need for Strategic Planning
2.3.2 Strategic Plan
2.3.3 Strategic Planning Process
2.3.4 Strategic Planning Tools
2.4 Forming Strategies
References
Glossary
Feedback on the Activities on the Self-tests
34  CHAPTER 2 STATEGIC PLANNING

 INTRODUCTION
We learned in previous chapter that there are 4 processes
involved in management process which are planning,
organizing, directing and controlling. In general, an
organization needs a strategic planning to direct itself in the
development of procedures and operations to achieve the
corporate goals and objectives. Through a strategic
planning process, the values,
Figure 2.1: Planning current status, and environment of the organization are
(Source: www.planonline.org) examined and these factors are related to the
organization’s desired future state.

2.1 PLANNING
“Charts the course for an organization, and steers the organization from where it
is to where it wants to be.”

 To organize, in a disciplined way, the major tasks that an enterprise has to

address to maintain an operational efficiency in its existing business and to guide
the organization into a better future.

 An analytical process which involves an assessment of the future, the
determination of desired goals and objectives in the context of that future, the
development of alternative courses of action to achieve such objectives and the
selection of a course(s) of action among those alternatives (Camillus 1986).

 A response to the pessimistic belief that unless something is done a desired future
state will not occur, and to the optimistic belief that we can do things to improve
our chances of achieving the desired state (Richardson and Richardson 1989).

A plan is the outcome of successful planning. It is a description of a consciously

intended course of action. It may, however, be formally documented or remain
informally in the planner’s mind.

2.2 STRATEGY
 Presented as the policies whereby the organization elaborates its goals and
objectives.

 Helps shape the organization while it moves towards its goals and objectives.
 CHAPTER 2 STATEGIC PLANNING  35

 Concerned with the choice of the particular market segments to be served by the
organization and the methods of achieving success in the particular segments.

 May define areas for product development, techniques for responding to
competition, means of financing, size of the organization, and the image the
enterprise should project.

Often the terms ‘strategy’ and ‘policy’ are confused with each other. What is the
difference between strategy and policy?

STRATEGY POLICY

 Concerned with meeting the threats and  A set of guidelines (behaviour standards)
opportunities presented by the stated generally in the form: ‘If X, then
environment external to the Y’.
organization. Important decisive moves
that have an element of irreversibility in  An elaboration of strategy so as to apply
them. effectively internal resources and thereby
achieve strategic objectives and goals.
 Is necessary if an organization is to use Whereas a policy is a guide to action, the
its capital and human resources strategy is the action itself.
effectively and efficiently.

Strategy is the outcome of the allocation of resources to areas that seem most
beneficial. Often, divisions within an organization may compete with on another for
capital resources. Each division presents legitimate proposals, but often there simply
is not enough capital to meet all the competing internal demands. Strategy narrows
the large number of possibilities available to the enterprise to a few, by choosing areas
that appear to offer the greatest opportunities with limited resources.

Finally, strategy opens the door for the application of both managerial and production
scale economies. That is, with a correct strategy, an organization can direct and use
its human and capital resources effectively and efficiently in the market segments that
appear most promising.

Strategies may be formulated at various levels in an organization. Like goal setting,

many organizations have three levels of strategy: corporate, business and functional.
• Corporate strategy is concerned with what businesses a corporation does, and
does not, wish to enter. It defines the businesses in which a company will
compete, preferably in a way that focuses resources to convert distinctive
competence into competitive advantage (Andrews 1980).
36  CHAPTER 2 STATEGIC PLANNING

• Business strategy is concerned with achieving the goals of a particular business

within a corporation. It is the determination of how a company will compete in a
given business, and position itself among its competitors (Andrews 1980).
Strategic alternatives available for a business include the following.
– Strong growth strategy may include sales growth, market share growth or
growth in overall size. The basic approach in this strategy is to pump
resources into the business for activities such as advertising and setting up
new plants in an effort to spur new growth.
– Slow growth is most appropriate for large businesses when rapid growth is
impossible, and for small businesses in order to avoid too much strain on
their operation.
– Retrenchment strategy refers to cutting back some operations, and is
appropriate when costs are out of control or when the market for a
business’s products is stagnant.
– Finally, in the transformation strategy a business changes its mission to a
vision and thereby its whole approach to business.
• Functional strategies deal with major aspects of the business’s functional
operations: marketing, production, finance, human resources and research and
development (R&D).

2.3 STRATEGIC PLANNING

Strategic planning is the process of planning the future strategy of an

organization and documenting the strategy in an implementation plan.

In layman definition, Strategic Planning is a process of analyzing, figuring and

determining where the organization intends to be in the long term, usually three or
more years in the future. Often in our daily lives, we overlook on the organisation’s
goals. The strategic planning process is the interaction among people involved in
developing the plan. All the management members have to sit down and plan for the
future; what to achieve and how to make it happen.

The strategic plan includes

 details of the strategic goals,

 objectives and policies, and

 the short-term steps or action programmes to ensure overall success

Strategic plan involves more than just plotting or writing the plan on the white-board
or paper for that matter. The plans have to be carefully analysed on the
 CHAPTER 2 STATEGIC PLANNING  37

importance and the impact to the company and have to be accepted by all members.
It includes ways to meet the organization’s goals at all levels. Managers devote a
great deal of hard work, attention and creativity to the formulation of strategic plans.

Effective strategic planning deals with two relevant dimensions:

1. responding to changes in the external environment, and
2. creatively deploying internal resources to improve the competitive position of
the enterprise.

Organizations can survive in a hostile environment if they maintain a vigilant attitude

towards external changes. Lack of alertness to changes in economic, competitive,
social, political, technological, demographic and legal factors can become extremely
detrimental for the sustained growth and profitability of the firm.
tending to
caused
harm Strategic planning is the core capacity developed by organizations to adapt to
environmental movements. This adaptability is not a purely passive response to
external forces, but an active, creative and most decisive search for the conditions
that can secure a profitable niche for the organization’s business.

The internal response of an organization to environmental challenges is given as a

clearly defined set of practical action programmes aimed at enhancing the existing
and long-term position of the firm vis-to-vis its competitors. Since these action
programmes define the totality of the major tasks the organization has to face,
strategic planning is a valuable device for coordinating the efforts of the entire
organization.

Thus, a strategic planning process should consider factors related to the external
environment as well as internal business.

A top manager must have devoted some of his or her time to thinking about where
the firm is going and what it will be doing in the years ahead; he or she is planning a
strategy for the firm. Yet many managers give insufficient thought and time to this sort
of activity; they perceive that the activity is of little importance. These managers may
feel that way because every event that will happen needs not be foreseen and
pondering something less certain is a waste of time. Many organizations today
employ the method known as “Strategic Management” to evaluate the future
implications of every organizational decision in advance of the implementation and
set standards of performance beyond the time horizon of the annual budget. In its
strategic planning, the organization studies the changing patterns of the environment
and incorporates the implications to these foreseeable changes into its strategic plan.
This process, however, does not guarantee that the
38  CHAPTER 2 STATEGIC PLANNING

organization will never again be affected by adverse circumstances, but it does

prepare it in advance through its forward-looking process.

2.3.1 Need for Strategic Planning

Strategic planning contributes to profits or service quality because of the following
benefits (Hussey 1991, 2):
 It is a communication process and so improves the coordination in every
organization practising it. A formal strategic plan can be easily communicated as
well as stored for security and future reference.

 It motivates managers. Establishment of long-range goals (described in the plan)
gives an indication of the scope of the task to each senior manager, and shows
what is expected of them for the organization to achieve its aims.

 It leads to better organizational decisions. The reason is it brings more factors
into consideration, because managers are expected to evaluate the future
implications of all decisions and because it insists on the consideration of possible
choices.

 It provides a way of controlling a business. By providing a realistic model of
future results, adjusting strategies to keep the organization on target becomes
possible. It makes sure that resources are not wasted and that they become
available as required.

These benefits are, however, not without costs both in the development and
implementation of strategic plans. These costs include managers’ and outside
planners’ (if any) time as well as the cost of collecting, maintaining and analyzing
relevant information. Often, the smaller organizations perceive these costs as
prohibitive when compared with the benefits, and so tend to ignore formal strategic
planning.

2.3.2 Strategic Plan

The outcome of the strategy planning process is a document called the strategic
plan. Strategic plans are the mechanism for putting into effect strategic decisions.
Strategic plans also reflect the contingencies of the business as defined by realistic
business scenarios, and are articulated by the senior management. In general, a
strategic plan should consist of the following four components (Rowe, Mason and
Dickel 1982, 287):
(a) A definition of the desired future scope of the organization, including a
statement of its business and what kind of company it is and it should be.
 CHAPTER 2 STATEGIC PLANNING  39

(b) A definition of the competitive advantage of the company, including its distinctive
competence in relation to its competitors and the market niche it intends to occupy.

(c) A statement of mission, goals and objectives of the company and the measures used to
evaluate performance.
(d) A statement of how resources that are needed to implement and execute the plan will
be allocated.

Many organizations maintain a number of plans, each with a different planning horizon. For
example, a multinational organization’s overall strategic plan might consist of a long-range
plan, a medium-range plan, and a short-range plan. The long-range plan is more like a vision
and provides the direction and the objectives for the company to pursue in a rapidly changing
environment. It has a planning horizon of ten years. The medium-range plan is intended to
develop strategies to achieve the direction and objectives defined by the long-range plan, to
provide guidelines for the short-range plan, and to ensure the optimum procurement and
allocation of management resources. It has a planning horizon of three years. The short-range
plan is the numerical expression of management activities within a defined operation time of
one year or less.

2.3.3 Strategic Planning Process

There are three key tasks in developing an effective strategy (Rowe, Mason and
characteristic of one person or thing,
Dickel 1982, 19): and so serving to distinguish it from
others.

(a) Identify a distinctive competence for the organization. A distinctive competence is

something the organization does particularly well. It refers to the organization’s unique
resources and capabilities for conducting its business, and describes its strengths and its
ability to overcome its weaknesses.

(b) Find a niche in the organization’s environment. A niche is a social and economic
situation for which the organization is well suited. An effective niche is one that
positions the organization in such a way that it can take advantage of the opportunities
that present themselves and avert threats from the environment.

(c) Find the best match between the organization’s distinctive competencies and its
available niches.

A popular method of business strategy planning, or strategy formulation, is known as ‘SWOT

(refer Figure 2.1) · strengths, weaknesses, opportunities and threats · analysis’, or ‘strategic
four-factor analysis’.
40  CHAPTER 2 STATEGIC PLANNING

Figure 2.1: (Source: megconsultants.com)

It is a four-step process: setting strategic goals, organizational analysis, environmental

analysis and formulation of business strategy, as shown in Figure 2.2.

Organisational Strategic goal- Environmental

analysis setting analysis

Strategic
formulation

Figure 2.2: The process of SWOT analysis

STEP 1 : Set Strategic Goals

Ć Long-term goals derived directly from the organization’s mission statement. These goals
are often related to profitability, growth, market share, employment and diversification.

Prior to the formulation of strategy, you need to perform a thorough analysis regarding
the current and future business position in terms of two dimensions:
− the non-controllable forces, which are associated with the external environment and
which determine the industry trends and market opportunities;
 CHAPTER 2 STATEGIC PLANNING  41

− the internal competencies residing in your firm, which determine the unique
competitive leadership potential that it could mobilize in order to establish
business superiority against competitors.
STEP 2 : Environmental Analysis
• This step involves scanning the environment for threats and opportunities.
• A threat is any unfavourable situation in your organization’s environment. Threats
may include new substitute products, new competitors, a decline in market share,
new government regulations, imports, changing consumer tastes and preferences
and hostile takeovers.
• An opportunity is any favourable situation in your organization’s environment,
and may be new markets or new product launching.
• You can use tools such as BCG business matrix (to be discussed in the next
section) and industry attractiveness · business strength matrix · in performing the
environmental analysis.
• Table 2.1: Example opportunities and threats (Source: ww.agecon.purdue.edu/
extension/sbpcp/resources/StrategicPlanning.pdf)

Environmental Opportunities Environmental Threats

 Expand core business  Likely entry of new large competitors
 Exploit new market  Slow market growth
 Vertically integrate forward or  Adverse government policies
backward  Growing competitive pressures
 Provide services to other farmers  Changing consumer tastes
 Enter new related businesses  New forms of competition
 Develop joint value-added ventures  Downturn in economy
with other farmers  Rising labor costs
 Direct marketing to consumers  Rise in new products
 Rise in clients’ bargaining power

STEP 3 : Organizational Analysis

• This step is for planners to better understand their own company’s strengths and
weaknesses.
• A strength is a resource or capacity your organization can use effectively to
achieve its objectives.
• A weakness is a limitation, fault or defect in the organization that will keep it from
achieving its objectives.
• Strengths may include surplus cash, a dedicated work force, talented
management, expertise or lack of competition.
• Absence of any of these strengths would represent a weakness.
42  CHAPTER 2 STATEGIC PLANNING

Once the environmental and organizational analyses are over, the strategic planning
process leads to the formulation of the strategy for business. A business strategy
consists of a set of well-coordinated action programmes and policies aimed at
securing a long-term sustainable competitive advantage. These programmes are
defined at two different levels of specificity: broad action programmes covering a
multi-year planning horizon and specific action programmes covering a much shorter
period (such as six to 18 months). Therefore, the business strategy is operationally
expressed as a series of broad action programmes, and each one of these is in turn
explicit as a set of action programmes. Often, the two levels of action programmes
are documented in different documents as in Canon where the first level is covered
in the medium-range plan and the second in the short-range plan.

STEP 4 : Formulate Business Strategy

• This final step involves matching the environmental threats and opportunities
with organizational strengths and weaknesses.
• The matching process is the most important part in strategy formulation.
• Organizations that do a good job of matching themselves with their environment
are likely to succeed, but those that do a poor job will have considerably more
trouble.
• Organizations should try to take advantage of market opportunities and neutralize
adverse environmental impacts during consideration of environment in the
matching process.
• Similarly, they should try to reinforce internal strengths and improve on perceived
weaknesses with regard to competition during consideration of internal strengths
and weaknesses in the matching.

After the strategy formulation is over, the next steps for completing the planning
process are resource allocation and definition of performance measurements for
management control, and budgeting for both strategic and operational commitments.

2.3.4 Strategic Planning Tools

Many different business-planning tools are in use. They may be classified into
quantitative and qualitative tools. You may have studied many quantitative tools, such
as forecasting methods, financial analyses, risk analysis, optimization and simulation,
in other OUHK courses. They will, therefore, not be described here. Instead, we
describe two of the more commonly used qualitative tools that are useful in the
development of creative strategies: the famous Boston Consulting Group (BCG)
business matrix (also known as the ‘market growth-market share’
 CHAPTER 2 STATEGIC PLANNING  43

matrix) and Porter’s competitive strategy framework. You may find other qualitative
tools described in B399, which you should refer to if you find the following two tools
are not appropriate.

(a) Boston Consulting Group (BCG) Business Matrix

Boston Consulting Group (BCG) developed the concept of a matrix that
portrays the strengths of the various products or activities of a firm having
multiple products of varying strengths (Stahl and Grigsby 1992, 37). The original
purpose of this matrix was to help such firms decide which businesses should
grow and which businesses should exit. It has, therefore, generally been used
in corporate strategic decisions. However, the matrix is also used at the
business level to help firms decide if they need different products within a given
business. This use is more common in Hong Kong, as most organizations are
businesses rather than corporations.

Let’s explain the BCG business matrix in the way it is used for product portfolio
analysis. Assume that there is a company with multiple product lines. Such
companies have products at virtually every point in the product life cycle. For
example, the management of a firm may use the BCG matrix to evaluate the
market growth rate and relative market shares for each of their products.

High CASH COW STAR

– Strong position in a low – Attractive market so
growth market have to reinvest heavily
– Little threat from – To defend market share
competitors and grow
– Just keep the product – Little cash surplus
ticking over and
Market – Collect the cash
Share

DOG PROBLEM CHILD

Low – Too small to benefit from – Attractive market but to
economies of scale small to capitalized on it
– Market does not justify – Either invest heavily to
further investment gain market
– Duvets – Share or get out
– Double or quit

When products are positioned in the matrix (Figure 2.2), they are classified
according to the quadrant where they belong.
44  CHAPTER 2 STATEGIC PLANNING

• Products in ‘Cash cows’ generate cash flow for the firm, as they have a
relatively high market share (e.g. SPAM canned meat).
• Although products in the ‘Stars’ quadrant have similar market share to the
cash cows, they are strategically more important, as they see high market
growth rate (e.g. Sony CD player). Cash generated by the cash cows may
flow to support the growth of stars.
• Conversely, there must be something wrong with products lying in the
‘Dogs’ quadrant. These products need to be divested or liquidated.
• The most uncertain products are those in the ‘Problem child’ region.

It is the management’s responsibility to determine whether these products may

become ‘stars’ of tomorrow (if investment increases) or ‘dogs’ to be divested. In
developing marketing plans, managers must consider not only where the
product is on the matrix but also in which direction it has been moving. A
‘problem child’ (or ‘question mark’) product with increasing market share could
be heading to become a ‘star’. One with decreasing market share is fading and
may need major changes or elimination.

Examples of products that fall into the four categories of the BCG matrix can be
readily identified. You may classify IBM’s personal computers as ‘stars’ for IBM,
and 35mm photographic film a ‘cash cow’ for Kodak. Kodak’s line of 35mm
cameras is a ‘problem child’, and its discontinued disk camera was a ‘dog’.

The key for an organization in assessing its product mix is to seek balance and
continuity. An organization with all its products as cash cows has a great present
but a very doubtful future. One with only ‘stars’ has limited funds for additional
product development. It will also place great strain on its management’s time,
since stars require a lot of attention. An organization with mostly cash cows and
stars, some problem children and a couple of unavoidable dogs would be said
to have developed a strong product pipeline, and thus a balanced product mix.

How can you construct the BCG matrix? The market growth rate, which is
plotted in the vertical axis of the matrix, is computed from historical data. For
example, at the end of 2001 the market growth rate is measured as follows:

( Market growth rate) 2001 = (Total market ) 2001 − (Total market)2000

×100 (Total market)2000
 CHAPTER 2 STATEGIC PLANNING  45

On the horizontal axis, the market share of the product determines the position.
However, computation of market share also requires careful consideration in
order that it reflects the business strength in a competitive environment. For
example, what would a 10% market share mean in a given business · strong or
weak? In the US-based pharmaceutical industry, it might mean an
extraordinarily strong position, but in the US automobile industry it would mean
a very weak position. Thus, the relative market share should be used rather than
the absolute, which is defined as follows (Hax and Majluf 1984, 130):

( Business sales)2001
(Relative market share)2001 
( Leading competitor ' s sales)2001

For example, if San Miguel beer has a 40% share of the Hong Kong beer market
and Heineken has a 20% share, then San Miguel’s relative share is 2.0 (40/20)
and Heineken’s is 0.5 (20/40). Note that ‘relative market share’ is not expressed
as a percentage. It shows the number of times the sales of a business enterprise
exceed that of the most important competitor. Thus, a relative market share of
two will mean that business sales are twice the sales of the most important
competitor, whereas a relative market share of 0.5 will mean that the business
sales are only half as much as those of the leading competitor.

There are three basic insights a manager can gain from the BCG matrix.
1. First, the graphical matrix representation provides a powerful and compact
visualization of the strengths of the firm’s portfolio of businesses, or a
whole business.
2. Second, it helps identify the capability for cash generation as well as the
requirements of cash for each business.
3. Finally, because of the distinct characteristics of each business, it can
suggest unique strategic directions.

(b) Porter’s Competitive Strategy Framework

The BCG matrix is a tool based on business portfolio analysis. This type of
analysis relies heavily on the use of market share as a primary measure of
competitive strength. We assume that

High market share → High accumulated value → Lower unit cost → High profitability.
46  CHAPTER 2 STATEGIC PLANNING

That is, we believe that if the firm experiences a high market share, it is more
likely that it will enjoy the highest profitability in the coming future. However,
relying too much on this line of reasoning gives management the impression
that ‘to go after volume and market share’ is the only effective way to compete
in the market. But, according to Porter, in the fight for market share, competition
does not come only from the other players. Rather, competition in an industry is
rooted in the underlying economic and competitive forces exerted from beyond
the established combatants in a particular industry. Porter categorized the
competitive forces shaping an industry in his ‘five-force model’ of competitive
strategy (refer to Figure 2.3).

Threat of new
Entrants

Bargaining power Competition Bargaining power

of customers among rivals of supplier

Threats of
substitute

Figure 2.3: Porter’s five-force model

Porter shows in his framework that there are three potentially successful generic
approaches for competing: overall cost leadership, differentiation, and focus.
• Cost leadership is perhaps the simplest of the three generic strategies. A
firm has many avenues for pursuing this strategy, including economies of
scale, using or developing new technology, and developing preferential
access to raw materials. Each organization might have a different approach
to realizing this strategy, but all successful cost-leaders offer a standard no-
frills product and in so doing attempt to reap scale or absolute cost
advantages from all sources. As a competitor, you may produce the same
or even better quality at a lower cost than anyone else does. You may thus
enjoy greater profits or · in a price war · stay in the
 CHAPTER 2 STATEGIC PLANNING  47

market, profitably, with reduced prices. Where competition has been

sluggish, becoming a cost leader may revolutionize the entire business
• A differentiation strategy requires the organization to seek uniqueness in
the eyes of the customers, which justifies their paying a premium price for
the product. To enhance competitiveness, you need to develop a better or
different product/service from your competitors. Quality imperatives demand
a strategy equating the product with ‘desirable’ quality standards.
Differentiation can earn above average profits even in slow growth or
declining markets.
• Last, the focus or niche strategy requires a narrow competitive scope. The
organization focuses on a small target group and services this group or
segment to the exclusion of others. You may focus on a section of the buying
public, a segment of a product line, or an area of the geographic market. In
other words, a niche in the market.

You should note here that both cost leadership and differentiation are simultaneously
achievable and may be needed for sustained competitive advantage. Conditions of
quality, innovation, commitment of users to products of rival firms, learning effects,
economies of scale and economies of scope are some of the conditions for achieving
both strategies (Stahl and Grigsby 1992, 89).

Internet Reading
Porter’s Generic Strategy, at
<http://www.quickmba.com/strategy/porter.shtml>

The Total Quality Management philosophy is based on the concept of achieving both
low cost and differentiation through superior quality. This strategy has been used by
Japanese firms in a number of industries such as consumer electronics. Xerox is an
example of a US firm that has used quality as a way to achieve both low cost and
differentiation.

Activity 2.1
How would you explain the competitive strategy used by Toyota and
Mercedes-Benz in marketing their cars?
(Hint: Use Porter’s competitive strategy framework.)

As you have seen, a number of strategic planning tools are available that can help in
assessing the external environment and the internal strengths and weaknesses of the
organization. The BCG business matrix is a common tool for analyzing the strengths and
weaknesses of the firm’s portfolio of businesses, or a whole business.
48  CHAPTER 2 STATEGIC PLANNING

Porter’s competitive strategy framework is another powerful tool that analyses

strategy suggesting a number of potentially successful generic strategies: cost
leadership, differentiation, and focus.

2.4 FORMING STRATEGIES

Formulating a business strategy is not a science but
rather an art. Rigid rules cannot be applied, and the
best strategy does not emerge simply by using
planning tools or applying some other techniques! A
successful strategy instead depends on the correct
reading of the signs on what the future holds,
combining them in the correct way, and thus
producing a plan or direction for the future
development of the organization. A successful
strategy is an outcome of strategic planning,
strategic thinking and opportunistic decision making.
Figure 2.4: Forming strategies
(Source: www.richmond.ca)
In order to facilitate the search for a good strategy, many organizations have
proposed a set of natural or generic strategies to be considered by each business
depending on its position in the industry attractiveness and competitive strength
dimensions. According to Porter’s competitive strategy framework, we can identify
generic strategies such as differentiation of product and services, overall cost
leadership, and market niche.

These generic strategies rely heavily on competitive advantage as the strategic

theme. However, lately ‘value for the customer’ is emerging as a new strategic theme.
Today’s company mission statements often clearly show this. For example, Peter
Blackmore, an Executive Vice President in Compaq, said,

‘A key element of Compaq’s strategy is a far greater emphasis on building and

delivering integrated, repeatable solutions that create value by solving customer
and industry-specific problems.’
<http://www.compaq.com/newsroom/pr/2001/pr2001122002.html>

Similarly, when CITIC Ka Wah Bank introduces Personal Installment Loan (PIL) in
1999, it mentions,
 CHAPTER 2 STATEGIC PLANNING  49

‘Building on its strategy of introducing a range of customer-driven products and

services, CITIC Ka Wah Bank prices its PIL at very competitive interest rates to
target up-scale customers.’
<http://www.citickawahbank.com/eng/news/press/p990722.htm>

An emerging generic strategy based on the ‘value for customer’ theme is mass
customization · tailor-making products for each individual customer, in which even the
base components are varied (Westbrook and Williamson 1993). Some Japanese
companies have recently initiated this strategy. Although this generic strategy seems
simple enough, it requires the complex combination of excellence in marketing,
engineering and logistics. It is a strategy that critically depends on a high degree of
manufacturing competence, and at present it has been successful to varying degrees
in some Japanese companies such as Melbo, which produces suits and ‘National
Panasonic Bicycles’.

Self-Check 2.2

What do managers need to know in order to plan the business strategy?

The outcome of the strategy formulation process is a strategic plan, which includes
future scope of the organization, its competitive advantage, mission, strategic goals
and objectives, and resources for its implementation.

Business strategy planning is a four-step process, called SWOT analysis, which is

undertaken by the top management of an organization. These steps are:

Setting and modifying the organization’s strategic goals.

Scanning the environment for threats and opportunities.

Analysing the organization for internal strengths and weaknesses.

Matching environmental threats and opportunities with the organization’s strengths and
weaknesses.
50  CHAPTER 2 STATEGIC PLANNING

The process is an iterative one, as you may need to modify the strategic goals as a
result of the matching if required resources are not available.

You can make the search for a good strategy easier by basing your choice on a
number of generic strategies as a starting point. These generic strategies could rely
on a number of strategic themes such as market share, competitive advantage and
value for the customer.

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Andrews, K R (1980) The Concept of Corporate Strategy, Homewood, IL: Richard D

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Ansoff, H I (1984) Implementing Strategic Management, Englewood Cliffs, NJ:

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Broadbent, M, Weill, P and St Clair, D (1999) ‘The implications of information

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Camillus, J C (1986) Strategic Planning and Management Control: Systems for

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Campbell, A and Yeung, S (1991a) ‘Brief case: mission, vision and strategic intent’,
Long Range Planning, 24(4): 145–47.

Campbell, A and Yeung, S (1991b) ‘Creating a sense of mission’, Long Range

Planning, 24(4): 10–20.

Chandler, A A (1962) Strategy and Structure: Chapters in the History of American

Industrial Enterprise, Cambridge, MA: MIT Press.

Cule, PE (1995) Business Process Reengineering: Theory and Practice · Views from the
field, in Grover, V and Kettinger, W J (eds) Business Process Change:
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Hammer, M and Champy, J (1993) Reengineering the Corporation: a manifesto for

business revolution, New York: HarperBusiness.
 CHAPTER 2 STATEGIC PLANNING  51

Hax, A C and Majluf, N S (1984) Strategic Management: an integrative perspective,

Englewood Cliffs, NJ: Prentice Hall, Chapters 3–4, 7–9.

Hussey, D E (1991) Introducing Corporate Planning: guide to strategic

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Hyde, K O (1992) ‘Core values at KCRC’, The Hong Kong Manager, 28(4): 17–19.

Hyde, K O (1993) ‘Customer service and benchmarking’, The Hong Kong Manager,
28(4): 4–5.

Kotler, P, Ang S H, Leong S M and Tan C C (1996) Marketing Management: an

Asian perspective, Singapore: Prentice Hall.

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in Hong Kong’s commercial, industrial and public sectors’, The Hong Kong
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Migliore, R H (1990) Strategic Planning and Management, London: Kogan Page.

Nakahara, T and Isono, Y (1992) ‘Strategic planning for Canon: The crisis and the
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Hong Kong: Longman, 1–16.
52  CHAPTER 2 STATEGIC PLANNING

Ventrappen, H (1992) ‘Creating customer value by streamlining business processes’,

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Westbrook, R and Williamson, P (1993) ‘Mass customization: Japan’s new frontier,’

European Management Journal, 11(1): 38–45.

The glossary provides brief definitions or descriptions of the main technical terms you
encountered in Unit 1.

Business functions are the basic building blocks of an enterprise and they must be
present, regardless of what the organizational structure is. Business functions are
usually grouped under different functional areas such as human resources, finance,
marketing and MIS. Each business function consists of a group of business processes
that are supported by their respective business procedures.

Business process · A specific ordering of work activities across time and place,
with a beginning, an end and clearly identified inputs and
outputs · a structure for action.

Business strategy · Strategy for achieving the goals of a particular business

within a corporation.

Centralized · Decision-making authority is usually tightly controlled by

organization top management in an organization (often result in a tall
structure).

Chain of · Reporting relationships within an organization; the flow of

command decision-making power within a firm.

Corporate · Strategy concerned with what businesses a corporation

strategy does and does not wish to enter.

Decentralized · Decision-making authority is usually delegated to middle-

organization level or lower-level management (often result in a flat
structure).

Environmental · Scanning the organization’s external environment for

analysis threats and opportunities.
 CHAPTER 2 STATEGIC PLANNING  53

External · Factors affecting a firm that are essentially uncontrollable

environment by the firm and that determine industry trends and market
opportunities.
Function · A function (within a functional area) or business function is
a group of processes for supporting a specific part of the
mission of the enterprise. For example, accounts receivable
and accounts payable are some of the business functions
within the functional area, finance.
Functional area · A group of related functions or organizational functional
group such as finance, human resources, and marketing.
Functional · Strategy dealing with a functional area of the business
strategy enterprise.

Goals · General statements about the direction in which a business

enterprise intends to go.
Goal-setting · Process of defining goals at various levels of the enterprise.

Informal · A network of personal interactions and relationships

organization among employees (which are not shown by the
organization chart). This is often supported by an informal
communication network called a grapevine, which carries
gossip and other information throughout an organization.
Information · A series of coordinated processes whereby an organization
systems strategic establishes a long-range plan of information technology-
planning based application systems in order to achieve its objectives
for supporting/enhancing the business mission, objectives
and strategies of the organization.
Intermediate · Goals which have a planning horizon of one to five years.
goals

Internal · Matters inside an organization that are important to future

resources success. These could be physical resources such as
machines, buildings, etc.; human resources, systems, and
intangibles such as an organization’s image and know-how.
Knowledge · The explicit and systematic management of vital knowledge
management and its associated processes of creating, gathering,
organizing, diffusion, use and exploitation. It requires
turning personal knowledge into corporate knowledge that
can be widely shared throughout an organization and
appropriately applied.
54  CHAPTER 2 STATEGIC PLANNING

Level of a goal · Classification of goals on the basis of the planning horizons.

Long-term goals · Goals that extend over a period of five years or more into
the future.

Mission · A view of how an organization will achieve its purpose.

Objectives · Specific targets that a business enterprise intends to achieve

by a given time.

Organization · A physical depiction of an organization’s formal structure

chart showing employee’s titles and their relationship to one
another.

Organizational · Internal scrutiny of the organization for determining its

analysis strengths and weaknesses.

Organizational · The specialization of the jobs to be done within an

structure organization and how these jobs relate to one another.

Plan · A plan is the outcome of the planning process.

Planning · Planning is the design of a desired future and of effective

ways of bringing it about.

Planning · Period within which a goal is intended to be achieved.

horizon

Policy · It represents an overall guide by setting up boundaries that

provide general limits to managerial action and directions
in which it will take place.

Procedure · A detailed description of how to carry out the supporting

work of a process.

Process · A structured, measured set of business activities that are

designed to produce a specified output for supporting a
business function. It defines what to do together with
prescribed inputs and outputs but it is independent of the
organizational structure. The strong emphasis on input.
Outputs prescribes a collaboration among business
processes to achieve the organizational goals.

Purpose (of an · A reason for the existence of the organization.

organization)
 CHAPTER 2 STATEGIC PLANNING  55

Short-term goals · Goals which have a planning horizon of less than, or up to, a
year.

Strategic goals · Long-term goals derived directly from the organization’s

mission statement.

Strategic plan · Document produced as an outcome of strategic planning giving

details of the strategic objectives, goals, policies and other
action programmes.

Strategic · A set of managerial decisions that relates the organization to its

management environment, guides internal activities and determines the
long-term performance of the organization

Strategic · Process by which strategic objectives, goals and policies

planning evolve for a business enterprise.

Strategy · A means of achieving a desired end (objectives), generally

concerned with the effective adaptation of an organization to
its environment through time.

Vision · A mental image of a possible and desirable future state of the

organization.
Chapter  Strategic Use
of Information
3 Technology

CHAPTER LEARNING OUTCOMES

When you have completed this chapter you will be able to:
 Distinguish between the scope of IS and IT.

 Discuss the impact of IT on business organizations.

 Describe the role of IT in gaining competitive advantage.

 Discuss the growing importance of inter-organizational information
systems.

 Identify strategic IT applications for an organization.

