introducing information management: the business approach

Introducing Information

Management:the business approach

This book – Introducing Information Management: the business approach –is one of a series of five texts which constitute the main teaching textsof the Open University course Understanding Business Functions (B202).This course is one of three core courses which are compulsory elementsin the Open University’s BA in Business Studies. In addition to the com-pulsory courses, students who intend to gain this degree study coursesthat include topics such as Economics, Organizational Change, Designand Innovation, Quantitative Methods, and others.

The approach of Understanding Business Functions (B202) as a secondlevel course in Business Studies is innovative. The course develops know-ledge and understanding of how organizations work through the contribution and integration of five key business functions: HumanResources, Information Management, Marketing, Operations, andAccounting and Finance. Instead of the traditional approach wherebystudents would study one function at a time, B202 is organized into‘blocks’ based on one or more themes which are important in businesstoday. The themes include Relationships and Communication, Infor-mation, Innovation and Performance.

A course video, audio CDs, case studies and specifically written textsshow the origins, rationale, limitations and strengths of business func-tions from the perspectives of various stakeholders. A core feature of thecourse is a focus in developing skills in finding and organizing informa-tion, preparing simple presentations and using software packages andcomputer conferencing. As with all Open University courses, studentsare not only supplied with the teaching materials, they also receive aCourse Guide on how to study and work through the materials.

Each student is allocated a local tutor and is encouraged to partici-pate in a strategically integrated set of tutorials which are held duringthe course.

Details of this and other Open University courses can be obtainedfrom the Customer Contact Centre, PO Box 724, The Open University,Milton Keynes MK7 6ZS, United Kingdom: tel. �44 (0)1908 653231, e-mail [email protected].

Alternatively, you may visit the Open University website at http://www.open.ac.uk where you can learn more about the widerange of courses and packs offered at all levels by the Open University.

For information about the purchase of Open University course com-ponents, contact Open University Worldwide Ltd, The Berrill Building,Walton Hall, Milton Keynes MK7 6AA, United Kingdom: tel. �44(0)1908 858785; fax �44 (0)1908 858787; e-mail [email protected];website http://www.ouw.co.uk.

IntroducingInformation

Management:the business approach

Edited by Matthew Hinton

The Open University Business School

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Contents

Contributors vii

Introducing Information Management: the business approach 1Matthew Hinton

Part I Introduction: Managing the InformationManagement Function 5Matthew Hinton

1 Managing information in modern organizations 9Matthew Hinton

2 Organizing and leading the information technology function 28Lynda M. Applegate, F. Warren McFarlan and James L. McKenney

Part 2 Introduction: Information as an OrganizationalResource 43Matthew Hinton

3 Data, capta, information and knowledge 47Peter Checkland and Sue Holwell

4 The process of information management 56Matthew Hinton

5 The processes which information systems support 63Peter Checkland and Sue Holwell

6 Organizations and information 75Elizabeth Orna

Part 3 Introduction: Managing Organizational Dataand Information 87Matthew Hinton

7 Generic types of information systems 91Matthew Hinton

8 Business information systems 98James O’Brien

9 Information systems for human resource applications 124Roland Bee and Frances Bee

10 Distributed systems, EDI and the organization 135Graham Curtis and David Cobham

Part 4 Introduction: Information Management inOrganizational Strategy and Change 149Matthew Hinton

11 Strategy and information systems 153Graham Curtis and David Cobham

12 The search for opportunity 178Lynda M. Applegate, F. Warren McFarlan and James L. McKenney

13 The need for redesign – a paradigm shift? 190Wendy Robson

14 Investing in information technology: a lottery? 198Matthew Hinton and Roland Kaye

Index 207

vi Contents

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Contributors

Lynda M. Applegate Frances BeeRoland BeePeter Checkland David CobhamGraham Curtis Matt HintonSue Holwell Roland KayeF. Warren McFarlan James L. McKenney James O’BrienElizabeth Orna Wendy Robson

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Introducing Information Management:the business approach

Matthew Hinton

The word ‘information’ has become much used in organizational life.It often seems to be used to refer to what is processed and provided bycomputers and other electronic devices. While it is true that mostorganizations rely on information technology (IT) to support many oftheir information processes, there is also a large amount of informa-tion and knowledge that is not captured by or represented in thesecomputer-based information systems. In particular, managers mustmake decisions and choices about future actions. Invariably, the deci-sions made are based on imperfect information. In such situationsmanagers must use their accumulated knowledge and expertise toevaluate and interpret imperfect information in choosing the bestcourse of action in the light of objectives. In most of the organizationsthese decisions will be supported by information of varying degrees ofaccuracy and usefulness gleaned (with varying degrees of difficulty)from the organization’s IT systems. However, all such systems have fundamental limitations.

It is arguable, therefore, that the majority of information that man-agers draw upon is not embedded in computer systems – rather, it is prin-cipally in the heads of the staff. This is particularly true of high-level

information; that is, knowledge about the information that resideswithin the organization. Examples of this high-level information mightinclude knowing where to find the required internal data or where tosource external information in order to prepare a report; or knowingwho in the organization last tackled a similar problem to the one youare currently being asked to solve. It has long been recognized thatmost managers get most of their information by talking to people,either face-to-face or on the telephone. This reflects the fact that,although managers do deal with some relatively well-defined and struc-tured issues (for example planning budgets), many of the issues thatthey deal with are poorly structured, messy or fuzzy problems. In otherwords a manager’s life is mainly about shades of grey rather than blackand white. Such nuances are typically lost when information is put intowriting or stored in a computer. But people are highly skilled in con-veying such information, not only with the words they use but also bytheir tone of voice, their facial expressions and even the bodily pos-tures they adopt. Because it is difficult to express and communicate toothers, and practically impossible to express in any code, tacit know-ledge is difficult to represent in computer systems. Information that isnot captured in computer-based information systems is especiallyrelied upon in decision-making processes.

Consequently, information management (IM) should be seen as theconscious process by which information is gathered and used to assistin decision making at all levels of an organization. This definition con-tains several points of interest. First, true information management is a conscious process. Information management does not just happen: ithas to be thought about. This implies that it has to be planned, systematic and structured.

A second point from the definition is that the purpose of informationmanagement is to assist in decision making. Information is not gatheredfor its own sake (although that sometimes seems to be the case), but isgathered to be used. Information management therefore works bestwhen the conscious planning process starts not with information butwith the decisions that have to be made. However, although informa-tion assists decision making, it should not determine totally what deci-sions are made: the scope for professional expertise, intuition anddiscretion remains.

The third point from the definition is that information managementis for the benefit of all levels of an organization. In many organizations,information management is often perceived as being a control mech-anism for the benefit of senior managers or shareholders. Informationmanagement should be as much about aiding decision making across

2 Introducing Information Management: the business approach

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and between all levels of the organization as it is for senior plannersand decision makers.

A final point about the definition is that it makes no reference tocomputers or information technology. Information management is asmuch about paper-based systems, or even human voice-based systems,as it is about technology-based systems.

It is a popular misconception that information management is onlyconcerned with information technology management. Over the lastfour decades, the rapid expansion in the use of IT has created a raft ofmanagement concerns with respect to the use of this new technology.While it is true that some of these concerns form part of the IMagenda, there is a plethora of wider issues concerned with managingbroader information resources which transcend the narrow focus onsimple technology management. This book provides a set of chapterswhich aim to bridge the gap between the hard and soft aspects of thisdebate.

The chapters in Part 1 explore the diversity and changing nature ofmanaging the information management function. This includes howthe IM function has evolved, key challenges and concepts as well as thepotential impact of future developments. Distinction is made betweeninformation management and managing information technology. Thechapters also address the influence of organizational structure and culture on the IM function.

Part 2 investigates the role of information as an organizationalresource. It initially establishes an understanding of how informationsupports purposeful action within organizations, which in turn war-rants careful management attention. Given this, the concept of infor-mation resources forms a vital (if somewhat obvious) cornerstone foreffective information management. From this starting point, theremaining chapters in Part 2 present an explanation of the process ofinformation management and how information resources supportpeople undertaking purposeful action, by attempting to reconcile personal, social and organizational perspectives. Part 2 concludes byexploring why organizations need a policy for managing their infor-mation resources.

In Part 3 attention is focused on ‘managing organizational data andinformation’. These chapters outline the main ways that organiza-tional data are managed prior to decision-making activity. Accordingly,the provision of information systems needed to achieve this is centralto information management activities. Therefore, it is important forthis section of the book to cover aspects of how information manage-ment engages with the technology. Both generic types of information

Introducing Information Management: the business approach 3


systems and functionally specific systems are illustrated. In addition,the role information management plays in organizational integrationand providing a cross-functional bridge is described. Part 3 bringstogether key components of the technology management debate withthe broader information resource management debate.

Part 4 contains four chapters which examine the role of informationmanagement in organizational strategy and change. These establishthat the complexity of the information management challengeincreases considerably when it penetrates to the heart of an organiza-tion’s activity. The strategic value of information is realized when infor-mation systems assemble the information from the various businessfunctions and make sense of this at an organizational level. For this rea-son, an important part of the information management challenge isinvolved with the strategic perspective critical to managing and plan-ning for the information resource. The strategic use of IT also has a far-reaching influence on organizational change. Because IT canmanipulate the information resources of an organization, it is oftenused as an enabler for both radical and incremental business processchange. Facilitating such innovation is a crucial part of the informa-tion management remit, which is often coupled with the dynamics ofinvesting in new technology. Part 4 concludes by stressing that organ-izations need to foster an approach to information management thatencompasses the strategic perspective if lasting organizational changeis to be realized.

Together these chapters present a rich picture of the scale of infor-mation management. Given that information is the lifeblood of mod-ern organizations, it is perhaps not surprising that informationmanagement envelops issues as diverse as managing informationresources through to operational technology management through tobroader strategic thinking and change. Future business achievementsare now inextricably linked to successful information management.

4 Introducing Information Management: the business approach


The role of information is so important that there is a new functionemerging – the Information Management Function. This function isconcerned with all aspects of managing information within organiza-tions. However, the growth in the use of information technology (IT)has meant that many people confuse information management with themanagement of information technology. While this is an importantaspect of the information management function, it tells only part of thestory. Information management (IM) is broader than this and should beseen as the conscious process by which information is gathered and usedto assist in decision making at all levels of an organization.

Organizations create specialized functions when a specialized expert-ise is required. The use of information and communication technolo-gies is so pervasive that a certain level of expertise must be distributedbroadly across the organization. Individuals and workgroups withinthe other organizational functions may have significant responsibilityfor their own information management activities or local systemsinvolving information technology. However, the information manage-ment function has responsibility for maintaining expertise sufficient to assist individuals, groups and other functions in their information

P A R T

Introduction: Managingthe Information

Management FunctionMatthew Hinton

1

management to provide integration across the organization and buildand maintain the corporate information infrastructures necessary forintegrated information processes. The same concept can be observedin other functions. For example, budgeting and analysis of financialresults must be applied by many individuals and workgroups, but theaccounting function has responsibility for establishing standards, pro-viding expertise and consolidating and interpreting results at the organ-izational level.

An organization must build, maintain and rebuild its businessprocesses and information systems. Every business function has a rolein these activities. However, the information management function hasa more active role because many of the processes and systems incorp-orate information technology. Although each business function shouldbe involved in the design and development of its processes and sys-tems, the complete information system expertise needed for suchdevelopment is not normally present in a function. Also, many infor-mation systems cross functions, so no single function can define therequirements for these systems. The information management func-tion has special expertise for business process and system develop-ment. A unique role of information management is integration, both indevelopment and information operations. This cross-functional, inte-grative role makes information management very broad in its domainof interest, dynamic and demanding.

In Chapter 1, Managing information in modern organizations,Hinton outlines why there is a need for an information managementfunction within modern organizations. The history of the manage-ment of information technology is outlined which demonstrates thatmanaging this volatile technology has gone through several key stages.These stages commonly reflect the nature of the benefits that organ-izations seek to derive from the application of IT. The chapter outlinesthe key challenges that now face the information management func-tion. These include (but are not limited to) the use of resources; man-aging IT’s entanglement with most business processes; dependency ondata, personnel and technology; legacy systems; and the wide rangingeffects of system design. The chapter sets out several key concepts in information management that help to understand and respond tothese crucial challenges. Lastly, the chapter lays out some critical devel-opments that will help to shape future directions for information management.

In Chapter 2, Organizing and leading the information technologyfunction, Applegate, McFarlan and McKenney discuss a wide array ofvariables affecting the information management function. This ranges

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from internal ones such as the quality and nature of existing hardware,software and IT staff and the nature of the business’s products or ser-vices, through to external factors related to the geographical spreadand location of the business. The main implications of such variabilityare the need to strike an appropriate balance in two key areas:

■ Between innovation and control of the organization of infor-mation management and IT, and

■ Between being led by IT specialists or by users.

Applegate et al.’s underlying message is one of designing structures thatstrike the right balance between domination by users and domination byIT providers to suit the nature of the organization’s business and othervariables. However, there is an implication that a relatively flexible struc-ture – a matrix or network rather than a traditional bureaucracy – is necessary to enable organizations to exploit IT positively over long peri-ods. Equally, the authors suggest that certain types of organizational cul-ture are more appropriate to developing the IM function. The chaptermakes some useful links between the organization of IT and the infor-mation management function and the responsibilities of other businessfunctions. For instance there are a number of references to the need to develop and manage relationships between IT specialists and users,and the appropriate skills and experience required for different roles in managing the information management function (involving humanresource management). The contribution of IT to cost reduction, per-formance information and the evaluation of IT investments demon-strate the functional overlap with accounting and finance. Much of thechapter links to operations management responsibilities such as pur-chasing, supplier relationships and control. There are also examples ofthe role of information systems in marketing to external customers, aswell as a strong underlying message that if the information managementfunction markets itself effectively, internal users will eventually learn toappreciate how much the function has to offer!

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Introduction

The last decade has seen an unparalleled increase in the use of infor-mation and communication technologies (ICT) within organizations.The expansion of computing, fuelled by ongoing technological devel-opments in personal computing, networked communications and theexplosion of the Internet, has radically altered the way organizationswork. Hand in hand with the dramatic increases in the availability ofthe technology is the rapid diffusion of ICT to the majority of organ-izational members. Nearly all professional roles can no longer functionwithout some form of interaction with ICT. The last decade has alsoseen a change in the application of ICT within organizations. The abil-ity to manipulate critical management information has stimulated aprogression from applying ICT to automate work, to applying it toenhance decision-making activities. This has the potential to alter thevery nature of many work activities.