TABLE OF CONTENTS
Introduction
3.1 Formation Systems and Information Technology
3.2 Is and it Strategies
3.3 Evolution of Information Systems
3.3.1 Centralization Era
3.3.2 Decentralization Era
3.3.3 Architecture Era
3.3.4 Internet Era
3.4 IT as a Strategic Resource
3.5 IT and Competitive Strategy
3.6 Competitive Advantage and Competitive Necessity
3.7 Use of IT for Competitive Advantage by Hong Kong Organizations
3.8 Risks of Using IT Strategically
3.9 Inter-Organisational Systems (IOS)
3.10 Information Partnerships
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  57

3.11 IOS and Competitive Advantage

3.12 Opportunities for Strategic IT Application
3.13 Strategic Grid
3.14 Competitive Force Analysis
3.15 Value Chain Analysis
3.16 Customer’s Resource Life Cycle Analysis
3.17 Strategic Options Generator
References
Glossary
Feedback on the Activities on the Self-Tests

 INTRODUCTION
This topic aims to describe how information technology (IT) affects organizations in
general, and their strategies in particular.

In the 1970s, the convergence of computer and telecommunication technologies

enabled organizations to consolidate a communication network among diverse
geographical locations. In the 1980s, the powers of microcomputers and high-level
languages for user-friendly software have enabled organizations to develop
distributed processing environments. The next important issue in IT management is
to transform IT into competitive advantage. Over the years, information systems
developed to serve this purpose have become collectively known as ‘strategic
information systems’ (SIS).

Strategic information systems (SIS) enable a firm to gain a competitive edge or to

undermine its rival’s advantages. For instance, by building an online reservation
system that links directly with travel agents, American Airlines enlarged its market
share in the late 1960s. In contrast, those firms that cannot perceive the strategic
visions of IT might risk losing their business opportunities. Delta Airlines, for example,
lost US$86.7 million because it failed to anticipate the strategic use of IT (Lederer and
Mendelow 1988, 73).

We have to emphasize here that the advance of IT or IS alone does not necessarily
produce strategic advantages that the management desires. As the successful
deployment of SIS has to align with the corporate strategy, a good understanding of
the relationship between IT and the methods of gaining competitive advantage is
therefore essential.

Telecommunication networks and the information systems based on them play a very
important role in gaining competitive advantage. Essentially they provide external links,
such as those with customers and suppliers, through which information can be captured,
processed, analysed, delivered and stored. Thus, these
58CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

‘information networks’ can have several strategic uses. One such important use is
that these systems are capable of linking two or more organizations (rather than
individuals) to build a tighter relationships, in which case they are called inter-
organizational systems (IOS).

Having understood the ways in which IT can be used to provide strategic advantage,
you still need to know how and in what manner in order to identify specific applications
of IT for a given organization. You, therefore, need to know how to use
frameworks/models to assess the potential of IT in providing strategic advantage to
any organization. As there are many of these tools, you need a framework to help you
determine which tool to use and when.

3.1 INFORMATION SYSTEMS AND

INFORMATION TECHNOLOGY
In order for information to flow from its source to an individual who can use it, some
type of system, physical or otherwise, is required to collect, to store and then to move
the information within an organization. Thus, an information system (IS) can be
defined as a set of procedures that collects or retrieves, processes, stores and
disseminates information to support organizational decision making and control.
Many organizations have information systems which are entirely manual. Other
systems are computer-based information systems that rely on information technology
as well as humans for their operations. Information systems need not be necessarily
computer-based, but often they are. The determining factor is whether an information
system can be improved by including IT-based processing capability. If a manual
system can perform a task efficiently and without error, there may be little reason to
use IT. Often, however, as the volume of work grows, procedures increase in
complexity or activities become more inter-related and/or dispersed geographically,
information systems can improve their efficiency and effectiveness by obtaining IT to
assist them. Therefore, all subsequent references to information systems in this
course refer to these computer-based systems.

Information technology (IT) refers to a powerful collection of elements, which

include computer hardware, software, telecommunication networks, and related
technologies. As IT is the basis of any information system, there is often confusion
between IS and IT. To clarify, information systems are ‘applications’ having
functionalities that can be exploited by the business, and information technology
provides capabilities that enable these applications, as shown in Figure 3.1.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  59

Information
Technology

IS are the functionalities to be exploited

by business

Information
Systems

IT provides the capabilities to enable IS

applications

Business
Use

Figure 3.1: The role of IS and IT

For example, telecommunication is the technology that enables a computer to

communicate with a remote terminal. This communication function could be used by
an organization by placing these terminals at customers’ sites thereby allowing
customers to logon remotely to the organization’s computer for a variety of purposes
such as order entry or inquiring about order status. Here, information systems are the
software applications that customers would use (including software packages on the
customers’ systems and the host computer) and information technology is the
hardware supporting these applications (computers, communications devices and so
on).

3.2 IS AND IT STRATEGIES

Because of the wide possibilities opened up by today’s IT capabilities, IS
functionalities and information use, business organizations are given every chance to
determine what and how they wish to accomplish through IT. Organizations need to
choose the appropriate IS and IT strategies to justify their IT investments and, at the
same time, increase their competitive advantages.

Like business strategy, IS and IT strategies refer to the direction in which the
organization develops its IS and IT. However, you should understand that the issue
of what an organization should do with the technology is termed IS strategy while the
question of how it does it is termed IT strategy; or
• IS strategy is concerned primarily with aligning IS development with business
needs and with seeking strategic advantage from it.
• IT strategy is concerned primarily with technology policies, and tackles questions
of architecture, including risk attitudes, vendor policies and technical
60CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

standards. In this context, IT architecture refers to the technology framework,

which guides the organization in satisfying its business and management
information systems needs.

You can see that IT architecture is the physical implementation of the IT strategy. It
is the blueprint that defines the technical computing, information management and
communications platform of the organization, the structures and controls that define
how that platform can be used, and the categories of applications that can be created
upon the platform. The IT architecture provides an overall picture of the range of
technical options available to an organization, and as such, it also implies the range
of business options. With such a definition, it is not surprising to find people referring
to IT architecture as IS architecture. Both of the two terms imply the composite
structure of:
• hardware and software that are used to manage information and
communication;
• the tools used to access, package, deliver and communicate information;
• the standards, models and control framework; and
• the overall configuration that integrates the various components.

Activity 3.1
A bank decides to provide access to any three of a customer’s accounts
through its ATMs to its customers, so that with these accounts they can
transfer, withdraw or deposit money. Would you classify this as an IS
strategy or IT strategy? Why?

This is a fairly important and fundamental section, so let’s summarize. We’ve been
discussing the meanings of four special terms: (1) Information systems (IS) are
computer-based systems for collecting, retrieving, processing, storing and/or
disseminating information to support organizational decision making and control.
(2) Information technology (IT) includes computer hardware, software,
telecommunication networks, workstations, robotics and smart chips. (3) IS strategy
refers to what an organization should do with the technology, (4) whereas the
question of how they do it is IT strategy.

The first chapter in your textbook (Dickson and DeSanctis’s) addresses a number of
issues that are related to the strategic use of IT. It starts with an introduction to the
history of IT applications and management before it goes on to discuss strategic
issues. We follow the same sequence in the next two sections · but a few
retrospections first.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  61

3.3 EVOLUTION OF INFORMATION SYSTEMS

The earliest information systems were developed in the early 1960s. Ever since its
first appearance, the field of IS has been changing very significantly. ISs of today
represent a totally different set of aims, means and responsibilities than were typically
used in organizations of the 1970s, 1980s or even in the 1990s.

To analyse all those changes, researchers usually divide the short history of IS
development into different eras and study how ISs evolved during the years.
However, the division differs among researchers because they focus on different
aspects. For example, DeSanctis, Dickson and Price (2000) depict the IS history in
five eras. You should study what happened in the very first era in the following
reading.

Dickson and DeSanctis (Eds), pages 2–5 in Chapter 1 of Information Technology

Management, the section entitled ‘First era: Pioneers, Penetration, and
Chaos (1954-1963)’ by DeSanctis, G, Dickson, G and Price, R.

Any systematic development began after the period of chaos. The next four eras in
DeSanctis, Dickson and Price (2000) form the core of their model. The essential
characteristics of these eras are summarized below.

3.3.1 Centralization Era

This era is dominated by information systems that function primarily as the processing
of predefined (business) transactions to produce fixed-format reports on schedule.
Their principal use is to automate the basic business processes under the supervision
of the organization. Typical transactions handled by these systems are payroll
records, customer orders and purchase orders. To help management, these systems
could also provide predefined exception reports based on the transactions processed.
Many such systems process transaction data of the organizations; they are called
transaction processing systems or data processing systems. It also explains why this
era is sometimes called the data processing (DP) era. Technologically speaking, the
era is marked by the development of direct access storage devices (DASD) and
database management systems (DBMS).

Another type of application developed in this era is management information systems

(MISs). They provide two new capabilities to the users:
62CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

1. enquiry, i.e. flexible data base access initiated by ad hoc user requests (for
searching an item of information); and
2. analysis, i.e. flexible user-driven processing (such as generating ‘what if’
scenarios for testing implications of planning models).

These capabilities were mainly useful for managers and professionals in satisfying
their information needs.

This was a period of rapid growth · the main objective was to replace the manual
systems with the automated ones. Opportunities for developing new ISs were
identified by inspection, by observing the performance of routine tasks and concluding
that computers could be programmed to perform them. With experience, systems
were also developed in other areas such as manufacturing, marketing and
purchasing. However, development of such systems was so expensive that the efforts
were usually centralized under management’s control.

Dickson and DeSanctis (eds), pages 5–7 in Chapter 1 of Information Technology

Management, the section entitled ‘Second era: gaining control ·
centralization and a technical monoploy (1964–1976)’ by DeSanctis, G,
Dickson, G and Price, R.

DP systems and MISs were adequate when the environmental challenge was to
deploy the newly arrived information (mainly computer) technology to automate
manual operations, and to develop efficient applications that could reduce or avoid
organizational costs. But these systems, apart from processing the transaction data,
did not meet the information needs of managers and professionals as organizations
began to flatten and globalization began to take shape in the late 1970s.

3.3.2 Decentralization Era

It was the emergence of personal computers and low-cost software around 1980 that
opened the era of decentralization. People with abundant supplies of user-friendly
software tools found themselves able to develop applications (small information
systems) for their own use even without the leadership of skilful technicians or formal
methodologies for software development. This was the beginning of end-user
computing. The control of development and application was decentralized to
individual managers who were able to solve their ad hoc problems by building simple
but useful software solutions with little effort on their PCs or mainframes, thereby
avoiding the long backlog of requests to the MIS department.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  63

The MISs in the earlier period evolved to add new light to information business
management. MISs in the 1908s depended primarily on time-sharing and on powerful
microcomputer technology. Common users for MIS were managers and professionals
rather than the clerical and supervisory level staff. These systems were aimed at
supporting the managers and professionals, rather than replacing them by automating
their tasks. A new breed of MISs supporting specific decisions came to be known as
decision support systems (DSS). These systems were not simply to provide higher
quality information from the use of decision models and databases, rather they were
meant to improve the quality of the managerial decision process itself. Similarly, other
systems that were specifically designed for top management (executives) were called
executive information systems (EIS). Nowadays, EIS are being introduced at an
increasing rate. Many organizations in Hong Kong such as Hospital Authority, Hong
Kong University, HALT and HSBC have them helping the senior management in
various functions (e.g. budgeting). There are two reasons for this worldwide growth
of EIS. Firstly, modern IT makes these systems both more powerful and more
palatable than the old paper-based MIS. Secondly, the accelerating pace of business
and the simultaneous need to make organizations more flexible by reducing layers of
management is met by EIS.

Now you should read the textbook and study how decentralization is related to
flattening of management hierarchy.

Dickson and DeSanctis (eds), pages 7–9 in Chapter 1 of Information Technology

Management, the section entitled ‘Third era: letting loose · distribution and
decentralization (1977–1984)’ by DeSanctis, G, Dickson, G and Price, R.

3.3.3 Architecture Era

The continued proliferation of PC and communications technologies, including the
Internet technology in the period 1985 to 1996, offered corporations a chance to re-
adjust the role played by their IT. This was the time when many saw the importance
of so-called strategic information systems (SISs). They are systems capable of
supporting or shaping the competitive strategy of the organization. Frequently, the
accomplishment of SISs extends beyond the bounds of the organization itself, to its
customers or clients, suppliers and competitors. Making use of communications
technologies, SISs were often large information systems connecting business
partners and various functions of the organization to a large-scale database. They
were central to the IS architecture of the organization, which was how the era got its
name.
64CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

In the early years of this era, SIS might have just been a management information
system (MIS). It was distinguished from the other MISs in the way that it directly
supported or shaped the competitive strategy of the organization. With the
introduction of business process re-engineering (BPR), management started to
realize that simply focusing on the strategic advantages brought about by an MIS was
not sufficient. Organizations needed to analyse their strategic needs before investing
in the design of an SIS. You should now study the text to find how IT and IS evolved
during this period.

Dickson and DeSanctis (eds), pages 9–11 in Chapter 1 of Information Technology

Management, the section entitled ‘Fourth era: distribution · a free market with
issues of architecture and management (1985–1996)’ by DeSanctis, G,
Dickson, G and Price, R.

You must have noticed the term enterprise resource planning (ERP) in the reading.
This type of system could be implemented on a mainframe or in a distributed network,
and were regarded as a strategic tool by many organizations. You can see some of
the major functions of an ERP system in Figure 3.2.

Enterprise Resource Planning

multi-language and multi-currency
client-server architecture

Production Supporting Sales

Project management Warehouse & inventory Sales order processing

Product confguration management Distribution
Material management Human resources Services
Engineering Financial accounting Customer analysis
Production control Asset management Market research
Manufacturing planning Management reporting Marketing management
Quality management

Figure 3.2: ERP

 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  65

3.3.4 Internet Era

The Internet arrived long before 1997, which is the beginning of the Internet era as
indicated in DeSanctis et al. However, it didn’t receive as much attention as it does
today when every organization (business, government or otherwise) tries to get the
benefit out of the Internet.

The Web, as the Internet is often called, originated as a communication network

among universities and research laboratories. It remained for a long time as a
convenient means for email, file transfer, discussion group, telnet, etc. until the
graphical user-friendly browser, Netscape, appeared in the market. The Internet is
accessible for anyone, no matter whether they use a PC or a mainframe. A new kind
of business, the Internet Service Provider (ISP) emerged and has helped millions of
people surf on the Web.

While many businesses were still looking at the Internet as a playground for children’s
games, success stories of many online companies (e.g. Amazon.com) were finding
their way into magazines and textbooks. The Internet era was transformed into an era
of electronic commerce. Suddenly people saw new threats and opportunities on the
Web. You can read some of the happenings during the Internet era from the following
paragraphs.

Dickson and DeSanctis (eds), pages 11–12 in Chapter 1 of Information

Technology Management, the section entitled ‘Fifth era: the world Wide Web
and anytime/anyplace computing (1997 into the Twenty-First Century)’ by
DeSanctis, G, Dickson, G and Price, R.

A much more detailed discussion on the strategic issues of the Internet will be left to
the latter half of this course. By now, we should be satisfied with being able to identify
the five eras of IT/IS development and deployment.

Let’s re-emphasize here that these eras do not actually represent sequential
relationships in time; i.e. it is not that the era of centralization ended when the era of
decentralization started. In fact, an era derives its name from the state-of-the-art IT
systems available at that time. As such, during the decentralization era, decentralized
ISs were the state-of-the-art but still some (rather many) organizations continued to
use centralized IS and thereby stayed in the centralization era. Similarly, even now in
the Internet era, there are many organizations which are still in the architecture, or
even in the centralization, era!
66CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

Activity 3.2
A garment manufacturing company has the strategic goal of ‘no stockouts’. It
has many retail outlets distributed throughout Hong Kong. Their outlet counters
have POS terminals connected to their central computer system. They track the
movements of various products from different retail outlets and decide ‘outlet
stock replenishment strategy’ for each individual outlet based on the movement
of products, so that the fast moving items are never out-of-stock. What would be
the impact of this inventory tracking on the organizational strategy? In which ‘era’
should the company be placed?

Note that many of the information systems that we use today are SISs that first
appeared in the architecture era. These systems have three essential characteristics:
(a) they significantly change the business performance of the firm; (b) they contribute
to attaining a strategic goal; and (c) they fundamentally change the way the company
does business or the way it competes.

SISs are of particular importance, as their deployment is related to whether the

strategic goal of the firm can be achieved. An SIS may be either a data processing
system or a management information system (or management support system). The
dimension that makes a system strategic is that it directly supports or shapes the
competitive strategy of the organization.

3.4 IT AS A STRATEGIC RESOURCE

In the last decade or so, the role of IT within organizations has changed significantly
as more and more organizations have built and used SISs. Many organizations have
recognized that IT offers the capability to redefine the boundaries of markets and
structural characteristics, alter the fundamental rules and basis of competition,
redefine business scope, and provide a new set of competitive weapons. It is,
therefore, imperative that the traditional role definition of IT needs to be changed to
reflect a more central, strategic role for IT within management. This emerging new
role of IT within organizations is the result of two concurrent and perhaps equally
powerful forces · technology push and competitive pull · as shown in Figure 3.3.

Technology IT AS
Push STRATEGIC Competitive pull
RESOURCE

Figure 3.3: The forces on IT as a strategic resource

 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  67

The ‘technology push’ force has emerged partly due to significant improvement in the
price-performance ratio of IT and partly due to increased connectivity capabilities over
time. The other force, ‘competitive pull’ has emerged because markets are becoming
highly competitive and the traditional sources of competitive advantages are
diminishing as competitors strive to attain parity with one another.

Often there is a need to distinguish between strategic use of ‘information’ and

strategic use of ‘information technology’. Some organizations have used IT to achieve
strategic objectives taking advantage of technological advances. For example,
suppose an organization determines that relations with its customers could be
strengthened by placing computer terminals in each customer location facilitating
order placement, as well as providing a means of advance price and availability
checking. While this information was previously made available to customers by
phone on request, it is now provided instantly via telecommunication links. Customers
are thereby ‘tied into’ the firm in a way that makes it more difficult for them to change
suppliers. In this case, it is the information technology and not the information itself
(since the same information was available previously), which is the key factor in
achieving improved customer relations (and thus meeting the firm’s strategic
objective).

On the other hand, many organizations use information itself, rather than IT, as a
strategic resource. For instance, an organization might have a strategy of expansion
through acquisition of related businesses. Having identified criteria for evaluating
potential acquisition, the organization now scans a commercial database to identify
acquisition prospects that meet the criteria. In doing so, they are using new
information or using available information in new ways to widen the range of firms
that are considered and to make better strategic acquisition choices. In this case,
therefore, it is the use of important new information or of available information in new
ways that is the key to success. Although IT facilitates the processing of this
information, it is not the technology itself (as in the earlier case) that provides the
strategic advantage.

The primary distinction between these two approaches lies in the source of the value
added. In the first example, the introduction of IT increased the value of existing
information by providing easier and faster access. In the second, the information itself
provided a strategic advantage through the new uses to which it is put.

In some situations, both IT and information can be used as a strategic resource. For
example, an airline (such as American Airlines) had already pursued the use of IT by
putting computer reservation terminals into travel agencies. Then it began to use the
detailed information that it thereby obtained on supply and demand for various
routes to manage optimally the availability of low-price seats on each of its flights.
This ensures that it will capture much of the business travellers’ demand for high-
68CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

priced unrestricted tickets as well as fill otherwise-empty seats with low-priced tickets
that are sold with restrictions of timing, penalties for changing reservations and so on.
(Airlines now call this strategy ‘yield management’.) Thus, the airline used both IT and
information for getting strategic advantage.

Dickson and DeSanctis (eds), pages 12–18 in Chapter 1 of Information

Technology Management, the section entitled ‘Changes in Using IT for
Competitive Advantage’ by DeSanctis, G, Dickson, G and Price, R.

3.5 IT AND COMPETITIVE STRATEGY

Competition, while ubiquitous, always occurs within certain boundaries which may be
called competitive arenas (Wiseman 1988). Individuals as well as organizations
compete in a variety of arenas. Within the same arena, such as an industry, a
competitor may win one competitive battle and lose another. To explain the victory of
one adversary over another in a competitive battle, you need to know those factors
responsible for its win at the time. On the other hand, to explain the dominance of one
competitor over another in an arena, you need to know those factors conducive to its
success over a period of time. In this case, you need to understand those powers,
consisting of certain abilities or combination of abilities, that the superior performer
possesses uniquely or to a greater degree than any of the competitors. Such powers
are called competitive advantages. For example in Hong Kong, large supermarket
chains such as Park’N Shop or Wellcome obtain goods from suppliers at lower cost
than their smaller rivals, and they offer these goods to customers at prices
competitors may not be able to match. The chain thus enjoys advantages in two
arenas: (a) it is able to negotiate price concessions from suppliers because the
volume of its purchases yields substantial bargaining power, and (b) it is able to set
lower retail prices compared to its rivals because of its reduced purchasing costs.

In most cases, a competitive advantage results directly from an explicit strategy, that is,
the conscious choice or action designed to achieve an edge, which is called the
individual’s or organization’s competitive strategy. The process of strategic management,
formulating and implementing organizational strategy, is progressively being defined as
the management of competitive advantage. According to Porter, the essence of
formulating competitive strategy is relating an organization to its environment. Although
the relevant environment is very broad, encompassing social as well as economic forces,
the key aspect of the organization’s environment is the industry or industries in which it
competes. Industry structure has a strong influence in determining the competitive rules
of the game as well as
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  69

the strategy potentially available to the firm. The essence of strategic formulation is
coping with competition (Porter 1980).

According to Porter’s five-force model, the impact of IT can be addressed on the basis
of the five forces. Table 3.1 below summarizes the opportunities and risks that IT may
be employed to shape organizational strategies.

Table 3.1: Impacts of IT on Organizational Strategies

Opportunities Risks

New entrant To build barriers To lower entry barriers

Customers To build in switching costs To increase customers’ power

Rivalry To change basis of competition To change basis of competition

Suppliers To change the balance of power To increase suppliers’ power

Substitutes To generate new products To generate new products

Activity 3.3

Xerox connected design, engineering and manufacturing personnel

within its system of local area network (LANs) and created a team
focusing on one product. What impact might it have on the nature of work
performed by staff in the three departments? How will it benefit the
organization?

Let’s summarize. IT exerts a strong influence on organizations. It changes the way

work is done, whether it is production, coordination or managerial work. It integrates
business functions at all levels and gives rise to organizational teams, electronic
alliances and electronic markets. It permits a high degree of simultaneous
collaboration and competition in the industry. It presents new strategic opportunities
and changes organizational structure. It, therefore, poses a major challenge for
management today to catalyse the necessary transformation of their organization.
70CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

3.6 COMPETITIVE ADVANTAGE AND

COMPETITIVE NECESSITY
Organizations are using IT as a competitive tool in two ways: one, as competitive
necessity, i.e. to stay in the business or maintain competition, and the other, to gain
competitive advantage or beat the other competitors. Indeed IT has become the basis
for competing in more and more industries. For example, airlines, hotels, and rental
car companies cannot survive without an online reservation system, either their own
or someone else’s. In the drug and hospital wholesaling industries, those with an
automated order entry and distribution system have a definite advantage over those
without these systems. In financial markets, IT-based trading and settlement systems
are taking over old open systems. In manufacturing, CAD/CAM and engineering, and
increasingly electronic data interchange (EDI) are becoming mandatory to
compete. Similar developments are taking place in many other industries. As industry
leaders increasingly turn to IT to address quality, service, innovation and speed, their
competitors must do the same, or find themselves at a disadvantage.

In a few cases, the leaders have such a head start that competitors had to form
alliances to stay in the competition. For example, European airlines formed alliances
such as Galileo and Amadeus to build global online reservation systems. None of the
airlines could have afforded to develop their own reservation system and yet they
feared that American Airlines or United Airlines would capture the deregulated
European market if they did not have a comparable system (Sprague and McNurlin
1993, 70). Similarly, many smaller banks in Hong Kong had to build their own
alliances to set up an ATM network, JETCO, in order to compete with larger banks
like HSBC.

An interesting example of this ‘staying abreast or losing out’ principle can be given
from the trucking industry in USA (Sprague and McNurlin 1993, 71). Conventionally,
the American trucking industry shipped two types of truckloads of goods: full
truckloads point-to-point and less than truckloads. But when United Parcel Service
(UPS) based its entire business on ‘less than truckload’ delivery, it created a new
industry segment: package delivery. As a result the trucking industry changed, and
UPS actually became much larger than the other trucking companies because of a
bigger market. The new technology UPS used for its success was efficient package
sorting at distribution centres to maximize use of the trucks. Other competitors were
forced to switch over to this technology, and those who could not or did not were not
able to withstand the competition.

There was, however, a weakness in UPS’s service, as it did not guarantee a delivery
time nor track packages. Federal Express capitalized on this weakness and added
two more functions: guaranteed delivery time and package tracking. It became larger
than UPS because it created yet another industry segment: overnight
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  71

delivery, and tapped an even larger market. The new technology it used was a new
system for tracking packages. Again, its competitors were forced to invest in the new
technology to maintain competition.

Switching from one technology to another requires substantial investments, but that
decision must be often made to remain competitive. A firm that correctly identifies a
new market and the technologies to exploit it maintains a competitive advantage.
However, management sometimes has such an emotional attachment to the existing
technology that it fails to see the new one and loses its market share to swifter
competitors.

However, competitive and technological forces simply do not permit any single
organization to enjoy a sustainable competitive advantage merely from its use of IT
(Morton 1991, 15). A sustainable advantage is one that makes its possessor immune
from attack by competitors attempting to duplicate, emulate or copy it (Wiseman 1988,
110). For example, HSBC was one of the first banks in Hong Kong to provide its
customers with access to any three accounts through their ATMs and move funds
between them. Soon, most banks in Hong Kong replicated the technology and were
able to provide similar facilities. Similarly, in the case of overnight package delivery
business, Federal Express is not the only courier now giving this service as many
others such as DHL are giving similar facilities.

It will, however, be possible for an organization, which has been an early mover with
a business benefit enabled by IT, to actively invest in innovations that continue to
increase the benefits to the user of innovation. In other words, the benefits do not flow
from the mere use of IT, but arise from the human, organizational and IT application
innovations that are added on to the original business benefit. IT is merely an enabler
that offers an organization the opportunity (in the form of an SIS) to vigorously invest
in added innovations if it wishes to stay ahead of its competitors. For example, Federal
Express has now gone beyond ‘overnight delivery’. It handles inventory for its large
corporate clients and guarantees overnight delivery of these inventoried items using
its distribution network and SIS. Thus, clients can ‘outsource’ not only their inventory
but also distribution to Federal Express. Such clients could be parts suppliers,
manufacturers, distributors and retailers.

3.7 USE OF IT FOR COMPETITIVE ADVANTAGE

BY HONG KONG ORGANIZATIONS
In the USA and Europe, a large number of organizations have used IT to gain
competitive advantage. Though Hong Kong seemed to have started late, many
organizations are now moving towards exploiting IT for gaining competitive
advantage.
72CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

The following is a mini case, describing the use of information technology in a world-
class Hongkong-based courier service provider, DHL.

Reading – Mini Case

DHL Expands Express Logistics Centre

Strengthening Hong Kong’s Position as the Express Logistics

Hub (from http://www.dhl.com.hk)

January 10, 2002

In readiness for China’s accession to the WTO, DHL Worldwide Express has expanded
its Express Logistics Centre (ELC) in Tsuen Wan to 58,000 sq ft. The ELC is capable
of handling over 600,000 shipments per year.

The centre is equipped with a state-of-the-art inventory management system, online

computer technology, comprehensive security systems and temperature control
capability. The ELC has enabled DHL to leapfrog the competition in terms of timely
and cost-effective logistics support for the supply chain requirements and shipping
needs of many different industries, offering integrated logistics services such as Return
Repair Inventory, Strategic Inventory Management, and Direct Express Inventory.

Specially designed for the hi-tech industry, Return Repair Inventory allows businesses
to centralize their repair and inventory management of products and parts in a region.
Strategic Inventory Management offers reliable and high-speed (1 day) delivery of
spare parts with regional coverage. Direct Express Inventory enables multi-national
enterprises to set up a single, central warehouse at DHL’s ELCs to replace several
national or regional warehouses. Products can be configured to meet specific end-user
requirements.

„The operation space of the DHL Express Logistics Centre has more than doubled
from 25,000 sq ft since it was relocated to Tsuen Wan in 1999,‰ says Mr. Kelly Yu,
General Manager, DHL International (Hong Kong) Ltd. „The multi-million dollar ELC
will not only cater for the current logistics support and express shipping needs of Hong
Kong and Asia Pacific, but for the expected growth resulting from China’s entry into
the WTO. Amid a gloomy economy, China continues to serve as a beacon for Asia,
and achieved a GDP growth of 7.3 per cent in 2001.‰
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  73

The expansion of the ELC is part of DHL’s long-term support for the development of
Hong Kong as a gateway to China. In the past two years DHL has not only expanded
the ELC, but established its Central Asia Hub in Hong Kong, as well as building its
29,000 sq ft Kowloon West and 100,000 sq ft Kowloon Central Service Centres.

Mr. Yu says, „Customers evaluate the importance of what I call the ‘4Cs’ when
choosing the most appropriate mode of air transportation for exports: Convenience - is
it convenient to ship by air? Connectivity - are there adequate flight options and
alternative flights available? Certainty - is the flight schedule reliable and the customs
formality predictable? And, of course, Cost - is the transportation mode cost-efficient?
The importance of the 4Cs varies with different types of shipments. For Time-sensitive
shipments (which have to be delivered within two to three days) and Time-critical
shipments (which are the most urgent shipments and have to be delivered within one
day) are normally sent by air express companies such as DHL, as distinguished from
regular air cargo companies.

„DHL has a huge advantage for the latter type of shipments, given the high frequency
of our flight schedule at the Hong Kong International Airport and the territory’s
geographical location at the centre of Asia-covering most of the key destinations in the
region within five hours’ flight. This makes delivery and pick-up of shipments to and
from Asian cities within the same day possible. DHL benefits from the territory’s
strategic location as the first and only air express company to build our Central Asia
Hub in Hong Kong,‰ says Mr. Yu.

The Central Asia Hub, which serves as the focal point for DHL’s Asian Air Network,
handles over 140 flights per day. This allows DHL to offer the latest pick-up times at
10:00 pm, and the earliest next-morning delivery. The extension of pick-up time
provides more flexibility and time for customers to prepare shipments.

In addition to the one in Hong Kong, DHL has seven ELCs around the world – in
Bahrain, Sydney, Brussels, Cincinnati, Johannesburg, Miami and Singapore - forming
a global network to cater for logistics needs of regional and global customers.

DHL Worldwide Express is the global market leader of the international air express
industry. An established innovator since pioneering the industry in 1969, DHL
continues to be at the forefront of technology, offering fast, responsive, and cost-
effective, express deliveries in addition to e-commerce fulfillment and intelligent
logistics solutions. The DHL network links 120,000 destinations in over 220 countries
and employs 69,000 people. DHL is a privately owned company. Major shareholders
are Deutsche Post World Net, Lufthansa, and Japan Airlines. In Hong Kong, DHL
employs more than 1,700 personnel, has 16 Express Centres, and owns over 200
transport vehicles.
74CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

We believe more and more organizations in Hong Kong will use IT for competitive
advantage. The senior management of some of these organizations are proactive
and have set related IT goals to the organization’s strategic goals. For others, they
seem to have been moving in this direction · but only slowly. But being cautious is
part of Asian culture. While everyone embraces the possible profitability brought
about by IT, these slow-movers may have their own views on the risky use of
contemporary IT. The negative aspects are discussed in the next section.

3.8 RISKS OF USING IT STRATEGICALLY

Even though IT can provide competitive advantage when it is appropriately applied,
it can also cause disasters when it is misapplied, neglected or ignored. A real and
complex danger for developers of a potential SIS is that they may succeed in the
narrow technical sense but generate disastrous organizational and competitive
consequences. Some of the risks identified are:
• The project may fail to meet real customer need at an acceptable cost. For
example, electronic home banking, in which Chemical Bank of USA lost a lot of
money in the early 1980s. The project failed because (i) the developers
underestimated the cost to deliver the service; (ii) the system had limited
economic value for customers; and (iii) many Americans at that time did not know
how to use computer terminals.
• The project may fail to be defensible, because: (i) it is too easy to replicate by
competitors (as in the case of HSBC’s ATM system giving access to three
accounts, which was soon replicated by many other banks); (ii) it is incapable of
evolution and growth; or (iii) the use of the product (system) does not become
ingrained in user behaviour, as in the case of electronic home banking.
• The project may wake a sleeping giant. Industry leaders can drive a preemptive
move forward. Smaller firms cannot afford to fumble a project because they will
alert industry leaders. Thus, the moral is · once you have entered the game, it is
very hard to disengage.
• The project may trigger litigation or regulation. If the systems work too well for
their own good, they may achieve their initial objectives and then continue to grow
in size and effectiveness, eventually giving rise to claims of unfair competition and
cries for government regulation. An example of such a situation is airline
reservation systems.
• The project may be rejected by customer or organizational culture. The system
may be beyond the customer’s technical comfort level, as in the electronic home
banking case. Timing is important in gaining customer acceptance.

Let’s summarize this section. In the past, the IS function in organizations was
treated as a support function with the focus on efficient utilization of its resources.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  75

At present, however, IT is more and more used as an organizational resource to

implement its strategy. This change has mainly taken place due to technology push
and competitive pull. The technology push has emerged due to improvements in
price-performance ratio and increased connectivity capabilities. The competitive pull
has emerged mainly due to highly competitive markets and traditional sources of
competition becoming relatively less successful.