Few in business would dispute that ICT is essential. However, manysee their use of ICT as a necessary and costly requirement for businesssurvival, rather than a means of unleashing the untapped competitiveadvantage of their company. Indeed, it is argued that a gulf existsbetween the investment made in information and communication tech-nology and an organization’s ability to reap significant business bene-fit from it. Accordingly, the various changes taking place have madethe management of the technology a critical concern. This concern is

C H A P T E R

Managing information inmodern organizations

Matthew Hinton

1

manifest in the inability to justify ICT expenditure, a lack of integra-tion between the technology and business needs and a plethora ofproblems associated with managing the operations of the technicalfunctions responsible for ICT. Accordingly, organizations must learn to maximize the advantages offered by ICT while avoiding the manypitfalls associated with rapid technological change.

Why is there a need for an information management function?

Modern organizations use a variety of resources in order to fulfil theirobjectives. Regardless of whether they are public or private, multi-nationals or small entities, they all share a set of common resources whichthey depend on to carry out their goals. These are financial resources,skilled people, physical property, time and information. Successfulorganizations are those that find ways to optimize the value of theseresources to produce the best stakeholder value they can. So at the sim-plest level most managers’ main task is that of asset management.While these assets are important to all organizations, their proportion-ate value is not necessarily the same. Nevertheless, it is a commonlyheld belief that information is essential to all organizations, but thatskilled people are the most important asset, regardless of organiza-tional goals or industry sector. Indeed, as we move into a more infor-mation intensive environment it is the combination of people andinformation resources that will deliver superior performance and com-petitive advantage. In fact, organizations that repeatedly deliver highperformance, or are responsible for developing innovative goods orservices, are likely to have motivated and empowered employees sup-ported by well-developed information systems. As Frenzel (1999) states:

The leverage of information and people is so powerful that managers in high-performance organizations devote considerable energy tomanaging information, its delivery system, the people who deliver it,and those who use it.The combination of skilled people and advancedinformation technology has revolutionised the concept of management.

This is an important point because the adoption of new ICT entailsmore than just the installation of the technology. Successful technol-ogy adoption requires organizations to assimilate the technology intotheir business processes and to understand how its introduction can


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distort the current balance of power within the organization itself. Theintroduction of new information systems can often redistribute know-ledge among the workforce with consequences for managerial author-ity. Equally, employees feel a greater sense of responsibility as a resultof engaging with more knowledge-based work. The growth in this typeof knowledge-oriented activity means that workers and managers needto create new relationships based on participative management tech-niques. This should allow for a less formal management structure withgreater decentralization, employee commitment and the developmentof self-managing teams. However, for organizations to move in such a direction they need to have strategies and plans for ICT adoption,which are developed and supported by appropriately skilled person-nel. Usually expert ICT departments exist who would oversee this sortof development. Such a department would be responsible for develop-ing the organization’s strategic perspective with respect to the deploy-ment of new technology and also for guiding its implementation andsupporting and maintaining the systems once they are installed. Inmost organizations the ICT department is essential.

Most modern organizations have some form of ICT department. How-ever, the growth in the use of information and communication techno-logy has meant that there is a tendency in some quarters for people tomistake the concept of ‘information management’ with the practice of‘managing information technology’. While the management of the tech-nology is no small task and one not to be underestimated, it tells onlypart of the story. Information management is much broader than thisand should be seen as the conscious process by which information isgathered and used to assist in decision making throughout an organiza-tion. As a result, organizations have to develop an information manage-ment function which is capable of addressing this. The ICT departmentforms part of this response. By bringing together people with the requi-site technical skills (systems analysts, programmers, web designers etc.)an organization can support the other organizational functions withrespect to their information needs. Examples of this appear in Table 1.1.

These examples are just a few of the myriad of systems that ICTdepartments are expected to support. Together these systems are oftenreferred to as the applications portfolio, which includes the entire rangeof systems found within an organization. As well as the large, centralizedsystems (like payroll) which are the modern versions of the early com-puter systems, the applications portfolio also includes systems developedby functional areas for specific purposes and the communicationsinfrastructure which binds all these systems together. An average sizedorganization may easily have an applications portfolio holding several

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Table 1.1Functional applications supported by the ICT department

Functions IT applications supported

Operations Materials logistics, factory automation, warehouseautomation, shipping and receiving

Marketing Customer relationship management systems, salesanalysis systems, market research and forecasting systems

Finance and Budgetary control and planning systems, accountsaccounting payable

Human resources Personnel records, training and development systems,compensation analysis systems

thousand computer programs. The configuration of the informationmanagement function has to cater for this array of systems. Consequently,ICT departments are a mix of some centralized and some decentral-ized activity. Centralized functions include building new computerapplications, operating and maintaining existing systems, as well ashelping to develop strategic plans for the use of ICT. By contrast theremay be smaller groups of ICT professionals who are responsible forsupporting computer operations in other functions, say operations ormarketing, or providing localized ICT training or end-user support.The structure of the information management function can varygreatly depending on an organization’s culture and the characteristicsof the industry sector it is in. Structures will be different depending onthe variety of different organizational and department needs. Further-more, as organizations evolve they change their business processes oftenthrough new technology adoption. The ICT departmental structureshave to adapt to reflect these changes.

While a certain level of information management expertise needs tobe distributed across the organization, there is a critical role for infor-mation management specialists to integrate activity throughout theorganization, building and maintaining the corporate informationinfrastructures necessary for integrated information processes.

The history of ICT management

The history of information and communication technologies is one of phenomenal and rapid technological development. Often the poten-tial of the technology has outstripped the ability of organizations to

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make use of it. The way that organizations have tried to manage thistechnology has gone through several distinct stages.

Computing technology has been used in organizations since the late1950s. Initially, computers were seen as mammoth calculating machines,relevant only to scientists and code-breakers. It was not until the secondor third generation of computers appeared on the market that commer-cial computing and data processing really emerged. The first applicationsof this technology were for routine business data handling and hence thisphase of applications acquired the generic name of Data ProcessingSystems or DP for short. Early commercial computers were used mainly toautomate the routine clerical work of large administrative departments.As the costs of these early computers were very high and the scope of whatthey could do was limited by comparison to today’s standards, the busi-ness benefits were to be gained by automating large-scale administrativeprocessing. Because of this they were used to automate existing processes,especially for tasks that were labour intensive, such as well-definedaccounting operations like Payroll and general ledger systems.

By the late 1960s computers had become pervasive with large corpor-ations having acquired big mainframe systems. Rapid advances in both the hardware (the computers themselves) and the software (thecode that makes the hardware perform required tasks) meant thatcommercial systems became more efficient and reliable which led tofurther take-up of the technology. Most of these companies had largecentralized computer installations which operated remotely from theirusers and the rest of the business. The growth in computing led organ-izations to question the changes that were taking place. Somogyi andGalliers (2003) state that three separate areas of concern emerged:

1 Organizations started examining the merits of introducingcomputerized systems. While the systems being developedwere effective, given the objectives of automatic clericallabour, the financial savings were not always being realized.The reduction in the number of moderately paid clerks wasmore than offset by the need to employ highly paid data pro-cessing professionals, as well as the high cost of the computersthemselves. In addition, the computers also required stagger-ing maintenance costs. The remote ‘ivory tower’ approach ofthe data processing departments made it very difficult for themto develop new systems that genuinely met the needs of theusers. User dissatisfaction grew with the amount of time it tookfor data processing departments to make system changes andtheir apparent inability to satisfy user needs.


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2 Organizations had not anticipated that replacing manualoperations with the introduction of computer systems wouldmean that substantial organizational and job changes wouldbe necessary. It was becoming clear that data processing sys-tems had the potential of changing organizational structures.

3 It was becoming clear that a lot of systems had significant limi-tations. This was partly due to the fact that the centralized,remote, batch processing systems did not fit many real lifebusiness situations. The output from such systems often pre-sented historical rather than current information. This wasfine for some operations but not useful for up to the minutedecision-making purposes.

Consequently, organizations began to change the way they approachedthe management of computing technology. Software engineeringemerged as a new discipline. This attempted to take a formalized andanalytical approach to system development. At the same time as this,new technology was emerging, most notably the mini computer, whichmeant that computing power no longer had to be centralized in someremote location. This allowed organizations to place computing sys-tems closer to the business departments they were supposed to serve.The mini computer also opened up the possibility of using computersystems in smaller companies.

As more and more routine company operations became supportedby computer systems, organizations realized that there was a growingneed for a more coherent and flexible approach. Holding data in dif-ferent systems scattered throughout different departments meant thatit was not possible to cross-reference data from various departments.This began to limit the ability of managers to make effective decisions.Two solutions to this problem arose. First, it was realized that the dataneeded to be separate from the systems that processed that data to cre-ate specific management information. This heralded the arrival ofdatabase technology, which is a collection of software for holding datawhich follows a set of basic rules about the way data should be stored.The drive for data independence brought about major advances inthinking about systems and in the practical methods of describing,analysing and storing data. The second solution centred on the devel-opment of telecommunications technology which began to allow com-puters at remote geographic locations to be inter-connected. During the1980s telecommunications and networking really flourished. Coupledwith the idea that data should be separate from the systems that processit, organizations were able to manage their computing resources in


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new ways that allowed for distributed data processing. This was dramati-cally enhanced by the introduction of the personal computer (PC) whichput significant computing power on managers’ desks. While thesedevelopments offered the potential for enormous gains from informa-tion systems, there were also a number of problems experienced as aresult of the proliferation of incompatible systems and the fragmenta-tion of data throughout the organization. It is during this period thatthe first information management functions begin to emerge. Thisfunction is a step beyond the traditional data processing departmentsand system development departments. While often including theseskilled activities, the information management function was developedto manage information effectively throughout the organization. Thisrecognized that information had become an extremely valuable resourceand that a coherent approach was necessary if organizations were toachieve competitive advantage through information systems. Often theinformation management function was headed up by the ‘chief infor-mation officer’. This was a new role that gave boardroom recognitionto the importance of careful information management.

Throughout the last decade ICT have continued to advance at anoverwhelming rate. Accordingly, the emphasis of what organizationsseek to achieve from this new technology has changed radically sincethe first computers were introduced. The use of ICT is now seen from a strategic perspective as organizations rely on ICT applications tostreamline structures and to link them electronically to their customersand suppliers, enabled greatly with the development of the Internet.The role of the information management function is no longer seen inisolation but is intertwined with that of the other organizational func-tions. Communication between the information management functionand the rest of the organization is critical to reshaping businessprocesses. Indeed, business process re-engineering has been a drivingforce in recent years. This uses new technology to move beyond the effi-ciency and effectiveness gains of earlier information systems in order tobring about radical changes in the very nature of the way organizationsoperate.

To summarize, the main generic benefits of ICT can be seen as:

1 Efficiency: a shortening of the time needed to complete a worktask, i.e. doing the same job better and thus saving otherresources.

2 Effectiveness: the ability to restructure work to allow employeesto utilize their time more constructively resulting in quality, excel-lence and image improvements.


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3 Strategic advantage: improving the business by exploiting theways in which ICT can support or drive strategic businesschange. The application of ICT in this arena may frequentlycause a restructuring or redefinition of the business, evenleading an organization into new business opportunities.

These benefits can be seen as mapping onto the key stages of ICT man-agement, described above. In the past the lack of ICT and businessintegration has not seemed so important or necessary. The issue hasnot been of overwhelming concern to either senior management orinformation management professionals. However, this managementissue is now central due to changes in the application of ICT andchanges in the competitive environment in which organizations areexpected to operate. The way that information resources are managedis now inseparable from the rest of organizational activity.

Key challenges for the information management function

The historical development of information and communication tech-nology (as described above) has meant that organizations are faced witha number of key challenges with respect to information management.

ICT resources comprise a large and often growing portion of mostorganizational budgets. Often the promised benefits of new informationsystems do not fully materialize and in numerous cases new systems arecompleted over time and over budget. There have even been severalcases where systems have not met requirements and have had to be aban-doned. Because of cost pressures and increased competition many organ-izations intensely scrutinize their ICT budgets. However, assessinginvestments in ICT generally has proved problematic as a number ofintangible elements exist that cannot be measured easily if at all (Hintonand Kaye, 1996). Equally, there has been a failure to establish any rela-tionship between ICT investments and productivity gains (Strassmann,1999). In the past the exploitation of ICT has generally resulted in effi-ciency related benefits. This is appraised using well-established tech-niques and principles like Cost Benefit Analysis or Return on Investment(ROI). However, as the nature of ICT applications has shifted these tech-niques are no longer applicable. Information systems designed to sup-port management effectiveness create problems for management as the benefits they produce tend to be qualitative in nature, for example,gains in customer service, improved management communication, or


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enhanced corporate image. Equally, these benefits may be cancelled outby competing organizations also investing in similar systems. Conse-quently, some systems become part of the operating fabric of an organi-zation, which on the one hand do not provide any competitive benefitsbut, by the same token, the organization cannot do without. This is hap-pening with much of the use of the Internet. Where once e-commerceapplications would have given significant competitive benefits, they arenow becoming a basic requirement for doing business in many industries.

ICT are now so widely dispersed on modern organizations that it isimpossible to separate out most business processes from the technologyneeded to enable it. It is often the case that organizations have becomeso reliant on key information systems that if those systems experienceany form of service disruption, for even a few seconds, it can have severeramifications. This is particularly true as the use of new technology hasfacilitated global trading which has exposed modern organizations toincreased competition on an unprecedented scale. Indeed, the relianceon key information systems poses another challenge. These systemsclearly represent intellectual assets that are the foundation of informa-tion-based organizations, so how should these organizations value themand what measures should be put in place to protect such an asset?

A further challenge for organizations is that they now have to managea complex network of intertwined information systems that permeateevery corner of modern organizations. This brings with it a whole seriesof concerns. The act of developing a computer system imposes a struc-ture on particular organizational processes which are effectively frozenin time and context. The system design is fixed at the time the designtook place and within the environment which was existing then. Hence,it concretes in whatever is the required information systems for that time.The comparison here is that human systems have the capability to beboth dynamic and diverse, while the technological rigidity of informa-tion systems tends to render them static. While the benefits of automa-tion are initially appealing to organizations, the costs associated withthe incapacity to adapt systems to a changing business environment arenot considered. This dependency occurs when organizations fail to takeinto account the human elements of their business processes. A furtheraspect of this dependency is that organizations become reliant on thetrappings needed to support their systems. For example:

1 Technology dependency: the more that the technologicalcomponents of systems dominate, the greater the organiza-tional dependency on technology. Accordingly, many organ-izations cannot function without access to the technology.


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Once organizational information is stored in a technical formit requires some sort of technical interface to access and mani-pulate it. System failure leads to organizational failure. This isa hidden cost in that it requires the investment of significantorganizational resources over time to ensure that technicalfailure is avoided.

2 Personnel dependency: technology dependency can lead to apersonnel dependency. This is twofold. First, information sys-tems require a body of technical experts (programmers, analystsand the like). These employees become critical to the function-ing of the organization and some organizations feel that theyhave suffered a loss of control over key business systems, espe-cially where they have outsourced their ICT operations. Secondly,the underlying skill level of the users expected to work with aninformation system demands a level of technical competence.An organization has little control over the level of system under-standing or the diffusion of learning. Consequently, it is depend-ent on the users’ qualities of skill acquisition as to how well theirinformation systems will be utilized.

3 Data dependency: the issue of dependency on data, investmentin them and the cost of their transfer from one system toanother is a common challenge for organizations. In the major-ity of cases data have become a business necessity and it is seenas essential to protect them and guarantee their availability.

As organizations evolve they build up a succession of past investmentsin ICT. Past generations of ICT investment are known as legacy systems.Organizations become locked into certain technologies (both hard-ware and software) and ideas about design and implementation(approaches to programming, maintenance and support). Modernorganizations recognize that there are key information systems whichthey are dependent upon. The information management challengearises when the organization needs to change its business processes. Ifthey were less dependent then they would simply migrate to the nexttechnical platform with minimal effort. However, managers are con-stantly aware of the need for future investments to coexist with existingsystems. New technology offers new opportunities, but organizationshave to take into account the legacy of the existing structures and sys-tems. This can only serve to restrict or, at best, channel new investmentdown particular technological avenues (Hinton and Kaye, 1996).

In planning for and applying ICT managers need to balance theinfluence and effects of the technological change on the different


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members of the organization. It is generally accepted that a significantsource of organizational power may be derived from the control of, or access to, critical organizational information. This makes the infor-mation systems that process it critical. Indeed, determining the design,content and responsibility for such systems is frequently contentious.Furthermore, the users of an information system are critical to its successor failure. New systems can have a range of effects. For example, usersmay be more motivated and productive as a result of the system. On theother hand, new systems can lead to changed work roles, potentiallydeskilling users who may experience a degree of alienation. Despite allof this, the influence of ICT is often analysed in a fashion which depoliti-cizes the real processes involved. The justification for ICT can becomean organizational battleground due to the political issues raised by technological change. The challenge for the information managementfunction is to navigate a smooth path through this state of affairs.

To summarize, the challenge of managing ICT continues to bedemanding. Ongoing research in this area has identified a number ofkey issues which continue to occupy the attention of the informationmanagement function of virtually all organizations. These are:

1 Aligning organizational goals with what the new technologycan deliver

2 Employing ICT to enhance productivity and quality3 Exploiting ICT to generate competitive advantage4 Redesigning business processes to support the organization

more effectively, and5 Justifying the ICT investments needed to achieve all of this.

In addressing all of these issues modern organizations need to takeinto account the unique circumstances of their own organizational cul-ture, as these provide the conditions against which new technologyevolves within the organization. More often than not, these issues aremanagerial in nature so organizations need to find the right blend ofmanagement skills to complement an underlying technical expertise.

Key concepts in information management

As information and communication technologies become ever morediffuse within modern organizations, managers are using a variety ofmodels to help them control and evaluate increasingly vital informa-tion assets. These models draw on a set of concepts that, at their heart,address many of the challenges presented in the last section.


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Strassmann’s (1995) concept of Information Management Superiorityattempts to address the challenge of aligning organizational goals withappropriate ICT investments. In this framework information manage-ment superiority is maintained by five core ideas:

1 Governance: governance concerns power and applying anunderstanding of the distribution and sharing of power to themanagement of information and communication technolo-gies. Information management is the process by which thosewho set policy guide those who follow policy and governanceis central to this.

2 Business plan alignment: if plans for the use of ICT are to havecredence then they need to be in line with organizationalbusiness plans.

3 Process improvement: regular analysis of all ICT activities is neces-sary to discover areas where improvements might be made.

4 Resource optimization: in seeking to maximize the benefits ofinformation resources, managers must take into account theiruse of other resources (such as people, money and time).These resources may be utilized better elsewhere in the furtherance of organizational goals.

5 Operating excellence: operating excellence is concerned withthe ongoing delivery of superior performance and qualityacross all business processes.

It is the constant interaction of these five core ideas that results ininformation management superiority. Governance is critical, however,as organizations face the challenges associated with technologicalchange. As was previously stressed, the information management func-tion is charged with finding a smooth path through this organizationalbattleground. Inevitably, there are conflicts that require resolution iforganizations are to take advantage of the enormous power of newtechnologies. Strassmann argues that the resolution of these conflict-ing interests now requires the introduction of formal governanceprocesses that will keep up with the accelerating rate of change both intechnology as well as in competitive relationships. In many ways theconcept of information management superiority traces the develop-ment of the information management function. Initially, organizationswere generally only concerned with (4) resource optimization. As thenature of information systems development moved from automationto more strategic applications, their attention was drawn to (3) processimprovement and (2) business plan alignment. The focus on businessalignment and process improvement has seen organizations address


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(5) operating excellence as a way of refining their management of ICT.Governance encapsulates the latest phase in this development, whereorganizations can turn their attention to the rules governing technol-ogy dispersal and policy development. Establishing a guiding policy forICT acquisition and deployment is now more significant than owningand operating large computer systems. Governance allows organiza-tions to attend to policies which support the best use of their informa-tion resources without necessarily meaning they have to be responsiblefor the technical operations to support this. This is reflected in the sig-nificant move towards the outsourcing of these technical operations toa variety of third-party ICT service firms.

Various theories have been proposed to explain how informationsystems change over time. Research conducted by Nolan (1979) foundthat organizations tend to go through several quite distinct phases ofgrowth. The results of their observations strongly suggest that as organ-izations implement new information systems and gradually assimilatethis technology into their new working practices they go through sixdistinct and predictable stages. They showed that expenditure on newICTs follows an S-shaped curve of increasing costs. Expenditure is grad-ual at first but increasing dramatically before adopting a more gradualslope again. This curve also represents a path of organizational learn-ing about the potential use of ICT within organizations.

The characteristics of the stages can be summarized as:

1 Initiation stage – automation of clerical operations where somemore technically minded employees use technology becausethey are keen, rather than use it for cost effectiveness. Usagegrows slowly as people become familiar with the technologiespotential.

2 Contagion stage – rapid growth as users become more familiarwith applications and demand more and where the wider bene-fits of technology are perceived by more staff.

3 Control stage – planning and methodologies are introduced inorder to assert control over developments and investment intechnology is taking place in a planned manner. Controls maybe introduced by setting up steering committees and projectmanagement teams. Managers become increasingly concernedabout the relative costs and benefits of ICT applications.

4 Integration stage – the integration of the various computing func-tions within the organization; there is a wider user involvementin system development and a drive towards integrated systemsand databases.


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5 Data administration stage – emphasis is placed on informationrequirements rather than just processing requirements andthere is sufficient information available to support ongoingdecision-making activity. The organization is concerned withthe value of its data resources and takes action to ensure theeffective utilization of its databases.

6 Maturity stage – careful information management ensures thatthe application of new technology is brought into line withongoing business planning and development. Informationflows mirror the real-world requirements of the organization,which will be using a variety of applications to support itsinformation needs. Technology and management processesare integrated into an efficiently functioning entity.

Nolan’s six stage model is useful because it makes it possible to classifyorganizations into the stage they are presently at, thereby, being able topredict their future response to new ICT. Not all organizations withinan industry sector will be at the same growth stage. Equally, within anorganization different departments might also be at different stages ofdevelopment. By recognizing this it is possible for an organization tounderstand how more advanced departments progressed and transferthat knowledge to help speed up developments in other departmentsstill at earlier stages of development. This also means that they can pro-duce strategic plans that are not too ambitious and anticipate possiblepitfalls associated with the later stages of the model. Although this ismore of a conceptual rather than a quantitative tool, the growth stagemodel is important for good information management because it pro-vides critical appreciation of technology adoption processes. While themodel may be criticized as not fully appreciating recent developmentsin ICT, the basic idea that organizations go through stages when adopt-ing technology still applies and has been observed in a number ofrecent cutting edge electronic commerce applications.

Exploiting ICT to generate competitive advantage is an all consum-ing challenge for organizations which demands considerable manage-ment attention. Accordingly, it has been the focus for much conceptdevelopment. As long ago as the 1970s Rockart (1979) developed thenotion of critical success factors (CSF). Critical success factors help tofocus on those few areas where things must go right. These representthe necessary conditions for organizational success. When this conceptis applied to the information management function it is invaluable indetecting what information systems are vital for organizational success.Furthermore, by breaking down each factor into a set of key decision


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points it is possible to identify what specific actions are required tomanage the use of new technologies if success is to be realized. It istrue that, at a general level, critical success factors for the informationmanagement function are closely aligned with the key challenges pre-sented earlier. However, application of this concept does allow for avery specific analysis of key challenges within a particular organiza-tional context.

In trying to make sense of the strategic dimension of their informa-tion systems many organizations look at the whole portfolio of systemsthat they have. The applications portfolio concept looks at the strategicimpact of individual applications within the organization and classifiesthem in terms of their current and future strategic importance.

The information management function can use the grid (see Figure1.1) to seek out those applications that have the greatest strategicpotential. The categories are:

1 Support – applications that improve management effectivenessbut are not critical to the organization. The benefits they deliverare predominantly economic as with the cost savings realizedfrom automation (payroll systems, accounting systems etc.).

2 Key operational – applications that sustain the existing businesssupporting core organizational activities (inventory control,order management etc.).

3 Strategic – applications that are critical to both current andfuture organizational goals.

4 High potential – applications that can be seen as innovative andpotentially of future strategic importance, such as electroniccommerce applications or expert systems.


High potential Strategic

Support Key operational

Low High

High

Low

Strategic importance in the currentcompetitive environment

Str

ateg

ic im

port

ance

in th

epr

edic

ted

com

petit

ive

envi

ronm

ent

Figure 1.1The applications

portfolio grid.Source: ACCA(2001) Business

InformationManagement: paper3.4 textbook, Foulks

Lynch Ltd.

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Over time an organization can chart the evolving nature of its applica-tions portfolio. Today’s high potential e-commerce system is tomor-row’s strategic necessity, which in time may become just another keyoperational application. A complementary approach has been sug-gested by Parsons (ACCA, 2001) who offers a conceptual frameworkthat organizations can use to understand their current information systems strategy and to explore possible other strategies within theirresource constraints. The framework suggests six generic strategies:

1 Centrally planned – information systems strategy is developedto support the greater organizational strategy and is managedat the highest level accordingly. The role for the informationmanagement function is one of service provider closely linkedto the user community to deliver the business demands andcombining this with significant input into the ongoing organ-izational planning process.

2 Leading edge – this strategy is implemented because the organ-ization believes that innovative new technologies will createcompetitive advantage. Following this strategy can producehuge rewards but is based on a high level of risk taking for theorganization. The role for the information management func-tion with this strategy is one of experimenter and promoter,constantly pushing the technical boundaries. Likewise usersare enthusiastic to utilize the new technology and incorporateit in their work practices.

3 Free market – ICT requirements are determined by an organ-ization’s business units (say marketing department, HR etc.)and may be supplied either internally or externally subject tobest price and service. The role for the information manage-ment function is as a competitive business unit providing ICTsolutions in competition with external service providers.Many organizations that employ this strategic approach outsource components of their information managementstructure to specialized ICT companies.

4 Monopoly – the organization has decided that there will be oneinternal source of supply for ICT. In this strategic scenario theinformation management function role is reactive with norequirement to direct future developments. User depart-ments have to bid for ICT resources.

5 Scarce resource – there must be clearly justified returns oninvestment in new systems with little scope for innovation.The role for the information management function is to make


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the best of the limited resource, but this strategy tends to havea long-term negative effect on information exploitation.

6 Necessary evil – this strategy is adopted in organizations thatbelieve that information is not important in their business.The information management function provides the min-imum level of resources, just enough to meet basic needs.Users in other functions take no part in the development ormanagement of information systems.

These days, as the importance of information is paramount, it is incon-ceivable that any organizations will find themselves with a ‘necessaryevil’ strategy. When used in conjunction with some of the other conceptsin this section, this framework suggests ways that organizations shouldstructure their ICT departments and resources.

Future developments

So where next for the management of information? Modern organiza-tions find themselves tasked with creating new business knowledge and disseminating it widely throughout the organization. Successfulknowledge-creating organizations (sometimes called learning organi-zations) create techniques, infrastructures and systems to encourageemployees to share what they know and to make better use of accumu-lated workplace knowledge. This simple idea is the basis for a challengingconcept called knowledge management. A major purpose of knowledgemanagement is to allow for knowledge sharing. Knowledge sharing isencouraged between customers, employees and business partnersbecause it offers significant potential benefits. These come in the formof improved customer service, better supply chain management andincreased collaboration both within the organization and beyond.Knowledge management systems are information systems that faci-litate organizational learning and knowledge creation. Accordingly,knowledge management is fast becoming one of the major strategicuses of information systems. The new challenge of knowledge man-agement requires that ICT departments begin providing systems thatare capable of supporting knowledge management. According toTurban et al. (2001) these activities include:

■ Knowledge identification – determining what knowledge iscritical to decision making.

■ Knowledge discovery and analysis – using tools and tech-niques such as databases, data mining and search engines to


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find appropriate knowledge and analyse it within a givenorganizational context.

■ Establishment of organizational knowledge bases – organiza-tional knowledge and best practice needs to be recorded,indexed and maintained in a knowledge base.

■ Knowledge distribution and use – target audiences are identi-fied and technologies adopted to facilitate knowledge deliverywhen needed.

The information management function has to find the right blend ofnew technology and creative applications to address these requirements.Many organizations are making use of a wide variety of technologies,such as data warehousing, document management, intranets and theWeb (which are becoming the knowledge management infrastructure),as well as tools for data visualization and intelligent text retrieval.

The benefits to be gained from knowledge management have ledmany organizations to change their perspective of their informationresources. The realization that there is much to be gained from shar-ing information across organizational boundaries has seen the devel-opment of the virtual organization. A virtual organization will compriseseveral business partners who aim to share costs and resources. Sucharrangements can be temporary, as with the construction industrywhere partners come together for the duration of a building project,disbanding once the project is complete. The virtual organization canbe viewed as a network of creative people, resources and ideas con-nected via online services, who group together to produce goods orservices. The virtual organization combines the core competencies ofthe various partners as well as allowing the full utilization of resourcesacross all partners. Frequently, this leads to the redefinition of bothorganizational boundaries and international business boundaries.Such close cooperation makes it difficult to see where one organiza-tion ends and another begins. The application of information systemsand communications technology is vital in creating these alternativestructures, but by the same token will require modern organizationsradically to rethink how they go about managing information.