Competition plays a dominant role in determining business strategy. Competitive

advantage refers to unique abilities the competitors have resulting in their superior
performance. It has a leading role in formulating and implementing organizational
strategy. As IT can be used as a strategic resource, it can also be used for
implementing competitive strategy. However, we need to understand the industry
structure in order to determine the competitive strategy that can be supported by IT.

Organizations use IT either as a competitive necessity or to gain competitive

advantage. Mere use of IT does not provide a sustainable competitive advantage. A
sustainable competitive advantage would require organizational innovation on a
recurring basis, in addition to use of IT by the organization.

Though many companies in the USA and Europe have used IT for gaining competitive
advantage, such use is not very common in Hong Kong. The main reasons for this
seem to be the lack of awareness of IT’s strategic potential and lack of involvement
by top management in IT strategy planning.

IT can also cause disasters when it is misapplied, neglected or ignored. Some

problems caused by strategic use of IT are: (a) its failure to meet real customer
needs, (b) its failure to be defensible, (c) it may wake a sleeping giant, (d) it may
trigger litigation or regulation, and (e) it may be rejected by customer or organizational
culture.

3.9 INTER-ORGANISATIONAL SYSTEMS (IOS)

In their quest for operational efficiencies and competitive position, organizations today
are more frequently looking beyond their traditional boundaries for cooperative
arrangements. New inter-organizational arrangements, which variously take the form
of strategic alliances, vertical integration, and new business partnerships and
associations, are realized through the leverage of unique information interchange
relationships and electronic linkages across organizational boundaries (Konsynski
1993). Because their impact on competitive position, market channels, logistics,
distribution, and administrative practices can be profound, attention to these linkages,
in the form of inter-organizational systems, could be one of the most important issues
for top management for the next few years.
76 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

Inter-organisational system (IOS) are a special type of communication-intensive

information system whose development, operation and use are shared by two or more
organizations. These organizations may be part of a cooperative (like a banking
network) or may be in a customer-supplier relationship. An IOS has, in general, the
following eight characteristics (Sprague and McNurlin 1993, 94):
• They require ‘partners’. Thus, at least two parties are needed to create an IOS.
The partners must be willing to cooperate for the IOS, and must also have the
ability to perform the work required for IOS.
• Standards have a major role in IOS development. With standards, an organization
participating in an IOS with one partner can also participate in IOS with other
partners without much additional effort.
• Education of potential ‘partners’ is very important to overcome ignorance and
political issues.
• Third parties are often required, either to educate people; or to develop and
maintain the standards; or often to provide links between the separate systems of
the partners.
• Work must be synchronized, otherwise these systems cannot be maintained or
upgraded.
• Work procedures need reevaluation after IOS is in use. This is because IOS may
change the way business is done. For instance, if the order is placed electronically
through an IOS, there may be no need to send a paper copy of the order.
• Technology is not a major hurdle compared to the relationship issues.
• IOS development requires more openness, especially when industry standards
are being employed.

The growth of IOSs is due to various technological, economic and organizational

changes:
• The need for fast, reliable information exchange in response to rapidly changing
markets, products and services. This trend is mainly due to increasing
international competition, shrinking geographic separation and deregulation
(especially in USA) with more open competition.
• Evolution of guidelines, standards, and protocols. This is due to the need for
better and faster information exchange.
• Penetration of IT into internal business processes. This is due to decreasing IT
costs and increasing capability, which has resulted in a broader range of IT
applications.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  77

• Technical quality and capability of IT. The increased reliability of IT has insinuated
organizations to use IOSs in business-sensitive areas, such as in dealing with
customers.
• Use of IT to distinguish product and/or organization. For example, a large
construction company may give dumb terminals to its clients for accessing the
company’s project management program and use it for tracking progress of the
project, analysing changes in the specifications, and forecasting maintenance
schedules and costs.

3.10 INFORMATION PARTNERSHIPS

IT empowers organizations to compete, ironically, by providing new ways of
cooperating (Konsynski and McFarlan 1990). A common example of this is
information partnership, facilitated by the sharing of customer data. Through such a
partnership, diverse companies can offer novel incentives and services or participate
in joint marketing programmes. An example of this type of partnership exists among
HSBC and many retail stores such as Dragon Seed and Chinese Arts and Crafts. In
all these cases, HSBC issues special VISA cards that are customized for use in a
particular store. These cards are available to existing HSBC VISA card holders at no
extra cost, and the holders of such cards get several privileges from the stores such
as receiving special discounts, gifts, marketing brochures and catalogues. This is
achieved by sharing the database of special cardholders with the store, as a result of
which the store gets more marketing opportunities and more sales, and the bank gets
more sales using the special cards. Thus, through this type of partnership,
organizations can take advantage of new channels of distribution or introduce
operational efficiencies and revenue enhancements.

Partnerships create opportunities for scale and cross selling. They can make small
companies look, feel, and act big, reaching for customers once beyond their grasp.
Partnerships can also make big companies look small and close, targeting and
servicing custom markets. In short, partnerships provide a new basis for
differentiation.

3.11 IOS AND COMPETITIVE ADVANTAGE

The proliferation of IOS suggests that many organizations are finding it to be an
important source of competitive advantage (Johnston and Vitale 1988). The
competitive advantage stems fundamentally from two factors: (a) comparative
efficiency, which allows an organization to produce its products or services more
cheaply than its competitors; and (b) bargaining power, which allows a firm to resolve
bargaining situations with its customers and suppliers to its own advantage. The
strength of these factors is determined by even more fundamental issues,
comparative efficiency by both internal efficiency (as in lower inventory costs by
78 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

allowing ‘just-in-time’), and inter-organizational efficiency (as in allowing customers to

‘shop’ and check order status electronically, without tying up customer service
representatives). Similarly, bargaining power could be by unique product features
(such as by making products easier or less expensive to select, order, handle, use or
account for), by switching costs or by search-related costs (as in lower cost of
‘shopping’ via links to suppliers). These generic uses of IOS help in locating attractive
opportunities for new IOS.

Activity 3.4

The EFTPOS system in Hong Kong connects various retail stores to

various banks and, as the name implies, provides electronic funds
transfer (EFT) at the point-of-sale (POS). Customers can buy goods and
pay by direct funds transfer from their bank accounts to the retail store’s
bank account.

Would you consider EFTPOS an IOS? What strategic advantage does it

provide to the retail stores?

In summary, we see that IOSs are developed, operated, and/or used jointly by two or
more organizations. IOS either do routine transaction processing, or provide non-
routine task-support for managerial, analytic and design functions. These systems
are applied either in (a) electronic hierarchies; or (b) electronic markets. Cooperative
use of IOS can also be made, as in information partnerships, which is facilitated by
the sharing of customer data. An IOS may provide competitive advantage either from
its comparative efficiency or from its bargaining power.

3.12 OPPORTUNITIES FOR STRATEGIC

IT APPLICATION
Achieving competitive advantages requires broad IT management and user dialogue
plus imagination. The process is complicated by the fact that many IT products may
be strategic (SIS) though the potential benefits may be very subjective and not easily
verified. The ever-changing business environment adds to the difficulties of the
management that are in charge of strategic use of IT. Your next reading will help you
understand the modern view of value creation and IT.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  79

Dickson and DeSanctis (eds), pages 102–124 in Chapter 4: Value Creation

Technology, by Nunamaker Jr., JF et.al.

The authors first outline a simple model of value creation and go on to describe each
of three components of the model · information assimilation, collaboration, and
methodology · in detail. You should realize the supporting role of IT in each of these
components. In the section on ‘The Shift to Value Creation’, the authors explain that
value can only be created on the basis of a sufficient intellectual bandwidth. After
reading the article, you should know that competitive advantages (i.e. values) are not
always guaranteed even if an organization invests in the most advanced state-of-the-
art IT. To convert IT investment to strategic advantage, an organization needs to re-
consider how each of the components contributes to value creation and how they can
be brought together to become mass configuration.

Therefore, some analytical frameworks are needed which could stimulate business
strategic thinking and analysis to generate ideas for determining potential areas for
SIS development. These frameworks are based on a number of aspects related to
organizational strategy, which could be used to link IT’s role in realizing the strategy.
Five of the best known frameworks are discussed below.

3.13 STRATEGIC GRID

IT plays very different roles in different industry settings. Sometimes it has played a
predominantly operational role, while at other times its impact has been primarily on
accounting or marketing. In many of these settings, industry leaders have been so
aggressive that they have transformed the rules of competition, putting those who
followed under great pressure. To identify the role of IT in an organization, McFarlan
and McKenney have provided a ‘strategic grid’ framework, which can help to position
an organization appropriately (see Figure 3.3).
80 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

Figure 3.3: McFarland-McKenny's Strategy Grid

At the beginning of an analysis, specific IT applications or business units are positioned

within different quadrants on the strategic grid. Let’s explain the two axes in Figure 3.3.
By ‘operational dependence’ we mean to measure the negative consequence resulted as
a failure of an existing IT application; while we mean to measure the competitive
advantages or new opportunities created if a new IT system is developed. The grid can
be used to position the strategic advantages that an organization can get from its IT
applications · typical examples are as follows.
• Strategic · banking business
• Factory · mining industry
• Support · paper manufacturing
• Turnaround · retailing

Moreover, the grid can also be used to evaluate IT portfolios and IT development
plans. IT applications in each of the four quadrants bear certain specific
characteristics.
• Strategic · these systems are designed to make the business stand out from its
competitors. They may be involved the latest technologies that are complex,
expensive and may be error-prone. The systems are highly profitable when their
success sustains them, but when they fail one day, they’ll become a very costly
lesson to the firm.
• Factory · these systems are what an organization is relying on in its daily operation
of business and customer services. Many are centralized systems that have been
developed in a ‘top down’ manner. Management is concerned with how to
maintain the effectiveness of these systems.
• Support · they are usually systems that handle routine administrative tasks such
as accounting and personnel. Many of them can be standard packages that
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  81

are easily available in the market. These systems bear the lowest level of risk,
however, but their acquisition and operation should by no means receive less
surveillance.
• Turnaround · these are usually implementations of new concepts, perhaps
resulting from a R&D proposal. Their performance is now being monitored
because if they are successful they will become ‘strategic systems’ for the
organization. Before their success is guaranteed, the organization should not be
laying too many hopes on them and a ceiling of financial investment should be set
at the start of their development plan.
As a positioning framework, the strategic grid is particularly useful for assessing the
strategic importance of IT to an organization or a business unit. By questioning the
past and future importance of IT, the framework helps management understand not
only the scale of importance of IT but the likely organizational dynamics involved in
managing IT appropriately. The strategic grid is also useful for evaluating a portfolio
of alternative IT investments, in relating their impact on business strategy. You can
also use it as a basis for the formulation of IS strategy.

3.14 COMPETITIVE FORCE ANALYSIS

This analysis is based on Porter’s competitive forces analysis and competitive
strategy framework, which you studied in topic 2. Recall what you learned in topic 2·
while Porter proposed his five-force model, he emphasized three generic strategies
for achieving above-average performance in an industry · low cost, differentiation and
niche/focus strategy · which you have already studied in topic
2. The concept of generic strategies is based on the notion that competitive
advantage is the goal of any strategy, and to achieve competitive advantage a firm
must define the type of competitive advantage it seeks to attain and the scope within
which it will attain it.
IT can affect (a) the products and services, (b) markets, and (c) economics of
production. McFarlan mapped the competitive applications of IT onto Porter’s
competitive forces model and proposed five questions for assessing the strategic
impact of IT on a firm. If the answer to a particular question is ‘yes’, a strategic
opportunity exists that requires the attention of top management. The five questions,
with Porter’s competitive forces noted in parentheses, are:
• Can IT be used to build barriers against new entrants? (threat of new entrants)
• Can IT be used to build in switching costs, i.e., increase customer reliance on
our systems? (buyers)
• Can IT change the basis of competition? (industry competitors)
• Can IT change the balance of power in supplier relationships? (suppliers)
• Can IT be used to generate new products? (substitutes)
82 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

The higher the number of questions management answers with ‘yes’, the higher the
potential of Strategic Information System in the organization.

3.15 VALUE CHAIN ANALYSIS

You cannot identify competitive advantage by looking at the enterprise as a whole.
You have to derive competitive advantage from one or more of the discrete activities
that your firm performs, such as designing, manufacturing, marketing, delivering or
supporting its product. Therefore, you need to develop a systematic way of analysing
and evaluating this process of creating goods or services. This process is the value
chain, a generic model for business activity analysis.

Once more, Michael Porter’s proposal, ‘value chain’ lies at the basis of many
analyses. You can find a summary of his theory in the following article.

The Value Chain, at <http://www.quickmba.com/strategy/value-chain/>

Notice that the value chain represents the inter-relationship between all value
activities in a firm. Porter argues that there are two classes of activity · primary
activities and support activities · both of which contribute to the value of the product
or service offered. These two classes of activities roughly correspond to the
technological and socio-economical activities.

The model is also known as the ‘value added model’ as the activities identified in the
model are supposed to add value to the product or service. To increase its competitive
advantage, a firm is therefore keen on optimizing the value added at each activity; i.e.
it should be able to add value at a lower cost and in a more effective way in some of
the activities better than its competitors.

Using the value chain model for analysis, you need to identify and isolate each
activity. The linkage of activities should also be identified so that a firm can try
improving process (and information) flows not only to enhance coordination, but also
to the optimization of the value added activities related.

The value chain of a firm should not be considered as an isolated structure as each
supplier has its own value chain and so have the buyers. The contact points of two
value chains always indicate an activity which, if done better, could enhance the
competitive advantage of both parties.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  83

By studying how your firm performs primary and support activities for each product,
you can see where it emphasizes a specific competitive strategy. Then the firm can
decide which strategies it wants to stress and realign its activities accordingly.

Value chain analysis can even include studying the value chain of a supplier or buyer
to discover, for example, if there is an opportunity for vertical integration. Competitive
advantage in either cost or differentiation can be considered as a function of a
company’s value chain. The cost position of a company is a reflection of the collective
cost of performing all its value activities in relation to its competitors. The ability of a
company to differentiate itself is a reflection of the contribution of each value activity
toward fulfillment of the buyer’s needs. Not only the primary activities contribute to
differentiation but also the support activities. The buyer’s satisfaction depends on both
the impact of the product or service on his needs and on the company’s other
activities.

3.16 CUSTOMER’S RESOURCE LIFE

CYCLE ANALYSIS
This model, in the context of Porter’s competitive force model, focuses on a single
relationship, that is, the relationship between the provider of goods or services and
the customer. In the opinion of Ives and Learmonth (1984), the developers of this
framework, this is where the primary strategy of an organization evolves.

In this approach, a firm looks at its products and services from the customer’s
viewpoint. Thus, the focus here is on ‘how can we use IT to help our customers more
easily acquire our product and then get more value out of it?’. The answer to this
question should be based not only on direct customers but also on indirect customers
(e.g. consumers). This analysis is described in the following reading.

Ives, B and Learmonth, G P (1984) ‘The information systems as a competitive

weapon’, Communications of the ACM, 27(12): 1193-1201.

From the customer’s point of view the life of a product can be divided into four
phases:

• Determine need.
• Acquire product.
84 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

• Manage its use.

• Dispose of product.

Within these four general phases are 13 stages, which together constitute the
customer resource life cycle. The stages are:

Determine Need
1. Establish requirements. An SIS can explain product(s) to customers to
help them assess their requirements.
2. Determine characteristics of An SIS can help customers choose product
product needed. features and then configure a product for them.

Acquire Product
3. Locate supplier. An SIS from an intermediary, like publishers of
guides, may be useful.

4. Order product. Many SIS provide this service, such as airline

reservationsystems,AmericanHospital
Supply’s ASAP system, etc.
5. Authorize and pay for An SIS may be a credit card verification system,
product. or a debit card processing system.
6. Acquire product. An example is ATMs which can also deliver
airline tickets.
7. Test and accept product. An example is a pharmacist who checks a new
prescription against other drugs a customer is
taking for possible drug interaction problems.

Manage Product’s Use

8. Maintain needed inventory.An example is a supplier keeping track of
shipments for JIT systems.

9. Monitor product. For example, monitoring purchases and returns

of unsold magazines by magazine publishers.

10. Upgrade product. For example, sending automatically latest

volumes in a book series by book publishers
such as Reader’s Digest.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  85

11. Repair product. For example, sending reminders to customers

whose maintenance contracts of electric
appliances are about to expire.

Dispose of Product
12. Dispose or transfer product.Examples are self-service checkout in some
hotels.

13. Account for product. For example, travel agents maintaining travel
records of large corporate clients to describe
how travel money is being spent.

Thus, a customer resource life cycle can be used to identify and implement SIS by
focusing on how to help customers acquire and use a product or service. The
customer resource life cycle model provides a much more detailed analysis for
identifying and categorizing SIS in comparison with other tools.

3.17 STRATEGIC OPTIONS GENERATOR

This model, introduced by Wiseman (1985, 1988) and intended to reduce the
multiplicity of strategic actions undertaken by organizations, reduces them to only five
generic thrusts · differentiation, cost, innovation, growth and alliance.

You can view strategic perspective in terms of strategic thrust, this is a major move
which an enterprise undertakes in its search for advantage. By supporting or shaping
a strategic thrust, an SIS supports or shapes the organization’s effort to obtain a
competitive advantage. Thus, a strategic thrust is a critical interface joining
competitive strategy with IT.

These generic strategic thrusts manifest strategic polarities, i.e. they are capable of
assuming opposing sets of attributes depending upon their strategic use (Remenyi
1990). For instance, some organizations use differentiation offensively while others
use it defensively. Using differentiation offensively an enterprise attempts to gain a
competitive edge and thus increase its market share. On the other hand, using
differentiation defensively means the firm will simply be attempting to protect its share
from a competitor’s attack. The same argument applies to the other four strategic
thrusts.

Generic strategic thrusts frequently occur in combination. For instance, a growth

thrust may be combined with a cost-reduction thrust, or an innovation thrust may be
part of a differentiation thrust, or some other combination of thrusts may take place.
86 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

The strategic thrusts serve as the engine that powers the strategic options
generator, an instrument designed to help identify SIS opportunities. The option
generator brings focus on three strategic targets, and then the thrust can be used to
hit them. There are three basic classes of strategic targets, suppliers, customers, and
competitors. Thus, there are a total of 5 × 3 (15) different ways of searching for an SIS
opportunity (see Figure 3.4).

What is the strategy target?

Supplier Customer Competitor

Offensive? Defensive? Offensive? Defensive? Offensive? Defensive?

Differentiation To use it? To use it? To use it?
To provide it? To provide it? To provide it?

Offensive? Defensive? Offensive? Defensive? Offensive? Defensive?

Cost To use it? To use it? To use it?
To provide it? To provide it? To provide it?

Offensive? Defensive? Offensive? Defensive? Offensive? Defensive?

Innovation To use it? To use it? To use it?
To provide it? To provide it? To provide it?

Offensive? Defensive? Offensive? Defensive? Offensive? Defensive?

Growth To use it? To use it? To use it?
To provide it? To provide it? To provide it?

Offensive? Defensive? Offensive? Defensive? Offensive? Defensive?

Alliance To use it? To use it? To use it?
To provide it? To provide it? To provide it?

Figure 3.4: Wiseman’s strategy optioin generator

The strategic options generator is a very useful tool because it offers a complete
framework with which to search for and also evaluate SIS opportunities.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  87

In this topic you studied the strategic use of information technology through various
concepts and frameworks. You studied concepts of information systems (IS),
information technology (IT) and the notion of IS and IT strategies. You looked at the
impact of IT on organizations. The development of IT can be divided into three eras:
data processing era, management information systems era and the strategic
information systems era. IT can be used as a strategic resource rather than as a utility
and it can play a role in providing competitive advantage. You looked at inter-
organizational systems, their characteristics and function, reasons for their growth,
and their strategic role. Finally, you were introduced to five well-known frameworks
for determining potential for strategic use of IT.

Activity 3.5
No industry provides so dramatic, so clear, and so public an example of the
strategic use of IT as the US domestic airline industry. Until 1978, the Civil
Aeronautics Board regulated fares, which eliminated strong price competition.
Competition between carriers was based on service, food, seat size and
availability of favourable routes. Information on price and routes was fairly
stable and simple. Travel agents accounted for less than 20% of ticket sales,
and were primarily used for vacation planning or complex trips.

In 1978, pricing was deregulated but safety and routing were still regulated.
As a consequence, more cost-effective ‘hub-and-spoke’ route structures
were sought. Many new competitors entered the industry, primarily as low
cost carriers, who attracted riders from trains and buses. Airline travel
increased dramatically. Managing costs of equipment, fuel, and labour
became crucial. Fares changed as quickly as airlines could determine
profitability. Yield management, the ability to charge a different fare for any
seat on an airline, became a key success factor. Fare wars were common
and many fares had complex restrictions on their use. Information
complexity and the time frame for decision-making increased dramatically.
By the mid-1980s, travel agents accounted for over 80% of ticket sales.
Use the value chain analysis to identify opportunities for strategic uses of
IT in the US domestic airline industry.
88 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

Ives, B and Learmonth, G P (1984) ‘The information system as a competitive

weapon’, Communications of the ACM, 27(12): 1193–1201.

Johnston, H R and Vitale, M R (1988) ‘Creating competitive advantage with

interorganizational systems’, MIS Quarterly, 12(2): 153–165.

King, W R, Grover, V and Hufnagel, E (1989) ‘Seeking competitive advantage using

information-intensive strategies: facilitators and inhibitors’ in Information
Technology and Management Strategy, Laudon, K C and Turner, J (eds),
Englewood Cliffs, NJ: Prentice Hall.

Konsynski, B R and McFarlan, F W (1990) ‘Information partnerships, shared data,

shared scale’, Harvard Business Review, September-October, 114–120.

Lederer, A L and Mendelow, A L (1988) ‘Information systems planning: top

management takes control’, Business Horizons, 31, May-June, 73–78.

Lucas, H C and Turner, J A (1982) ‘A corporate strategy for the control of information
processing’, Sloan Management Review, Spring, 25–36.

McNurlin, B C and Sprague, R H (1989) Information Systems Management in

Practice, 2nd edn, Englewood Cliffs, NJ: Prentice Hall.

Martin, E W, DeHyes, D W, Hoffer, J A and Perkins, W C (1994) Managing Information

Technology: what managers need to know, 2nd edn, Englewood Cliffs, NJ:
Prentice Hall.

Morton, M S S (1991) The Corporation of the 1990s: information technology and

organizational transformation, Oxford: Oxford University Press.

Porter, M E (1980) Competitive Strategy: techniques for analyzing industries and

competitors, New York: Macmillan.

Porter, M E (1985) Competitive Advantage: creating and sustaining superior

performance, New York: Free Press.

Remenyi, D S J (1990) Strategic Information Systems: development, implementation,

case studies, Oxford: NCC Blackwell.

Saxena, K B C (1992) Automation and Organizational Change: course notes,

Rotterdam School of Management, Erasmus University, Rotterdam, The
Netherlands.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  89

Sprague, R H and McNurlin, B C (1993) Information Systems Management in

Practice, 3rd edn, Englewood Cliffs, NJ: Prentice Hall.

Wiseman, C (1985) Strategy and Computers: Information Systems as Competitive

Weapons, Homewood, IL: Dow-Jones Irwin.

Wiseman, C (1988) Strategic Information Systems, Homewood, IL: Richard D Irwin.

Further Readings
Barton, P S and Peters, D (1992) ‘The ASB bank: an IT case study in sustained
competitive advantage’, Journal of Strategic Information Systems, 1(3): 165–
170.

King, J and Konsynski, B (1990) Singapore TradeNet: a tale of one city, Case 9-191-
009, Cambridge, MA: Harvard Business School.

Lindsey, D, Cheney, P, Kasper, G and Ives, B (1990) ‘TELCOT: an application of

information technology for competitive advantage in the cotton industry’, MIS
Quarterly, 14(4): 347–357.

Customer · A tool for determining the strategic potential of IS/IT by

resource life analysing the life cycle of products or services from the
cycle analysis customer’s perspective.

Data · Information systems whose primary function is the

processing processing of business transactions to produce pre-
systems (DPS) determined reports on schedule.

Decision · Information systems for managers and professionals aimed

support at supporting them in their specific decision-making tasks,
systems (DSS) rather than replacing them by automating their tasks.

Electronic data · The electronic transfer of business information from one

interchange independent information system (IS) to another, using
(EDI) agreed-upon standards for terms and formats of documents.

Electronic · An IT-based market place with several buyers and several

markets sellers conducting business through an electronic
intermediary (an IOS).
90 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

Enterprise · A term given to the broad set of activities supported by multi-

Resource module application software that help a manufacturer or other
Planning (ERP) business manage the important parts of its business,
including product planning, parts purchasing, maintaining
inventories, interacting with suppliers, providing customer
service, and tracking orders. ERP can also include
application modules for the finance and human resources
aspects of a business, and typically, an ERP system is
integrated with a large database system.
Executive · Information systems designed for specifically supporting the
information managerial tasks of senior management and executives.
systems (EIS)

Factory · Organizations in the categories of strategic relevance and

impact that are heavily dependent on their existing
Information operational systems but their future IS/IT development is
not fundamental to their ability to compete.
system (IS)
· Computer-based systems for collecting, retrieving,
Information
processing, storing and/or disseminating information to
system (IS) support organizational decision making and control.
· Strategy determining ‘what’ an organization should do with
strategy
the information technology. It is primarily concerned with
Information IS development for gaining strategic advantage.

systems · Refers to both IS and IT together in an organizational

context.
technology (IT)

Information · Refers to technology comprising of computer hardware, software,

technology (IT) telecommunication networks, workstations, robotics and
smart chips.
Information · Refers to the technology framework that guides the organization
technology (IT) in satisfying its business and management information
architecture systems needs. It includes the computing hardware and its
associated operating system software; telecommunications
networks and their associated mechanisms for inter-linking
and inter-working; the data bases of the organization and the
requirements of use, access, control and storage; and the
main IS applications of the organization, their functions and
relationships, as well as the development methods.
 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY  91

Information · It includes hardware and software architectures, connectivity

technology architecture and bandwidth alternatives.
(IT) platform

Information · Refers to ‘how’ an organization should realize its IS strategy. It is

technology primarily concerned with technology policies and architecture,
(IT) strategy risk attitude, vendor policies and standards.

Inter- · Special type of communication-intensive information systems

organizational whose development, operation and use is shared by two or
systems (IOS) more organizations.
Management · Information systems that also provide enquiry and analysis
information capabilities to the end users.
systems (MIS)

Management · Information systems having combined features of DSS, EIS and

support conventional MIS.
systems (MSS)

Strategic · Organizations in the categories of strategic relevance and impact

for whom smooth functioning of the IS/IT activity is critical to
their operation, and whose IS/IT applications under
development are critical for their future competitive success.

Strategic grid · A tool for analysing the potential strategic impact of IS/IT
on an organization.
Strategic

information
· Information systems that are used to support or shape the
competitive strategy of the organization, its plan for gaining
systems (SIS) or maintaining competitive advantage or reducing the
advantage of its competitors.
Strategic · A tool for determining the strategic potential of IS/IT based on
options strategic thrusts for searching and evaluating SIS
generator opportunities.
Strategic · A major move that an enterprise undertakes in its search for
competitive advantage.

thrust Support · Organizations in the categories of strategic relevance and

impact that are not fundamentally operationally dependent
on the smooth functioning of IT activities, and their planned
IT applications portfolio is also not aimed at their critical
needs.
92 CHAPTER 3 STRATEGIC USE OF INFORMATION TECHNOLOGY

Turnaround · Organizations in the categories of strategic relevance and impact

that are not absolutely dependent on the current IT activities,
but whose IT applications under development are absolutely
vital for the firm to reach its strategic objectives.

Value chain · A tool for determining the strategic potential of IS/IT by

analysis analysing the value activities of the firm and the industry.
  Nature of
Chapter Information
System
4 Strategy
CHAPTER LEARNING OUTCOMES
After studying this topic, you should be able to:
• Identify the growth stage of IT in an organization.
• Describe the features of extended enterprises.
• Discuss the need for IS planning.
• Identify the objectives of IS planning.
• Distinguish the different levels of IS planning and the processes relating to
each level.
• Discuss the benefits of IS planning.
• Identify some of the desirable attributes an IS planner should possess

TABLE OF CONTENTS
Introduction
4.1 Stages of Growth Model
4.2 An Extended Enterprise
4.3 Information Systems Planning
4.3.1 Historical Evolution of IS Planning
4.3.2 Importance of IS Planning
4.3.3 Objectives of IS Planning
4.3.4 Levels of IS Planning
4.4 Linking Business and IS Planning
4.5 Benefits of IS Planning
4.6 What Makes a Good IS Planner?
References
Glossary
Feedback on the Activities on the Self-Tests
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY  94

 INTRODUCTION
This topic 4 introduced the concepts of IS and IT strategies. IS strategy is concerned primarily
with aligning IS development with business needs and with seeking strategic advantage from
it. IT strategy, however, is concerned primarily with technological policies, and tackles
questions of architecture including risk attitudes, vendor policies and technical standards. IS
and IT strategies can be seen as the products or results of the IS strategic planning process.
These strategies broadly define the approach an organization adopts in the use of IT. The IS
strategic planning process also produces IS plans, which identify specific business
applications that will make use of IT, as well as the technological components required to
support the business applications. Hence, IS strategy and IS plans are closely related.

This topic begins with Richard Nolan’s stage model. The model gives you more than a
retrospective look at what has happened to IS strategies · it also suggests that the nature of IS
strategy changes over time, and that all organizations do not treat IS strategies in the same
way. In particular, some organizations today call themselves extended enterprises in which IS
strategies are exceptionally important. An IS strategy begins with a planning phase, which has
always been an important task for IS management. The long lead time for hardware delivery,
the difficulty of software development, the costs of hardware and software, and the preparation
needed for user training and IS implementation all demand advanced planning. The IS
planning task, which was formerly primarily technical, has taken on a new dimension due to
the emergence of strategic information systems (SIS, described in topic 3) and requires new
linkages with the business planning process. Specifically, managers have had to become aware
that uses of IT can have significant effects on their organization’s competitive position, and
that IS planning needs to be coupled more closely with the goals of the organization. In fact,
IS planning, or lack of it, can now affect business plans (Sprague and McNurlin 1993, 105).

4.1 STAGES OF GROWTH MODEL

In 1974, Nolan and Gibson presented a way of understanding the developing sophistication of
IT use and management (Nolan and Gibson 1974). This model, known as the stages of growth
model, is based on the premise that any organization will move through various stages of
maturity with respect to the use and management of IT. The stage model attempts to help
managers interpret the growth stages and the meaning of that stage of their organization with
respect to IT.

The initial version of the growth model consisted of only four stages: Initiation, Expansion,
Formalization and Maturity.
95 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

1 Initiation, when computers were first introduced to business organizations. Management

saw IS as a means to make cost savings. They rarely considered the long-term
implications of the IS. In many cases, the systems installed belonged to computation-
intensive departments like accounting. Treated as another tool to help with tedious work,
IS did not arouse management attention.

2 Expansion, when IS enjoyed a sudden, contagious, and uncontrolled proliferation in

many business functions. Management did not see the problems of over-ambitious
projects, which resulted in large expenditure on building relatively worthless ISs.

3 Formalization, which signals a general concern from senior management. When they
wish to justify IS spending, IS staff numbers are trimmed down and IS budgets are
centralized. Consequently, IS development becomes difficult.

4 Maturity, when IS development has reached a stage of balance. That is, senior
management learns to leverage between stability and innovation.

Later, Nolan added two more stages to the model to account for an organization’s behaviour,
indicating a fundamental transition from the task of managing the computer technology to that
of managing the data resource, caused by the introduction of databases and data
communication technologies (Nolan 1979). This later model containing six stages suggests
that ‘maturity’ can be subdivided into three more specific stages (Kanter 1992, 24; Robson
1997, 144). This is an enhancement and not a replacement for the earlier (four-stage) model.

The six stages in Table 4.1 are distinguished from one another in aspects such as planning and
control, IS organization, user awareness and expenditure level.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 96

Table 4.1: Stages of Growth Model (Adapted from Robson 1997, 147)
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Expension Formalization control Integration Data Maturity
Administration
Planing and Lax More Lax Formalized Tailored plans Shared data and Strategic
control planning and control common systems planning
and control systems

IS Specialised User-oriented Middle User/IS Data Data resource

Organisation for programmers management account teams administration Management
technology
learning

User ' Hand off' Superficially Arbitrarily Accountability Steady rise Acceptance of
awareness enthusiastic held learning joint user and
accountable IS
accountability

Expenditure Steady Steep rise Steady rise Steep rise Steady rise Appropriate
level from zero
base

Compared to the original four-stage model, the first three stages (concerned with computer
technology management) remain the same, but after the critical transition point into stage 4,
Nolan found that putting together all growth experience as one stage was inadequate and he
divided this into three stages:
4 Integration, during which the control levels of Stage 3 are lowered to encourage
innovation. The IS function will be reorganized to allow IS staff to become more
involved with the working of the entire organization. There may be a steep rise in the
expenditure level because of development of ‘backbone’ integrated IT architecture.

5 Data administration, which identifies the business value of cross-function database

access. IS strategies at this stage often lead to the construction of an IS architecture that
includes some intra- and/or inter-organizational systems.
6 Maturity, which, as in the four-stage version, aims at planning and developing IT in
coordination with business development.

Despite the more detailed breakdown into six stages, others felt that the model did not show
the whole picture (Robson 1997, 147). As organizations embark upon deploying new
technologies such as client-server architecture after the hierarchical mainframe-based one,
they experience a repeat of the characteristic S-curve and of the stages of growth. The starting
point for the new technology will not be zero, but neither will it be a smooth continuous
progression (as assumed in the model). Not surprisingly then, new technologies significant
enough to be ‘strategic’ bring about discontinuities in growth. Apparently, the organization
needs new ‘learning’ when it moves from old to newly adopted technology. This ‘learning’
notion is one of the
97 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

key assumptions behind the stages of growth model. These key assumptions must be
accepted if this model is to be used. These assumptions are (Robson 1997, 148):
Ć Organizational learning permits the movement through the stages · it is the
‘experimentation’ of stage 1 that leads to the ‘expansion’ of Stage 2, and it is this
expansion that enforces the need for ‘control’ in Stage 3.
Ć Stages cannot be bypassed since every experience is necessary for the next stage · with
no experimentation, there are no promoters for the contagion stage!
Ć Although there is a ‘natural’ progression, the transitions can be planned, coordinated, and
managed to permit painless movement · recognition of the stages is a suggestion of a
sequence for planned and managed change.

This contingency theory means we can exploit strategic IT opportunities. Knowledge of the
current maturity position provides a base from which we can develop appropriate IS strategies,
management styles, control approaches and investment levels.

In the model, the turning points of the curve represent crisis points where major management
shifts may be required. Nolan suggests two levels of benchmark indicators, but even then there
are a number of problems in applying them since the symptoms described refer to the
mainframe era and are no longer valid today. However, the most significant advantages of this
model are (Robson 1997, 147):
Ć It is simple.
Ć It is easy to understand, to use, and to see that some natural development is to be
expected.
Ć It is relevant to acknowledge the past in the present.
Ć It acknowledges that different IT can be in different developmental stages and hence
need different management treatment.

Activity 4.1
The stages-of-growth model can also be applied to an individual information
system or technology in an organization. Discuss how the stages-of-growth curve
may be useful in studying an information system and the associated managerial
decisions related to its operation and use.

Let’s summarize the stage model. Modelling the development of IT is a very useful exercise,
whether the model is a simple or complex one. Stages-of-growth approach is a simple way of
modelling IT maturity as the basis for IS planning. This model, first proposed by Nolan and
Gibson, is based on the premise that IT management and planning strategies should depend
on the maturity of an organization with
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 98

respect to IT use. The maturity, or the stage of growth, can be determined on the basis of stage
benchmarks.

Nolan’s stage model was proposed at the time when no one had ever heard of the Internet.
With the advent of PC and telecommunications technologies, business organizations are now
probing the possibility of extending their business operations over the Web. The Internet is a
convenient place to re-structure the relationships between customers, suppliers, partners and
internal activities of an enterprise. Corporate information systems are connected to form cross-
organizational or inter-organizational systems. That’s why we’ll discuss extended enterprises
in the following subsection.

4.2 AN EXTENDED ENTERPRISE

IS strategy evolves in much the same way as Nolan predicted in his stage model. Given the
availability of large scale databases and fast communications networks, many organizations
have turned themselves into extended enterprises that operate on the basis of inter-
organizational information systems and form highly competitive value chains.

We must emphasize that the Internet is not the only driving force behind the trend of extended
enterprises. Some other drivers for the building of cross-organizational systems are (Bloch
and Pigneur, 1995):
Ć an increased focus on core competencies · companies can concentrate on what they do
best (e.g. to market products and interact with customers are excellent in Company A) and
other activities can be outsourced to others;
Ć an increased need for partnering · modern design usually requires parts from different
vendors where business partnering is an advantage; and
Ć an increased request for flexibility · driven by the rate of technology change and the
shortening product life cycle.

No matter how small a step the construction of extended enterprises moves business
organizations up on Nolan’s ladder, the idea has already been associated with a number of
innovative theories in information system management. To help you develop an understanding
of extended enterprises, please read the following chapter.
99 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

Chapter 5: Managing the Extended Enterprise, in Dickson’s textbook, pages 125ă 143.

Questions for discussion:

1 What are the external factors that urge organizations to move towards the
construction of an extended enterprise?
2 What are the internal factors that urge organizations to move towards the
construction of an extended enterprise?
3 What role does knowledge management play in an extended enterprise?

Recently, extended enterprises have been considered as a natural environment to integrate

legacy systems (internal) with the processes of supply chain management (inward facing) and
customer relationship management (outward facing). A higher level of data administration (in
Nolan’s stages) can be achieved by forming an end-to-end connection between suppliers and
customers. This is why data warehousing and knowledge management are mentioned in
Chapter 5 of your textbook.

Providing efficient communications between its partners can become a competitive advantage
for the enterprise. This new breed of intermediaries will be moulding business practices in the
age of e-commerce.

In a nutshell, there is no standard description on what the nature of IS strategy should be. It
varies according to how different organizations see it. When an IS strategy is brought to
management’s the attention, it requires a more workable schedule and manageable activities.
The IS planning process will be discussed in the next section

4.3 INFORMATION SYSTEMS PLANNING

IS planning refers to the broadly based management activity that provides direction within an
organizational setting for the development and use of information systems and technology
(Finnegan and Fahy 1993). O’Connor defines it as the process of establishing IS goals to
support business goals, the identification of IS and associated resources necessary to support
the achievement of these goals, the establishment of priorities, schedules and budgets, and the
management of specific development efforts (O’Connor 1993).

The field of IS planning is relatively new and the rate of change in this field is high. As a
consequence, the concepts and terminology used in the literature are not
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 100

always well defined. IS planning is used as a generic term covering similar notions such as
‘strategic information systems planning’, ‘strategic data planning’, ‘strategic information
planning’, ‘MIS planning’, ‘information resource planning’, ‘information technology
planning’, ‘information systems strategic planning’, and ‘strategic information management
planning’. (You should understand from those aforementioned titles that the planning is
generic to cover areas such as IS, IT, information resources, data architecture, etc.). However
IS planning is not limited to the strategic angle, so a more general definition would be used
here. In topic 1 and topic 2, planning was defined as an analytical process for determining
objectives in the context of future and selection of a course of action to achieve them. In other
words, IS planning is the process to make and integrate decisions with respect to IT support
throughout the organization, using formal procedures and producing articulate results
(Stegwee and van Waes 1990). These results can either be explicit decisions or provide input
to other (informal) decision-making processes.

IS planning could be differentiated by the time over which it is valid; that is, the planning
horizon. IS strategic planning is long-term and usually covers the next three to five years or
more, although the exact timeframe is dependent upon the volatility (frequency of change) of
the organization and its environment. It also forms the basis for short-range IS planning:
tactical planning, which is medium-range and commonly addresses the period from one to
three years; and operational planning, which considers the near-term of three months to one
year.

IS planning has both a process and a product side to it. Though it refers to process and not the
product, the two aspects are often equally important. That is so because the quality of the
process determines the degree of acceptance of the products, and hence their influence on the
desired effects of IS planning. As IS planning has evolved, the content of both process and
products has changed, as you will see in the next section.

4.3.1 Historical Evolution of IS Planning

The evolution of IS planning can be divided into six stages (Stegwee and van Waes 1990,
Andrew et al. 1992, Finnegan and Fahy 1993):
Ć No IS planning
Ć First generation · demand-driven IS planning
Ć Second generation · methodological IS planning
Ć Third generation · organization-wide IS planning
Ć Fourth generation · IS and business strategy interaction
Ć Fifth generation · integrated methodologies
101 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

No IS Planning
As we described in topic 3, in the data processing era of the 1960s, the principal uses of ISs
were to automate the basic business processes of the organization. The main goal of
management when introducing computers into their business was to reduce the cost of
processing information, and therefore the first IS applications were (and still are) in the areas
of accounting, payroll, invoicing, etc. In this context of cost reduction as an exclusive goal,
formal IS (or data processing (DP)) plans neither existed nor were they generally necessary.

The Electronic Data Processing (EDP) department would simply receive requests for
developing IS applications and would implement them as efficiently as possible. DP plans
were, therefore, plans for developing and implementing user requests for DP applications. The
decisions to be made mainly related to selecting the DP projects and allocating resources,
which could be easily made at the DP department level on the basis of a cost-benefit analysis
based on strictly economic terms.

First Generation: Demand-Driven IS Planning

This phase of IS planning is characterized as demand-driven, focusing on the efficient
allocation of resources, with return on investment used as a ranking methodology. As the
number of IS applications to be developed and maintained grew, the need was felt by the EDP
department to create an overall picture of IS development and a procedure by which to judge
the requests for new IS development. As a result, traditional systems development
methodologies were enhanced to incorporate some kind of global scan for information needs
and problems throughout the organization and for ways to set priorities between them.

The IS planning in this stage mainly focused on management of DP activity. However, this
aspect was left to the EDP department itself, as is clear from the fact that IS development
methodologies, which were mainly used by EDP staff, were extended to incorporate these
planning aspects. Still, the crucial problem at this time was to involve management in
developing the DP plan and in deciding the priorities for IS development. Another crucial
issue was the integration and coordination of various IS applications for which no techniques
were available then.

Second Generation: Methodological IS Planning

This phase of IS planning began to focus on the effective allocation of the organization’s
resources to information systems technology. The IS plan became a response to business
strategy as an organization-wide approach is characterized. In order to solve the problems
stated in phase (b) above, some methodologies were developed that were specifically aimed
at the phase prior to system development.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 102

One of the first and most well known of such methodologies was IBM’s Business Systems
Planning (BSP), and many others were derived from it (Martin 1982; Martin and Leben 1989).

Another important methodology of this period is the Critical Success Factors (CSF) approach
(Rockart 1979). These methodologies took the view that information is a corporate resource
and should be planned on a corporation-wide basis. As a consequence, these methodologies
stressed top-down planning of data and localized design of systems in different user areas, as
well as top management’s involvement in IS planning.

The rise of IS planning methodologies created awareness that information itself should be
regarded as one of the principal resources of the organization. Therefore, apart from IT,
information itself is considered something to care about, to plan and to manage. The
realization that a long-term IS plan requires a stable basis, as realized by a more data-driven
approach, triggered a fundamental look into the information flows throughout the
organization. This increased interest in information led to the need for more senior positions
such as chief information officer (CIO) as compared to IS or MIS manager, and to the
formulation of an IS strategy prior to the execution of an IS development project. During this
stage, even though top management perhaps did not recognize the strategic impact of
information systems technology on the organization, those involved in the IS planning process
did, and a search for methods to align the IS strategy with the organizational strategy started.
This initiated the next stage in IS planning.

Third Generation: Organization-Wide Long-Term IS Planning

The fourth phase of IS planning resulted from a realization that the key to effective IS
management was the ability to match IS services with the advancement of IS applications
within the organization. During this phase, an organizational IS progress map (in terms of IS
growth stages) was used to analyse opportunities for improved IS support and growth as well
as the quality of the IT infrastructure. Thus, it became easier to engage in long-term IS
planning.

Fourth Generation: IS and Business Strategy Interaction

This phase of IS planning reflects a much higher level of interaction between business strategy
and IS strategy. IS was no longer considered solely as a support function. Rather, IS and
business strategies had to recognize the explicit potential for IT to shape as well as to support
the organization’s competitive strategy. IS planning methodologies of this period became
more externally-oriented in perspective, and directly incorporated techniques such as
competitive analysis. Most of the planning tools discussed in topic 3 belong to this phase of
IS planning.
103 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

Fifth Generation: Integrated Methodologies

This phase represents the current state of IS planning. Functional and IS management are now
recognizing that business and IS strategies cannot be regarded as stable and that there is an
imperative need to take account of the dynamic environment in which they operate. Linked to
this is the need to formulate IS staff development plans explicitly, both as a means of gaining
competitive advantage as well as for resourcing reasons. Due to these realizations, IS planning
is now entering a new phase in its development. This phase involves the use of integrated
methodologies, where planning reflects the joint IT possibilities of strategic support and
strategic weapons. Earlier IS planning methods and frameworks have been merged together
with strategic possibility frameworks to produce an IS plan for both support and strategic
roles.

The essential characteristics of the five generations of IS planning (leaving out the one when
there was no IS planning) are summarized below:

IS Planning Phases Characteristics

First generation Demand-driven
Return-on-investment
Efficient allocation of resources
Second generation Organization-wide planning methodologies
Data modelling approach Response to business
strategy Efficient allocation of resources
Business Systems Planning (BSP) Critical
Success Factors (CSF)

Third generation Long-term IS planning

IT infrastructure
IS progress map
Improved IS support and growth
Stages theory of IS development
Fourth generation Externally oriented planning methodologies
Competitive analysis
IS and business strategy interaction
Support and strategic approach to IS
Fifth generation Integrated planning methodologies
Dynamic business strategy
Strategic possibility frameworks
Need for IS staff development plans
Extended enterprise
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 105

Organizations today are mostly engaged in the second- to fifth-generations of IS planning.

Although innovative businesses might involve themselves with integrated IS planning, as
extended enterprises do, there are still other organizations that invest heavily in a BSP and
CSF study to improve their competitive advantage. BSP and CSF will be discussed in the next
topic. The argument in this section only indicates the evolution of IS planning methodologies
in a temporal (time) scale. Whether a technique is adopted by an organization depends on a
number of factors: corporate culture, business nature, IT maturity, and so on. But in whatever
stage its IS strategy is, an organization should see the importance of IS planning.

4.3.2 Importance of IS Planning

Despite a history of neglected IS planning, IS needs effective strategic planning as much as,
and perhaps more than, other functional areas of business. In the last two decades, IS planning
has become increasingly important. Surveys conducted in the UK, USA, Australia, Hong
Kong and even Taiwan consistently placed improved IS strategic planning first on any list of
concerns for both user and IS management (Burn et al. 1993; Harrison and Fam 1990; Watson
1989). One example was the 1986 study of chief executives and corporate-level general
management (Brancheau and Wetherbe 1987), which placed using IT for competitive
advantage in second place. Although later surveys showed that IS strategic planning had
moved from its 1980s position down into third place (Niederman et al. 1991) it is still very
important.

In the Internet age, the scope of IS planning has widened considerably. In addition to the more
‘traditional’ IS areas such as transaction processing and office automation being considered
in the planning efforts, it now extends into the areas of data communication and networking,
end-user computing, data distribution and even factory automation. IS planning is no longer
concerned solely with identifying and prioritizing IS development efforts · it is also concerned
with considering the organizational implications of alternative IS strategies and the
implications for business strategy of advances in information systems technology. The
increasing emphasis on the use of IT to gain competitive advantage (as described in topic 3)
has also widened the scope of IS planning and placed added emphasis on its importance.

IS planning is important for a number of reasons, such as the following (Applegate,

McFarlan and McKenney 1999, 438; O’Connor 1993; Parker and Case 1993, 762):
Ć Rapid changes in technology · as the technology changes, planning becomes increasingly
important in order to: (i) forecast key technological trends; (ii) minimize costs due to
technology obsolescence; and (iii) take advantage of integration possibilities as
technologies merge.
106 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

Ć Scarcity of human and other organizational resources · scarcity of trained IS professionals

coupled with their long training cycles and limited availability of financial and managerial
resources also put pressure on the need for IS planning. IS is only one of many strategic
investment opportunities for an organization, and the potential financial returns of
investments in it must be weighed against those of alternative investments. Further, there
has been a continual increase in IT expenditures. Thus, IS planning has become important
for coordinating and controlling IT expenditures and has elevated IS function to a level in
the organization commensurate with its importance.

Ć Competitive pressure · competitive pressures have forced organizations to plan better

everywhere in order to remain in business (as discussed in topic 3). Increased global
competition, cost containment pressures, and the use of IT for competitive advantage by
competitors have all made IS planning a prerequisite for achieving a satisfactory level of
business performance.
Ć Integrated IS applications · the blurring of the lines among the various classifications of
information systems and technologies makes IS planning important to address such issues
as system compatibility, integration of voice and data networks, video conferencing, and
distributed data base locations.
Ć Validation of corporate plans · in many organizations, new marketing programs, new-
product design, and implementation of organizational strategies depend on the
development of IT support programmes. If IT limitations render corporate strategy
unfeasible, corporate management must be aware of the problem.

Ć Senior management · the desire on the part of senior management to become involved in
IS decision making for better communication and control.
Ć Delivered systems quality · there are many instances where users and management are
disillusioned with the quality, timeliness and accuracy of delivered systems. IS planning
may provide a better focus on important quality issues.

Ć Inability to maintain delivered systems · IS planning may provide well-thought-out

system designs from the maintenance perspective.
Ć Lack of standards · lack of standards has led to piecemeal IS development and resultant
system incompatibility.
Ć Lack of system/data integrity · IS planning will provide thoughts on system/data
integrity as part of planning for the IT infrastructure.
Ć Cost and time overruns in IS development projects · IS planning will impose appropriate
resource allocation for IS development projects.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 107

Activity 4.2
Why does senior management like to become involved in IS planning? Give your
own views, imagining yourself to be the managing director of a medium-sized
organization.

IS planning is the process of making and integrating decisions with respect to IS support
throughout the organization, using formal procedures and producing articulate results. In this
section, you’ve learned that business organizations have gradually realized the importance of
IS planning, as we have seen IS planning undergo an evolutionary process roughly divided
into six stages. Some of the reasons explaining why IS planning is considered vital to the
strategic use of IS in an organization were also outlined.

4.3.3 Objectives of IS Planning

IS planning objectives may vary from one organization to another. Therefore, it is important
to clarify the objectives of IS planning before embarking on it. Objectives could be general
but must be meaningful and achievable. Zmud (1983) gives the following set of general
objectives for IS planning:
Ć To ensure that all IS efforts are consistent with, contribute toward, and eventually
influence organizational strategies.
Ć To ensure that IS applications address critical organizational information processing
needs in terms of both opportunities and problems.
Ć To define and communicate the role of the IS function throughout the organization.

Ć To convey to the organization the extent of current and future IS resource commitments.

Ć To enhance communication between the IS function, top management and users.

Ć To ensure that a solid systems foundation or IT architecture is built, on which more

sophisticated IS applications can be based.
Ć To cultivate a core group of organizational proponents: i.e. users and top management.

Ć To control and direct the acquisition and deployment of IS resources.

Ć To ensure that the IS staff remains technologically current.
108 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

Earl (1993) conducted a field study investigating 21 large UK-based organizations to discover
the intents, outcomes and explanations of IS strategic planning. The 63 respondents were
asked to state their organization’s current objectives for IS strategic planning. Table 3.1 lists
the objectives by their rank order, as identified by the respondents:

Table 4.1: Objective of IS Strategic Planning

Respondents
Rank Order Objective of IS Strategic Planning
(Out of 63)
1 Aligning IS with business needs 59
2 Seeking competitive advantage from IT 45
3 Gain top management commitment 36
4 Forecast IS resource requirements 35
5 Establish technology path and policies 30

This table suggests that organizations have more than one objective for IS strategic planning;
narrative responses usually identified two or three objectives spontaneously.

The two sets of objectives given above have some common points such as communication
enhancement and determining resource requirements. But, otherwise they have many
differences. In fact, no two IS strategic planning exercises have precisely the same objectives.
The variations exist because of many factors, such as:

Ć The size of the business unit under consideration.

Ć The current IS applications portfolio.
Ć The stage of IS planning evolution in the organization.
Ć The immediate problems facing top and IS management.

Depending on the reasons that prompt the IS planning exercise, different emphasis may be
placed on certain activities that may change the objectives.

You should now understand the importance of setting IS planning exercise objectives both
for the planning team and to the organization as a whole.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 109

Activity 4.3
Comment on the appropriateness of the following statements as IS planning
objectives:
(a) To produce long-term and short-term plans for the development of IS
applications that support the business strategy.
(b) To identify ways in which IT may be used to gain a competitive advantage.

(c) To determine the technological and organizational resources necessary to

support the plans produced.

Once determined, the objectives of an IS planning exercise represent a direction in which the
organization should invest its time and resources. Depending on the level of IS planning
(which will be discussed in the following section) spelling out every detail of the plan is
sometimes not necessary. In whatever way, the IS planning committee must have taken the
following issues into consideration (Earl 1989):
1. the relative spending, or resource allocation, for each area involved in the plan;

2. the relative priorities between and within each area; and

3. the justification for each application or module in the plan, except for the mandatory
ones.

In the next section, you’ll see how the IS plan varies as it is formulated to suit the
information requirements of different levels of management.

4.3.4 Levels of IS Planning

As we described earlier, IS planning can be classified as strategic, tactical or operational
depending primarily on the planning horizon.

(a) IS Strategic Planning

IS strategic planning is the process of ensuring alignment between business plans and
objectives and IS plans and objectives, and/or the process of identifying IS applications
that will provide the organization with a competitive edge (Lederer and Sethi 1988). It
is the process of converting the organization’s long-range IS strategies into long-range
IS plans (Frenzel 1992, 102). The process takes the information found in the IS strategy
statement and adds detailed actions and elements of various resources required to attain
the stated goals. These resources consist of people, money, facilities and technical
capabilities, blended together and working toward the objectives. The strategy contains
statements about assumptions, risks and dependencies. Assumptions
110 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

in the strategy must be converted to reality and dependencies need to be accounted for
in the plans. The risks noted in the strategy must be mitigated to the fullest extent
possible by specific actions to accomplish the goals and objectives.

As an example, consider an organization whose strategic objective is to improve market

response times by automating product design, development and manufacturing. The
strategy includes installing computer-aided design and manufacturing (CAD/CAM)
systems for design and development engineers as well as for the plant. These systems
are to be fully operational in 48 months. The strategy statement contains the assumptions
for using CAD/CAM and outlines dependencies and risks. For example, resistance to
the new systems might be a risk. The IS strategic plan adds details of schedule, actions
and resources such as space requirements, user training, capital and operating expenses.
The plan may also state that the space will be leased and that any resistance to the new
systems will be overcome by providing training.

IS strategic planning has, as its focus, effectiveness and efficiency (Galliers 1988)
aiming at establishing the direction of IS development rather than identifying specific
IS development projects. At the IS strategic planning level, the involvement of both IS
management and top management is necessary (O’Connor 1993). The IS staff brings
analytical, informational and technical skills to the planning process while top
management brings business knowledge. This mix is good for ‘political’ reasons since
the strategic planning process needs to promote dialogue, mutual respect and cordiality
between IS staff and the rest of the organization.

(b) IS Tactical Planning

IS tactical planning focuses on prioritizing and scheduling IS development efforts,
establishing action plans for development and performance measures to be used during
operational planning. It generally covers the current year in detail and the subsequent
year(s) in less detail. Management commits to implement the tactical plans and the plans
are used to measure management’s as well as the firm’s performance. For these reasons,
these plans are sometimes called measurement plans. They also provide feedback on the
degree to which the foundation for meeting strategic objectives is being laid. Tactical
plans are more detailed and have a more direct bearing on near-term activities than
strategic plans. They provide guidance to very short-range activities and link the near-
term actions to long-range goals.

Generally speaking, IS planning at the tactical level covers a much broader spectrum of
IS projects than IS strategic planning. IS projects considered during tactical planning
might have originated from IS strategic planning efforts, user requests, routine
maintenance efforts or mandates from external
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 111

organizational sources (O’Connor 1993). Generally the entire portfolio of IS

applications is categorized first according to their source before being prioritized. Issues
such as software and hardware migration, disaster recovery, IS personnel training,
capacity planning and general security are also considered at this level. During tactical
planning, a ‘mix’ of planning participants is again found (O’Connor 1993). This mix
depends upon the objective of the tactical planning process. For example, steering
committees consisting of users, IS and top management representatives will typically
be formed for the purposes of prioritization and project approval. When issues such as
training, capacity planning, disaster recovery and security are being considered,
however, the involvement of technical IS staff is most critical. However, for identifying
additional IS applications in the category of ‘ongoing maintenance’ or ‘operational
necessity’, the participation of users at lower organizational levels is necessary.

Referring back to our CAD/CAM example given above, the tactical plan describes many
activities planned for the first two years. Some of these may be selection of
hardware/software, installation of hardware and software systems, user and IS staff
training, conversion from old processes to new procedures and setting up measurement
systems. Details such as where and from whom the space will be leased and what type
of training would be required need to be included in the tactical plan. Schedules should
be provided for all these activities, human and material resources must be allocated and
detailed budgets must be developed for the plan to be complete. Management would
also have to agree to the plan, which would be measured on the degree of plan
attainment. Thus, the tactical plan would be the basis for day-to-day activities.

(c) IS Operational Planning

IS operational planning involves the development of specific detailed plans for each IS
project. It entails the selection and approval of IS projects to commence within the next
planning year, and the actual planning, monitoring and control of specific systems
development efforts. Operational planning adds details to the near-term activities of the
organization, giving direction on a day-to-day or week-to-week basis. Operational plans
are generally used by first-line managers or by non-managerial staff as they carry out
their assignments. Operational plans usually require much analysis, in addition to that
required for the tactical plan, and they also contain control elements. They show
managers how well the daily or weekly activities are progressing. To continue with the
CAD/CAM example, the operational plan will contain near-term tasks related to its
installation. These could be identification of hardware/software vendors, defining
vendor selection criteria, developing space alternatives, and conducting systems
analysis of existing procedures. Simultaneously, along with the execution of operational
plans for the current
112 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

short-term, planning for the next short-term will begin along with budget allocation and
tracking costs.

Planning groups at the operational planning level more typically comprise IS staff.
User/management representatives will, however, be required to participate in system
development, review deliverables, prototypes and so on.

The following table provides a summary of the major differences between the three
planning levels.

Table 4.2: Differences between Planning Levels

Strategic Tactical Operational

Focus Alignment/impact Prioritization/scheduling Commitment
effectiveness Resource allocation
Planning cycle Episodic (3ă5 years) 1ă2 years 12 months (or less)
Perspective Business IS IS
Participants IS management and Steering committee/IS IS staff/management
top management/ staff
steering committee
Scope Narrow · critical Broad · all projects Narrow ·
issues and projects individual projects

(d) IS Planning Cycle

In most organizations, planning activity is regularly scheduled and is seasonal (Frenzel
1992, 103). Generally the tactical plans are developed first so they can be approved just
prior to the beginning of the tactical period. Thus, the tactical plan for the next two years
is developed and approved during the few months prior to the beginning of the new
year.

In a model-planning calendar, the IS strategic planning takes place shortly after the
beginning of the new year and is completed and approved around mid-year. When
completed, it covers the period from 2.5 years in the future to the end of the extended
planning horizon, perhaps five or more years into the future. Then the second iteration
of planning takes place in relation to current plans. The new tactical plan incorporates
the first year of the previous strategic plan, and the new strategic plan adds an additional
future year, as shown in Figure 4.1.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 113

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

1993 1994 1995 1996 1997 1998

Tactical Plan Strategic Plan

New Tactical Plan New Strategic Plan

Figure 4.1: Revision cycle of IS plans

For organizations with a well-established planning cycle, planning does not start from the
beginning with each iteration. Rather, as shown above, the new tactical plan revises the second
year of the previous plan and adds to it the first year of the previous strategic plan. The new
strategic plan is a revision of last year’s plan and adds a new year. The revisions may be
necessary to reflect changes in the plan due to new or revised strategies, changing business
conditions or environment. Failure to achieve prior goals or objectives, or changes related to
risk management or dependency may also lead to plan revisions.

Thus, the entire planning process is cyclical and repetitive, with revised longer-range plans
becoming more near-term with each planning cycle. Operational plans are generally not as
tightly scheduled, and if the implementation of the tactical plan is proceeding smoothly, these
plans may very well be of an ad hoc nature. In fact, the need for short-range plans depends on
the circumstances and on the activities of the function and the organization.

Activity 4.4
An organization has a two-year planning cycle for IS strategic planning and a
one-year planning cycle for operational planning. It has no tactical planning.

Comment on this IS planning structure, and identify any potential problems.

4.4 LINKING BUSINESS AND IS PLANNING

In this topic you studied the link between IS strategy, which is concerned primarily with
aligning IS development with business strategy, and IT strategy, which is concerned primarily
with technology policy and architecture. Earl (1989, 62ă65) also defined information
management (IM) strategy, as the role and structure of IT activities in the organization. Thus,
IS planning consists of formulating each of the
114 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

above three strategies · dealing with technology (IT), systems (IS), and management (IM).

Galliers (1991) takes a socio-technical perspective of IS and also adds a change management
(CM) strategy and a human resource (HR) strategy as part of the IS strategy, as shown in
Figure 4.2.

According to this model, IS strategy is very much embedded in business strategy: it both feeds
off, and feeds into, the business strategy process. But, as Galliers (1991) stated further, while
IS planning should be closely associated with the business planning process, it is still too often
the case that the link is tenuous at best. The two processes are often undertaken in isolation
from each other and with little business planner involvement in IS planning.

Further, across a wide spectrum of markets and countries, IS is transcending its traditional
support role and is evolving into a strategic role as described in topic 3. Such a shift has the
potential not only to support chosen business strategies but also to shape new business
strategies (Keen 1991). Yet there is an increasing concern that the anticipated value of IT
investment is not being achieved (Strassman 1990) with a growing number of organizations
outsourcing their IT operations. This inability to realize value from IT investments has been
ascribed to the lack of alignment between the business and IS strategies of the organizations
that are making the investments (Henderson and Venkatraman 1993).

Business strategy

IST strategy

IS strategy

IM strategy IT strategy

CM strategy

HR strategy

Business strategy

Figure 4.2: Gallier’s Business and IS Strategy Linkage Model

 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 115

4.5 BENEFITS OF IS PLANNING

The need for IS planning is clear. The initial focus of IS planning was on providing a means
of control over a growing expense. Later concerns turned to the acquisition and integration of
compatible information technologies. Recently, as IT gained competitive importance, IS
planning took on a strategic significance. However, despite awareness of the importance of IS
planning, the distance between interest and mastery in the area remains significant (Finnegan
and Fahy 1993).

IS planning is a complex activity. More effort spent on the IS planning process results in
several benefits for the organization as well as the IS management. IS planning helps ensure
that the information needs of the organization are considered during the course of normal
business planning (Martin et al. 1991, 443). The integration of the IS plan and the overall
business plan allows the organization to ensure that the IS plan supports the business direction
of the firm.

An orderly IS planning process also allows IS management to focus on key business results
rather than just on completing projects. This shift in focus can often result in a better
integration of existing and future IS applications. Even though the need for conducting
unforeseen or corrective work will still arise, the IS management, however, will be better able
to handle such occurrences if a framework of objectives is given.

IS planning also provides a sound base for IS project selection and prioritization, and
facilitates effective IS resource allocation (O’Connor 1993). Operating within a well-
conceived framework of objectives and strategic initiatives leaves the firm in a better position
to evaluate potential IS projects for their true impact on the organization. More importantly
perhaps, the IS planning process helps reduce the risk that money will be spent on ill-fated IS
projects that occur because of a lack of a cohesive set of IS plans and objectives.

Good IS planning also helps in the IS control process. Unless the IS management has a
concrete idea of what is supposed to be going on, it will be in a poor position to evaluate
progress and make appropriate adjustments. Strategic objectives, operating plans, and budgets
provide the IS management with concrete guidelines by which to evaluate actual results in
order to control IS effort.

User satisfaction has often been a concern of IS departments and their users. Although most
IS applications may perform adequately, some users may still report feelings of dissatisfaction.
Often such concerns come from a lack of understanding about the design objectives of a
particular IS application. Effective IS planning cannot be conducted without user input. Input
in the IS planning stage can greatly increase the likelihood that this important resource i.e.
information systems technology (IST) will actually do what users want, not just what the IS
management
116 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

thinks is wanted by the users! Thus, IS planning aids communication between users, IS staff
and top management (O’Connor 1993).

IS planning provides a basis for performance assessment (O’Connor 1993). It is not, after all,
possible to measure achievement unless there is something (a plan) to measure against it!

IS planning may also raise the awareness of IS potential throughout the organization, and also
increase IS staff awareness of the business.

IS planning might also provide financial benefits to the organization and improve its
performance (O’Connor 1993). A research study has identified that companies with well-
integrated IS strategic plans and business plans outperformed companies that had no such
plans by a factor of 6 to 1 (Lederer and Mendelow 1986).

Predicting the future is a difficult task, and IS planning might not identify all IS needs. It will
also require regular revision and re-evaluation, as stated in the earlier section. Like business
planning, then, the most important benefit of IS planning is that it puts the organization in a
better position to react to unforeseen events.