References

ACCA (2001) Business Information Management: paper 3.4 textbook, Foulks Lynch Ltd.

Frenzel, C. (1999) Management of Information Technology, Thomson Learning.


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Hinton, M. and Kaye, R. (1996) The hidden investment in information tech-nology: the role of organizational context and system dependency.International Journal of Information Management, 16, 6, 413–427.

Nolan, R. (1979) Managing the crisis in data processing. Harvard BusinessReview, March–April, p. 115.

Rockart, J. (1979) Chief executives define their own data needs. HarvardBusiness Review, March–April, p. 81.

Somogyi, E. and Galliers, R. (2003) Developments in the application of infor-mation technology in business. In Strategic Information Management,Galliers, R. and Leidner, D., eds, Butterworth-Heinemann.

Strassmann, P. (1995) The Politics of Information Management, InformationEconomics Press.

Strassmann, P. (1999) Information Productivity: Assessing the Information Manage-ment Costs of US Industrial Corporations, Information Economics Press.

Turban, E., Rainer, R. and Potter, R. (2001) Introduction to Information Technology,Wiley and Sons.


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C H A P T E R

Organizing and leadingthe information

technology functionLynda M. Applegate, F.Warren McFarlan and

James L. McKenney

2

[…] The management structures needed for guiding new technologiesinto the organization are quite different from those for older, establishedtechnologies. The corporation must encourage information technology(IT) staff and users to innovate with the newer technologies, while focusingon control and efficiency in the more mature technologies. In this chapter,we will discuss two rapidly changing aspects of IT management: the rangeof organizational alternatives that have emerged for effectively assigningresponsibility for IT development and the coordination and location of ITpolicy formulation among users, IT and general management.

Organizing issues in IT development

Policies for guiding the deployment of IT development staff and activ-ity in the future must deal with two sets of tensions. The first […] is the balance between innovation and control. The relative emphasis afirm should place on the aggressive innovation phase varies widely,

Source: Adapted from Applegate, L.M., McFarlan, F.W. and McKenney, J.L.(1999) Corporate Information Systems Management. McGraw-Hill.

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Chapter 2 Organizing and leading the information technology function 29

depending on a broad assessment of the potential strategic impact ofIT on the firm, general corporate willingness to take risk and so on. IfIT is perceived to be of great import in helping the firm reach its strate-gic objectives, significantly greater investment in innovation is calledfor than if IT is seen to be merely helpful. The opportunities to manyfirms offered by the explosion of Enterprise and Intranet softwarereadjusted the balance toward more innovation.

The second set of tensions is between IT department dominanceand user dominance in the retention of development skills and in theactive selection of priorities. The user tends towards short-term needfulfilment (at the expense of long-term architectural IT structure andorderly development), while the IT department can become preoccu-pied with the mastery of technology and an orderly development planat the risk of a slow response, or no response, to legitimate user needs.Balancing the roles of these two groups is a complex task that must be handled in the context of the corporate culture, IT’s potential strategic role and the urgency of short-term problem resolution.

Table 2.1 reveals some consequences of excessive domination by ITand by users, clearly indicating that very different application portfoliosand operating problems emerge in the two settings. Given the difficultyof anticipating the implications of introducing a new technology, thischapter will emphasize the need for experimentation, as illustrated bythe following […] cases.

Some examples

Case 1: Step-by-step innovation of a new technology

A large South African retail chain installed a system of point-of-sale ter-minals in all of their 50-plus stores. The retail division (with the supportof the IT manager) had initially funded the installation to assist storemanagers in controlling inventory. The terminals were to be usedexclusively within individual stores to accumulate daily sales totals ofindividual items and permit the stores to trigger reorders in case lots atgiven times. The planned inventory savings were quickly achieved.

At the initiative of corporate management, these IT systems thenevolved into links to central headquarters. The links fed data from thestores to new corporate computer programs that measured productperformance across the stores and provided the ability to manage ware-house stock levels chain-wide much more efficiently. Because the com-munication protocols in the selected terminals were incompatible with

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those in the computer at headquarters, implementing this unplannedlinkage was expensive.

Nonetheless, the possibilities and benefits of the resulting systemwould have been difficult to define in advance, since this eventual use

Table 2.1Possible implications of excess IT and user dominance

IT dominance User dominance

Too much emphasis on database and system Too much emphasis on problem focusmaintenance

All new systems must fit data structure of IT feels out of controlexisting system

All requests for service require system study Explosive growth in number of new systems and with benefit identification supporting staff

Standardization dominates with few exceptions Multiple suppliers deliver services. Frequent change in supplier of specific service

IT designs/constructs everything Lack of standardization and control over data and systems

Benefits of user control over development Hard evidence of benefits non-existentdiscussed but never implemented

Study always shows construction costs less Soft evidence of benefits not organizedthan outside purchase

Headcount of distributed minis and Few measurements/objectives for new systemdevelopment staff growing surreptitiously

IT specializing in technical frontiers, not Technical advice of IT not sought; if received,user-oriented markets considered irrelevant

IT spending 80 per cent on maintenance, User buying design, construction, maintenance and 20 per cent on development operations services from outside

IT thinks it is in control of all User building networks to own unique needs, not to corporate need

Users express unhappiness Some users are growing rapidly in experience and use, while others feel nothing is relevant because they do not understand

Portfolio of development opportunities firmly No coordinated effort between users for under IT control technology transfer or learning from experience

No strong user group exists Growth in duplication of technical staff

General management not involved but Dramatically rising communication costs because of concerned redundancy

Duplication of effort and input everywhere because different data, hardware and communications will not allow seamless movement

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was not considered important when the initial point-of-sale terminalswere being installed. Further, in management’s opinion, even if theorganization had considered it, the ultimate costs of the resulting sys-tem would have been deemed prohibitive in relation to the benefits(in retrospect, incorrectly prohibitive). In an uncertain world, thereare limitations to planning; in this case, the success of the first systemlaid the baseline for the next ones. The firm is now using the networkto implement company-wide a customer loyalty card to enable detailedunderstanding of who its key customers are and their individual buyinghabits better to target coupons and special discounting programmes.Again, this was not anticipated at the beginning of the process.

Case 2: User innovation as a source of productivity

A large bank introduced an electronic mail system and a word proces-sor system to facilitate preparation of loan paperwork. The two systemssoon evolved to link the bank’s loan officers (initially not planned to beclients of either system) to a series of analytical programs – an evolu-tion that developed out of conversations between a loan officer and aconsultant. Bundled with the word processor loan system was a power-ful analytical tool that officers could use to analyse loan performance.Because of the bank’s electronic mail system, loan officers (at head-quarters and in branches) could easily access the analytical tool.

Three months later, the bank faced a series of internal tensions asthe costs of both systems unexpectedly rose due to this added use. Inaddition, there were no formal means of reviewing ‘experiments’ orevaluating unanticipated uses of the systems by participants not ini-tially involved. Eventually, a senior-management review committee sup-ported the new use of the two systems and it was permitted to continue.Substantial enhancements were added to the word processing softwareto make it even more useful to the loan officers.

Implications

Typical of emerging new services supporting professionals and managersin doing work, the above examples powerfully convey our convictionthat it is impossible to foresee in advance the full range of conse-quences of introducing IT systems. Excessive control and focus onquick results in the early stages can deflect important learning that canresult in even more useful applications. In addition, because neither

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IT professionals nor users have outstanding records in anticipatinghow new technologies will affect organizations, a necessary generalmanagement role is to help facilitate this assimilation.

The material that follows is divided into three sections. The first dis-cusses the pressures on users to gain control – not only over a system’sdevelopment activities but, when possible, over the resulting productso it can run on a networked basis from the department. The second sec-tion identifies the advantages of strong IT development coordination andthe potential pitfalls of uncontrolled proliferation of user-developedsystems. The third section identifies the core policies that must beimplemented by IT management, user management and general man-agement, respectively, in order to ensure a good result. The generalmanager’s role is particularly critical in creating an environment thatfacilitates technological change and organizational adaptation.

Pressures toward user dominance

A number of intense pressures encourage users to exercise strongercontrol over their systems development resources and acquisition ofindependent IT resources. These pressures can be clustered into sevencategories: pent-up user demand, the needs for staffing flexibility, staffprofessional growth, competitive and service growth in the IT market,users’ desire to control their destiny, fit with the organization, and userlearning.

Pent-up user demand

The backlog of development work facing an IT systems developmentdepartment is frequently very large in relation to its staff resources.The reasons for these staffing ‘crunches’ are many. Existing systems,for example, require sustained maintenance to accommodate chan-ging regulatory and other external business requirements. In addition,the number of automated systems continues to grow and the main-tenance time for existing systems rises as ongoing customization increasessystem complexity and systems’ needs to be adapted to changes in theIT architecture.

The delays caused by these factors have led to enormous user frus-tration and a strong desire to take matters into their own hands. It hasalso been a driver towards outsourcing.

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Staff flexibility and growth

Because the central IT department appears to be unresponsive tousers’ demands, user-developed systems become attractive to users as anon-confrontational way of getting work done. Deploying either theirown staff or those from outside software houses, users see that they aresignificantly speeding up the process of obtaining ‘needed’ service.

Staff professional growth

An IT staff decentralized by both physical and organizational presencein the end-user department helps educate users to IT’s legitimatepotential; it also reduces communications problems between IT pro-fessionals and end users. Particularly important, it makes it easier toplan employee promotions that rotate IT staff to other (non-IT) jobswithin the department, thus enhancing user–IT coordination. Thisalso facilitates moving end users to IT positions.

Competitive and service growth in the IT market

Thousands of stand-alone software packages are available for specificapplications, ranging from simple accounts-payable systems to com-plete desktop support products. These systems appear to providebeguilingly easy solutions to short-term problems. Marketed by hard-ware and software vendors to end-user managers, the systems’ func-tional features are emphasized and any technical and software problemsare soft-pedalled. […]

User control

The idea of regaining control over a part of their units’ operations, par-ticularly if IT is critical, is very important to users. In many cases, thisreverses a trend that began 20 years ago in a very different technologicalenvironment. Control in this context has at least two dimensions.

Development

Users can exercise direct control over systems development priorities.By using either their own staff or self-selected software houses, which

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may offer highly specialized skills not present in the firm, users oftenhope to get a system with vastly improved support features functioningin less time than it would take to navigate the priority-setting process inthe corporate IT department. A user systems staff is also seen as closerand more responsive to user needs because the local manager, ratherthan an outsider, sets priorities. Development mistakes made by a localgroup are more easily accepted than those made by a remote group andthey are rarely discussed; successes, by contrast, are often topics of conversation.

Maintenance

Users gain control over systems maintenance priorities, since the workwill be done either by themselves or by software houses that are depend-ent upon them for income. Users often overlook the importance ofthis point at the time of initial systems installation: their assumption isthat maintenance will be no problem or that it can be performed by aclerk following a manual – a rare occurrence! Needs and desiresrelentlessly change and they come to appreciate the need for majormaintenance and desire to control it.

Fit with the organization

As the company becomes more decentralized in structure and moregeographically diverse, a distributed development function becomes amuch better fit and avoids heavy internal marketing and coordinationexpenses. Among conglomerates, for example, only a few have tried tocentralize development; most leave it with the original units. Heavilydecentralized companies such as Pioneer Hi-Bred have closed downthe central IT development unit and placed the IT developers in keydivisions. Finally, should the corporation decide to divest a unit, theprocess will be easier to implement if its IT activities are not integratedwith the rest of the company.

User learning

Predicting the full ramifications of introducing a new technology isvery difficult. On the one hand, enthusiastic user experimentation withwork under their control can stimulate creativity and produce new

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approaches to troublesome problems. Systems developed by a centralIT unit, on the other hand, must overcome greater user resistance inadoption. This IT challenge simply reflects research in the fields oforganization development and control, which has identified organiza-tion learning as a principal benefit of organizing in multiple profit centres, rather than by function. […]

Summary

In aggregate, these seven pressures represent a powerful argument fora strong user role in systems development and suggest when that rolemight be the dominant one. The pressures driving users toward pur-chase, development, and/or use of local systems and software can besummarized as short-term user control. […]

Pressures towards IT control

Countering the arguments of the previous section, pressures exist inmany settings to consolidate a firm’s IT development resource into asingle unit or to at least keep it in two or more large clusters.

Staff professionalism

As noted, a large central IT development staff enhances the organiza-tion’s ability to recruit and retain (attract and keep challenged) spe-cialized technical personnel. A central unit also provides usefulsupport for a small division or unit that does not have its own IT staffand needs occasional access to IT skills.

Additionally, it is easier to modernize a centralized unit than one inwhich the development staff are scattered throughout the firm. […]

Developing and enforcing better standards of IT management practice is also easier in a large group. Documentation procedures,project management skills and disciplined maintenance approachesare examples of critical infrastructure items in IT systems developmentdepartments. […]

Central staff expertise is particularly important for reviewing user-designed systems before they go live. Lacking practical systems designexperience, the user often ignores normal data-control procedures,various corporate standards and conventional costing practices.

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For example, a large financial organization discovered that all the people involved in software design and purchase for three of the depart-mental systems used to process data on a daily basis had left the company.Further, no formal documentation or operating instructions had beenprepared and all source programs had been lost. What remained weredisk files with object programs on them. The system ran, but why it ran noone knew; and even if the company’s survival depended on it, changeswould at best have been very difficult and time-consuming to execute. […]

Feasibility concerns

A user-driven feasibility study may contain major technical mistakesthat will result in the information system’s being either inadequate tohandle growing processing requirements or not easily maintainable.Because of inexperienced staff, the feasibility study may underestimateboth the complexity of the software needed and the growth in the num-ber of transactions to be handled by the system. (The risk increases ifcompetent technical staff inputs to the feasibility study were limitedand if the real business needs were not well understood.) […]

Particular care must be taken on local systems development projects,since uncoordinated user groups tend to buy or develop systems tailored to very specific situations, creating long-term maintenance prob-lems. In many environments characterized by such local development,there is poor technology transfer between similar users and a consequentlack of corporate leverage, an issue of low importance to the local unitbut a great concern from the corporate viewpoint.

A large forest products company, organized geographically, combineda system-minded regional manager with an aggressive growth-orientedIT manager who was responsible for all administrative support in theregion. Within three years, the region’s IT budget was double that of acomparable region; however, although their applications were extra-ordinarily effective, only one was exported to another region. Subsequentreview indicated that nearly half of the systems developed were focusedon problems of potentially general interest and could have beenexported to other parts of the company.