Finnegan and Fahy (1993) conducted a survey of the top 300 companies in Ireland to study
the nature of IS planning undertaken by these firms. The survey results identified the following
benefits of IS planning:

Table 4.3: Benefits of IS strategic planning (Ireland)

Percentage of Organizations
Benefit
Currently Enjoying the Benefit
Major one-time IS projects can be often justified 71.4%
A basis for IS budgeting is provided 70.5%
General management becomes informed and involved
61.0%
concerning IS activities
Scarce IS resources can be allocated wisely 55.2%
Business programmes are assured of needed IS help 52.4%
Strategy for selection of IS can be set 49.5%
Performance of IS activity can be measured fairly 39.0%
Emergency IS projects are often avoided 29.5%

It might be interesting to compare these results with Earl’s study of 21 large UK-based
organizations (Earl 1993) in which the respondents also identified the following benefits of IS
strategic planning in the rank order as given in Table 4.4.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 117

Table 4.4: Benefits of IS Strategic Planning (UK)

No. of
Rank
Benefits of IS Strategic Planning Respondents
Order
(Out of 63)
1 Aligning IS with business needs 49
2 Top management support 27
3 Better priority setting 35
4 Competitive advantage applications 21
5 Top management involvement 19
6 User/ line management involvement 21

There has not been a published study of this nature in Hong Kong so far, though perhaps some
research in this direction is underway at present. However, an exploratory study conducted by
Rebecca Low et al. (1990) studied IS planning practices in nine organizations in Hong Kong
and stated the following benefits of IS planning as identified by the respondents:

Table 4.5: Benefits of IS Strategic Planning (HK)

Percentage of Respondents
Benefit
(Out of 9)
Provides a basis for budgeting 87.5%
Scarce IS resources are allocated wisely 75%
General management becomes informed and
75%
involved in IT
Supports business strategy 50%
Crash IS projects can be avoided 37.5%
A strategy for selection of IS can be set 25%
Performance of IS can be measured wisely 25%

It seems that some identified benefits are common to most of the planning studies but some
are not. However, IS planning is not a stable process when the business environment changes
constantly. According to Applegate et. al (1999) IS planners should consider a number of
issues.
Ć Planning is a resource drain · management should be careful not to treat IS planning as a
routine deployment of financial and human resources. As technologies change as well as
the business environment, good IS planning could leave extra resources to other projects
in the organization.
118 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

Ć Corporate culture matters · tall management hierarchies often prefer formal and top-down
planning processes. Corporate cultures may also affect commitment of the senior
management.
Ć Strategic impact of IT activities · innovative applications of IT are of significant strategic
importance to businesses. However, the benefits of the IS plan might not be realized unless
it is implemented with the right kind of readiness. Sometimes, both individual and
corporate habits need to change.

Organizations should not, therefore, expect too much from IS planning in its initial phase; i.e.
the first one or two years. Rather, they should consider this period as a learning experience
and be content with only the intangible benefits.

Activity 4.5

How can IS planning help in justifying major one-time IS projects?

IS planning provides many benefits depending on the effort spent on the IS planning process
and past experience of IS planning. IS strategic planning has a learning effect. Initially, during
the first one or two years, organizations may get only ‘soft’ benefits, which are hardly related
to business strategy. However, after about four to five years experience in IS planning,
organizations may start getting direct or ‘hard’ benefits.

4.6 WHAT MAKES A GOOD IS PLANNER?

The success of an IS planning exercise very much depends upon the quality of IS planners
within the planning team. Current university education curricula in IS have been criticised as
incapable of producing qualified, employable IS professionals (Trauth, Farwell and Lee 1993).
Thus, it is hard to find fresh graduates who could do a good job of IS planning without some
sort of training within or outside the organization. Though suggesting how you go about
becoming an IS planner is difficult, it is possible to identify some of the desirable attributes
an IS planner should possess. Head, who has extensively worked as a consultant in the IS
strategic planning area, suggests some of the attributes, which are described below (Head
1984, 151):

Ć Affinity for strategic thinking. This is a somewhat intangible quality that only a few people
in IS departments seem to possess. Most of them are pre-occupied with specific technical
tools, techniques and problems. But this attribute is
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 119

essential if you are to focus on a global or macro-view of what IS capabilities should be

introduced into the organization over the next five to 10 years.
Ć Company loyalty. IS professionals have become somewhat notorious for their job-
hopping activities. From the standpoint of doing effective IS planning, it is difficult to
give such planning both enthusiasm and undivided attention if you are fairly certain that
he or she will not be around to see strategic (long-range) plans come to fruition.

Ć Self-starting ability. Some organizations follow top-down IS planning, in which IS plans

are governed by overall business plans, whereas others follow bottom-up IS planning, in
which IS plans are initiated by the IS department and sent up the hierarchy for top
management review and approval. As the bottom-up approach is more common in
practice, the IS planners must have the ability to take the initiative in structuring a plan in
the absence of clear-cut guidelines from the top. This can involve stepping outside the IS
arena by hypothesizing business goals and objectives, documenting assumptions about the
business environment, and relating these to technological capabilities.

Ć Communications skills and ‘salesmanship’. A common failure in IS planning lies in the

inability to communicate IS problems and objectives to top management to gain the
commitment of resources needed to implement effective strategies. It is crucial, therefore,
for IS planners to be able to transform technical problems and requirements into both
written and oral communications that are understandable to top management.

Ć Background in accounting, forecasting and quantitative methods. IS plans, like business

plans, require collection and analysis of large amounts of quantitative data, extrapolations
based on such data, and trend analysis. IS planners with this kind of experience may have
a head start in many important aspects of IS planning.

Ć IS background. Because IS planning addresses a highly volatile and complex technology,

a key attribute of an IS planner is knowledge of IT. Technology assessment, one of the
important components of IS planning, cannot be done without good insight into the present
state of IT and its likely future developments.

Activity 4.6

According to Trauth, Farwell and Lee (1993) the future IS professional will be
‘the integrator’. He or she will possess IS skills but will focus on integration
rather than IS development.

Do you agree with this statement? Comment on your answer.

120 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

There is a chief information officer (CIO) in many organizations today to lead IS planning and
its implementation processes. The CIO plays a number of key roles in IT management of an
organization. To understand the challenges that a CIO faces, study the following chapter.

Chapter 12: Managing IT in the Digital Era, in Dickson’s textbook, pages 282ă 303.

Note that the article is summarized in Table 12.1, which makes a list of predictions for IT
management under two headings: business strategy and IT management.

Questions for discussion:

1 Study the predictions in the table. Choose a couple of them whose occurrence is most
likely and a couple of them that are least likely. Explain.

2 Disintegration is mentioned by the authors as one of their predictions. Does it

contradict the concept of extended enterprise?
3 The article was obviously written before 2000. Having seen the melt-down of Web
business two years ago, do you still agree with what the authors said about the role
of CIO?

Note that in Sambamurthy’s chapter (Chapter 12 of Dickson’s book) the role of the CIO as a
person to formulate business strategies is mentioned. You should see new roles are being
added as Web business (from where issues such as networks, de-integration, customer service,
enterprise infrastructure, sourcing and alliances emerge) becomes a necessity to many
organizations.

In this topic you studied Nolan’s stage theory, the notion of extended enterprises, the meaning
of IS planning, and its historical evolution and importance.

This topic introduced the stage theory as the basis by which we could compare information
system strategies. We discussed the various stages and argued that many organizations
(especially those extended enterprises) were now ready to enter the ‘data administration’ stage.
This is the stage at which organizations need to re-construct their corporate database and inter-
organizational ISs. This is one of the competitive advantages that businesses can get in e-
commerce.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 121

When we came to the objectives of IS planning, however, we need to understand the corporate
objectives, the level of IS plans, and the dynamic nature of the planning process. Although it
was not the aim of this topic to introduce IS planning methodologies, you were introduced to
the benefits of IS planning, and the last section exposed you to the desirable attributes for a
good IS planner.

In topic 5 you will study IS strategic planning process in detail. You will also be exposed to
IS strategic frameworks that can help to transform business strategy into IS strategy.

Applegate, L, McFarlan, F W, and McKenney, J L and (1996) Corporate Information Systems

Management: Text and Cases, 4th edn, Irwin.

Bloch, M and Pigneur, Y (1995) The extended enterprise: a descriptive framework, some
enabling technologies and case studies in the Lotus Notes environment, University of
Lausanne, HEC-INFORGE, TR YP-91, June 1995, at
<http://www.stern.nyu.edu/~mbloch/docs/paper_ee/paper_ee.htm>

Brancheau, J C and Wetherbe, J C (1987) ‘Key issues in information systems management’,

MIS Quarterly, 11(1): 23ă44.

Burn, J M, Saxena, K B C, Ma, L and Cheung, H K (1993) ‘Critical issues of IS management

in Hong Kong: a cultural comparison’, Journal of Global Information Management,
Fall, 28ă37.

Earl, M J (1989) Management Strategies for Information Technology, Englewood Cliffs, NJ:
Prentice-Hall.

Earl, M J (1993) ‘Experiences in strategic information systems planning’, MIS Quarterly,

17(1): 1ă24.

Finnegan, P and Fahy, M J (1993) ‘Planning for information systems resources?’ Journal of
Information Technology, 8(3): 127ă38.

Frenzel, C W (1992) Management of Information Technology, Boyd and Fraser.

Galliers, R D (1988) ‘Information technology strategies today: The UK experience’ in Earl,

M (ed.) Information Management: the strategic dimension, Oxford: Clarendon Press.
122 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

Galliers, R D (1991) ‘Strategic information systems planning: myths, reality and guidelines
for successful implementation’, European Journal of Information Systems, 1(1): 55ă63.

Hammer, M and Champy, J (1993) Reengineering the Corporation, Harper Business.

Harrison, W L and Fam, C (1990) ‘A comparison of information management issues in the

United States of America and the Republic of China’, Information and Management, 18:
177ă88.

Head, R V (1984) Planning Techniques for Strategic Management, QED Information

Sciences.

Henderson, J C and Venkatraman, N (1993) ‘Strategic alignment: leveraging information

technology for transforming organizations’, IBM Systems Journal, 32(1): 4ă16.

Keen, P G W (1991) Shaping the future: business design through information

technology, Cambridge, MA: Harvard Business School Press.

Lederer, A L and Mendelow, A L (1986) ‘Issues in information systems planning’,

Information and Management, 10: 245ă54.

Lederer, A L and Sethi, V (1988) ‘The implementation of strategic information systems

planning methodologies’, MIS Quarterly, 12(3): 445ă61.

Low, R, Lee, V, Ng, Y W, Ng, H K, Lam, A, Hui, I and Leung, A (1990) ‘Information systems
planning: a Hong Kong scenario, final project report’, COMP702: Information
Systems Analysis and Design course, BA (Hons) in Computing Studies, Hong Kong
Polytechnic, Hong Kong.

Martin, E W, Dehayes, D W, Hoffer, J A and Perkins, W C (1991) Managing Information

Technology: what managers need to know, Maxwell Macmillan.

Martin, J (1982) Strategic Data Planning Methodologies, Englewood Cliffs, NJ:

Prentice-Hall.

Martin, J and Leben, J (1989) Strategic Information Planning Methodologies, 2nd edn,
Englewood Cliffs, NJ: Prentice-Hall.

Niederman, F, Brancheau, J C and Wetherbe, J C (1991) ‘Information systems management

issues for the 1990s’, MIS Quarterly, 15(4): 475ă500.

O’Connor, A D (1993) ‘Successful strategic information systems planning’, Journal of

Information Systems, 3(2): 71ă83.
 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY 123

Parker, C and Case, T (1993) Management Information Systems: strategy and action, 2nd edn,
McGraw-Hill.

Robson, W (1997) Strategic Management and Information Systems, 2nd edn, London: Pitman.

Rockart, J R (1979) ‘Chief executives define their own data needs’, Harvard Business Review,
57(2): 81ă93.

Sprague, R H and McNurlin, B C (eds) (1993) Information Systems Management in Practice,

3rd edn, Englewood Cliffs, NJ: Prentice-Hall.

Stegwee, R A and van Waes, R M C (1990) ‘The development of information systems

planning: towards a mature management tool’ in Khosrowpour, M (ed.) Managing
Information Resources in the 1990s, Idea Group Publishing, 86ă98.

Strassman, P (1990) Business Value of Computers, Information Economic Press.

Trauth, E M, Farwell, D W and Lee, D (1993) ‘The IS expectation gap: industry

expectations versus academic preparation’, MIS Quarterly, 17(3): 293ă307.

Watson, R T (1989) ‘Key issues in information systems management: an Australian

perspective: 1988’, Australian Computer Journal, 21(2): 118ă29.

Zmud, R W (1983) Information Systems in Organizations, Scott Foresman.

GLOSSARY
The purpose of this glossary is to offer concise explanations or definition of terms that have
either been introduced or considered in detail in this topic. You may refer to the glossary
whenever you come across a term that you are not familiar with.

IS operational · The process of developing specific detailed plans for each IS project.
planning
IS planning · The broadly based management activity that provides direction, within
an organizational setting, for the development and use of IST. It
involves establishing IS goals resources necessary to support the
achievement of these goals, establishment of priorities, schedules
and budgets, and the management of specific IS development
efforts.
124 CHAPTER 4 NATURE OF INFORMATION SYSTEMS STRATEGY

IS processes · Work processes central to IS operations such as system development,

maintenance, etc.

IS skills · Acquisition and development of IS staff.

IS strategic · The process of ensuring alignment between business plans and

planning objectives and IS plans and objectives and/or the process of
identifying IS applications that will provide the organization with a
competitive edge.

IS tactical · The process of prioritizing and scheduling IS development efforts and

planning establishing action plans for development and performance
measures to be used during IS operational planning.

IT scope · The specific information technologies (such as LANs, WANs, etc.) that
support current business strategy initiatives or could shape new
business strategy initiatives.

Information · Strategy concerned with the role and structure of IT

management activities in the organization.
(IM) strategy
Chapter  Information
System
5 Strategic
Planning

CHAPTER LEARNING OUTCOMES

After studying topic 5, you should be able to:
 Identify the critical success factors (CSF) of an organization

 Describe the CSF approach methodology in IS planning

 Discuss the use of business systems planning (BSP) in IS planning

 Describe Earl’s multiple methodology in IS planning

 Select appropriate IS planning methodologies for an organization

TABLE OF CONTENTS
Introduction
5.1 IS Strategic Planning
5.2 Critical Success Factors Analysis
5.2.1 Characteristics of CSFs
5.2.2 Sources of CSFs
5.2.3 Hierarchical Nature of CSFs
5.2.4 Measuring CSFs
5.2.5 CSF Analysis
5.2.6 Extended CSF Analysis
5.2.7 Use of CSF Approach at Boeing
5.3 Business Systems Planning
5.3.1 Major Activities in BSP
5.3.2 BSP Study Steps
126 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

5.3.3 Evaluation of BSP

5.4 Earl’s Multiple Methodology
5.4.1 Top-Down Clarification
5.4.2 Bottom-Up Evaluation
5.4.3 Inside-Out Innovation
5.5 Choosing Methodologies for IS Planning
5.5.1 Common Weaknesses of IS Planning Methodologies
5.6 Recommendations on IS Strategic Planning Methodologies
References
Glossary
Feedback on the Activities on the Self-Tests

 INTRODUCTION
Improved strategic IS planning is one of the critical issues facing IS executives today.
Effective strategic IS planning can help organizations use IT to reach business goals.
It can also enable organizations to use IT to significantly impact their strategies.
However, if you don’t carry out strategic IS planning carefully, the results will include
both lost opportunities and the waste of expensive IT resources. In order to perform
strategic IS planning effectively, organizations apply one of several planning
methodologies. A methodology should use a collection of postulates, rules, and
guidelines that provide a standard proven process to follow. Peter Drucker (1964)
suggested that the importance of using a methodology is that ‘knowledge organized
in a discipline does a good deal for the merely competent; it endows him with some
effectiveness. It does infinitely more for the truly able; it endows him with excellence’.

In this topic, we describe some of the conventional IS planning methodologies that

have developed over the past 20 years. We include a selection of the three most
representative and best-known methodologies used for IS planning: critical success
factors, business systems planning, and the multiple methodology. Our aim here is
not to examine all the existing methodologies in detail; rather it is to show you the
underlying assumptions and circumstances. You also identify a number of
weaknesses and omissions viewed in the context of the question: is a methodology
complete and how does it link business strategy and IS strategy? In this context, an
IS planning methodology is considered complete if it can help a planner in identifying
only the IT opportunities the method intends to account for (Pruijm 1990, 60).
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 127

5.1 IS STRATEGIC PLANNING

The essential requirement for effective IS planning is that the needs of the business
should drive the planning for IS development and deployment. There are many
methods that can be used for IS planning, but all of these methods strive to achieve
this goal of integrating IS capabilities and planning with the business needs of the
firm. Business planning is the process of identifying the goals, objectives, and
priorities for the firm and of developing action plans for achieving these goals,
objectives and priorities. IS planning is a part of business planning, and focuses on
deploying the firm’s IT resources and capabilities to facilitate the overall business
plans for the firm (Alter, 1992).

You learned in the last topic that the perception of information systems changes over
time. Nolan’s stage theory indicates that as organizations increase their investment
on ISs, they would expect the ISs to improve the strategic advantage of the
organizations. According to Nolan’s model, the ISs in most organizations have grown
to Stage 4 (integration) and Stage 5 (data administration). Inevitably, strategic
planning is commonly aimed at integrating various functional ISs in the organization
based on a data administration architecture.

However, moving up the stages is easier said than done. These types of projects
usually involve more than one department and require very strong support from the
executive management. In the following reading, you’ll find a brief discussion on how
some of these plans fail. At the beginning, the authors discuss six socio-economic
factors that motivate organizations for IS strategy planning. Later, when they explain
why strategy planning fails, they do not put the blame on rapid evolution of
technology, lack of resources, or unknown user needs. Instead, they suggest that the
real reasons for the failure are:
• failure to tie technology to institutional mission and priorities
• failure to get the right people on board
• excessive focus on technical details
• lack of suitable leadership

To ensure healthy strategy planning, the authors propose a so-called agile

approach (steps are given in Table 5.1)
128 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Internet Reading Ringle, M and Updegrove, D (1998) ‘Is strategic planning

for technology an oxymoron?’, CAUSE/EFFECT, 21(1):
18–23, also available at
<http://www.educause.edu/ir/library/html/cem9814.html>

Table 5.1: Ten Steps in the Agile Approach to IS Planning (from Ringle and Updegrove)
1 Review institutional objectives.
2 Establish a framework of strategic technology objectives.
3 Prioritize objectives.
4 Invite key group review.
5 Disseminate strategic technology framework.
6 Translate objectives into operational goals.
7 Discuss operational goals with key people.
8 Disseminate operational goals.
9 Enable continuous input.
10 Conduct retrospective assessment.

The so-called agile approach is just one of the methodologies that IS consultants
might choose in strategic planning. In Table 5.1, you can see that the ten steps are
clearly divided into two periods · (1) forming a framework of strategic objectives and
(2) translating objectives to operational goals · with each period consisting of 4–5
steps in which group effort plays a very significant role. The title ‘agile’ clearly
suggests that the methodology needs to be flexible and to cater for opinions from all
parties. Notice that although it is not explicitly spelt out in Table 5.1, the operational
goals cannot be formulated without taking legacy systems into consideration.

The agile approach, along with many other planning methodologies, indicates that IS
planning creates a lot of operational, technical, and political problems that are difficult
to solve if the planning is not supported by the strategic level of management.

In the next three sections, you will study three methodologies that are classical
examples of IS planning; they are CSF, BSP, and multiple methodology.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 129

5.2 CRITICAL SUCCESS FACTORS ANALYSIS

Critical success factors (CSF) analysis, originally developed by John F Rockart
(1979), can be applied to support both IS planning and requirements analysis. Critical
success factors are the limited number of areas in which satisfactory results will
ensure competitive performance for the individual, department, or organization.
These are the few key areas where ‘things must go right’ for the business to flourish
and the manager’s goals to be attained (Martin 1990, 89). Therefore, they represent
those managerial or business areas that must be given special and continual attention
to bring about high performance. CSFs include issues vital to an organization’s
current operating activities and to its future success. Because CSFs represent critical
areas of activity, the managers of an organization should have the appropriate
information to allow them to determine whether events are proceeding sufficiently well
in each of these areas. The CSF analysis is designed to provide a structured method
to help managers determine their CSFs and thus identify their information needs. You
should now read the following pages of Bullen and Rockart (1986).

5.1(a) Bullen, C V and Rockart, J F (1986) ‘A primer on critical success factors’ in

Rockart, J F and Bullen, C V (eds) The Rise of Managerial Computing,
Homewood, IL: Dow Jones-Irwin. Although this reading spans 40 pages,
please read pages 383–86 only at this stage.

For a business, the CSFs relate to those aspects of the business that will ensure
competitive performance. They are those characteristics, conditions, or variables that
when properly sustained, maintained, or managed can have a significant impact on the
success of a firm competing in a particular industry (Leidecker and Bruno 1984). They
differ greatly from one type of business to another; from one time to another; and from
one state of environment to another. A CSF can be a characteristic such as price
advantage, it can also be a condition such as capital structure or advantageous customer
mix; or an industry structural characteristic such as vertical integration. Examples of CSFs
for some industries are given in Table 5.2 (Martin 1990, 91).
130 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Table 5.2: Examples of CSFs

Industry Examples of CSFs
Automobile industry: Fuel economy
Image
Efficient dealer network
Manufacturing cost control
Food processing: Effective advertising
Good distribution
New product development
Life insurance company: Development of agency personnel
Advertising effectiveness
Productivity of clerical operations
Marketing strategy
Software house: Product innovation
Quality of sales and user literature
Worldwide marketing and service
Ease of use of products

CSFs also support the attainment of organizational goals. The planning process itself
boils down to a list of crucial information and analyses that are not currently at hand,
but which subsequent efforts of systems development could make available. Rockart
notes that the CSF concept fits nicely into the planning and control framework. ‘That
is, the control system must report on those success factors that are perceived by the
managers as appropriate to a particular job in a particular company’ (Rockart 1979).
The major focus of the CSF approach has been the top executives of an organization,
although Rockart thinks that CSFs can be useful at all managerial levels. Rockart
observes

. . . the CSF approach does not attempt to deal with information needs for
strategic planning. Data needs for this management role are almost impossible
to preplan. The CSF method centres, rather, on information needs for
management control, where data needed to monitor and improve existing
areas of business can be more readily defined.

5.2.1 Characteristics of CSFs

CSFs are quite different from ‘key performance indicators’, which have been used in
the past for IS planning. They are not a standard set of measures that can be applied
to all organizations. Rather, they are specific to a particular situation at a particular
time. They have diverse measures; some are evaluated with soft subjective
measures, whereas some others may be evaluated through information not currently
gathered in an explicit manner.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 131

Most CSFs are internal, some are external. Internal CSFs relate to actions that can
be taken within the organization, such as improving product quality or lowering
inventory costs. External CSFs relate to factors in the outside world, such as company
acquisitions or acquiring financing.

CSFs can also be categorized as monitoring and building. Monitoring CSFs involves
the scrutiny of existing situations, such as monitoring the percentage of defective
parts. Building CSFs is related to changes in the organization for future planning, such
as improving the product mix. Managers who spend most of their time in control
functions are concerned mostly with monitoring CSFs, whereas those who are
concerned primarily with planning are concerned mostly with building CSFs. In
general, most managers are concerned with a mix of building and monitoring CSFs.

5.2.2 Sources of CSFs

There are five primary sources of CSFs.

1. Industry based factors. Each industry has a set of CSFs that are determined
by the characteristics of the industry itself. Each organization in the industry
must pay attention to these factors. For example, in the automobile industry,
styling, an efficient dealer organization, and tight control of manufacturing costs
are important.

2. Competitive strategy, industry position, and geographic location. Each

organization in an industry is in an individual situation, determined by its history
and current competitive strategy. Differences in industry position, in geographic
location, and in strategies can lead to different CSFs from one company to
another in an industry. A small company in an industry must almost always be
concerned about protecting its particular industry niche. Similarly, in an industry
dominated by a single major firm, a CSF for all the other companies is to
understand the leader’s strategies and its probable impact. For example, IBM’s
strategy for marketing small computers in itself became a CSF for all small
computer manufacturers due to IBM’s large market share in the small computer
market. Likewise, the geographic positioning of an organization can also
generate CSFs. For example, retail firms in rural areas may have transportation
management as a CSF while for more urban firms this is less critical.

3. Environmental factors. Environmental factors are those areas over which an

organization has little control. CSFs for various organizations may change due
to environmental changes such as changes in the gross domestic product
(GDP), fluctuations in the economy, and the demographic composition of the
population. For example, the oil crisis in 1973 caused ‘energy supply’ to be a
132 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

CSF whereas now the concern about environment may cause ‘environment
friendliness’ of products to be a CSF.

4. Temporal factors. Organizational internal considerations often lead to temporal

CSFs. They are areas of activity that are significant for an organization because
they are below the threshold of acceptability at that time. For example, inventory
control is generally not a CSF for a chief executive, but may become a very high
level CSF under the circumstances of either very little or too much stock.

5. Managerial position. Each functional managerial position has a generic set of

CSFs associated with it. For example, almost all manufacturing managers are
concerned with product quality, inventory control, and cash control.

5.2.3 Hierarchical Nature of CSFs

We may view CSFs as in a hierarchy. Some relate to an industry as a whole; some
to an organization; some to organizational units; and some to individual managers.
The Bullen and Rockart paper describes this hierarchy in detail, and you must now
turn your attention to it.
CSFs for the industry

CSFs for the organization

CSFs for the organizational unit

CSFs for the individual managers

Figure 5.1: Hierarchy of CSFs

5.1(b) Pages 386–404 of Bullen and Rockart (1986).

Let’s just recap: industry CSFs affect each organization in the development of its strategy,
objectives and goals. No organization can afford to develop a strategy that does not
provide adequate attention to the principal factors that underlie success in the industry.
In turn, the strategy, objectives and goals developed by a company lead to the
development of a particular set of CSFs for an organization (organizational CSFs). Given
its strategy and objectives, as well as other factors in its specific environment, each
organization will develop a set of CSFs unique to its own circumstances.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 133

In turn, organizational CSFs become inputs into a similar CSF determination process
for each organizational unit. The analysis of sub-industry CSFs (where appropriate),
organizational strategy, objectives, goals and CSFs, and its own strategy, objectives
and goals, as well as environmental and temporal factors lead to a set of CSFs for
each organizational unit.

Managers at each of the organizational levels will have an individual set of CSFs that
depend heavily upon their particular roles and on temporal factors, and less heavily
upon the industry and the environment.

5.2.4 Measuring CSFs

To measure is to know. CSFs must be measured in order to track the progress in
achieving them. Such measures are only rarely provided by the traditional financial
accounting systems; and may be provided only sometimes by cost accounting
systems (often with some additional improvements in them). However, a large
number of data needed to measure CSFs cannot be provided as a byproduct of
conventional transaction processing. It must be specifically collected from other
sources, sometimes even from external sources. Even the internal sources for such
data might be widely dispersed. For example, measures of CSFs such as
comparative profitability of all products, bid profit margin as a ratio of profit on similar
jobs, and risk assessment in contracts by examination of experience with similar
customer situations, etc., requires access to data from a variety of sources.

A small proportion of CSFs require subjective assessment rather than being easily
quantifiable. Some CSFs can have only soft measures. However, usually there is
some means of creating numeric measures. Senior management is used to such
situations and spends much time with subjective judgements and measurements.
Therefore, they might not have problems with subjective measures. Objective
measures can often be found for some CSFs, but they may demand considerable
creativity (and use of techniques such as brainstorming and lateral reasoning)!
Some examples of such measures are given in Table 5.3 below:
134 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Table 5.3: Measures of CSFs

Categories Variables Measures
Environmental variables State of the economy GDP or GNP
Marketing variables Sales, sales bookings
Market share
Gross margin percentage of a product
Key account orders (orders from
important customers)
Lost orders
Promotional indicators Renewal rate of magazine
subscriptions
Direct mail response rate
Coupon returns for
advertisement
New customers (for banks, newspapers,
service organizations)
Owner body, i.e, number of people
owning company’s product in the
industry.
Production and logistics Cost control Output per labour-hour
variables Overtime
Capacity utilization Sold time ‘Billed hours’ or
total professional hours (in
professional organizations)
Occupancy rate in hotels
Backlog
Quality Customer returns
Yield Amount of saleable product
Raw material cost (may be a
temporal CSF)
On-time delivery
Asset management Inventory Inventory turnover
Inventory write-offs
A/C receivables: Day’s sale on the books
Investment return (for banks, insurance,
where profitability depends on investments)

5.2.5 CSF Analysis

There are three major uses of the CSF concept (Boynton and Zmud 1984):
• To help an individual manager determine his or her information needs.
• To aid an organization in its IS planning process.
• To aid an organization in its organizational strategic planning process.

In this topic, you are concerned with the second use, which you’ll consider in detail.
This process is often referred to as critical success factors (CSFs) analysis.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 135

The CSF analysis process involves a series of interviews conducted in two or three
sessions. In the first session, the manager is asked his or her goals and the CSFs
that underlie these goals. The second session focuses primarily on identifying specific
measures and possible reports. Additional sessions are held to obtain agreements of
the CSF reporting sequences, and then the information systems required to provide
the reports are identified. A detailed description of the process is given in Bullen and
Rockart (1986).

5.1(c) Pages 404–423 of Bullen and Rockart (1986).

An example of CSF analysis outcome is given
below. Goal: 1 % growth in market share.
Strategies:
1 Improve performance across all regions at rates in excess of the industry average.
2 Improve performance in those regions which are currently under-performing to match the
national average.
Critical Success Factors Measures
Competitive pricing Company price versus average price
Wages of site managers Amount paid versus industry average
Distribution of sites:
· key sites Proportion of top turnover sites
· geography Site density/market size ratio
Level of advertising:
· national Amount spent versus industry average
· regional Amount spent versus industry average

The outcomes of a CSF analysis are information required by executives and an outline plan of IT
requirements. However, it is important that consensus of the senior managers is obtained in order
to get eventual agreement on IS strategies. You now look at the procedure that Bullen and Rockart
(1986) suggest to arrive at the consensus.
• Determine the CSFs of the top ten to 20 managers in the organization (or sub-organization).
• Determine the CSFs that have been identified by multiple managers and which, therefore,
provide a good approximation of the organization’s CSFs. Although each top manager’s job is
different · and his or her CSFs are therefore different in some ways from those of his or her
colleagues · it has been found that intersection of all top managers’ CSFs is the set of CSFs
for that organization. These resulting CSFs are then checked with the organization’s
management.

CSF analysis allows senior managers to articulate their needs in terms of the
information that is absolutely critical to them. It can be applied lower down the
management structure but it gets more and more difficult to articulate a few things
that must go right the lower down one goes. This becomes particularly difficult for
136 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

those many management layers that focus on gathering and filtering data for other
parts of the organization. Some useful general guidelines on CSF analysis are given
below (Shank et al. 1985):
• CSFs are very flexible, which can entice some organizations to be casual about
their use. Casual application can provide false results. CSFs should be used with
the same precision as formal methods.
• The person(s) managing the CSF analysis should have a thorough understanding
of the organization’s business. As with many other techniques, the real
discriminator for success is going to be the skill of the team and the degree of
high level commitment. IS and senior management that understand their common
business goals would fit this guideline.
• It is helpful to have a senior management person to champion (support or stand
up for) the CSF analysis project. This can motivate others in the organization to
be more receptive to the project in the early stages.
• Educating staff members in CSF analysis before the actual interview is useful. A
basic understanding of the concept and time to think before the first interview will
make it more productive.
• Do not link to concrete things such as information needs, computer applications,
etc., during the first round of interviews. Staff can be more productive and creative
in identifying CSFs if their attention is directed away from current IS realities.
• Try to use several management levels in order to validate the CSFs and to get a
broader picture and higher quality organizational CSFs.

CSF analysis has been widely used. Its purpose is to identify the most important
ingredients for the IS strategy since they define the most important ingredients of the
business success. CSFs keep a firm focus upon strategic issues, but obviously their
weakness is that it needs very skilled and very perceptive interviewers to determine
CSFs from senior managers. The main strengths of CSF analysis are that it provides
effective support to planning since the consideration of critical activities develops
management insights and CSF analysis may serve as the effective top level for a
subsequent structured analysis. CSFs receive an enthusiastic welcome from senior
management. In contrast, another major weakness of the approach is that the more
removed from the management apex a specific manager is, then the harder it is to
apply CSF analysis. Many managers who are not already involved in strategy
planning activities find CSF analysis too conceptual. Additionally, it is usually
impossible to build a true picture of an organization’s information requirements using
only CSF analysis.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 137

5.2.6 Extended CSF Analysis

CSFs are time dependent. Thus even if the appropriate factors are identified, events
may alter the criticality of these factors. For example, the rise of crude oil prices in the
1970s caused major changes in various organizations. Similarly, the decline in oil
prices in 1986 dramatically changed the CSFs of oil companies. For some oil
companies, ‘corporate survival’ became a CSF in 1986. Henderson, Rockart and
Sifonis (1987) provided a direct means to validate the proposed CSFs and to provide
an ‘early warning’ mechanism to alert management to critical changes.

This extended CSF analysis method uses the CSF analysis to provide the planning
context in three critical domains: information, decision and assumption. The critical
information set (CIS) defines those measures and associated data necessary to
monitor, analyse and control the CSFs. This is the traditional product of a CSF
analysis.

The critical decision set (CDS) defines those decision processes that will most
affect the successful achievement of a CSF. For example, if the CSF is to retain highly
skilled employees, the CDS might include the hire, promotion, merit, raise, job
assignment or other decisions that directly affect a highly skilled employee’s decision
to remain with the firm. Some other examples of critical decisions that may be
associated with CSFs are:
− Determine appropriate debt and equity ratio.
− Determine optimal advertising and promotion expenditure.
− Determine areas of maximum competitive advantage.
− Determine maximum acceptable level of project risk.

While the critical information set (normally the major product of a CSF analysis) might
include monitoring and control information, such as employee turnover rate, the CDS
identifies decision processes that could be supported with a decision support system
(DSS). A traditional process-based DSS analysis could be used to design a specific
DSS. To the extent that the CSF is tightly linked to the goals and the goals are tightly
linked to the business strategy, this DSS could have strategic impact on the
organization. Thus, introducing a DSS planning exercise linked through CSF to a
strategic IS planning process could allow management to systematically direct DSS
investments toward ‘decisions that matter’.

The concept of the critical assumption set (CAS) addresses the issue of beliefs. Each
CSF has, underlying it, a set of assumptions about one’s organization, competition,
industry, and so on, that leads the individual to believe a particular factor is critical to
success. For example, it was found that the CSF of retaining highly skilled employees
was based on the assumption that expert systems technology would not
138 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

reduce the organization’s dependency on a particular category of skilled employees.

Some other examples of critical assumptions that may underlie CSFs are:
• Cash flow is the most significant restriction to growth.
• Acquisition is the primary path to growth for convenience stores.

Further, as the CSFs change with time, how do we examine or validate the
appropriateness of the CSF? The process of surfacing and examining assumptions
is a way for us to address the validation issue in a planning process. Here, CSFs
provide an appropriate context for surfacing the critical assumptions of management
in a strategic IS planning effort.

The set of underlying assumptions provides the backdrop for CSFs and the implied
critical information set. Changes in these assumptions are a primary cause of
changes in CSFs. If we analyse and monitor these assumptions, we can help to
identify when CSFs and the subsequent IS plans require change. Given a critical
assumption set, with further analysis we can define the requirements of an executive
information system (EIS) which could monitor and analyse the status of these
assumptions.

As you can see, the extended CSF analysis suggests that with a three-stage process
we can identify the IS strategy (Robson 1997, 160). These steps are:
• Understanding the business strategy and goals.
• Identifying information needs using critical information, decision and assumption
set and a high-level (strategic) data model.
• Ranking the IS/IT opportunities.

The strategic data model shows how we must combine sources of information, many
of which currently exist, to provide the monitoring and analysis of a CSF. In practice,
existing systems rarely are designed in a form directly capable of producing this
critical information. Rather, we should extract the necessary information from the
transaction processing system and, probably integrate it with data external to the
organization. Some of this information could be ‘soft’ in nature, requiring subjective
or expert opinion.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 139

Figure 5.2: Extended CSF analysis (adapted from Robson 1997, 160)

The main strength of this approach is that it provides a comprehensive framework

with which we can build and refine a strategic data model of the organization. This
data model serves as a linking device between the strategic data needs of top
management and the operational and technical needs of the IS organization.

5.2.7 Use of CSF Approach at Boeing

Since the late 1970s several organizations have been using the CSF approach as a
strategic IS planning tool. To put it in context we look at a real example. The Boeing
Military Airplanes (BMA) Support Division of Boeing Computer Services (BCS) has
used this approach since 1983 and its experience provides insight into why the CSF
concept is gaining in popularity (Chung and Friesen 1991).

BCS was established in the early 1970s as an operating company for developing and
providing the computing and telecommunication resources and expertise needed to meet
the Boeing Company’s business objectives. BMA Support Division’s mission is to directly
contribute to Boeing’s success. To achieve this, it provides a broad range of computing
services including database management, engineering graphics, integrated logistics
systems and traditional management information systems.
140 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Before 1983, BMA Support Division used a ‘management-by-objective’ (MBO)

approach to planning. This process resulted in a detailed set of objectives for the next
12-month period. An action plan was developed for each objective · as well as the
criteria used to measure the extent to which the objective was achieved. Using this
approach, operating managers collectively identified 15 to 20 objectives that provided
them with a sense of direction and a set of performance targets. However, as Boeing’s
business volumes increased, it became clear that the MBO approach did not provide
the BMA Support Division with the strategic focus that it needed.

After considering various alternative approaches for better alignment of BMA Support
Division’s plans with corporate plans, it decided to adopt the CSF analysis.
Management felt that this approach would provide Boeing with a systematic thought
process that would force them to think about the business they were in and to develop
a set of strategies for action that would positively impact performance. Their CSF
analysis evolved into a six-step process:
• re-assessing the mission of the firm in the context of the dynamic environment;
• identifying the CSFs;
• analysing the firm’s strengths and weaknesses related to each CSF;
• developing specific action plans for overcoming weaknesses and achieving each
CSF;
• implementing the action plans; and
• reviewing actual performance after action plan implementation.

BMA Support Division has used this approach since 1984 and has no plans to
abandon it. Many managers feel positively about the way it handles issues and state
that the CSF approach promotes a team atmosphere, effective communication, and
a common understanding of the organization and its strategic direction.

Annual performance assessments of BCS and the BMA Support Division have shown
steady improvement since the CSF approach began. While the performance
increases are not solely due to the CSF approach, many feel that it has been a major
contributor. The entire BCS organization is now using the CSF analysis and its use is
spreading to other parts of the Boeing Company.

Activity 5.1
What problems may an organization encounter when trying to
implement CSF analysis? That is, what weaknesses do you see in this
approach?
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 141

Let us briefly summarize. CSFs are those characteristics, conditions or variables that
when properly sustained, maintained or managed can have a significant impact on
the success of an organization in a particular industry. Unlike key performance
indicators, CSFs are not a standard set of measures that can be applied to all
organizations. Rather they are specific to a particular organization in a particular
situation at a particular time.

CSFs can be internal or external. They can also be seen as either monitoring,
involving the scrutiny of existing situations, or building, when they are related to
changes in the organization for future planning. They may arise from five primary
sources: industry, organization · its competitive strategy, industry position and
geographic location · environmental and temporal factors, and managerial position.
Thus, CSFs may be thought of in a hierarchy · industry CSFs, organizational CSFs,
CSFs for an organizational unit (or business unit) and CSFs for an individual
manager.

CSFs need to be measured in order to track the progress in achieving them. Deciding
what attributes could be used as a measure for a CSF could be difficult and may
involve experience, judgement and creativity. Such measures may be based on hard
facts but still need data which is not captured by the existing organizational
information systems. Or the measures could be soft, based on subjective judgements.

The process of determining an organization’s CSFs and their measures to aid its IS
planning process is called CSF analysis. It involves a series of interviews and requires
very skilled and perceptive interviewers to determine CSFs from senior managers.

CSFs might change with time and require a mechanism for their continuous
validation, or otherwise an organization may continue tracking success factors that
might not be critical anymore and ignore others which may at that time be critical!
Extended CSF analysis has such a mechanism built into the method. It measures
critical assumption sets which underlie CSFs, in addition to critical information sets
which the traditional products of a CSF analysis, and the critical decision sets that will
most affect the successful achievement of a CSF. Since the late 1970s, several
organizations have been using the CSF approach as a strategic IS planning tool.

5.3 BUSINESS SYSTEMS PLANNING

Business systems planning (BSP) is an IBM proprietary technique devised initially for
IBM internal use; later it was sold as a service to its customers in the mid-1970s. BSP
was perhaps the earliest formal IS planning method and is now the most widely
known. In fact, a number of firms use methods which are similar to BSP. For
142 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

example, Arthur Anderson’s METHOD/1 and Martin’s Information Engineering are

predominant methods which are similar to BSP.

BSP offers a structured approach to IS planning via a number of fairly rigorously

defined stages that lead from the identification of business processes to a definition
of required data structures. Data are tracked as they flow throughout the organization
by the business activity support or from which they result.

The objectives of BSP are:

• To translate business strategy into IS strategy (as shown in Figure 5.3).
• Impartially determining IS priorities.
• Planning long-life information systems based on enduring business processes.
• Managing IT resources to support business goals.
• Assigning IT resources to high-return projects.
• Improving relationships between the IS department and users by providing
systems that meet their requirements.
• Improving understanding of the need for IS planning.

Figure 5.3: Translating business strategy into IS strategy

Top-down planning and bottom-up implementation. The major premise of BSP is

that organization-wide information systems should be planned from the top-down and
implemented piece-by-piece from the bottom-up. Top-down planning employs a study
team consisting of managers, professionals, and IT experts with the broad strategic
objectives of an organization, as well as other important information. The study team
systematically decomposes them into an IS architecture that will support the
organization’s strategy. Once this architecture has been defined, the bottom-up
implementation of specific IS applications is carried out by the IS
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 143

department and the organization’s users. Bottom-up implementation involves the

users in operational decisions about new systems. Top-down planning establishes a
sequence of implementation consistent with both long- and short-term issues. The
combination of top-down planning and bottom-up implementation enables the
organization to select IS projects with the highest payoffs and implement them with
the full support of their future users, thus ensuring the best use of the organization’s
limited IS resources.

Figure 5.4 shows how the business mission determines business objectives, which in
turn establishes functions and processes. The processes determine the required
data, which forms the basis for an architecture of information systems and sub-
systems. The architecture determines computer databases containing the required
data to be processed by the appropriate IS applications (such as accounting,
marketing, etc.). The IS applications serve the functions that support the objectives
and the organization’s mission.

Figure 5.4: Top-down planning with bottom-up implementation

5.3.1 Major Activities in BSP

The BSP methodology consists of four major activities:
• documenting the business activities
• defining the business processes
• defining the data necessary to support the business processes
• defining the information architecture.
144 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Documenting the business objectives. This activity entails determining business

direction so that the IS strategy can support it. Figure 4.3 illustrates the way in which
the IS strategy is derived from the business strategy.

Defining the business processes. This activity is undertaken to identify business

processes, which are defined as groups of logically related decisions and activities
required to manage the resources of the business (IBM 1984, 29). This is important
because it establishes the prime long-term basis for IS support in the organization.

Defining the data necessary to support the business processes. This activity
involves identifying the information elements that are basic to the organization and
that will not change unless the organization changes. These information elements are
called business process support data because business processes identified during
the previous activity use them.

Defining the information architecture. This final activity refers to relating the
business processes to the appropriate business process support data. This activity
reveals the relationships between business areas and the associated data to be
managed. Thus, the relationships define an information architecture of individual IS
application modules, which can be assigned priorities and built as scheduled in the
IS plan.

5.3.2 BSP Study Steps

There are 13 major steps to perform in carrying out a BSP study (IBM 1984, 10):
1. Gaining executive commitment
2. Preparing for the study
3. Starting the study
4. Defining business processes
5. Defining business entities and data classes
6. Analysing current IS support
7. Determining the executive perspective
8. Defining findings and conclusions
9. Defining the information architecture
10. Determining architectural priorities
11. Reviewing information resource management
12. Developing recommendations and an action plan
13. Reporting results
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 145

Steps 1 and 2 precede the study itself. All the steps are important, and although
some can be carried out to varying degrees, none can be completely eliminated.

1. Gaining executive commitment. A BSP study must not begin without a

commitment from a top executive sponsor. In addition, other executives must
be willing to become involved in it. Success depends on the degree to which
these executives can supply the study team with their views of the organization
and its data needs. A key part of this first step is the concurrence of all parties
regarding the study’s purpose and scope. Differing expectations are common
and can lead to disappointing results and unmet expectations. Furthermore, the
purpose of the study is to commit the organization to a course of action based
on recommendations made at the study’s end; therefore, early expectations are
critical.

2. Preparing for the study. All executives on the study team should be provided
with proper orientation. Everyone should know the BSP plans and procedures
before the study is conducted so that the executive can provide optimal input
and the study team can make optimal use of the input. Study team interviewees
should be identified as soon as possible so that their interviews can be
scheduled. Information on the organization’s basic business functions and its
current IT configuration should be compiled during this phase to facilitate the
team training and orientation. The team should be given exclusive use of a
conveniently located control room, where study activities can be conducted. By
the end of this phase, the team should produce a study control book containing
(IBM 1984, 19–28):
• a study work plan
• an interview schedule
• a schedule for reviews with the executive sponsor at certain checkpoints
• an outline of the final study report
• business and IS data analysed, charted, and ready for use in the study.

The executive sponsor should review the accomplishments made during this
phase before actually beginning the study.

3. Starting the study. The BSP study begins with three presentations to the
study team:
• The executive sponsor repeats the purpose of the study and its anticipated
output.
• The team leader reviews business facts already collected so that each
team member is thoroughly up-to-date.
146 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

• The senior IS executive discusses the department’s recent activities and

problems so that study team members understand its current role in the
organization.

4. Defining business processes. This is the most important phase of the BSP
study. In this phase, the study team identifies the business processes which
form the basis for the executive interviews, the definition of the future
information architecture, and various other subsequent study activities. A
business process relates to a specific act that has a definable start and stop. A
process has identifiable inputs and outputs (Martin and Leben 1989, 146). A
process is not based on organizational structures, and it identifies what is done,
not how. Often the name of a process begins with an action verb such as:
‘Create purchase requisition’, ‘Select supplier’, ‘Follow up order’, ‘Analyse
supplier performance’ (see Table 5.4).

This step is important because failure to define the process properly will be
reflected in all that follows. During this step, team members record a list of the
business processes, highlighting the most significant ones. In view of the
importance of this step, you must have a thorough understanding of business
process definition. You should, therefore, read the relevant portion of the BSP
manual now to understand this step in detail.

5.2(a) IBM (1984): Business Systems Planning: Information Systems

Planning Guide, 4th edn., document GE20-0527-4, IBM Corporation,
29–35.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 147

Table 5.4: Examples of Processes Groups and Processes by Industry

(Based on Information in IBM 1984, 87–103)
Processes common to many businesses Facilities Management
Policy and Goals Acquire Capital Equipment
Establish Corporate Policy Maintain Facilities and inventory
Develop Goals
Determine Product Cost Production Planning
Control Operations Plan Production Capacity
Allocate Production Capacity
Schedule Production
Plan Material Requireents
Processes in the Health Care(Hospital) Industry
Marketing Planning Health Care Delivery
Conduct Marketing Research Admit Patient
Analyse Market Place Determine Patient’s Health Status
Forecast Product Determine Required Tests and Treatments
Establish Sales Objectives Order and Schedule Diagnostic Studies,
Price Product Treatments
Advertise and Promote Product and Reevaluations
Perform and Report Diagnostic Studies
Administer and Record Treatments
Provide Necessities and Amenities
Evaluate Care
Interface with Referring Physician
Discharge Patient

Personnel Planning Product Planning, Development, Manufacture and

Establish Personnel Policies Distribution
Develop Personnel Programmes Develop Technology
Determine Personnel Requirements Develop Product
Determine Training Requirements Track Product Performance
Determine Personnel Development Needs Manage Plant Operations
Manufacture Product
Distribute Product

Financial Planning and Control Sales

Forecast Cash Requirements Sell Product
Forecast Capital Requirements Develop New Business
Forecast Profitability Analysis Service Policyholders
Create Budget
Prepare Financial Alternatives
Acquire and Manage Funds
Control Finances
Customer Order Control
Cyclical Planning Entry and Control Customer Order
Establish five-year Business Plan Service Customer Order
Develop Annual Operating Plan Invoice Customer
Develop Quarterly Operating Plan

Financial Operations
Analyse and Report Financial Performance
Manage Risk
148 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Manage General Accounts

Purchase Supplies/Equipment/Raw Materials

Facilities Planning
Determine Facility Requirements
Establish Facility Acquisition Policies

Management Support
Provide Legal Support
Maintain Stockholder Relations
Comply with Government Regulations
Maintain Public Relations

Processes in the Insurance Industry(Group Life)

Product Development
Monitor Regulatory / Legislative Activity
Develop Product
Price Product
Establish Dividend Formula

Marketing Support
Prepare Prospect Proposal
Underwrite Policy
Issue and Maintain Policy

Product Administration
Maintain Employee Life File
Pay Claim
Manage Claims Accounting
Bill and Collect Premium
Analyse and Report on Premiums / Claims
Produce Dividend

Genaral Administration

Calculate Compensation
Calculate and Pay Incentive Compensation
Managed Personal

Resrarch( General)
Develop Proposal
Approve Research Study
Assign Resources
Budget Research Project
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 149

5. Defining business entities and data classes. During this phase, business
entities and data classes and their relationships are identified. A business entity
is something of lasting interest to an organization · something which can be
uniquely identified and about which the organization wishes to keep data.
Entities may be internal or external to an organization, and can be categorized
as one of the following: person, place, thing, concept, or event. For example,
‘job’ is an entity because it is a concept of interest to an organization.

A data class is a logical grouping of data related to entities that are significant
to the organization. Data classes are identified in order to:
(a) determine data sharing requirements across processes;
(b) determine data that are necessary but either unavailable or insufficient
for business use; and
(c) establish the groundwork for data policy formulation (including data
integrity responsibility).

To enable assignment of responsibility for data integrity, data classes must be

defined so that there is one and only one process that creates each data class.

In this step data are grouped into related data classes. The future IS architecture
will include databases that would contain these data. The organization of these
databases should minimize the need for future revisions of the architecture.
Criteria for data categorization are the relationships of the data to the business
processes identified in the fourth study phase. Charts (matrices) are used to
reflect these relationships clearly. A detailed description of this step is given in
the BSP manual, which you should read now.

5.2(b) Business Systems Planning: Information Systems Planning Guide

(1984), 36–38.

6. Analysing current IS support. In this phase, the study team identifies how
information systems currently support the organization. Final recommendations
will be based partly on the environment. The team develops charts (matrices)
showing organizational processes during this phase to facilitate and document
its analysis. These activities help the team prepare for its executive interviews
and aid in defining requirements for information support for the various
organizational areas. A detailed description of this phase and the charts to be
drawn is given in the BSP manual, which you should read now.
150 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

5.2(c) Business Systems Planning: Information Systems Planning Guide

(1984), 46–49.

7. Determining the executive perspective. The major purpose of this phase of

the study is to validate the understanding that the team has developed thus far.
Another major purpose is to achieve the commitment and support of executives
not yet deeply involved in the study. Executive perspective is gained by
conducting interviews with executives from the top levels of management. The
executive interviews conducted during this phase are used to validate
processes and data classes and provide the study team with the basic
understanding of the business problems that the future IS architecture should
solve. This phase is described in detail in the BSP manual, and it would be
useful for you to read it now.

5.2(d) Business Systems Planning: Information Systems Planning Guide

(1984), 50–60.

8. Defining findings and conclusions. The major objective of this phase is to

confirm that the BSP study team understands the information provided by the
executives. In this step, the study team develops categories of findings and
conclusions, and then assigns previously identified problems to the categories.
This classification becomes the basis for future recommendations. The details
of this step are described in the BSP manual, which you should look at now.

5.2(e) Business Systems Planning: Information Systems Planning Guide

(1984), 61–63.

9. Defining the information architecture. In this phase the BSP study team uses
the business processes identified above in the fourth phase and the data
classes identified in the fifth phase to design the databases of the future
information architecture. Various charts (matrices) are prepared which show the
relationship between business processes and data classes. The team also
identifies major systems and subsystems and determines if some subsystems
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 151

must be completed before others. An information architecture flow diagram is

drawn which reflects the relationship of systems and subsystems. This is a very
important step in BSP, and you should now look at the details given in the BSP
manual.

5.2(f) Business Systems Planning: Information Systems Planning Guide

(1984), 39–45.

10. Determining architectural priorities. It would be impossible in most

organizations to implement the entire information architecture all at the same
time. Therefore, the BSP team must set priorities developing information
systems and databases that will make up the final architecture. In determining
selection criteria, the team considers potential financial and non-financial
benefits, the likelihood of success, and the extent of the organization’s demand
for each subsystem. The team sets priorities by listing the subsystems of the
information architecture and using the criteria to rank each one. For details of
this step, you should now refer to the BSP manual.

5.2(g) Business Systems Planning: Information Systems Planning Guide

(1984), 64–68.

11. Reviewing information resource management. The objective of this phase is

to ensure that the management of IT is under the direction and control of top
management. A steering committee is established to set policy and control the
function. The study team examines the current IS organization to find its
strengths and weaknesses.

12. Developing recommendations. The BSP study recommendations centre on

information architecture and information resource management. They are made
not only for information systems, subsystems, hardware, and software but also
for adjustments to systems under development and to systems currently in
production. Another major area of recommendation includes strengthening IS
management with improved planning and control mechanisms identified in the
previous step. An action plan reflects priorities and identifies the means of
delivering the future information architecture.
152 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

13. Reporting results. The BSP study team completes its mission by preparing the
BSP study report and preparing and delivering an executive presentation. A
brief executive summary covers the purpose of the study, its methodology, its
conclusions, and its recommendations. A more detailed and comprehensive
report expands these topics. In addition, an oral presentation to executives
should include the result reporting process. Potential topics to be included in the
BSP study report are given in Table 5.5 (based on information in IBM 1984,
130–31).

Table 5.5: Potential Topics for BSP Study Report

Executive Summary Report
IS profile
Purpose, scope and objectives Hardware and software (chart)
Methodology and study team Operational and planned systems
Findings and Conclusions Data files (data bases)
Recommendations Major users
Action for follow-on activities
Financial
Detailed Report Budgets
Purpose, Scope and Objectives Justification and funding processes
Reasons for conduction study
Level of organisation selected
Objectives of the study team
Findings and Conclusions
Method of Study Definition of data classes
BSP concepts Relationship of data class to current systems
Overview of study approach (matrix)
Study team members Relationship of data class to business processes
(matrix)
Analysis of current system support
Process relationships (diagram)
Process / organisation / system relationships
(matrix)
Application support of organisation (matrix)
Application support of processes (matrix)

Business Perspective Statement of Findings and Conclusion

External environment Objectives
Economic, government, Organisation
competition Planning
Technology, customers, suppliers Measurement and Control
Internal environment Operations
Policies, practices, constraints Current IS support
Business planning
Goals, objectives, strategies Recommendations
Planning approach and horizons Changes to current IS development projects
Measurements and controls Acceptance of information architecture
Organisation Satisfying architecture priorities
Relationships (chart) Sub-system packages
Number of people End-user tools (information centre)
Geographic distribution (map) Sub-system development
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 153

Products/services Major charges to existing systems

Description, volume Management systems changes
Markets, trends Changes in information resource management
Industry position and industry
trends Action Plan for Follow-On Projects
Financial (For the above recommendations)
Statistics Description(s)
Revenue-profit trends (chart) Deliverables
Business processes Schedules
List of process groups and Resource requirements
processes Project control methods

IS Perspective Appendices
External environment Glossary of terms
Technology, customers (users), Key correspondence
vendors Interviewee list
Internal environment Narrative descriptions – processes
Policies, practices, strategies Narrative descriptions – data classes
Resources, project schedules Narrative descriptions – current ISs
Planning approach and horizons Problem analysis
Organisation Supporting statistics
Relationships (chart)
Numbers of people
Geographic distribution (map of
equipment
terminals, etc.)

5.3.3 Evaluation of BSP

The major strength of BSP is its ability to involve top management in the study,
providing improved communication among top management, users, and IS
departments and an increased awareness of the long- and short-term capabilities and
cost of information systems. The methodology is highly structured and well
documented. Another major strength is the continued evolution and adaptation to the
changing IT environment. The latest subset of BSP, called the Information Quality
Analysis (IQA), is similar to BSP but takes considerably less time and is supported by
an integrated set of computer programs.

Compared with the stages-of-growth approach, BSP is business-oriented, and not

theory-driven. BSP recommendations derive from the construction of an empirical
model of a particular business enterprise and its information sources.

The most common criticism of BSP may be that the results of the BSP study are not easy
to implement, because the study is not quickly translatable into the technical
specifications that the IS department may require. Furthermore, the study depends greatly
on the study team’s skills and abilities. The approach is not sufficiently well-structured to
be unaffected by human error, and ‘business judgement’ is necessary in selecting the
business processes critical for business performance, and in
154 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

interviewing the managers. The approach of functional decomposition leads to a

strong bias for operational data and systems (internally focused), neglecting strategic
and qualitative aspects. The structuring of the future information architecture is mainly
based on an analysis of the existing business processes and IS applications.
Furthermore, while the definition of business processes gives BSP the potential to be
a business impacting tool, the overall ‘wrapping’ of the method ensures that it is
inherently conservative and therefore it is most unlikely to do anything beyond
produce data models of existing practices (Robson 1997, 164).

BSP is a general purpose methodology which aims to cover the waterfront of IS

application opportunities, but the environment is excluded from the BSP study, which
means the possible targets and opportunities areas for strategic information systems
(SIS) are not considered in the BSP study.

Activity 5.2

Discuss why top management commitment is required for the BSP

study.

We now summarize. BSP is a structured approach to IS planning which identifies

business processes of an organization and derives data structure definitions required
to effectively support these processes. The major premise of BSP is that
organizational information systems should be planned from the top-down and
implemented piece-by-piece from the bottom-up.

There are four major activities in BSP: documenting business activities; defining
business processes; defining the data necessary to support business processes; and
defining the information architecture. These activities are carried out in 13 major steps
in a BSP study.

BSP is a highly structured business-oriented methodology that makes

recommendations by constructing an empirical model of the business enterprise and
its information architecture. Unfortunately, its recommendations are not quickly
translatable into the specifications of required IS applications. Further, the
recommended information architecture is mainly based on analysis of existing
business processes and IS applications and mostly neglects strategic and
environmental aspects. Thus, BSP may only produce data models of existing
business practices and ignore the possible targets and opportunity areas for strategic
information systems (SIS).
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 155

5.4 EARL’S MULTIPLE METHODOLOGY

Michael J Earl (1989) realized the complexity of the problem the same way that
contemporary IS practitioners did, and he proposed a very comprehensive
methodology that provides a basis for analysing all IS planning. He highlights three
issues:
1. clarification of the business needs and strategy in IS terms · what is the
business strategy and what is the IS strategy;
2. evaluation of current IS provision and use · how to integrate legacy systems;
and
3. innovation of new strategic opportunities afforded by IT · what are the
operational goals.

Earl’s method is known as the ‘multiple methodology’ or ‘three-pronged methodology’

as he tackles his three issues from different angles · top-down, bottom-up, and inside-
out respectively.

Business plans Current IT

and goals systems opportunities

Analytical Evaluative Creative

Techniques,
Top Bottom Inside
Surveys & processes, &
down Methodology up audit out environment

Think-tanks &
Users & Brainstorming
Teamwork specialists groups

Application strategic plan

Figure 5.5: Earl’s multiple methodology

Figure 5.5 presents an overview of Earl’s methodology. In this section, I’ll explain
each of the three legs in the figure.
156 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

5.4.1 Top-Down Clarification

This is the process used to find out the corporate objectives and business strategies
that affect the formulation of IS strategy. However, understanding business strategies
is difficult because most organizations do not have their strategies or objectives
written down, or even when you find some written statements, the business strategies
are often ill-defined or are unrelated to IS development plans.

This top-down process should involve the top management or a delegation of senior
executives. Commonly called a ‘steering committee’, this group includes
management from each department of the organization. Discussions and planning
meetings should be conducted where tools like CSFs or the ‘scenario approach’ are
applied to identify where IS can help in the business strategy.

Earl suggests a four-step process:

1. identification of corporate objectives · objectives of all business units should
be solicited, agreed upon, and clearly stated;
2. determination of critical success factors · CSFs that are needed to achieve the
agreed business objectives are suggested and determined after resolving
conflicts among different business units;
3. decomposition to critical business processes · the CSFs that were identified
are transformed into business processes that can be improved by ISs;
4. identification of IS and IT · details of the ISs to support those business processes
and the underlying IT infrastructure are analysed and a development plan is
decided.

5.4.2 Bottom-Up Evaluation

Earl argues that the bottom-up process is essential for the following reasons:
1. To find out the quality and capacity of the IS applications (legacy systems)
currently being used in the organization.
2. To demonstrate to top management (the strength and the weakness of) the
current IS status of the organization.
3. To identify components of the current ISs that can be improved for better
strategic advantage by simple add-ons rather than a total renovation.

The evaluation process could lead to a systems audit grid like the one in Figure 5.6
below.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 157

Technical quality
Reliability
LOW maintainability HIGH
cost-effciency
LOW

Divest Re-assess
of use
use on
Easy Impact business

value
Frequency to

Business

Maintain
Renew
and enhance

HIGH
Figure 5.6: Systems audit grid

To classify ISs by the systems audit grid, you need to evaluate the technical quality
and the business value of individual ISs. In each of the axes, you might ask three
questions to determine the position of the IS:
• Horizontal axis · How is the system in terms of its reliability, maintainability, and
cost-efficiency?
• Vertical axis ·
(a) how does the system impact on business; and
(b) how easy and how often is it used?

The grid also suggests that the ISs in it be divested, reassessed, renewed or
enhanced according to where they are positioned. Often in cases of developing an e-
commerce platform, many components of the current IS applications need to migrate
to a Web-based system without making too many alternations. Therefore, the
integration of legacy systems (plus legacy data) needs to be handled with care. For
example, special procedures must be followed to guarantee that the integrity of the
data would not be affected because of the migration.

5.4.3 Inside-Out Innovation

Earl suggests that people in committees, like in think tanks and brainstorming groups,
are more likely to generate creative ideas by which the organization could discover
market niches or innovative use of information technology. These people might not
be IT professionals. Their new ideas could seek support from leading IT vendors and
would successfully be implemented if;
158 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

1. A project sponsor exists · they need to find someone who can support and
provide the resources necessary to proceed to the new ideas.
2. A chance to test the idea · the idea can be experimented with without causing
too much public alarm.
3. Tight management control · it is needed to ensure satisfactory installation,
effective implementation and good integration with business practices.
4. IT capability gap bridged · the project team needs to deal with the knowledge
or capability gap.

The three legs of Earl’s multiple methodology represent the three angles from which
IS strategic planning can be considered on the inside of an organization. Earl also
suggests that studying the IS strategy from an external point of view (e.g. competitors,
customers, consumers, etc.) is essential. The SWOT method that you’ve learned in
chapter 2 is a commonly used tool to uncover the IS stratgic poesition from both
internal and external perspectives.

5.5 CHOOSING METHODOLOGIES FOR

IS PLANNING
The three methodologies that you’ve studied learned show you how IS planning
methodology evolves through time. Although the methodologies currently face a
number of criticisms · and they cannot be directly applied in today’s business and
technological environment without substantial modifications · the processes and the
theories underlying these classical examples are still the basis of many modern
methodologies. One such modern methodology is the ‘agile approach’ that we
mentioned earlier this topic. Now, you should understand some of the weaknesses of
these IS planning methodologies.

5.5.1 Common Weaknesses of IS Planning Methodologies

Based on an extensive review of a variety of planning methodologies and techniques,
Tozer (1996) described a number of problems that existed for virtually all IS planning
methodologies in use by the mid-1990s. These problems are identified as either (a)
recognized pitfalls that companies can avoid with good management practices and
(b) difficult problems for which there is no simple solution known today.

Problems that frequently occur in IS planning implementations but which can be

avoided include (Tozer 1996):
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 159

Poor Integration of Business and IS Planning

All IS planning approaches are designed to facilitate linking business and IS planning,
but this is still a serious problem for many companies implementing IS plans. This
problem is most serious when a company is in the Strategic quadrant of the IT
strategic grid (see chapter 1 and chapter 2). It can be a problem for almost all firms
when there is a lack of communications between senior management and IS
management to guide IS planning for operations and infrastructure investments.

Lack of Planning for IS Ongoing Maintenance Requirements

Many IS managers have been under the mistaken impression that IS planning only
deals with the development process. Maintenance costs for existing IS applications
are becoming an increasingly important expense item for most firms, and planning for
both new and existing applications should consider issues related to monitoring and
control of the systems and for continuing maintenance of the systems.

Focus on Tools and Techniques Instead of on Real Business Needs

There are a lot of methodologies, techniques, and tools that can be used for IS
planning. Some IS managers lose sight of the goal of these tools and techniques, and
focus on the methodology or processes more than on delivering systems to help
business managers improve their operations or better meet customer needs. In the
mid-1980s, it was particularly common for companies to overuse planning tools, and
many such engineering driven planning approaches failed to ever deliver any outputs
that were of strategic relevance for the firm (Tozer 1996).

In contrast, some companies have used relatively simple planning tools, such as the
CSF analysis approach, to realize dramatic improvements in the allocation and
planning for IS investments and resources. The key factor to keep in mind is that the
entire IS planning process needs to be driven by and focused on providing value for
business managers to meet real business needs.

Inability to Handle Change or Uncertainty

One of the most common complaints about IS planning systems, and in fact, most
business planning systems, is that they cannot deal effectively with changes or
uncertainty. One planning tool that has been effective in dealing with uncertainty and
change is scenario planning. Unfortunately, change and uncertainty are part of the
nature of the IS industry, but are also something that IS software and infrastructure
often have a difficult time dealing with. There are no easy solutions to this issue, but
use of a more flexible planning tool, such as scenario planning, can help IS and
general business managers evaluate the potential implications of changes that might
occur in the future. Managers can be much better prepared for dealing with
uncertainty and change by considering how these changes or possible future states
might affect proposed plans and what alternative decisions might enable the firm to
be better positioned to deal with future challenges and capture future opportunities.
160 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Vision or Architecture is Too Narrow and Short-Ranged

Many early planning systems, particularly the early BSP approaches, focused too
much on the needs of the business today rather than developing a vision or
architecture that would support the firm’s future needs. When business planning is
used to drive IS planning with no input regarding the potential for IS or IT to create
new strategic opportunities or change existing business processes, then IS planning
can help firms automate existing processes to reduce costs or improve services.
However, the larger potential payoffs that come from the integration of IT and
business strategy for the firm require an interactive communications process. For
firms in the Factory or Support quadrant of the IT strategic grid, this reactive approach
for IS planning can be quite appropriate. However, for firms seeking to use IT to gain
strategic advantages, it is essential that IS planning be closely integrated into the
strategic decision making and vision development for the entire firm.