Corporate databases

A corporate database strategy involves both collecting a pointer file (orfiles) at a central location for reference by multiple users and developing

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client-server networks and procedures that allow users, regardless ofphysical location, to access these data files easily. A central developmentstaff provides a focal point for both conceptualizing and developingthe architecture of these systems to serve multiple users across thefirm. The need for database sharing varies widely with the nature of thecorporation’s activities, of course. A conglomerate usually has muchless need for data sharing across the firm than does a functionallyorganized, one-product company. However, electronic mail, videocon-ferencing, video streaming and shared financial performance infor-mation have become legitimate needs in most organizations and onlya central department can cost-effectively develop and distribute suchsystems to users or coordinate a process whereby key parts of the sys-tem development efforts are outsourced to local development units ina way that ensures easy coordination between them. […]

Fit with the corporate structure and strategy

Centralized IT development’s role is clearest in organizations charac-terized by centrally managed planning and operational control. A largefarm equipment manufacturer with a tradition of central functionalcontrol from corporate headquarters successfully implemented a pro-gram wherein the corporate systems group developed all software forfactories and distribution units worldwide. As the company grew in size,however, its structure became more decentralized; in turn, the cost ofeffective central systems development was escalating. The firm had toimplement a marketing function to educate users on the virtues of cen-tral services and to decentralize some development functions. It isbecoming increasingly common for centralized development groupsto have an explicitly defined and staffed internal marketing activity toensure appropriate coordination with the decentralized units.

Cost analysis

Given its practical experience in other systems’ efforts, a centralized ITdevelopment group can usually produce realistic software developmentestimates […] that take into account the company’s overall interests.Software development estimates are problematic in user feasibility studiesfor two key reasons. Most new systems are more software-intensive thanhardware-intensive; software costs are typically 75–85 per cent of the totalcost for a customized system. Few users have had experience in estimating

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software development costs and an order-of-magnitude mistake in a feasi-bility study – particularly if it is an individually developed system and nota ‘turnkey’ (i.e. general-purpose) package – is not unknown. […]

Much of corporate IT is fixed costs in the short run, consequentlyappearing to the individual user, courtesy of the charge-out system, tobe an opportunity to reduce costs. However, in reality, individual usercost reductions may be a cost increase for the company – more hard-ware/software acquired locally and no possible savings at the corpor-ate IT facility. Policies for ensuring that appropriate cost analyses fordecentralized activities are prepared must be established.

Summary

The pressures towards centralized IT control can be summarized by thewords long-term information architecture building. Inexorably, over the longrun, most (but not all) stand-alone units will become part of a networkand need both to receive and share data with other users and systems. Inmany respects, these pressures are not immediately evident when the sys-tem is installed but tend to grow more obvious with the passage of time.Policies for managing the trade-offs between the obvious short-term bene-fits and long-term risks are delicate to administer, but necessary.

Coordination and location of IT policy

The tension between IT and users can be effectively managed by estab-lishing clear policies that specify the user domain, the IT domain andsenior management’s role. Senior management must play a significantpart in ensuring that these policies are developed and that they evolveappropriately over time. Both IT and users must understand the impli-cations of their roles and possible conflicts.

IT responsibilities

The following tasks constitute the central core of IT responsibilities –the minimum for managing the long-term information hygiene needsof an organization:

1 Develop and manage the evolution of a long-term architec-tural plan and ensure that new projects fit into its evolution asmuch as possible.

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2 Establish procedures to ensure that, for potential IT projects of any size, internal development versus purchase is compared. […]

3 Maintain an inventory of installed or planned-to-be-installedinformation services.

4 Create and maintain a set of standards that establishes:a. mandatory telecommunications standardsb. standard languages for classes of acquired equipmentc. documentation procedures for different types of systemsd. a corporate data dictionary with clear definitions of

which elements must be includede. identification of file maintenance standards and

proceduresf. examination procedures for systems developed in local

units to ensure that they do not conflict with corporateneeds and that any necessary interfaces are constructed.

5 Identify and provide appropriate IT development staff careerpaths throughout the organization. […]

6 Establish appropriate internal marketing efforts for IT sup-port. These should exert catch-up pressure and coaching forunits that are lagging and slow down units pushing too fastinto leading-edge technologies they do not understand.

7 Prepare a detailed checklist of questions to be answered inany hardware/software acquisition to ensure that relevanttechnical and managerial issues are raised. […]

8 Identify and maintain relationships with preferred systemssuppliers. […]

9 Establish education programmes for potential users thatcommunicate both the benefits and the pitfalls of a new tech-nology and that define users’ roles in ensuring its successfulintroduction in their departments.

10 Set up an ongoing review of systems for determining whichones have become obsolete and should be redesigned.

These issues apply with particular force to the design of systems thatbecome embedded in the company’s daily operations. Decision sup-port systems do not pose quite the same problems, although the needto obtain data from the rest of the organization is rapidly putting themin the same situation.

These core responsibilities, of course, can be significantly expandedto impose much tighter and more formal controls if the situationwarrants.

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User responsibilities

To assist in the orderly identification of opportunities and implemen-tation of new IT services and to grow in an understanding of their use,cost and impact on the organization, the following responsibilitiesshould be fulfilled by the user of IT service:

1 Clearly understand the scope of all IT activities supporting the user. […]

2 To ensure satisfactory service, realistically appraise theamount of user personal investment required for each newproject, both to develop and to operate the system. Thesecosts are often much higher than planned and are frequentlyignored.

3 Ensure comprehensive user input for all IT projects that willsupport vital aspects of the unit’s operations. […]

4 Realistically ensure that the IT–user interface is consistentwith IT’s strategic relevance to the business unit. If it is veryimportant, the interface must be very close. If it is less import-ant, more distance between the parties and more friction canbe tolerated.

5 Periodically audit the adequacy of system reliability standards,performance of communications services and adequacy ofsecurity procedures.

6 Participate in the development and maintenance of an ITplan that sets new technology priorities, schedules the trans-fer of IT among groups and evaluates a portfolio of projects inlight of the company strategy.

These represent the very minimum policies that the users should developand manage. Depending on the firm’s geography, corporate manage-ment style, stage of IT development and mix of technology developmentphases, expanded levels of user involvement may be appropriate. […]

General management support and policy overview

Distinct from the issues involved in the distribution of IT services is acluster of broad policy and direction activities requiring senior manage-ment perspective. In the past, these activities were built into the struc-ture of a central IT organization. Now, given the need to link IT tobusiness, IT operations are frequently separated from IT planning. […]

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For example, a major conglomerate whose development staff andhardware are distributed to key users has a three- to four-person groupat headquarters level. Firms that outsource most or all of their IT oper-ations, development and maintenance activities still need this policygroup.

Key responsibilities of a corporate IT policy group should include:

1 Ensure that an appropriate balance exists between IT anduser inputs across the different technologies and that one sideis not dominating the other inappropriately. Initiate appro-priate personnel and organizational transfers if the situationis out of balance. […]

2 Ensure that a comprehensive corporate IT strategy is developed.3 Manage the inventory of hardware and software resources

and assure that the corporate view extends to purchasing relationships and contracts. […]

4 Facilitate the creation and evolution of standards for develop-ment and operations activities and ensure that the standardsare applied appropriately. […] This […] requires a techni-cally competent and interpersonally sensitive staff.

5 Facilitate the transfer of technology from one unit to another.This occurs through recognizing the unit’s common systemsneeds as well as stimulating joint projects. […]

6 Actively encourage technical experimentation. […] 7 Assume responsibility for developing an appropriate planning

and control system to link IT firmly to the company’s goals. […]

As these responsibilities imply, the corporate IT policy group needs tobe staffed with individuals who, in aggregate, have broad technicalbackgrounds and extensive practical IT administrative experience. […]

Summary

This chapter has focused on the key issues surrounding the organiza-tion of IT development activities for the next decade. A significant revo-lution has occurred in what is regarded as good managerial practice in this field. Important contributors to this change have been thedevelopment of new hardware and software technologies and manager-ial experience with IT. These technologies not only permit quite dif-ferent types of services to be delivered, but also offer the potential forquite different ways of delivering these services. Consequently, whatconstitutes best practice has changed considerably and the evolution

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seems likely to continue; many IT organization structures that wereeffectively put together in the 1970s were found inappropriate for the1990s and those that fitted the early 1990s are inappropriate as weenter the world of the intranet in the early 21st century.

Determining the appropriate pattern of distribution of IT resourceswithin the organization is a complex and multifaceted subject. The gen-eral manager should develop a programme that will encourage appro-priate innovation on the one hand while maintaining overall controlon the other. How these organization and planning issues are resolvedis inextricably tied to non-IT-oriented aspects of the corporate environ-ment. The leadership style of the person at the top of the organizationand that person’s view of the future provide one important thrust forredirection. A vision of tight central control presents a different contextfor these decisions than does a vision emphasizing the autonomy ofoperating units. Closely associated and linked to this are the corporateorganizational structure and culture and the trends occurring withinit. Also, the realities of geographical spread of the business units heav-ily affect IT organizational and planning possibilities; the corporateheadquarters of a large domestic insurance company, for example, posesdifferent constraints than do the multiple international plants and markets of an automobile manufacturer.

On a less global scale are the present realities of quality and location ofexisting IT resources (organizational and physically), which provide thebase from which change must be made. Equally important is how respon-sive and competent current users perceive these resources to be. Theunit that is seen (no matter how unfairly or inaccurately) as unresponsivehas different organizational challenges than the well-regarded unit. […]

In dealing with these forces, one is seeking an appropriate balancebetween innovation and control and between the inputs of the IT spe-cialist and the user. Not only do appropriate answers to these questionsvary among companies, but also different answers and structures areoften appropriate for individual units within an organization. In short,there is a series of right questions to ask and there is an identifiable butvery complex series of forces that, appropriately analysed, determinefor each organizational unit the direction in which the correct answerlies – for now.


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The term ‘information management’ implies that information is aresource that can be managed. Information as a resource can be com-pared with money as a resource. Like money, information comes in andgoes out. You can be ‘information rich’ or ‘information poor’ and thereare rules that constrain what you can do with information. But there arealso some important differences between information and resourcessuch as money. For example, there is general agreement on what consti-tutes money. With money, there are limits, such as when organizationalparticipants are given a budget of a clearly defined size. Organizationalaccounting systems and budget holders can keep track of each financialtransaction. If you are a budget holder, you know how much has beenspent and how much you have left. You can estimate how much you willneed for planned expenditures. You can identify which money you ‘own’and distinguish your money from money ‘owned’ by others. By contrast,what constitutes information can include almost anything. A packingassistant notices that an invoice is not attached to a completed order andtells the warehouse manager. This is information. But so are the com-pany tax returns submitted to the Inland Revenue. The number of newcustomers each week for the last month displayed on a computer screen,

P A R T

Introduction:Information as an

Organizational ResourceMatthew Hinton

2

an organizational chart and hand-written meeting notes are all examplesof different types of information, much of it there for anyone to collect.Considering these examples points to a number of different dimensionsof information:

■ formal versus informal■ textual versus pictorial■ quantitative versus qualitative■ verbal versus paper versus electronic■ individual versus aggregated.

This list is not exhaustive, but it suggests that an effective approach toinformation management must be broad enough and flexible enough tocater for all these different dimensions of information. Information man-agement as a whole is too all-pervasive and diffuse to be subject to normalmanagement practice. But information can be effectively managed.

In Chapter 3, Data, capta, information and knowledge, Checklandand Holwell, note that while information is a subtle concept, it is stillneeded if we are to understand how information supports purposefulaction within organizations. The authors make a clear distinctionbetween data, information and knowledge, but stress that the bound-aries between these definitions are often blurred due to the contexts inwhich they are understood. Nevertheless, this understanding providesa vital building block for effective information management.

In Chapter 4, titled The process of information management, Hintonoutlines how people interpret information to meet their decision-making needs, as well as the stages they go through as part of the infor-mation management process. The chapter stresses that organizationsneed to create systems that facilitate these processes and explores howthis leads to the creation of ‘information systems’ as social systems that,in theory, help people make sense of their information resources. Theconcept of information systems as social systems is investigated in detailin Chapter 5.

In Chapter 5, The processes which information systems support,Checkland and Holwell explain how information systems support variousprocesses of activity. This the authors achieve by looking at the nature ofthe processes that go on within and between organizations. In doing this,they open up what is understood by personal processes, social processesand organizational processes and consider how these different perspec-tives relate. They subsequently present a model which helps explore howinformation resources support people undertaking purposeful action.

So why do organizations need a policy for managing ‘their’ informa-tion resources? Chapter 4 outlines how people interpret information

44 Information as an Organizational Resource Part 2

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and the broader processes of information management. However, if theorganization is to build up a coherent picture of this activity it needs todevise a policy that:

1 understands the information needs of its employees2 puts in place the ICT and information systems infrastructure

to support them3 measures the costs of information and the value it contributes,

as well as4 explaining the role of information and knowledge in master-

ing, rather than being at the mercy of, change.

In Chapter 6, Organizations and information, Elizabeth Orna considersthese issues as well as who should be involved in information policy mak-ing, development and implementation. This chapter describes how anorganization interacts internally and with its environment and embodiesboth social and technical systems. Information means something specialand different for each organization, so each needs to formulate its owndefinition of information in the light of what it is trying to achieve.Furthermore, organizations need a policy for information so that theycan avoid risks and losses and gain positive benefits. Orna concludes thatinformation policy and strategy are too important to be left to one limi-ted group, or developed without close support from senior manage-ment. The process of developing them should involve the whole rangeof people responsible for essential information resources, bringingtogether the people who manage information systems and technologywith other functional specialists.

Part 2 Information as an Organizational Resource 45

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[The concept of information is a subtle one and one on which there isby no means complete agreement. However, this concept is needed if we are to understand how information supports purposeful actionwithin organizations.]

There is at present no well-defined definition of such terms as ‘data’and ‘information’ upon which there is general agreement. It is note-worthy that a current encyclopaedia of software engineering (Morrisand Tamm, 1993) contains no entries for either ‘data’ or ‘information’.Indeed one entry asserts that

Computer programming is concerned with the processing ofinformation or data.

If there were general agreement on the meaning of ‘data’ and ‘infor-mation’, the terms could be taken as given. Without such agreement,some analysis is necessary. [Some definitions from the literature of‘data’ and ‘information’ are shown in Tables 3.1 and 3.2.]

Anderton (1991) gives some useful examples which illustrate thatthere are subtleties associated with the idea of information and its communication to others.

1 A motorist is travelling at 30 km/h. The speedometer indi-cates 30 km/h. Does the motorist have information about his

C H A P T E R

Data, capta, informationand knowledgePeter Checkland and Sue Holwell

3

Source: Checkland, P. and Holwell, S. (1998) Information, Systems andInformation Systems: Making Sense of the Field. John Wiley & Sons Ltd.

speed? Apparently, yes. But actually the mechanism is stuckand although the indication happens to be correct, the driverreceives no information.

2 A traveller plans to fly to another country but can do so only ifshe is free from smallpox. She has some medical tests in theafternoon and arranges with her doctor that if the results arepositive the airport desk will be called before 5 p.m. At 5 p.m.she checks with the desk and finds that no message has beenreceived. She thus receives the information that she is free ofsmallpox. Yet no physical event has occurred; nothing, apparently,has carried the information.

3 A newspaper arrives at a football supporter’s house. In it hereads the score: England 1 Italy 2. The supporter has the


Table 3.1Some literature definitions of ‘data’

Avison and Fitzgerald (1995) Data represent unstructured facts (p. 12)

Clare and Loucopoulos (1987) Facts collected from observations or recordings about events, objects, or people (p. 2)

Galland (1982) Facts, concepts or derivatives in a form that can be communicated and interpreted (p. 57)

Hicks (1993) A representation of facts, concepts or instructions in a formalized manner suitable for communication, interpretation, or processing by humans or by automatic means (p. 668)

Knight and Silk (1990) Numbers representing an observable object or event (fact) (p. 22)

Laudon and Laudon (1991) Raw facts that can be shaped and formed to create information (p. 14)

Maddison (ed.) (1989) Natural language: facts given, from which others may be deduced, inferred.

Info. processing and computer science: signs or symbols, especially as for transmission in communication systems and for processing in computer systems; usually but not always representing information (sic), agreed facts or assumed knowledge; and represented using agreed characters, codes, syntax and structure (p. 168)

Martin and Powell (1992) The raw material of organizational life; it consists of disconnected numbers, words, symbols and syllables relating to the events and processes of the business (p. 10)

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Chapter 3 Data, capta, information and knowledge 49

information that Italy has won the game. Five minutes later afriend arrives with a Xerox copy of the newspaper report. Thesupporter receives no information about the game, he knew the result already. His brother, incidentally, who has not seenthe newspaper, receives the information from the Xerox thatEngland played Italy yesterday, a fact he had not previouslyknown (p. 57).

To these instructive cameos we may add a further real but somewhatbizarre example.

At a conference held at Edinburgh University, one of the authors ofthis book occupied a room in the Pollock Halls of Residence. From theroom there was a good view of some of the rock faces known asSalisbury Crags in Holyrood Park. These have attracted rock climbers

Table 3.2Some literature definitions of ‘information’ (after Aiba, 1993)

Avison and Fitzgerald (1995) Information has a meaning … [it] comes from selecting data, summarizing it and presenting it in such a way that it is useful to the recipient (p. 12)

Clare and Loucopoulos (1987) A pre-requisite for a decision to be taken.Information is the product of the meaningful processing of data (p. 2)

Galland (1982) Information is that which results when some human mental activity (observation, analysis) is successfully applied to data to reveal its meaning or significance (p. 127)

Hicks (1993) Data that has been processed so that it is meaningful to a decision maker to use in a particular decision (p. 675)

Knight and Silk (1990) Human significance associated with an observable object or event (p. 22)

Laudon and Laudon (1991) Data that have been shaped or formed by humans into a meaningful and useful form (p. 14)

Maddison (ed.) (1989) Understandable useful relevant communication at an appropriate time; any kind of knowledge about things and concepts in a universe of discourse that is exchangeable between users;it is the meaning that matters, not the representation (p. 174)

Martin and Powell (1992) Information comes from data that has been processed to make it useful in management decision making (p. 10)

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for many years and details of 20 climbs here were published as long agoas 1896. It was therefore amusing to read in the present rock climbingguide, which describes 50 climbs in detail, that

At present climbing on any cliff in the park is strictly illegal and anyonecaught doing so is likely to be prosecuted.The route descriptions in this section of the guide are reproduced purely for their historicalinterest …

Now, to any red-blooded climber the message conveyed is perfectly clear,though it is not what the words say. To a rock climber, the guidebook issaying: here are descriptions of some good climbs, go and enjoy them,but be discreet, keep a low profile and have a good story ready! Inother words the information the guidebook conveys is virtually theopposite of what the text actually says! Clearly, creating and conveyinginformation is not a simple business.

We need to find an account of ‘data’, ‘information’ and the relationbetween them which will make sense of examples such as these. This willneed a careful use of language beyond that in normal everyday con-versation. And the exploration should not start from the words them-selves, such as ‘data’ and ‘information’, asking: what do they mean?Rather, we should take Popper’s advice (1972):

One should never quarrel about words, and never get involved inquestions of terminology … What we are really interested in, our realproblems, … are problems of theories and their truth (p. 310).

Popper suggests that if you find yourself arguing about the meaningof words, always a fruitless exercise, the thing to do is to accept youropponent’s definitions and get down to arguing about the real prob-lem! Here the problem is to develop at least a skeleton theory of whatdistinctions it is useful to make in order to understand the business ofarriving at ‘knowledge’, the theory including an account of what theprocess is that leads us to make use of the words which mark the dis-tinctions, such words as ‘data’, ‘information’ and ‘knowledge’. In thewords of Winograd and Flores (1986): ‘As observers we generate dis-tinctions in a consensual domain’ (p. 50), that is to say, a cognitivedomain in which knowledge can be shared. Let us see what distinctionsit may be useful to make in order to understand IS.


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From data to capta

We can start by accepting the obvious: that there are myriad facts aboutthe world. It is fact that the authors of this book were born inBirmingham, England and Melbourne, Australia, and that they areboth, at the time of writing, working at Lancaster University. Such factsare in principle checkable; if disputed, evidence can be produced tosupport or refute them. There is a plethora of such facts, some agreedby all, some disputed, some accepted as meaningful by all, some private to an individual or group who defines them as a result of particular interests. Consider an example of this latter category. There must in principle exist the following fact: the number of octo-genarian widows living alone in Wigan. This is a meaningful concept,though it may be the case that no one has ever ascertained the actualnumber of such widows. Most people would not want to know this factanyway; but it could be a significant fact to which attention is paid by aresearcher examining the operation of geriatric support services inWigan.

This suggests that there is a distinction to be made between the greatmass of facts and the sub-set of them which we select for attention,those to which we pay heed. The obvious word for the mass of facts is‘data’, from the Latin dare, meaning ‘to give’. But there is no ready-made word for the small fraction of the available data which we knowabout or pay attention to, or create. We refer to such data as ‘capta’,from the Latin capere, meaning ‘to take’ and that is the word we shalluse here.

Data are a starting point in our mental processing. Capta are theresult of selecting some for attention, or creating some new category –such as ‘the number of octogenarian widows living alone in Wigan’ inthe example above – or being so surprised by some items of data whichpass across our gaze that we begin to pay them attention. In the first ofthe earlier examples from Anderton, (1) above, the position of thespeedometer needle at 30 km/h is an item of data; it becomes part ofthe driver’s capta when he pays attention to it – though that examplealso reminds us that we may need to check that the apparent facts ofthe situation are what they seem to be.

Turning data into capta is a very familiar mental process, so familiarin fact that it has become completely transparent to us: we do it all thetime without noticing the process occurring, which is presumably whywe have here found it necessary to make up the word ‘capta’. Also, it isby no means the end of our mental processing.

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From capta to information and knowledge

Having selected, paid attention to, or created some data, thereby turn-ing it into capta, we enrich it. We relate it to other things, we put it incontext, we see it as part of a larger whole which causes it to gain in sig-nificance (Holwell, 1989). The phrase which best captures this is prob-ably ‘meaning attribution’. The attribution of meaning in contextconverts capta into something different, for which another word isappropriate: the word ‘information’ will serve here, this definitionbeing close to the way the word is often used in everyday language.

This process, which can be both individual and/or collective, by whichdata are selected and converted into meaningful information, can itselflead to larger structures of related information for which another wordis needed; we may use the word ‘knowledge’. Such structures of infor-mation may be expected to have greater longevity than many items ofinformation which are only ephemerally meaningful and relevant. Forexample, at a particular point in time in a home furnishing company,managers might select as capta, from all their sales data, the figures con-cerning the sales of a new expensive kitchen chair, aggregated separatelyfor each sales area over the last three months. In the context of intro-ducing this new product, these capta would yield information concerning,for example, the readiness of people in different geographical areas,classified socioeconomically, to buy a basic but expensive product. Thiswould itself contribute to updating the company’s larger-scale slower-moving knowledge of the home furnishing market.

The process by which data are turned into knowledge is shown inFigure 3.1. It is suggested that in this process it is useful to mark or


FactsSelected or

created factsMeaningful

facts

Larger, longer-livingstructures of

meaningful facts

Suitablewords

Data Capta Information Knowledge

Cognitive(appreciative)

settings

Context,interests

Figure 3.1 The links between data, capta, information and knowledge.

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highlight three distinctions created by our actions of selecting data;attributing meaning to these selected data; and building larger struc-tures of meaningful data. And it is further suggested that we use thewords data, capta, information and knowledge to describe the fourproducts defined by making these three distinctions.

The scheme of Figure 3.1 allows us to make sense of Anderton’sintriguing examples quoted above. The first one (in which thespeedometer is stuck) reminds us that apparent facts are not necessar-ily true: there is in principle a need to have available processes bymeans of which we can try to check the accuracy of data. In the secondexample, (2) above, the absence of any message conveys informationto the traveller, so that nothing, apparently, has carried the informa-tion. This emphasizes the importance of context in acquiring informa-tion from data. The arrangement made by the traveller with the doctorestablishes a context in which the absence of any message before 5 p.m.itself conveys meaningful information. In the third example the exist-ence of the match and the final score are part of the football sup-porter’s capta and he will no doubt convert the score into informationof interest to him – such as, perhaps, England’s prospects of qualifyingfor the World Cup. Neither the existence of the match nor the scorewere part of his brother’s capta. The score tells the brother who wonthe match but also that the match itself had taken place, a new item ofcapta for him. Of course, if he is not interested in football he will notattribute the same meaning to it as his football-follower brother, someaning attribution may be personal or shared.

This illustrates a very important point. The analysis has led us to usethe word ‘information’ to describe ‘capta’ (itself selected ‘data’ whichgets our attention) to which meaning has been attributed in a contextwhich may be any or all of cognitive, spatial and temporal.

In the final example above, in which the anonymous writer of the rockclimbing guide to Salisbury Crags manages to convey a message which isvirtually the complete opposite of what the words say, we have a very sub-tle situation. It is another example of the important part which contextplays in creating information. Many people glancing at the guide wouldof course accept at face value the statement about the illegality of climb-ing in Holyrood Park. But the writer, being embedded in the culture ofrock climbing, knows its knowledge base, its attitudes and its values. Heknows that fellow climbers will get the message; what is more, if chal-lenged at the crag he or she will no doubt adopt an air of injured inno-cence! This example is the equivalent on paper of situations familiarenough in everyday life: situations in which information (in the full sense

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of the word) can be passed between knowing members of a particular cul-ture by no more than a tone of voice, the gesture of a hand or a wink.

The most important feature of this analysis of data, capta, informationand knowledge is that the act of creating information is a human act, notone which a machine can accomplish. It is the human being who canattribute meaning to the selected data which have been highlighted forattention, this being done in a context which may well be shared bymany people but may also be unique to an individual. Of course thedesigner of a system which processes focused-on data (i.e. capta) into amore useful form will have the aim of making the processed capta cor-respond to some obvious categories of information which will be mean-ingful to many different people. But attributing meaning to theprocessed data is a human ability and a particular attribution may beunique to one individual. No designer can guarantee that his or herintended attributions of meaning will be universally accepted. In thehouse furnishing example discussed above, the geographically tabulatedcapta concerning the sales of the new chair in the three months afterlaunch will yield different information to different people. The salesmanwill gain information about his bonus payments; the managing directorwill learn something relevant perhaps to the strategic future of the com-pany; the production planner may take from it the need to recruit moreprocess workers or obtain more raw materials for the furniture factory.

This emphasizes that the phrases in common usage, ‘information sys-tem’, or ‘management information system’, are ill-chosen. What suchsystems cannot do, in a strict sense, is provide unequivocal information;what they can do is process capta (selected data) into useful forms whichcan imply certain categories of information. They cannot, however, guar-antee that the capta will be interpreted in this way by people making useof the system’s outputs. In fact the phrases in common use in the earlydays of computers, namely ‘data processing (DP) system’ or ‘electronicdata processing (EDP) system’, were more accurate than the phraseswhich have unfortunately replaced them both in everyday speech and inthe professional field of IS. It would be a good idea to return to the earl-ier language, but this is unlikely to be achieved. After all, people workingin IT will probably wish the word ‘management’, as in ‘managementinformation system’, to be associated with their activity since it implies ahigher-level activity and maybe better career prospects!

References

Aiba, H. (1993) The conceptualising of ‘organization’ and ‘information’ in ISwork, MSc. Dissertation, Lancaster University.


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Anderton, R.H. (1991) Information and systems. Journal of Applied SystemsAnalysis, 18, 57–60.

Avison, D.E. and Fitzgerald, G. (1995) Information Systems Development: method-ologies, tools, 2nd edn, McGraw-Hill.

Clare, C. and Loucopoulos, P. (1987) Business Information Systems, Paradigm.Galland, F.J. (1982) Dictionary of Computing, John Wiley & Sons.Hicks, J.O. (1993) Management Information Systems: a user perspective, 3rd edn,

West Publishing.Holwell, S. (1989) Planning in Shell: joint learning through action research,

MSc. Dissertation, Lancaster University.Knight, A.V. and Silk, D.J. (1990) Managing Information, McGraw-Hill.Laudon, K.C. and Laudon, J.P. (1991) Business Information Systems: a problem

solving approach, Dryden Press.Maddison, R. (ed.) (1989) Information Systems Development for Managers, Paradigm.Martin, C. and Powell, P. (1992) Information Systems: a management perspective,

McGraw-Hill.Morris, D. and Tamm, B. (eds) (1993) Concise Encyclopaedia of Software Engin-

eering, Pergamon Press.Popper, K.R. (1972) Objective Knowledge: an evolutionary approach, Oxford

University Press.Winograd, T. and Flores, F. (1986) Understanding Computers and Cognition,

Addison-Wesley.


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C H A P T E R

The process ofinformation management

Matthew Hinton

4

The process of information management can, at a conceptual level, bebroken down into a set of key phases which cover the gathering, stor-ing, analysing and communicating of information. These form ageneric framework for information management activity.

Gathering information

This process includes all the activities you engage in to collect the infor-mation you need. In some cases these information-gathering activitiesmay involve no more than receiving the information that other peoplegive you or send to you, in others you may have actively to seek out theinformation. Information gathering may be routine (for example, staffcompleting and submitting weekly time-sheets or expense claims) or itmay be ad hoc (for example, a customer calls to say they have not receivedtheir order). They can be small-scale (for example, an employee creditsan expense to a budget code) or very large-scale (for example, marketingdata for potential new customers in the whole of the European Union).