Obscure or Complex Planning Processes

Some IS planning methodologies are very thorough, complex, and elegant; others
are flexible but sometimes obscure. A planning process which is overly complex can
be difficult to operate by mere mortals, and yet, may also require such a high level of
detail that only very junior employees would have the patience to enter and work with
the data required. There is a need for some degree of formalism, as too much
flexibility can also result in poor planning and implementation. However, where
possible, the planning inputs should be automated and levels of obscurity should be
removed from the process and outputs. Simplicity and clarity in the planning
processes and outputs are important objectives to keep in mind so that the formal
data collection and entry process does not begin to take on a life of its own.

Other Common Problems Where Solutions Have Been Demonstrated

Other problems that are also common in the planning process are:
• failure to deal effectively with applications integration;
• insufficient evaluation of applications package options and tradeoffs;
• lack of effective risk assessment and management; and
• failure to make use of existing ‘best practices’ already proven and public
knowledge from other firms in the industry.

Problems Without Solutions in any Current Planning Approach

Some problems have no simple solution, but seem to be common in all planning
methodologies. For example, virtually all planning solutions seem to require too much
time from senior managers. Even two days during a year is far too much of a time
commitment to the planning process in the minds of some senior managers. Even so,
some planning experts argue that all managers should be involved in planning
decision making as part of their daily jobs (e.g., Mintzberg). However,
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 161

getting senior managers to spend any amount of time participating in formal IS

planning and resource allocation methodology can be difficult. Keeping the planning
process as simply and clearly focused as possible will help encourage senior
management involvement and will tend to reduce the time demands for these key
managers. It is generally better to have:
• a less-rigorous planning process that involves senior managers in thinking about
and making recommendations on key tradeoffs; rather than
• a very sophisticated planning process that evaluates all possible considerations
with lots of inputs to the system but that lacks senior management involvement
due to the complexity and time required to be involved in the planning process.

Most planning systems also seem to work well in some environments and not well at
all in others. This inability to cope with varied environments suggests that
recommending a single planning approach or methodology that will work best in all
firms in all environments is impossible. Each firm needs to experiment with alternative
approaches and find a planning process that can work effectively within the industry,
culture, and context of that specific firm. Thus, it is more important to learn how to use
planning systems effectively across a variety of different methodologies than it is to
find the perfect planning system somewhere in the market that will solve all the
problems experience by your firm with the existing planning methods and processes.

Another common problem with virtually all IS planning processes is a failure to

adequately consider human factors and issues in the IS infrastructure and systems
development planning. Any changes in the organization require addressing complex
human factors which are very difficult to address in the IS strategic planning process.
It is very important for IS managers to be sensitive to these human factor issues and
consult with operating managers. In some cases, the workers who would be
influenced by the system’s changes under consideration should also be consulted to
determine how these human factors might influence systems design and
development plans and costs.

5.6 RECOMMENDATIONS ON IS STRATEGIC

PLANNING METHODOLOGIES
As the above discussion of alternative approaches and the common weaknesses of
these various approaches points out, while many methodologies can be used for IS
planning, none of these solutions are best for all applications. In addition, it is
generally more important how well a particular methodology is implemented than what
specific methodology is used. However, it is very useful to have some tools and
techniques in place to assist with developing a strategic plan for IS, and no
162 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

planning process or methodology is much worse than using a planning methodology

which might not be the most suitable for your specific situation.

Therefore, we strongly recommend that companies begin implementing some form of

planning process immediately if they have not been using any form of IS planning. If
there is an IS planning methodology currently in use, try to evaluate how effectively
the organization is using the existing process by examining the common weakness
described above. The existing organizational planning process can almost always be
improved through more effective implementation, which should be the first area
targeted by IS management in efforts to improve the planning process. After
improvements have been identified and implemented which are independent of the
specific planning tools and methodology in use, then managers could usefully
consider adopting alternative tools and methodologies which might fit better with the
needs of the firm’s culture, management skills, and environmental context.

Since it is impossible in this course to describe every possible planning system that
could be used to improve IS strategic planning and management, we will only
describe two very basic planning approaches in the next two sections of this topic.
These two methodologies have proven to be useful in IS strategic planning over many
years. The first, CSF analysis, essentially provides IS managers and general
managers with a useful approach for identifying the business needs of the
organization and the relationship between existing IS capabilities and these
organizational needs. The second approach, BSP, examines the detailed needs of
the various business functions and processes of the firm for IS systems and
capabilities and provides a means for developing an IS strategic plan to address these
needs. These two approaches are very basic planning tools compared to the software
tools and approaches that are available and in common use in the 1990s. However,
they also provide much of the core foundation upon which many of these later
methodologies have expanded to create these more complex and sophisticated
approaches. An understanding of these two basic methodologies that have been in
use for many years will provide students with the background needed to better
understand the approaches used in most current and future planning approaches and
methodologies that will be used in their firms in the future.

On the nature of IS strategic planning, Neufville (2001) highlights three of its natural
characteristics:
1. The elements of the plan should be technically efficient · an analysis ought to
be able to identify the optimal set of designs.
2. There is no single right or optimal design, since the plan preferred by any
group of stakeholders depends on its own particular preferences.
3. The overall aims of the plan must necessarily result from a negotiation or
political settlement among the parties having a stake in the plan.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 163

Thus Neufville opts for a dynamic approach of IS strategic planning. Using this
approach, the planning recognizes:
1. All forecasts can be expected to be wrong in significant ways · what actually
occurs will differ significantly from what was originally predicted.
2. The plan should build in flexibility to deal effectively with the range of
developments that may occur.
3. The desirable forms of creating flexibility can be identified using methods of
risk analysis.

In your tutorial session, you might discuss with your fellow students and your tutor the
major difference between the two groups of methodologies, if we treat CSF and BSP
as one group and Earl’s methodology (plus the agile approach and the so-called
dynamic approaches) as the other group. What changes do you think are necessary
when the more recent methodologies are proposed?

In this topic you studied and compared some of the conventional methodologies for IS
planning. You studied the critical success factors (CSF), their characteristics and sources,
and their measurement. Later you also studied CSF analysis and its extension, as well
as an example of use of the CSF approach at Boeing. You were introduced to the
Business Systems Planning (BSP) method of IS planning, its major activities, details of
the various study steps, and its evaluation. Finally, you were shown how Earl’s multiple
methodology might give a clear analytical view for IS strategic planning. You had also
some discussion on the strengths and weaknesses of these methods and how they are
selected to guide an IS planning exercise.

Alter, S (1992) Information Systems: a management perspective, Reading, MA:

Addison-Wesley.

Boynton, A C and Zmud, R W (1984) ‘An assessment of critical success factors’,

Sloan Management Review, 25(4): 17–27.

Burns, J and Caldwell, E (1990) Management of Information Systems Technology,

New York: Van Nostrand Reinhold.

Chung, K H and Friessen, M E (1991) ‘The critical-success-factor approach at

Boeing’, Journal of Management Systems, 3(2): 53–63.
164 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Drucker, P (1964) Managing for Results, New York: Harper & Row.

Earl, MJ (1989) Management Strategies for Information Technology, Prentice Hall.

Henderson, J C, Rockart, J F and Sifonis, J G (1987) ‘A planning methodology for

integrating management support systems into strategic information systems
planning’, Journal of Management Information Systems, 4(1): 5–24.

IBM (1984) Business Systems Planning: Information Systems Planning Guide, 4th
edn, document GE20-0527-4, IBM Corporation, 36–68.

Kanter, J (1992) Managing with Information, Englewood Cliffs, NJ: Prentice-Hall.

Leidecker, J K and Bruno, A V (1984) ‘Identifying and using critical success factors’,
Long Range Planning, 17(1): 23–32.

Martin, J (1990) Information Engineering, Book II, Englewood Cliffs, NJ: Prentice-Hall.

Martin, J and Leben, J (1989) Strategic Information Planning Methodologies,

Englewood Cliffs, NJ: Prentice-Hall.

Neufville, R (2001) ‘Dynamic strategic planning for technology policy’, MIT working
papers, at <http://msl1.mit.edu/mib/dsp/curricula.mit.edu/
~dsplan/Docs/Papers/dsppol.pdf>.

Nolan, R L (1979) ‘Managing the crisis in data processing’, Harvard Business Review,
57(2): 115–26.

Nolan, R L and Gibson, C F (1974) ‘Managing the four stages of EDP growth’, Harvard
Business Review, 52(1), January-February.

Parker, C and Case, T (1993) Management Information Systems: Strategy and

Action, 2nd edn, New York: McGraw-Hill.

Pruijm, R A M (1990) Corporate Strategy and Strategic Information Systems,

Samsom.

Robson, W (1997) Strategic Management and Information Systems, 2nd edn,

London: Pitman.

Rockart, J F (1979) ‘Chief executives define their own data needs’, Harvard Business
Review, 57(2): 81–93.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 165

Shank, M E, Boynton, A C and Zmud, R W (1985) ‘Critical success factor analysis as

a methodology for MIS planning’, MIS Quarterly, 9(2): 121–29.

Sinclair, S W (1986) ‘The three domains of information systems planning’, Journal of

Information Systems Management, 3(2): 8–16.

Tozer, E E (1996) Strategic IS/IT Planning, New York: Butterworth Heinemann.

Ward, J, Griffiths, P and Whitmore, P (1990) Strategic Planning for Information

Systems, Chichester, UK: John Wiley & Sons.

Further Readings
The following document is a sample BSP study report and will help you in
documenting BSP study project outcomes.

IBM (1980) Business Systems Planning: Mecca International Suits Corporation

Business Systems Planning Report (Sample), Document G320-6503-0.

The following is an excellent source for additional details on the evolution of IS

planning methodolgies and provides a detailed description of the SP4IS methodology
referred to as one current methodology for IS planning that has combined multiple
approaches that have been described in this topic.

Tozer, E E (1996) Strategic IS/IT Planning, Oxford: Butterworth Heinemann.

The following book provides a good overview of the Cranfield School of Management
perspective on IS planning which has influenced many of the planning methodologies
in use within the UK and also internationally.

Ward, J, Griffiths, P and Whitmore, P (1990) Strategic Planning for Information

Systems, Chichester, UK: John Wiley & Sons.
166 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING

Building CSFs · Are related to changes in the organization for future

planning, such as improving the product mix.

Business entity · Is something of lasting interest to an organization,

something which can be uniquely identified and about
which the organization wishes to keep data.

Business process · Is a group of logically related decisions and activities

required to manage the resources of the business. A
process is not based on organizational structures, and
it identifies what is done, not how.

Business systems · Is a structured approach to assist an organization in

planning (BSP) establishing an IS plan to satisfy its near- and long-
term information needs.

Critical · Addresses the issue of beliefs about an organization,

assumption set competition, industry, etc. that underlie a CSF.
(CAS)

Critical decision · Defines those decision processes that will most affect
set (CDS) the successful achievement of a CSF.

Critical · Defines those measures and associated data necessary

information set to monitor, analyse and control the CSFs. This is the
(CIS) traditional product of a CSF analysis.

Critical success · These are the limited number of areas in which

factors (CSFs) satisfactory results will ensure competitive
performance for the individual, department, or
organization. For a business, the CSFs are those
characteristics, conditions, or variables that when
properly sustained, maintained, or managed can have
a significant impact on the success of a firm competing
in a particular industry.

Critical success · Is a structured method to help managers determine

factors (CSF) their CSFs and thus identify their information needs.
analysis

Data class · Is a logical grouping of data related to business entities

that are significant to an organization.
 CHAPTER 5 INFORMATION SYSTEM STRATEGIC PLANNING 167

Extended CSF · Uses the CSF analysis to provide the planning context
analysis in three critical domains: information, decision and
assumption.

External CSFs · Relate to factors in the outside world, such as

company acquisitions or acquiring financing.

Internal CSFs · Relate to actions that can be taken within the

organization, such as improving product quality or
lowering inventory costs.

Information · The structure of information systems and databases

architecture that will provide information to support the business.

IS application · The computerized portion of a business process.

IS architecture · The structure of information systems which supports

an organization in its functioning.

Monitoring CSFs · Involve the scrutiny of existing situations, such as

monitoring the percentage of defective parts.

Stages of growth · Stages of maturity with respect to the use and

management of IT.
Chapter  Implementing
Information
6 System
Strategic Plan

CHAPTER LEARNING OUTCOMES

After studying this chapter, you should be able to:
 Prepare an IS strategic plan for an organization.

 Describe the tasks of managing the implementation of a strategic IS
 plan.
 Identify the factors affecting the success of outsourcing all or part of an
 IS strategic plan.
 Describe the success factors that affect IS strategic plans.

TABLE OF CONTENTS
Introduction
6.1 The Implementation of an IS Strategic Plan
6.2 Documentation of the IS Strategic Plan
6.3 BSP Study Reports
6.4 Project Management
6.4.1 Administration of Projects
6.4.2 Project Teams
6.4.3 Assessment
6.5 Outsourcing
6.5.1 What Drives Outsourcing?
6.5.2 When to Outsource
6.5.3 Managing Outsourcing
6.6 Barriers to IS Strategic Planning
6.7 Earl’s Framework for IS Strategic Planning Success
169 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

Summary
References
Glossary
Feedback on the Activities on the Self-Tests

 INTRODUCTION
In previous topics we examined IS strategic planning principles and methods. This
topic is concerned with formulating IS strategies and plans. After the strategic
planning exercise, we need to implement the plans. Implementing IS plans is,
however, not a trivial matter. You can have the best plans in the world but, if they are
not implementable, they will only remain as plans and will not benefit the organization.
In this topic, we will consider some issues related to implementation of IS strategies
and plans.

IS planning is merely the process which produces an IS plan. We looked at a variety

of approaches to IS strategic planning in previous topics. In this topic, we look at the
contents of an IS plan and several approaches for presenting one. We will also look
at the main difficulties involved in IS strategic planning. We will work through the main
issues which need to be addressed in order to succeed in the IS planning process.
To make these issues easier to understand we will look at a description of a
framework for successful IS strategic planning. This is followed by a description of
success factors in the IS planning process.

6.1 THE IMPLEMENTATION OF AN

IS STRATEGIC PLAN
In the new millennium, an IS strategic plan often plays a very important role in
supporting an organization’s business strategy. This is particularly true if an
organization wants to move all or part of its business onto the Web. Without
thoroughly studying an organization’s IS strategy, sustaining the business · either in
the physical or virtual marketplace · is very difficult.

An IS strategic plan is the outcome of an IS strategic planning study. It is a statement

of the major initiatives (which are not yet defined precisely enough to be IS projects)
that must be accomplished over a certain period (i.e., the planning horizon) in order
to move the organization and its IS department towards a long-term IS vision
statement.

An IS vision statement (similar to a business vision statement) is a written

expression of the desired future for information use and management in an
organization, which creates the context within which people can make consistent
decisions. An example of an IS vision statement is given below:
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 170

Information services is responsible for a variety of computing systems and

services for the people of our corporation.

In this role, the IS department:

• provides a secure location for housing and accessing the company’s official
electronic data records;
• maintains computer processing capacity and support for file maintenance and
information reporting;
• manages a corporate data network that delivers services to departmental and
individual workstations linked to its data centre;
• provides integrated IS development for departments in order to advance
organizational strategies (systems development services are available for
maintenance, local area network, workstations, and supply chain applications)
(Martin et al. 1999, 540).

An IS strategic plan should contain a series of measurable goals to be achieved

during this time period. The plan may also contain the results of an internal and
external strategic analysis performed for the IS department as part of the IS strategic
planning process.

An IS strategic plan provides the direction in which the IS development of the

organization should be heading. The plan is basically a statement of the major
initiatives that must be accomplished over a certain period of time in order to move
the organization and its IS department towards a long-term goal. It may also show
explicitly the major and essential areas in the corporate policy and strategy where IS
plays a key role. For example, IS infrastructure (including networks, databases, etc.),
IS portfolios, and those ISs that are central to knowledge management and e-
commerce operations would be elaborated with sufficient details on their purposes,
functionalities, and acquisition. Other issues such as resource allocation, external
support, research programmes, staffing, schedule, empowerment, quality control
(evaluation), training, security, budgeting etc. would also be described. (Exhibit 6.1
shows a sample strategic plan.)
171 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

Exhibit 6.1: Information Management Strategy Plan for the Department of Energy of the USA
Government in 1997 (summarized from <http://www-
it.hr.doe.gov/implan/reference/stratpln.htm>

Goal Strategies Assessment

Increase  Form empowered customer group to  Existing groups identified and new
customers’ trust analyse, evaluate and recommend groups formed by the first quarter
by involving IM initiatives after implementation day
them in the  Partner with customer to develop IM  Portfolio of IM performance
process policies & procedures measures developed and updated
 Include customer in IM planning annually
and budgeting processes  Investment decisions tracked and
 Provide an action plan based on the outcomes published
results of customer feedback  Fiscal year budget and plan for IM
published annually
 Annual customer survey showing
at least a 5% improvement in level
of satisfaction each year for 5 years
Improve under-  Understand the missions and the  Publish departmental standard
standing of the underlying IM strategy methodology for process analysis
mission and  Establish a common process analysis as scheduled
processes in order methodology and tool set  Publish process analysis guide as
to provide  Identify and analyse business and scheduled, including compatible
effective IM programme management processes process analysis tools
support  Publish first corporate processes
implementation plan as scheduled
Partner with  Align current IS related policies,  Establish a corporate IS working
customers in guidelines and procedures to group as scheduled
planning and address corporate ISs  Implement an information sharing
implementing  Establish an information sharing mechanism for corporate IS as
corporate systems mechanism to identify corporate IS scheduled
initiatives  Establish an automated corporate
 Establish a system for capturing and system catalogue as scheduled
distributing information identifying  Increase corporate system
existing corporate ISs partnering initiatives implemented
by 20% between set period
Develop, in  Establish a corporate data model  Establish a corporate data model
concert with  Define and construct a corporate as scheduled
customers, data warehouse  Reduce number of redundant
corporate data databases as scheduled
administration to  Annually reduce costs for
ensure data developing and maintaining MISs
availability and after construction of warehouse
access
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN  172

Provide  Baseline and define interoperability  The organization establishes an

customers with standards interoperability standards
the technology to  Enhance computing and configuration management board
access and share communications infrastructure and process as scheduled
information based on defined standards  A comprehensive assessment of
easily and  Develop & implement a the extent of the corporate
seamlessly from configuration management process interoperability standards as
any location for interoperability standards scheduled
 Configuration management board
completes baseline of
interoperability standards as
scheduled
 Agree-upon corporate
interoperability standards
published as scheduled
 100% of corporate communities
migrated to corporate
interoperability standards within 5
years issuing the standards
document

An IS strategic plan is prepared by special working groups (most probably in the IS

department) and its consultants. Due to its complexity, flexibility and mass of people
involved, an IS strategic plan must be documented so that all levels of management
can prepare themselves for collaboration.

6.2 DOCUMENTATION OF THE IS

STRATEGIC PLAN
There is no preferred or standard format for documenting IS strategic plans. Individual
IS plans can differ greatly in their content and how they are organized, as well as in
their level of detail. They can range in length from brief descriptions of ten to 30 pages
to multi-volume thick binders. One reason for this wide variation in the volume of IS
plan contents is the inclusion of IS project plans. Detailed plans of IS projects
submitted in support of IS objectives add to the size of the resulting IS strategic plan.
Another determinant of the scope of the IS plan is the inclusion of goals, objectives
and supporting information for each division or business unit, in addition to the
corporation as a whole. Publishing the IS plans of each division or business unit to
promote organization-wide information exchange regarding IT architecture and new
IS application projects may be desirable. As IS planning involves technological details
which must be understood by the senior managers, it is important that IS plans should
include an ‘executive summary’ written using non-technical terminology and in a style
that is meaningful to the general executive. IS plans should include minimum
technical jargon, specialized terminology should be clearly explained, and acronyms
should be spelled out.
173 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

Table 6.1 shows the contents of an IS plan with a ten-year planning horizon prepared
by a major oil company (Head 1984, 148). The common practice of describing the
telecommunications plan is shown in a separate section.

Table 6.1: Contents of the IS Plan for a Major Oil Company

1 Introduction
2 Management summary
3 IT environment
4 Application systems plan
5 Resource plan
6 Resource forecast
7 Communications plan
8 Technology forecast
9 Goals/objectives/actions
10IS planning cycle

The outline of the IS plan of a ‘Fortune 100’ manufacturing company is given in Table
6.2. This plan is divided into a management section which concerns the operation of
IS facilities and a design section which concerns IS application development and
related matters.

Table 6.2: Outline of the IS Plan for a Manufacturing Company

1 Management
2 Design
(a) IS applications to support functional management
(b) Unified organization-wide IS applications
(c) Standards development
(d) Data management
Goal: to develop a system that will improve the control, availability and integrity of the data
required to support all levels of management and operations.
Strategy: develop a single dictionary/directory of data commonly required by the operating
divisions. Develop uniform data management practices and standards for inter-divisional data.

Table 6.3 shows the contents of an IS plan for a military agency. This IS plan is
interesting in two respects. Firstly, it provides a glossary of terminology as an aid to
the non-technical reader. Secondly, the IS planning cycle that produced the IS plan
is set up so that while the IS plan is reissued each year, only one major substantive
section is revised annually. Thus, the entire IS plan is completely revised every five
years or so.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 174

Table 6.3: Contents of the IS Plan for a Military Agency

1 Executive summary
2 Introduction
3 Threat, information needs and policy
4 Goals and objectives
5 Long-term IT architecture
6 System baseline
7 Implementation
8 Glossary

In addition to the main IS strategic plan, an IS strategic planning study is likely to

result in a number of reports. The advantage of having a number of reports is that
individual staff members only get the information they need. These reports address
the following items:
• IS management strategy. The common elements of the IS strategy which apply
throughout the organization ensuring consistent policies where needed.
• Business IS strategies. How will each business unit or functional area deploy IT
in achieving its business objectives? Along with this, there are applications
portfolios to be developed for the business unit or functional area, and sets of
business models describing the information architecture of each business unit.
The portfolios may include how IT will be used at some future date, to help the
business units achieve their objectives.
• IS applications portfolio.
• IT strategy. Policies and strategies for IT architecture and other specialist
resources.

6.3 BSP STUDY REPORTS

IBM’s Business Systems Planning (BSP) methodology recommends that the final
study report be separated into two main sections (IBM 1984). The most significant
findings, conclusions and recommendations should be summarized in the first few
pages of the report for the use of top management. Supporting details should be
included later and in the appendixes for other members of the organization and for
team members who will participate in follow-up activities. The conclusions,
recommendations and action plan should be reviewed with the executive sponsor
before the team drafts the final report. To determine how best to present the
recommendations, the executive may be involved in reviewing controversial areas or
areas affecting the business most. A sample outline of a BSP study report is shown
in Table 6.4.
175 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

Table 6.4: Potential Topics for a BSP Study Report

Executive Summary Report

• Purpose, scope and objectives
• Methodology and study team
• Findings and conclusions
• Recommendations
• Action for follow-on activities

Detailed Report
• Purpose, scope and objectives
• Method of study
• Business perspective
• Information systems perspective
• Findings and conclusions
• Statement of findings and conclusions
• Recommendations
• Action plan for follow-on projects
• Appendixes

In addition to the written study report, BSP methodology also recommends a

presentation to executives in the organization. The principal aims of this presentation
are to inform management of the study’s findings, make recommendations, and
secure approval of the action plan. The presentation should be concise (preferably
no longer than two hours). It should be logical and factual, and should end with
recommendations for follow-on activities. For example, it could take the following
form:

1 Introduction
• Background and overview
• Objectives
• Scope
• Study team
2 Study approach
• Business and IS review
• Business processes and data classes
• Matrices
• Executive interviews
3 Major problems identified
4 Conclusions and recommendations
• Information architecture and priorities
• Information resource management (IRM) requirements
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 176

5 Action plan for follow-on project activities

• Descriptions
• Deliverables
• Resource requirements
• Benefits
• Schedules

Activity 6.1
What are the minimum items or topics that must be included in an IS
strategic plan?

IS strategic plans are the outcome of IS strategic planning studies. They describe
organizational initiatives for moving an organization towards its IS vision. There is no
preferred or standard format for documenting IS plans. It is recommended that the IS
plans be divided into a number of reports containing IS management strategy,
business IS strategy, IS applications portfolio and IT strategy. Thus, only necessary
information gets through to the different management teams · i.e., senior
management and user management, as well as IS management. In addition to the
written plan, it is also important to give a presentation to senior management,
highlighting the major findings and recommendations of the IS strategic plan.

By now, we understand the results of a strategic IS study planning process. The

strategic plan often contains action plans for individual projects for developing IT
infrastructure and/or information systems. No matter how the IS strategic plan is
finalized, it is completely useless unless the plan is put into practice. Management
should therefore focus on a mechanism to help implement the IS plan. This is a
subject of project management and will be the topic of the next section.

6.4 PROJECT MANAGEMENT

A strategic IS plan does not stop after the plan itself is compiled. The implementation
phase of the strategic plan should be more important, although strategic management
does not always get involved in tedious IS implementation details. However, as
strategic IS plans often include recommended projects for building either IT
infrastructure or individual information systems, how to manage these projects
becomes the core of the implementation phase of the strategic IS plan. Discussing
problems that may arise while implementing a strategic IS plan is the main theme of
this topic. We’ll look at the issue from three angles: administration, project teams, and
assessment.
177 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

6.4.1 Administration of Projects

A number of senior managers should be responsible for overseeing projects that are
recommended by the strategic IS plan. These senior managers will probably be led
by the organization’s CIO. (We’ll learn how critical the CIO is later in this topic.) Called
a steering committee, these senior members play a decisive role in interpreting the
meaning of the strategic IS plan and ensuring that individual IS projects already
underway are proceeding in alignment with the organizational IS strategy as planned.

According to Prakken (2000) the steering committee has two important tasks:
1. the mutual coordination of individual projects and the linking of these projects
with the organization’s strategic policy; and
2. the coordination of the activities of the project groups by
• functioning as a forum for exchanging the experiences of the project teams
so that they can learn from each other; and
• making shifts between current projects occasionally to cater for relocating
people and resources where necessary.

Notice that projects mentioned above may result from Earl’s multiple methodology
(see topic 5); there are business strategies to determine strategic IS projects in a top-
down fashion, and there are IS applications projects which can be developed in a
bottom-up fashion to improve the organization’s strategic advantage. Lederer and
Sethi (1994) call the two methodologies the align and impact approaches and
summarize the critical factors that concern the success of a strategic IS plan (see
Figure 6.1 on the following page).
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 178

Issues approaches
‘Impact’ ‘Align’
LEADERSHIP Critical Important
 Difficult to secure top management commitment for
 implementation
 Success dependent on team leader

 Difficult to find team leader meeting criteria
 Difficult to obtain top management approval

IMPLEMENTATION Very important Very important


 Requires further analysis

 Ignores plan implementation issues

 Documentation is inadequate for implementation

 No priorities for developing databases

 No overall data architecture is determined
 No data administration needs addressed
RESOURCES Important Critical
 Methodology lacks sufficient computer support

 Planning exercise takes a long time

 No training plan for IS department

 Difficult to find team members meeting criteria
 No financial plan for IS department

 Very expensive

 No permanent IS planning group
 Many support personnel required

Figure 6.1: Where IS planning fails (adopted from Lederer and Sethi 1992)

You may wonder why the two approaches (impact and align) make a difference in
weighting in Figure 6.1. The authors argue that projects resulting from an align
approach affect a larger number of lower-level employees and may emphasize
resource problems.

As we move towards the Internet age, more and more organizations have sought help
from external vendors in implementing e-commerce plans. Often calling themselves
‘solution providers’, these vendors specialize in offering information systems that are
needed by businesses. The subject of outsourcing is a major issue in strategic IS
implementation. This will be covered in the next section.
179 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

6.4.2 Project Teams

A team of experts, internal or external to the organization, form a project team to take
care of a project identified in the strategic IS plan. Usually composed of IS experts
and staff members from the accounting and administrative functions, the project team
is responsible for developing the IT infrastructure or information systems as
recommended. When appropriate, other members of the organization or even people
outside are also called in to help the project; they are usually end-users of the system
and their opinions are sometimes crucial to the project’s future success. Mohrman,
Cohen and Mohrman (1995) suggests that team members possess a variety of skills:
• technical or functional skills
• cross-training skills
• interpersonal and conflict resolution skills
• decision making skills
• learning skills
• leadership skills.

In most cases, a team leader is selected to report to the steering committee. This
person is responsible for liasing with the senior management, motivating team
members and pulling the project along. No matter how experienced and skilful this
person is, there are well-structured and well-defined methodologies which may further
help project team management.

There is no definite size of a project team, nor there is a definite size of a project.
Where the project is so large (in scale) or complex (in structure) the project may be
divided into several sub-projects, each of which is taken care of by a workgroup. In
this case, the project team will provide resources and surveillance to the workgroups.

At the technical level, the workgroup will adopt a system development methodology
to guide themselves through the processes of analysis, design, and implementation
of the targeted system. There are several methodologies to choose from · e.g.,
SSADM, prototyping, etc. · and most of them divide the entire development period
into several phases. Only when the exit criteria (often in the form of documentation,
demonstration, or presentation) of a phase are achieved, is the workgroup allowed to
move to another phase.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 180

6.4.3 Assessment
Implementation is successful if the resultant IS or IT infrastructure is capable of producing the
expected effect. The effectiveness of individual projects can be measured against the
objectives which were spelt out in their action plans as parts of the strategic IS plan. In
addition, they can be assessed using techniques such as the utility approach (Kendall and
Kendall 1999) which evaluates an IS from six utilities, as shown in Table 6.5 on the following
page.

Table 6.5: Utility Approach of IS Evaluation

Utility Description
Possession Who receives output?
Form What form (format) of the information is useful to the end users?
Place Where is the information distributed?
Time When is the information delivered?
Actualization How is the information produced and used? Production of the
information is related to system development and maintenance.
Goal Does the output have value in helping the organization obtain its
objectives?

On a larger scale, an IS plan can be assessed from different angles. DeLone and McLean
(1992) show a model for the measurement of IS success. See Figure 6.2 below.

Figure 6.2: IS success model (DeLone and McLean, 1992, p.87)

DeLone and LcLean’s measurement scheme looks at a strategic IS plan in six dimensions. As
shown by the directions of the arrows in Figure 6.2, in individual system projects, the plan
should impact positively on the organization’s competitive advantage.
181 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

6.5 OUTSOURCING
Today, outsourcing activities play a crucial role in the implementation of strategic IS
plans. The idea of requiring internal IT personnel to do IS or e-commerce planning,
formulate strategy, develop and maintain the systems proposed, and operate and
manage their own computer systems is not always feasible. Organizations are
increasingly outsourcing some or all of these strategic IS tasks to external companies.

The term ‘outsourcing’ can be used in a general way to denote any product or service
that is purchased from another firm. For example, all major car companies outsource
the manufacture of many components. Likewise, many companies outsource their
cafeteria to food-catering service companies.

IT sourcing is defined as a significant contribution by external vendors to the physical

and/or human resources associated with the entire or specific components of the IT
infrastructure in the user organization (Loh and Venkataraman 1992a). It is the
practice of turning over an organization’s computer centre operations,
telecommunications networks and application development to external vendors of
these services. When an organization chooses to outsource only parts of its IT
function, it is known as selective outsourcing.

IT outsourcing is not a new concept. In fact, the outsourcing of computer hardware

and systems software, such as operating systems and DBMS, is a long-standing
practice. IT departments also purchase end-user software such as spreadsheets and
word processors because there is no reason to reinvent tools. A software company
specializing in these products can provide them much more cheaply. Interest in IT
outsourcing escalated when IBM announced ‘an unusual agreement under which it
will build and operate a data centre for Eastman Kodak’. According to this agreement,
IBM ‘will take over the work done by four Kodak centres and 300 Kodak workers will
become IBM employees’. The impact of this large contract involving two prominent
companies has been profound: IT outsourcing suddenly became a serious strategic
choice for firms and the ‘consideration of outsourcing’ emerged as one of the top ten
issues for success (or survival) in the 1990s (Loh and Venkataraman 1992b).

IT outsourcing is related to ‘make-or-buy’ decisions concerning application software.

Over the past decade, there has been an acceleration of pressures pushing
companies toward greater reliance on external sources for software and computing
support. Escalating costs of system development projects, limited staff and the
availability of software packages are some of the factors driving this trend to use
external sources. There is a clear trend to ‘buy’ rather than to ‘make’.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 182

6.5.1 What Drives Outsourcing?

Applegate, McFarlan and McKenny (1999) identify a number of factors that lead
organizations to outsource. These are:
• management’s concern about costs and quality
• breakdown in IT performance
• intense supplier pressures
• simplified general management agenda
• financial factors
• corporate culture
• eliminating an internal irritant
• other factors.

While it has many advantages, IT outsourcing is not without difficulties. Indeed,

outsourcing can create a number of serious problems. Firstly, companies that
outsource may become too reliant upon the vendor for information services ·
especially if the vendor turns out to be less than completely supportive or is inflexible
to changing business needs. Secondly, trade secrets or proprietary information may
leak out to competitors because an organization’s ISs are being run or developed by
outsiders. Thirdly, the organization is dependent on the viability of the vendor. A
vendor with financial problems or deteriorating services may create severe problems
for the client. It is also not easy to design a ‘water-tight’ contract which protects the
interests of the organization. Hence, there are several key factors that should be
considered in selecting an outsourcing vendor (Martin et al. 1994):
• Vendor reputation, which includes understanding your business and market, and
high technology standards;
• Quality of service, which means a clear comparative advantage over in-house
service; and
• Pricing, which means cost effectiveness because costs can escalate as
processing volume increases or new services are added.