Information gathering is perhaps the most critical of the informationmanagement processes: if things go wrong here, all the other processesare working with information of inferior quality. Common problems are:

■ that the required information is simply not gathered at all■ gathering is done poorly so that there are gaps and errors in

the information

Chapter 4 The process of information management 57

■ information is gathered but nothing is then done with it■ too much information is gathered, so that what is needed is

hidden by all the irrelevant information■ a lot of time is spent gathering information for the use of

others, but nothing of value for you is achieved by this.

Part of the answer to these problems of information gathering – andone that is consistent with the definition of information management as ‘the conscious process of gathering information’ – is to plan yourinformation gathering thoroughly. The following steps will help toachieve this:

■ accountability – responsibility for who collects what should bemade clear

■ data definition – agreement on what items a particular type ofinformation should include

■ standardization – ensuring everyone is collecting the sameinformation in the same way

■ quality monitoring – ensuring that information of the rightquality is being collected

■ skills – helping staff improve their information-gathering skills.

There is also scope for imaginative thinking in information gathering.For example, supermarkets need to keep track of how many of eachitem have been sold. This used to be done by having staff count thenumbers of each item on the shelves each day and comparing today’scount with yesterday’s. This was labour-intensive and prone to errors.Nowadays, most supermarkets use bar-coding to capture this informa-tion directly at the cash desk, so that the act of purchase also generatesinformation for stock control, reorder decisions and ascertains prof-itability for different products. An important principle illustrated bythis example is that it is more efficient to capture information at sourceas a by-product of some other necessary activity.

Analysing information

The purpose of analysing information is to make it more useful for deci-sion making. This can be considered as a process of transforming ‘rawdata’ (isolated items of information with little or no meaning in them-selves) into meaningful information. Analysing information may involvea variety of manipulations of the raw data, which may take place at a

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number of levels, each resulting in something that is more meaningful.The manipulations can range from simple operations that can be donein a person’s head to complex calculations requiring the use of sophisti-cated computer software. A comparison can be made here with theprocess of reading. Individual letters are combined into recognizablewords which may convey a measure of meaning. Words can then be combined into sentences, which convey still more meaning. It is thisprocess of transforming raw data into meaningful information that canbe managed for such purposes as planning, decision making, evaluationand audit.

To provide a complete basis for decision making another necessarytransformation should be mentioned. This is the transformation ofinformation into knowledge : the process of integrating new informationinto the rich framework of knowledge already possessed by the deci-sion maker. This last process cannot be directly managed, although itcan be managed indirectly through training.

In some cases the use of computers can help to reduce the time spentin data analysis, especially where purely numerical calculations areinvolved. However, the process of entering data manually into the com-puter can be prone to errors and the use of electronic techniques cansave time and increase accuracy. Where some form of statistical analysisof data has been conducted, there may be an issue about whether theright statistical technique has been chosen and whether the analysis hasbeen correctly carried out. A more subtle issue arises where data havebeen analysed by computer. Can you believe the results from the com-puter? The trouble here is that the process of computerized analysis islargely invisible. It may be difficult to know exactly what the computerhas done with the data and therefore to judge how correct the process-ing has been.

Communicating information

Problems with communication are probably the most frequentlyexpressed complaint by people working in large organizations. Thegeneral nature of the communication process is shown in Figure 4.1.

Formulation involves three main steps: deciding what to say, to whomand how to say it. Deciding what to say requires a selection to be made.There are probably many things that could be said, but what absolutelyneeds to be said now? The more focused a communication is, the morelikely it is to be successful. Communication needs to be correctly

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targeted. Whom is this communication really intended for? Does it mat-ter if others receive it as well? How the message is expressed is also a keyfactor in successful communication. This entails consideration both ofthe message content and who its intended recipients are.

Transmission involves the choice of means of communication (leaflet,fax, team meeting and so on) and the timing (for example send an e-mail now or make an announcement at the beginning of next week’sinter-departmental meeting). These choices will be influenced by con-siderations from the formulation stage: whom the message is for, how itis to be expressed, how urgent it is, how confidential it is. Sometimes it isnecessary to make trade-offs between these considerations. Other con-siderations are the reliability and ‘noisiness’ of each transmission option.Reliability refers to the risk that the message may get lost. ‘Noise’ refersto how likely a message is to disappear among all the other traffic a trans-mission channel may be carrying: from your perspective as the sender ofthe message all other messages are noise. For example, notice boardsfull of a great variety of notices are noisy channels: a message may get lostunless it is made so striking that it stands out from the other notices.Likewise it may be difficult to get an important message across at a meet-ing with many agenda items and many participants.

Successful reception is affected by choices about formulation and trans-mission. You can do your best in focusing and expressing your messageand in choosing the right time, place and means of transmission, but therecipient may still not attend to your message. The more the intendedrecipient is overloaded with incoming information, the greater the risk.The risk is also greater the more tired or stressed the recipient is. As people become tired or stressed, their capacity to take in new informa-tion decreases, sometimes dramatically. They tend to concentrate onlyon the things right in front of them. Things at the periphery of their con-cern just do not get through. Subtle nuances are lost. In such cases youhave to make extra efforts to ensure that you have the recipient’s atten-tion and to keep your message very simple.

In some cases you may have to overcome resistance to hearing mes-sages that the intended recipient just does not want to hear. A relatedissue has become known as ‘groupthink’. Here a group of people strivefor consensus among themselves and treat this as a higher priority than

Figure 4.1The communication

process.

Formulate Transmit Receive Interpret

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considering evidence from outside the group and coming to an object-ive conclusion (but more on this in Part 3). These kinds of situationmean that careful presentation of your information is vital if it is to beacted upon.

Interpretation involves the issue of whether the recipient understandsthe message in the way you intended. In normal spoken and writtencommunication there is always some measure of ambiguity, which offersscope for misinterpretation. Agreed definitions are critical when com-munication is very formalized, for example in management reporting orin the electronic exchange of data between computers. But most every-day communication cannot achieve this degree of precision. Whereaccuracy of interpretation is especially important, it is necessary toimplement a procedure through which you can confirm that your mes-sage has been correctly interpreted.

Storing information

A lot of the information generated in an organization is ephemeral: itis gathered, used and forgotten. But there is a great deal that has to bepreserved. Information needs to be stored, both for use in later activ-ities and for submission to higher management and auditing bodies.For some types of information, there are statutory requirements deter-mining what must be kept and for how long.

The information-gathering issues discussed earlier need a comple-mentary plan for information storage. For each type of informationyou need to store, the key issues are:

■ the form in which you originally obtain this information■ the volume of information■ who needs access and are they close to or remote from the site

where the information is stored■ how long the information needs to be kept■ what kind of protection the information requires.

How people make sense of information

Every organization needs information in order to function and the typeof information required depends on the organization’s activities. As youhave already seen, information management is about the gathering,

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analysing, communicating and storing of information to assist in deci-sion making. Organizations need to create systems that facilitate theseprocesses. Consequently, they devise or employ a suitable series of rou-tine and non-routine processes collectively referred to as an InformationSystem. An information system is a social system which may have embed-ded in it information technology, however, ‘it is not possible to design arobust, effective information system incorporating significant amountsof the technology without treating it as a social system’ (Land, 1985).

Several factors influence the way people interpret information. Clearly,the nature of the problem influences the way information is interpreted.How serious is the decision? What are the consequences of an incorrectdecision and how do they compare to the benefits of a correct one? Animportant decision may require more care in analysing the information.Organizational setting is critical to interpretation, as individuals becomesocialized by the organization. That is to say that, over time, we are influ-enced by our organizations in the way we approach problems. Lucas(2000) suggests that personal and situational factors also influence inter-pretation. Consequently, decision makers interpret a problem differentlydepending on their position. Studies have shown that managers are heav-ily influenced in problem diagnosis by their backgrounds and position, so that marketing executives see marketing problems, accountants seeaccounting problems and so on. In all these scenarios, the informationwas the same, it was just interpreted differently. The concept of cognitivestyle has also been suggested as an influence on interpretation. One of thesimplest distinctions is between analytic and heuristic decision makers.Where the former concentrates on quantitative information, the latter isinterested in broader concepts and is more intuitive. Research suggeststhat people are not analytic or heuristic in every problem but that they dohave preferences and tend to approach the same type of problem with aconsistent cognitive style.

Information user

Cognitivefilter

Information systems

Undesignedinformation systems

Real worldperceived by user

Knowledge

MemoryValues

Figure 4.2The context of

the concept‘information

system’. Source:Land, 1985

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Lucas (2000) suggests that these factors can be combined to representhow an individual might construct their own interpretational model.This model acts as a way of filtering data, so that to interpret informa-tion a decision maker draws on current data as well as a history of pastdecisions and their results.

References

Land, F. (1985) Is an information theory enough? The Computer Journal, 28, 3,211–215.

Lucas, H. (2000) Information Technology for Management, 7th edn, McGraw-Hill,Boston.


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C H A P T E R

The processes whichinformation systems

supportPeter Checkland and Sue Holwell

5

Given […] the idea of ‘information’ as selected data (or capta) towhich meaning has been attributed in a particular context [and] thebasic premise that information systems exist to serve and support peo-ple taking purposeful action, we can now begin to enrich the conceptof what is conventionally referred to as ‘an information system’. Thiswe shall do by exploring the nature of the processes that go on withinorganizations and between different organizations, processes in whichinformation will play an important role.

The intention is to build a concept which is rich enough both tomake sense of, and to guide work within the IS field, irrespective ofwhether that work is practical or conceptual. Such a concept needs tobe at the same time broad enough to encompass a range of ideas aboutorganizations and their information support and sharp enough to pro-vide guidelines which are usable in practice.

The personal process

Consider first ourselves as individuals in the world, having self-consciousness. We are all conscious of a world outside ourselves; we are

Source: Checkland, P. and Holwell, S. (1998) Information, Systems andInformation Systems: Making Sense of the Field. John Wiley & Sons Ltd.


also conscious of ourselves and others as part of that world. To be awareof that means that we have already performed the remarkable mentaltrick – which we do so often that we pay it no attention – of thinkingabout ourselves thinking about the world. The trick is ‘remarkable’ inthat it seems to be a uniquely human skill. To explain all the observedbehaviour of cats and cuckoos, barn owls and badgers, you have toassume only that they are programmed to cat-like, cuckoo-like, owl-likeand badger-like behaviour, not that they are conscious of their ownrelation to the world, of which they are themselves a part. The fact thatwe are conscious in this way, however, means that we can think aboutthe world in different ways, relate these concepts to our experience ofthe world and so form judgements which can affect our intentions and,ultimately, our actions.

This line of thought suggests a basic model for the active human agentin the world. In this model we are able to perceive parts of the world,attribute meanings to what we perceive, make judgements about ourperceptions, form intentions to take particular actions and carry outthose actions. These change the perceived world, however slightly, sothat the process begins again, becoming a cycle.

However, this simple model requires two amplifications. First, wealways selectively perceive parts of the world, as a result of our interestsand previous history. Rock climbers visiting the island of Lundy in theBristol Channel will tend to see it as a set of granite crags and their eyeswill at once begin to scan for the climbable routes. They would prob-ably not notice an unprepossessing plant, the Lundy Cabbage which isin fact unique to the island and which might be the very reason for avisit by a botanist. The rock climber and the botanist each have a frame-work derived from their interests and experience which structures theirperceptions. They create different capta and hence different informa-tion and knowledge.

Secondly, the act of attributing meaning and making judgementsimplies the existence of standards against which comparisons can bemade, standards of good/bad, important/unimportant, etc. Finally, thesource of the standards, for which there is normally no ultimate author-ity, can only be the previous history of the very process we are describingand the standards will themselves change over time as new experienceaccumulates. […] Taking these considerations into account yields thepicture in Figure 5.1, which is a process model of the active humanagent in the world.

It will be noticed that there are multiple pathways available within theprocess illustrated. This is because of the great flexibility of the humanmind. Thus, for example, the mere fact of making the judgement

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Chapter 5 The processes which information systems support 65

‘botanically interesting’ about the island of Lundy will cause subsequentperceptions and attributions of meaning to be different from those whichwould have been made in the absence of that judgement. Note alsothat the judgements made may concern either what is perceived or thestandards by which what is perceived is judged: we may begin to noticeas significant something we have hitherto passed by, or we may begin tojudge differently something we have always paid some attention to.

The model in Figure 5.1 applies to an individual who selectively per-ceives his or her world, judges it and takes intentional (purposeful)action in the light of those perceptions and judgements. The modelhas to allow for the visions and actions which ultimately belong to anautonomous individual, for individuals do not have to conform to theperceptions, meaning attributions and judgements which are com-mon, even though there may be great social and/or political pressureto do so, even though we are a social animal. (We are, ultimately, simul-taneously both autonomous and gregarious, which is one reason whyhuman affairs are so complex – and interesting.)

In general, the thinking and actions of the individual may have neg-ligible or profound effects on others: sometimes what is initially the

Figure 5.1A process model of

the active humanagent in the world.

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vision of an individual becomes that of very many people. An exampleof this is the reaction to the publication of Rachel Carson’s famousbook Silent Spring in 1962. Her perception, not at all common at thetime, was that the excessive use of chemical pesticides was having ser-iously bad effects on the environment. She was noticing as significant,and attributing new meaning to, observations which were in generalnot much noticed at that time. And she was judging them by standardswhich were not at all usual at the time, ‘the environment’ not beingperceived as ‘a problem’ in the early 1960s. Thirty years later we cansee that Rachel Carson’s act in publishing her persuasive book was oneof the earliest and most significant steps in the rise of the ‘environ-mental movement’ (Hynes, 1989). This has seen the gradual establish-ment of an influential ecological ethic, one very different from thatwhich previously dominated western culture, namely an ethic groundedin ‘exploiting nature’.

The social process

What has just been described is an example of an individual’s thinkingand action having a profound effect on the mind set and actions of avery large number of people and of their governments. Nevertheless,we can be sure that, though Carson wrote the book which acted as sucha powerful trigger, she would no doubt agree that she had developedher ideas in dialogue with others. Although each human being retainsat least the potential selectively to perceive and interpret the world intheir own unique way, running the risk of being regarded as ‘weird’,the norm for a social animal with sophisticated language is that ourperceptions of the world, our meaning attributions and our judge-ments of it will all be strongly conditioned by our exchanges with others. The most obvious characteristic of group life for a social animalwith highly developed language is the never-ending dialogue, discus-sion, debate and discourse in which we all try to affect each other’s per-ceptions, judgements, intentions and actions. This means that we canassume that while Figure 5.1 continues to apply to the individual, thesocial situation will be that much of the process will be carried outinter-subjectively in discourse – which is the word we adopt here tocover all communications, verbal and written, between individuals,between individuals and institutions and between institutions, the pur-pose of which is to affect the thinking and actions of at least one otherparty. To cover this we need the modified form of Figure 5.1 shown inFigure 5.2; this is the inter-subjective, or social version of the previous

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figure. In it, previously personal cognitive acts are now embedded in dis-course. Thus, two strangers could enact their own versions of Figure 5.1but, once they have met and started to communicate, they will, in gen-eral, have to construct through communication a version of Figure 5.2,with the most extreme possible version of that ‘communication’ beingthe complete domination of one by the other.