6.5.2 When to Outsource

Since outsourcing has both benefits and liabilities, and is not meant for all
organizations or all situations, managers should assess the role of IT in their
organization before making an outsourcing decision. Examples of circumstances
under which IT outsourcing makes sense are:
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• when there is limited opportunity for the firm to distinguish itself competitively
through a particular IS application or series of applications;
• when outsourcing does not strip the company of the technical know-how
required for future innovations; and
• when the organization’s existing IT capabilities are limited, ineffective, or
technically inferior.

Applegate, McFarlan and McKenny (1999) identify five factors that determine when
it is beneficial to outsource IT. These are:
• the company’s position on the strategic grid;
• the nature of its systems development portfolio;
• the sophistication of the company’s organizational learning;
• the company’s position in the market; and
• the state of the current IT department.

The IT outsourcing decision is a complex one. It is more than asking the question:
‘Does this particular IT operation provide a strategic advantage or is it a commodity
that does not differentiate us from our competitors?’. Recent studies show that in a
large number of cases, the strategic-versus-commodity approach leads to problems
and disappointments (Lacity, Willcocks and Feeny 1995). Many other factors should
be considered. Lacity, Willcocks and Feeny identify a number of questions which
should be answered in making the IT sourcing decision. These are:
• Is this system truly strategic?
• Are we certain that our IT requirements won’t change?
• Even if a system is a commodity, can it be broken off?
• Could the internal IT department provide this system more efficiently than an
external provider could?
• Do we have the knowledge to outsource an unfamiliar or emerging technology?
• What pitfalls should we be on the lookout for when hammering out the details of
a contract?
• How can we design a contract that minimizes our risks and maximizes our
control and flexibility?
• What in-house staff do we need to negotiate strong contracts?
• What in-house staff do we need to make sure that we get the most out of our IT
contracts?
• What in-house staff do we need to enable us to exploit change?
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 184

Outsourcing started to become a common practice in the last decade. It is sometimes

considered the only possible solution to SME in many cases, when the enterprises
can’t afford to develop their own customized system and there is no ready-made
solution for them. Entering the new millennium, many organizations realize the
necessity of outsourcing when they adopt value chain management in their business
strategy. In this aspect, outsourcing is not only a means to find someone to implement
a strategic IS; an organization may find external sources of information, technical
know-how, raw materials, parts, etc. that contribute to a value chain that extends
beyond the physical boundary of the organization

6.5.3 Managing Outsourcing

To obtain value from outsourcing, organizations need to make sure the process is
properly managed. Ideally, the organization should have a trusting working
relationship with the outsourcing vendor. The vendor should understand the client’s
business and work with the client as a partner, adapting agreements to meet the
client’s changing needs.

Organizations should not abdicate management responsibility by outsourcing. They

need to manage the outsourcing vendor as they would manage their own internal IT
department by setting priorities and ensuring that the right people are brought in. They
should establish criteria for evaluating the outsourcing vendor which include
performance expectations and measurement methods for response time, transaction
volumes, security, disaster recovery, backup in the event of a catastrophe and
processing requirements for new applications, etc. The level of service agreement
should form an important part of the contract. Also, the organization should design
the contract carefully so that the outsourcing services can be adjusted if the nature of
the business changes.

Applegate et al. identify four critical areas that require close management attention:
• the CIO function;
• performance measurement;
• mix and coordination of tasks; and
• customer-outsourcer interface.

What determines success or failure is managing the relationship less as a contract

and more as a strategic alliance.
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Activity 6.2
If the trend towards IT outsourcing continues, what are the long-term
implications for in-house IT departments? In other words, what will
happen to the in-house IT departments as organizations outsource
their IT activities?

IT outsourcing uses external vendors to develop, maintain and operate IT systems. It

potentially frees an organization to concentrate on its core competencies, taking
advantage of the economies-of-scale for decreased IT costs and allowing for more
rapid adoption of new technology. Outsourcing also has a downside. Companies
should closely examine IT outsourcing benefits and costs, based on their individual
situations.

6.6 BARRIERS TO IS STRATEGIC PLANNING

(a) Problems in IS Strategic Planning
In a survey of 163 organizations in the USA (Lederer and Sethi 1992)
respondents identified a large number of problems related to leadership,
implementation, and resource issues. The main problems are briefly discussed
below.

Leadership Issues
• Securing a commitment from top management to implement the IS
strategic plan is difficult.
This finding suggests that top management may not understand the IS
strategic plan or might lack confidence in the IS management’s ability to
carry it out. Therefore, top management needs to consider carefully its
commitment to implementing an IS strategic plan before authorizing the time
and money needed to prepare the plan. Likewise, the IS planning team
should assess in advance the likelihood that its top management may refuse
to fund the newly recommended IS projects. It may also want to determine
tactics to improve the likelihood of funding. For instance, the CEO might
serve as sponsor to the IS strategic planning study, hence substantially
improving the likelihood of implementation.
• The success of the IS strategic planning methodology is greatly
dependent on the team leader.
If the team leader cannot convince top management to support the IS
planning study or cannot obtain a top management mandate to convince
functional area management and IS management to participate, the study
will probably fail. The team leader motivates team members and pulls the
study project along. Therefore, the team leader needs to be a respected
CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 186

figure in the organization and a dynamic leader who is comfortable with

current IT.
In addition, organizations should reduce their dependency on their IS
planning team leader. One way to do so is by using a well-structured and
well-defined IS planning methodology to simplify the team leader’s job.
Similarly, by obtaining as much visible top management support as possible,
the organization will depend less on the team leader. For example,
dependency is reduced if the team consists of members with broad,
corporate rather than departmental views. These members can enable the
team leader to serve as a project manager rather than force the individual
to be a project champion.
• It is difficult to find a team leader who meets the criteria specified by
the IS planning methodology.
As the team leader plays a central role, he/she must be carefully selected.
Typically, they should have both technical skills and business knowledge.
More importantly, they need excellent communication skills and must be
able to motivate team members. However, there are usually only few people
who meet these criteria.
• It is difficult to convince top management to approve the IS planning
methodology.
It is not only difficult to convince top management to implement the final IS
plan, but it is also difficult to convince them to fund the initial IS planning
study. IS strategic planning is slow and expensive. Many top managers want
working IS applications immediately, not plans for an uncertain future. Thus,
advocates of IS strategic planning should prepare convincing arguments to
authorize the funding of the study.

Implementation Issues
• Implementing the IS applications and IT architecture identified in the
IS plan requires substantial further analysis.
IS strategic planning often falls short of providing the analysis needed to
start the design and programming of individual IS applications. The planning
methodology fails to provide the specifications necessary to begin the
design of the recommended IS projects. This means duplicating the analysis
initially needed to make the recommendations. Therefore, prospective IS
planners should seek a planning methodology that provides features to
guide them into application implementation. Otherwise, IS planners should
be prepared for delays and duplicated effort before seeing their IS plan
implemented.
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• The planning methodology fails to take into account issues related to

IS strategic plan implementation.
The study may produce an excellent IS plan, but it may fail to include the
actions that will get the IS plan implemented. For instance, the study might
ignore the development of a strategy to ensure that the final decisions to
proceed with specific applications are made. It might fail to address the
resistance of managers who oppose the IS plan. Therefore, IS planners
need to pay careful attention to ensure that the IS plan is actually followed
and not prematurely discarded.

Resource Issues
• The IS planning methodology lacks sufficient automated support.
IS strategic planning can produce bulky reports, charts, matrices and
diagrams. IS planners cannot manage such volume of data efficiently and
effectively without automated support (similar to a CASE tool). When IS
planners purchase an existing methodology, they should carefully evaluate
the vendor’s automated support. If they develop their own methodology,
they must be certain not to underestimate the need for automated support.

• The IS planning study takes too long.

IS planning studies can take weeks or even months. This may be well
beyond the attention span of many organizations. Moreover, organizations
often undergo major changes during the planning period itself. Most
importantly, an overrun at the planning study stage may reduce top
management’s confidence in the organization’s ability to carry out the final
plan. Hence IS planners should strive to keep the duration of the IS planning
study as short as possible.
• The IS strategic plan fails to include an overall personnel and training
plan for the IS department.
Many IS departments lack the necessary skills to carry out the innovative
and complex IS applications recommended by an IS strategic planning
study. The IS strategic planning study should, therefore, recommend
required additions to existing positions such as expert systems specialists,
local-area and wide-area network specialists, multimedia specialists and
desktop publishers, etc. The planning study also often recommends training
current IS staff in existing PC, network and database technologies.
• It is difficult to find team members who meet the criteria specified by
the planning methodology.
Qualified IS planning team members, in addition to team leaders, are
scarce. Team members from functional area departments must feel
comfortable with IT, while IT specialists need to understand the needs of
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 188

the business. Both need excellent communication skills and must have time
to participate. Hence management should check the credentials of their IS
planning team members and be certain that their existing commitments
allow them to participate fully in the planning study.

To complete the discussion of this section, study the following reading on

implementation issues.

Lederer, A L and Sethi, V (1988) ‘The implementation of strategic information

systems planning methodologies’, MIS Quarterly, 12(3): 445–61.

(b) Convincing Top Management

It is clear that top management’s commitment and involvement is critical to the
success of an IS strategic planning exercise. It is therefore extremely important
to convince top management of IT’s strategic impact. Top management’s
acknowledged responsibility for the development and implementation of the
organizational strategy suggests that they should also accept responsibility for
fostering IT with strategic impact. There may be several reasons for top
management’s disbelief in IT’s strategic impact potential (Lederer and
Mendelow 1988):
• Top management lacks awareness.
Top management’s lack of familiarity with IT sometimes creates anxiety in
relating to the issues associated with it, which they do not like.
• Top management sees use of computers as strictly operational.
If current uses of IT are distant from the core operations of the business, the
difficulty of convincing top management of the strategic uses of IT is even
more severe.
• Top management perceives a credibility gap.
Previous IT failures in terms of benefits, cost and implementation schedules
may create doubts regarding credibility of the strategic impact of new IT
applications. Furthermore, top management may perceive the IS
management as technical experts rather than business experts and,
therefore, fail to understand their interest in business goals and objectives.
• Top management doesn’t view information as a resource. Information
is intangible and cannot be used up. As such, top management may not
see its critical role or its centrality to operations, and therefore may not
appreciate its contribution to the value of a final IT application.
189 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

• Top management demands financial justification.

Top management may find it very difficult to associate financial value and IT
applications with a strategic role because these benefits may not be readily
visible.
• Top management may be interested in short-term benefits.
Top management may be interested in seeing the immediate results of its
actions. Strategic applications of IT may not yield tangible short-term
benefits, and therefore top management may not support such long-range
planning.

The following techniques have been found to be useful by IS management in

successfully convincing top management, and could be used by other IS
managers:
• Educate top management.
IS management can attempt to use personalized, one-to-one training for top
management, spanning issues from managing information resources to
computer literacy. They can also make regular presentations to top
management and persuade them to attend seminars organized by IT
vendors such as IBM.
• Market IS management’s accomplishments to top management.
IS management can periodically publicize their accomplishments in areas
such as the realization of articulated systems benefits and the
implementation of IT applications on time and within budget.
• Let the user do the selling.
Some IS management teams let their users convince top management of
the necessity for strategic applications of IT. In this way, users champion
their own particular systems and fight for top management’s approval and
support of the project.
• Promote a ‘business image’ for the IS department.
IS management may recognize the need to show that it is more concerned
about the organization’s business than about its own technology. IS
management can achieve this by consciously communicating in business
terms rather than in technical jargon, and by focusing on bottom-line
concerns rather than on technical niceties.
• Perform strategic IS planning.
The process of strategic IS planning itself may help convince top
management of the strategic impact of IT, due to their participation in the
planning process.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 190

Activity 6.3
Can you suggest another technique, in addition to those we have
mentioned above, for convincing top management of IT strategic
impact?

In spite of the perceived importance of IS strategic planning, IS executives can

face a number of difficulties in getting IS planning operational. The most
significant of these difficulties is convincing top management of IT strategic
impact. This may be because of reasons such as (a) lack of IT awareness; (b)
IT use being limited to routine (rather than core) operations; (c) IT credibility
gap; (d) IT not being recognized as an organizational resource; (e) problems of
financial justification; and (f) IT interest being limited to short-term benefits.
Therefore, IS executives should use education and effective marketing of IS
functions to turn top management in their favour.

(c) Chief Information Officer

The argument so far brings to your attention the importance of liaison with senior
management. If there is someone in the IS strategy team capable of doing the
job, this person is likely to be called a ‘chief information officer’ or CIO, or some
other title. However, the responsibilities of a CIO are not limited to leading the
strategic IS management team through the implementation phase; this person
is vital to the success of the organization.

You should recall what Sambamurthy describes as the roles of the CIO in the
digital world (Chapter 12 of our textbook, a reading in topic 5).
191 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

Read the following dialogue, ‘Implementation is not for the meek’.

‘Implementation is not for the meek’, CIO Magazine. Varon, E
(15 Nov. 2002)
CORPORATE EXECUTIVES have a hard time executing their business strategies because they just
aren’t tough enough, says strategic planning expert C Davis Fogg. A Wakefield, RI-based consultant
to blue-chip companies and the author of Implementing Your Strategic Plan (Amacom, 1999), Fogg
says strategic plans flop because executives don’t follow through. They fail to lead. They fail to hold
their employees · or themselves · accountable for results.
And without that willingness to put it all on the line, says Fogg, the best-laid strategic plan will go
astray.
Fogg, who between 1981 and 1982 was president of shoe and clothing manufacturer and retailer
Johnston & Murphy, talked with CIO Senior Editor Elana Varon about how CIOs can do a better job
of putting their plans into action, and a better job of making them work.
CIO: Is there any difference between implementing an IT strategy and implementing other
kinds of strategies?
C Davis Fogg: There are substantial differences. In IT, communication is far more important than it
is, for example, in marketing. The marketing people generally have good communication skills.
Compared with other groups in the company, a lot of IS people are the worst. If I were picking
someone to run an IS team, I wouldn’t care if the person is a genius, but I would care if the person
can communicate well. Businesspeople don’t want to be bothered with a lot of technical talk.
CIO: What gets in the way of implementing strategic plans?
Fogg: If there is one thing that blows any [strategy] out of the water, it’s lack of leadership. And not
just the leadership at the top. At key points, there have to be good leaders who can lead down the
line and get people motivated. That doesn’t vary for any kind of strategy.
The second thing that’s extremely important is accountability. Accountability has to rest on someone
who can fix a problem, and people have to meet their objectives.
Another problem that is even more important is not having information technology leadership that
sees 15 years down the pipe with the strategic direction of the corporation. Part of the implementation
piece is to make sure you know where the business is going technologically, so a new direction can
be implemented fairly quickly.
CIO: Most technologists would say they’re lucky if they have a clue about the technologies
that will be available in five years. How can they look ahead 15 years?
Fogg: People say their long-term vision is three to five years. But I know a company with a massive IT
backbone · it’s an insurance pension fund · that’s looking at advanced technologies 10 to 15 years down
the road. They’re testing experimental capabilities in wireless data transmission. When the technology
becomes usable, they’ll be on track. What has to happen first is you have to draw a very broad vision of
where the organization is going. Once you know what kinds of markets you’re going to serve, the kinds of
customers, you can look internally to see what kinds of systems you will need. Then you need to talk to
people in the research labs, asking where the technology is heading. What’s going to be available 15 years
from now is available right now in some prototype.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 192

One of the most difficult things is getting people off their duffs to go out and talk to people, especially
people who aren’t in their industry. I’m an MIT grad. I go up there for weekends. Scientists love to
talk.
CIO: Is there a point in implementing a strategy where companies tend to stumble?
Fogg: Inevitably, there are people who aren’t up to the job or who don’t like the job and have to be
moved out of the way. Companies don’t like to do that, but they have to do it up front; they can’t do
it as they go along.
The other stumbling block is to assume that people will rise to the competency you need. You have
someone whose skills are out of date, and you say, We’ll teach him. That doesn’t work because
you’ll have to wait for them to catch up.
CIO: Is that fair? Workers have done what was required of them, but now that you’re changing
your strategy, you’re just going to throw them aside.
Fogg: You don’t throw them aside. You leave them in the job with very tightly defined objectives
· no more and no less than what anybody else is going to have to do · and you give them a chance
to perform under the new standards. You give them education if they need it. I can almost guarantee
that within 18 months the bulk of those people will leave on their own, particularly if you give them a
good severance package. Guess what percentage of top management versus middle management
will leave.
CIO: About 40, 50?
Fogg: A survey I did shows that over a very short period of time, about two-thirds of senior
management opts out when the standards are changed to a much higher performance level · and
about one-third of the workforce.
So the problem in successfully executing a strategy is that companies don’t set
standards? They don’t set good standards.
CIO: Why don’t people know that? Isn’t it obvious that executives need to establish a system
of accountability, get rid of resisters and develop a staff with the skills they’ll need to move
ahead in their company?
Fogg: These things are cultural in companies and, unfortunately, the culture you inherit is going to drive
what’s going on until you change it. Older line companies in particular are not very good about
accountability. Even if they have objectives, nobody gets punished for not meeting them. You have to have
somebody at the helm who’s going to say that not meeting objectives is intolerable.
CIO: Do you need to bring in an outsider?
Fogg: No. For example, Genesco, the parent of Johnston & Murphy, was once the largest
manufacturer and marketer of men’s shoes in the US. It threw itself into chaos by a series of
misbegotten acquisitions of high fashion and other retailers in the 1970s. Genesco changed key
management over the next 15 years like socks every morning. New executives were inevitably hot
shots from other industries and companies. The company never turned around.
Then in 1996, Ben Harris, a 28-year company employee, became president and COO. He and two
other longtime officers replotted Genesco’s future. Genesco had never before set and reviewed
meaningful objectives. Harris’s measure of success was a version of Economic Value Added, which
measures capital employed, return on capital, profit margin, cost. Everyone in the company could be
measured by one or more of its components. They turned Genesco around quickly. That it was
handled in an emotionally motivating way is illustrated by a touching incident. When corporate offices
were being refurbished, a worker came to Ben and handed him $4,000. He told Ben that his job was
measured by cost, and he knew that the company was going though tough times. He took old doors
left from the remodeling, slated to be thrown away, threw them in his pick-up truck, sold them and
gave Ben the money.
193 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

When bonuses came out that year, the man got a bonus.
In my study of 28 companies for my last book, Implementing Your Strategic Plan, the 26 that required
drastic action to turn their performance around were turned around by long-tenured insiders. Insiders
know how to get things done through the culture. They know where the skeletons and poor
performers are hiding, and where the opportunities lie.
CIO: Does Wall Street’s focus on quarterly earnings prevent companies from doing a good
job both planning strategically and implementing those plans?
Fogg: It does. But some leaders I know don’t worry about the short haul. It drives the managers nuts.
Roberto Goizueta [the late CEO of Coca-Cola], who was a class ahead of me in school, told Wall
Street to stuff it. I know a number of companies that are run for the long haul. One of them uses a
form of Economic Value Added. Others do it according to stockholder value, which is a very, very
good measure as long as people don’t measure quarter to quarter. IT is such an underutilized power
in the marketplace, I would expect right now is a very good time to be thinking about powerful
investments to improve market position and efficiency. Particularly if you have cash and your
competitors don’t.
Of course there’s another issue. I have believed for decades that officers of the company should be
measured by internal strategic objectives so that they have to meet their objectives before they get
their options. When I was officer with Bausch & Lomb way back when, we were not allowed to sell
stock unless you were doing something like building a house or going to school.
CIO: Do you think the downturn in the economy has changed the outlook for strategic
planning success?
Fogg: I think it’s increased it. People who didn’t have good plans are sitting around saying, Oh my
gosh, I’d better get my act together. If we get hit with another [downturn] and we don’t know where
to put our funds, we’re in trouble. Strategic planning is a process of allocating resources.

6.7 EARL’S FRAMEWORK FOR IS

STRATEGIC PLANNING SUCCESS
The studies we have looked at so far in this topic were carried out in the USA. Similar
problems have been cited in studies carried out in the UK. For example, in a survey
of IS strategic planning experiences in 27 companies in the UK (Earl 1993) the major
issues relating to failure of IS strategic planning were identified as: resource
constraints; lack of full implementation of plan; lack of top management acceptance;
length of time involved; and poor user-IS management relationships. We can group
these issues into three distinct categories: method, process and implementation.

Method
Issues related to method focus on the IS strategic planning technique, procedure or
methodology employed. Organizations participating in the survey commonly used
proprietary methods such as BSP from IBM, Method/1 from Anderson Consulting,
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 194

Information Engineering from KnowledgeWare; or applied generally available

techniques such as critical success factors (CSF) analysis or value chain analysis.
Others had invented their own methods, often customizing well-known approaches.
The issues identified in this category included:
• lack of strategic thinking
• excessive internal focus
• too much or too little attention to IT architecture
• excessive time requirements
• excessive resource requirements
• ineffective resource allocation mechanisms.

General managers especially emphasized these concerns, perhaps because they

have high expectations but find formulating IS strategy difficult.

Process
Issues related to the IS strategic planning process included:
• lack of line management participation
• poor user-IS management relationships
• inadequate user awareness and education
• low management ownership of the philosophy and practice of IS strategic
planning.

Line managers were particularly concerned about the management and enactment
of IS strategic planning methods and procedures, and whether they fit the
organizational context.

Implementation
IS strategic planning implementation was another common concern. Even in
organizations where IS strategic planning was judged to have been successful, the
resultant strategies or plans were not always followed up or fully implemented.
Although clear directions might be set and commitments made to develop new IS
applications, projects were often not initiated and IS development did not proceed.
The main issues related to implementation were found to be:
• lack of resource availability
• management was hesitant
195 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

• technological constraints
• organizational resistance.

Where IS strategic plans were implemented, other issues were discovered, such as:
• low technical quality
• time and cost involved
• lack of benefits realized.

Implementation issues were identified mostly by IS management · perhaps because

they are charged with the IS application’s delivery or because they hoped that IS
strategic planning would provide (hitherto elusive) strategic direction to their function.

Thus, IS strategic planning method, process and implementation are all necessary
conditions for IS strategic planning success (see Figure 6.3 below).

Method → IS Strategic Planning → Process

↓
Implementation
Figure 6.3: Necessary conditions for successful IS strategic planning

Indeed, when the survey respondents were asked to identify success factors for IS
strategic planning based on their organization’s experience, the following factors were
identified (Earl 1993):

Table 6.6: Success Factors in IS Strategic Planning

Respondents Primary Sum of Mean

Rank Success Factors
Selecting Frequency Ranks Rank
1 Top management involvement 42 15 160 2.55
2 Top management support 34 17 140 2.22
3 Availability of business strategy 26 9 99 1.57
Study business before
4 23 9 87 1.38
technology
5 Good IS management 17 1 41 0.65

Activity 6.4
Lack of top management support and involvement in IS strategic planning has
been a frequent reason for the failure of IS planning. Suggest reasons why top
management may not support and/or not get involved with IS strategic
planning.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 196

Major issues related to failure of IS strategic planning are resource constraints; partial
implementation of plan; lack of top management support; amount of time required;
and user-IS management relationships. These issues, which are necessary
conditions for successful IS strategic planning, can be grouped into three categories:
method, process and implementation.

Problems in IS planning are related to leadership, implementation of the IS planning

function, and/or available resources. Successful IS strategic planning requires correct
scope, aims and expectations; understanding of the current situation; senior
management’s sponsorship and involvement; a credible study team; thorough
planning approach; and an implementation focus.

In topic 6, we discussed some management issues relating to implementation of IS

strategic plans. First, we examined the contents of IS strategic plans and several ways of
presenting the contents. Then, we looked at the difficulties encountered in a typical IS
strategic planning study as well as success factors for IS strategic planning studies.
Finally, we looked at IS planning practices in Hong Kong. Three common planning models
were identified: ad hoc, solitary and committee-led planning.

Applegate, L M, McFarlan, F W and McKenny, J L (1999) Corporate Information

Systems Management, 5th edn, McGraw Hill.

DeLone, W H and McLean, E R (1992) ‘Information systems success: the quest for
the department variable’, Information Systems Research, 3(1): 60–95.

Earl, M J (1993) ‘Experiences in strategic information systems planning’, MIS

Quarterly, 17(1): 1–24.

Head, R V (1984) Planning Techniques for Systems Management, QED Information

Sciences.

Hickey, G (1993) ‘Strategic IS/IT planning’ in Peppard, J (ed.) IT Strategy for

Business, London: Pitman, 75–99.

IBM (1984) Business Systems Planning: Information Systems Planning Guide, 4th
edn, document GE20-0527-4, IBM Corporation.
197 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

Lederer, A L and Mendelow, A L (1986) ‘Paradoxes of Information Systems Planning’,

Proc. Seventh International Conference on Information Systems, San Diego,
California, December 1986, 255–64.

Lederer, A L and Mendelow, A L (1988) ‘Convincing top management of the strategic

potential of information systems’, MIS Quarterly, 12(4): 525–34.

Lederer, A L and Mendelow, A L (1993) ‘Information systems planning and the

challenge of shifting priorities’, Information and Management, 24(6): 319–28.

Lederer, A L and Sethi, V (1988) ‘The implementation of strategic information systems

planning methodologies’, MIS Quarterly, 12(3): 445–61.

Lederer, A L and Sethi, V (1992) ‘Meeting the challenges of information systems

planning’, Long Range Planning, 25(2): 69–80.

Low, R, Lee, V, Ng, Y W, Ng, H K, Lam, A, Hui, I and Leung, A (1990) ‘Information
systems planning: a Hong Kong scenario’, Final Report, BA (Hons) in
Computing Studies, ISAD Project, Department of Computing Studies, Hong
Kong Polytechnic, Hong Kong.

Martin, E W, DeHayes, D W, Hoffer, J A and Perkins, W C (1999) Managing

Information Technology: what managers need to know, 3/e New York:
Macmillan.

Prakken, B (2000) Information, Organization and Information Systems Design, Kluwer

Press.

Mohrman, S A, Cohen, S G, and Mohrman, A M Jr (1995) Designing Team-Based

Organizations, San Francisco.

Lederer, A L and Sethi, V (1994) Meeting the challenges of information systems

planning, in Galliers R D and Baker, B S H (eds) Strategic Information
Management, Butterworth Heinemann.

Kendall, K E and Kendall, J E (1999) Systems Analysis and Design, 4th edn, Prentice
Hall.

Lacity, M, Willcocks, L and Feeny, D (1995) ‘IT outsourcing: maximizing flexibility

and control’, Harvard Business Review, May-June: 84–93.

Loh, L and Venkataraman, N (1992a) ‘Determinants of information technology

outsourcing: a cross-sectional analysis’, Journal of Management Information
Systems, 9(1): 7–24.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 198

Loh, L and Venkataraman, N (1992b) ‘Diffusion of information technology

outsourcing: influence sources and the Kodak effect’, Information Systems
Research, 3(4): 334–358.

Further Readings
This topic provides you with an understanding of some of the management issues
concerning implementation of IS strategic plans. The following readings are
recommended as valuable supplementary material to this topic.

Goldsmith, N (1991) ‘Linking IT planning to business strategy’, Long Range Planning,

24(6): 67–77.

The above reading describes an approach to IS strategic planning which was used
by an engineering organization in the UK.

Pavri, F and Ang, J (1995) ‘A study of the strategic planning practices in Singapore’,
Information and Management, 28(1): 33–47.

This reading provides a regional perspective by examining strategic planning in

Singapore.

Chief · the director of the IT department in a large organization,

Information analogous to a chief operating officer or chief finance
Officer (CIO) officer
IS strategic plan · the outcome of an IS strategic planning study, stating
major initiatives that must be accomplished over a
certain time period by the organization conducting the
study in order to move it towards its long-term IS vision.
IS strategic · a mix of procedures, techniques, user-IS management
planning interactions, special analysis and random discoveries
approach encountered during the IS strategic planning study.
IS vision · a written expression of the desired future for
statement information use and management in an organization,
which creates the context within which management can
make consistent decisions. (Similar to a business vision
statement.)
199 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN

IT outsourcing · the significant contribution by external vendors in the

physical and/or human resources associated with the
entire or specific components of the IT infrastructure in
the user organization. It is the practice of turning over an
organization’s computer centre operations,
telecommunications networks, and application
development to external vendors of these services.

IT Steering · a committee composed of key mangers representing

committee major functional units within the organization to oversee
the IT function, ensure adequate planning and control
procedures are present, and direct IT activities in
support of long-range organizational objectives and
goals.

‘Make-or-buy’ · the decision as to whether to ‘make’ (develop) software

decision using in-house personnel or to ‘buy’ the software from
external vendors. This term is also used in the
manufacturing context where the decision concerns
whether to make or buy specific components.

Selective · outsourcing selected parts of the IT function; as opposed

outsourcing to total outsourcing where the entire IT function is
outsourced.
 CHAPTER 6 IMPLEMENTING INFORMATION SYSTEM STRATEGIC PLAN 200

APPENDIX A: CASE STUDY

Consider the following scenario:)

MAKAN SELERA is a chain of 30 restaurants located in Kuala Lumpur. MAKAN

SELERA has it’s headquarter at Jalan Ampang Kuala Lumpur. An interesting feature
of the operation of MAKAN SELERA is that these 30 restaurants do not sell the foods
at their premises. The foods will be sent direct to the customers at their work places.
To be eligible to order the foods from MAKAN SELERA, a customer must be a
registered member of MAKAN.SELERA Accordingly potential customer must apply
to become a member. MAKAN SELERA provides foods for lunch time only. At present
membership of MAKAN SELERA has reached a total of 1500 and membership
increases at the rate of about 15% per year. Registered customers will pay for the
foods they have ordered at the end of the month.

Organizational structure of MAKAN SELERA is shown below:

The General Manager of MAKAN SELERA is Encik Mohammed. He is assisted by

two Deputy General Manager Encik Abdullah and Encik Aziz, Encik Abdullah is
responsible for menu planning, food ordering, and membership application. Encik
Aziz is responsible for account, inventory and transportation
201 APPENDIX A CASE STUDY

Section of Food Ordering and Membership Application

The function of this section is to process new application for membership of MAKAN
SELERA. Potential members need to fill the application forms and send them by post
to this section Encik Abdullah will go through the applications forms and make
decision on whether to approve the applications. The decision is based on a number
of criteria, such as the monthly income of the applicants. Applicants will be informed,
also by post, on the decision. This section also responsible for processing order from
the registered members. At present registered members place an order by phone.
This section has 10 operators to take the order. Member will specify the foods they
want . The operators will go through the menu for the day provided by the restaurants.
Restaurants will provide their menu for the day to the operators one day earlier. If the
food ordered by the customer is available in any of the 30 restaurants, the operator
will inform the customer. This is also done using telephone. If the food ordered by the
customer is not available, the customer will be informed of the alternative food. If the
customer agree to the alternative foods the order is considered confirmed. The
operators then send the details of the order to the restaurant, account and transport.

Section of Accounting
The section is responsible for customer accounting, such as monthly billings, bad
debt reporting and also for producing reports for the top-level management.

Section of Inventory
This section is responsible for ordering and storing materials for cooking, such as
meat, chickens and vegetables. The section also responsible for sending these
materials to restaurants which require the materials

Section of Transportation
At present this section has about 20 mini vans and 22 drivers and one supervisor.
The function of this section is to make available vans and drivers to the restaurants
for dispatching foods to the customers. This section also responsible for the
maintenance of the vans

Section of Food Preparation

This section is responsible for preparing the food for the day and also and preparing
the menu for the next day
 APPENDIX A CASE STUDY  202

Section of Food Dispatch

This section is responsible for dispatching food to the customers. The section also
responsible for sending the dispatching record to the accounts section of MAKAN
SELERA

Vision of MAKAN SELERA is to satisfy customer order all the time.

At present there exist a number of restaurants which has the similar operation as
MAKAN SELERA. They create competition to MAKAN SELERA. The top level
management felt that ICT can be used to enhance the ability of MAKAN SELERA to
face the competition. At present MAKAN SELERA have not used any computer to
support its operations. For this purpose a team of consultants was appointed to look
into the possibility of using ICT to support some of the core activities in MAKAN
SELERA. Assume that you and your team are appointed as the consultants for
MAKAN SELERA. From your team initial interview with the top level management of
MAKAN SELERA the following issues/problems were raised with respects to the
current operations of MAKAN SELERA.
• Applicants to the membership of MAKAN SELERA received the reply to their
applications late
• Registered members have to wait long for the confirmation of their orders.
• Huge proportion of orders from the registered customers can not be fulfilled. As
the result customers cancelled their orders. This affect the profitability of the
MAKAN SELERA and if this continue MAKAN SELERA will loose the registered
customers in the long run
• Most registered customers received their financial statements late
• Late reporting of the registered customers with the heavy debts
• Lots of materials in the inventory, such as meat, fish vegetables have gone bad.
This is due to mismatch between material order with the restaurants requirements
• Vans utilization is not at the optimum level.
• Lack of reporting for top level to assist them in strategic planning, such as to make
decision on prices and new business venture. For example decision to open up a
new restaurant at a new location.

You are required to prepare an Information System Plan for MAKAN SELERA.
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