In the example just given, Rachel Carson’s act in publishing SilentSpring became the subject of much discourse. It turned out to be verypersuasive, something which could not have been precisely predicted:we now know, with hindsight, that it did in fact affect, on a grand scale, the mental states of many people who took part in the discourseor were affected by its course and products. It helped to change whatVickers calls the ‘appreciative settings’ which we bring to the discourse,whether as individuals or as groups. Since taking part in this process is the very essence of being human, Vickers (1972) finds it very

Figure 5.2A process model of active human agents in the world.

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remarkable that our language deals with it in such a poverty-strickenway. He writes:

… we have not even a name for this state of affairs in our heads which is the fruit of past communication and which is both the targetand the interpreter of present communication.This nameless stateaccounts for nearly everything which we and others do – and, moreimportant, are. Our assumptions about it are basic to nearly all ourexplanations of the feelings, thoughts and doings of ourselves and ourfellows … I have taken to calling it an appreciative system, because theword appreciation, as we use it when we speak of appreciating asituation, seems to me to carry with it those linked connotations ofinterest, discrimination and valuation which we bring to the exercise of judgement and which tacitly determine what we shall notice, how we shall discriminate situations from the general confusion of ongoingevent[s], and how we shall regard them … I call it a system becausethese categories and criteria are mutually related; a change in one islikely to affect others.

Vickers, 1972, p. 98

Our model of the social process which leads to purposeful or inten-tional actions, then, is one in which appreciative settings lead to par-ticular features of situations (as well as ‘the situations’ themselves)being noticed and judged in particular ways by standards built up fromprevious experience. As a result of the discourse which ensues, accom-modations may be reached which lead to action being taken. Equally,the appreciative settings and the standards by which judgements aremade may well be changed. They will certainly change through time asour personal and social history unfolds: there is no permanent ‘socialreality’ except at the broadest possible level, immune from the eventsand ideas which, in the normal social process, continually change it.

The organizational process

The idea of appreciative settings is not restricted to individuals. Ourpersonal settings may well be unique, since we all have a unique experi-ence of the world, but often they will overlap with those of people withwhom we are closely associated or who have had similar experience.Indeed, appreciative settings may be attributed to a group of people –to members of a team, for instance, or members of a department of an organization – though we must remember that there will never be

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complete congruence between individual and (attributed) group set-tings. We can also attribute appreciative settings to that larger abstrac-tion, the organization as a whole. Indeed, the conventional wisdom onorganizations can be seen as a rather naive assumption that all mem-bers of an organization share the same settings, those which lead themunambiguously to collaborate together in decision making in pursuitof organizational (corporate) goals. The reality […] will be more com-plex. Although the idea of ‘the (attributed) appreciative settings of anorganization as a whole’ is a usable concept, the content of those set-tings and whatever attributions are made, will never be completely static.Changes both internal and external to the organization will changeindividual and group perceptions and judgements, leading to newaccommodations related to evolving intentions and purposes.

Given this concept of organization and the concepts of data, capta,information and knowledge developed earlier, together with theaccounts of the processes, individual and social, which work done inthe IS field will support (the process shown in Figures 5.1 and 5.2), weare now in a position to give an account of the overall organizationalprocess in which the design and implementation of so-called ‘informa-tion systems’ (which, more precisely, are systems which process capta)have a part to play.

The process will be one in which the data-rich world outside is per-ceived selectively by individuals and by groups of individuals. Theselectivity will be the result of our predisposition to ‘select, amplify,reject, attenuate or distort’ (Land, 1985, p. 212) as a result of previousexperience and individuals will interact with the world not only as indi-viduals but also through their simultaneous membership of multiplegroups, some formally organized (such as a department in an organ-ization) some informal, such as a group of friends. Perceptions will beexchanged, shared, challenged, argued over, in a discourse which willconsist of the inter-subjective creation of capta and meanings. Thosemeanings will create information and knowledge which will lead toaccommodations being made, intentions being formed and purpose-ful action undertaken. Both the thinking and the action will changethe perceived world and may change the appreciative settings whichfilter our perceptions. Thus the process will be cyclic and never end-ing: it is a process of continuous learning and will be richer if morepeople take part in it.

Adjunct to this process will be another in which the IS needed tosupport the action will be defined and realized using, usually, appro-priate IT and telecommunications, the role of IT-based IS being toserve and support people taking purposeful action in their situations.

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The whole process envisaged is shown in Figure 5.3. It is a modelwhich relates to the processes in which organizational meanings are cre-ated: the POM model. Element 1 consists of the people as individualsand as group members, element 2 the data-rich world they perceiveselectively through their various taken-as-given assumptions. In the lan-guage being used here these are ‘appreciative settings’; they play therole of Land’s ‘cognitive filters’. The organizational discourse (element3) is the arena in which meaning is created inter-subjectively, leadingto the attributions of meaning which yield information and knowledge,element 4. This is a very complex social process in which persuasionand/or coercion is attempted, battles are fought and scores settled –the whole process embodying politics as well as, perhaps, rational instru-mental decision taking! Organizations have to be able to encouragebut at the same time contain such a process to survive. They have toenable assemblies of related meanings, intentions and accommoda-tions between conflicting interests to emerge (element 5) so that pur-poseful action (element 6) (best thought of and expressed as a managingof relationships) can be taken. Formally organized information sys-tems (element 7a) based on IT and telecommunications (element 7b)support organization members in conceptualizing their world, findingaccommodations, forming intentions and taking action (elements 5and 6). The technology (element 7b) will also require the availabilityof professional knowledge of the technology and its possibilities so thatsuitable configurations can be proposed. This professional know-howwill also include the knowledge needed to operate, maintain and, ifnecessary, modify the technology. This knowledge constitutes element7c in Figure 5.3.

Sometimes the ‘support’ the technology offers may include, or com-prise, taking over and carrying out, by making use of technology,actions previously in the hands of people – such as doing calculationsor drawing graphs. This kind of automation is an obvious radical kindof ‘support’; but the more subtle aspects of support are likely to residein the provision of processed capta which enable the users to modifythe way they think about their world – that is to say, help both to sustainand to change the perceived world (element 2).

Several broad features of this model, the POM model, are worthy ofcomment.

1 It cannot be overemphasized that this model does not purportto be a descriptive account of the organizational process. Whatit does purport to be is a defensible device with a structureand language which can be used to make sense of life in real

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Figure 5.3The ‘organizational’ form of the model of the social process in which meanings are established andlead to information support for people undertaking purposeful action: the ‘processes for organizationmeanings’ (POM) model.

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organizations and their provision of information systems(Weick, 1995). Real life itself is always richer and more com-plex than any of our images of it. Thus, though we could arguethat Figure 5.3 broadly represents aspects we can observe andanalyse, the detailed reality will always be less clear-cut thanthe model; a terrain is never the same as a map which relatesto it. After Checkland and Casar (1986) had representedVickers’ writings in the form of a model of what he meant by ‘an appreciative system’, Casar ‘tested’ the model in thecompany in which he worked in Mexico City (Casar, 1990).This was a financial services company and Casar’s professionaltask at that time was to set up a strategic planning function. As he did that Casar kept a detailed diary of what happenedand used the ‘appreciative system’ model to try to make senseof his experience. He found that the model was very useful forthat purpose (and hence helped him to plan and monitorwhat he was doing) but that the real-world happenings repre-sented an incredibly complex flux in which many appreciativesystems, both individual and group, were operating simulta-neously and interactively. The complexity derived from thefact that many different appreciative systems, operating simul-taneously, were doing so both over different timescales (fromwithin an hour to over several months) and at different levels,from the tactical to the strategic. Such experience providesuseful reminders to us to beware of reifying what are bound to be rather simple models when compared with complex real life!

2 In connection with the first point, it is important not to thinkof the model as implying a particular set of structures. Its elem-ents define a set of connected processes. In a real situationthese would have to be somehow embodied in structures, butmany different structures could be chosen to encapsulate theset of fundamental processes in the model. In terms of the oldquestion from biology: does form follow function or doesfunction follow form? (a real chicken-and-egg question), it isclear that as far as purposeful organizations are concerned,function (i.e. process) is prime, not form (i.e. structure). (Thefact that in everyday life in organizations more attention isdevoted to structure than process is probably due to two things:ways of thinking about process (such as by building activitymodels) are unfamiliar to many managers; and in any caseforming particular structures is usually a part of political power

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play in organizations and hence receives a disproportionateamount of attention. In everyday life, form is ‘sexier’ thanfunction.)

3 It is worth noting that because the model is cyclic, with path-ways which link all elements with each other, there is no clearstarting point for use of the model. In a particular situationthe initial focus might, for example, be on action (element 6).It might be found to be inadequately supported by the IS inelement 7a, or it might be found that some boring action pre-viously taken by people could now be automated. In anothersituation a new development in IT (elements 7b and 7c), suchas, for example, the development of groupware (Grudin, 1991)might cause a re-think of possible knowledge (element 4),intentions (element 5) and action (element 6). In general thecycle of Figure 5.3 might be dominated, in particular circum-stances, by changes in (or changed perceptions of) any of theelements in the model.

4 The process in Figure 5.3 can encompass any way of concep-tualizing an organization. It is certainly not necessarily linkedto the conventional wisdom. It could encompass it, however,just as it could encompass treating the organization as a polit-ical arena, as an organism, or according to any other organ-izational metaphor which seems appropriate in a particularcase, whether drawn from Morgan’s proposed menu of suchmetaphors (1986) or freshly coined.

5 Finally, we may note that the model enables us to define what the phrase ‘an information system’ refers to (or ought torefer to) as well as implying that the process to develop infor-mation systems ought to exhibit certain features which may ormay not be present in the current processes by which IS aredeveloped.

References

Casar, A. (1990) Human action and social process: a systemic perspective,PhD Dissertation, Lancaster University.

Checkland, P. and Casar, A. (1986) Vickers’ concept of an appreciative system:a systemic account. Journal of Applied Systems Analysis, 13, 3–17.

Grudin, J. (1991) Groupware and CSCW: why now? In Groupware ’91: the poten-tial of team and organizational computing, Hendriks, P., ed., SoftwareEngineering Research Centre, Utrecht, Netherlands.


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Hynes, H.P. (1989) The Recurring Silent Spring, Pergamon.Land, F. (1985) Is an information theory enough? The Computer Journal, 28, 3,

211–255.Morgan, G. (1986) Images of Organization, Sage.Vickers, G. (1972) Communication and appreciation. In Policymaking,

Communication and Social Learning: essays of Sir Geoffrey Vickers, Adams, G.,Forester, J. and Catron, B., eds (1987), Transaction Books.

Weick, K.E. (1995) Sensemaking in Organizations, Sage.


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C H A P T E R

Organizations andinformation

Elizabeth Orna

6

This chapter covers:

■ What makes an organization?■ What do organizations need to know to survive?■ Why organizations need to define knowledge and informa-

tion for themselves■ Why organizations need a policy and a strategy for information■ Whose business is information policy and strategy?

What makes an organization?

Organizations are everywhere today. Input ‘organization’ as a subject ortitle search term in any Internet search engine or large public libraryand you will get hundreds of hits; add ‘organizational’ and you will get afew hundred more, from ‘organizational behaviour’ to ‘organizationalstructure’ via ‘organizational culture’ and ‘organizational learning’. Buthad you made the search 60 years ago, you would not have found any-thing like that, as Drucker (1995a, p. 76) reminds us, the word ‘organ-ization’ did not come into common use in that sense until after theSecond World War (though according to the Shorter Oxford Dictionary, itwas used to mean ‘an organized body, system or society’ in 1873).

We all know what organizations are; we work for them, we use theirservices, pay our taxes to them, belong to them to pursue our hobbies orhobby-horses. And yet … not long ago I had occasion to try to find anacceptable definition that would cover any kind of ‘organization’, from

Source: Orna, E. (1999) Practical Information Policies, 2nd edn. Gower Publishing.

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business to religious body, from charity to pressure group, as a prelim-inary to trying to define what all organizations need to know. In the end,I arrived at the ‘necessary and sufficient conditions’ summarized as:

■ a grouping of human beings■ for explicit or implicit purposes■ creating ‘offerings’ of products and/or services■ interacting, internally and with its environment■ seeking sustenance to keep itself in being■ having a structure and a boundary■ embodying both social and technical systems.

This seemed to make sense when tried out on people interested inorganizations and information in the light of their own experience, soI offer it here as the basis for thinking about what organizations needto know, the information they need to maintain their knowledge ingood health and the reasons why each organization needs its own def-inition of information and its own policy/strategy for using it.

What do organizations need to know to survive?

If those are the distinguishing characteristics of organizations, then inorder to keep alive and well, there are certain things that every organ-ization needs to know […]:

■ What is happening inside its boundaries.■ What is happening in its ‘outside world’ of customers, members,

clients, competitors, suppliers, markets, providers of grants-in-aid, supporters, donors, institutions and individuals it needsto influence.

■ How to recognize, interpret and act on significant change,within and without.

■ How to create appropriate ‘offerings’.■ How to communicate, with itself and with its outside world. […]

Why organizations need to define knowledge and information for themselves

For a long time, I have been trying to find an organization that has for-mulated its own definition of what information means for it, in the lightof what it needs to know in order to succeed in its purposes, but so far I

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Chapter 6 Organizations and information 77

have not found one. This is odd, because if you start from the top-leveldefinition that fits any organization, you quickly realize that the contentof each clause will be different for each organization: organizations willseek people of different specialisms, skills and values according to theirvarious purposes; their offerings will differ; so too will their internalstructures and external environments and the kind of interactionsappropriate to their purposes; the nature of the sustenance they needand its sources will vary; and both the internal social relationships andthe technology will differ from one to the next. That being so, the con-tent of the knowledge and know-how – and consequently of the informa-tion they need to maintain it in good health – will also be highly specificto how individual organizations define what they are in business for.

Arriving at an organizational definition of knowledge and informa-tion, of how the organization needs to use them and of how they need toflow inside the organization, is a complex process. Here, it is sufficient toquote two examples of very different organizations (see Table 6.1), […]to show just how different are the kinds of information which they need

Table 6.1Information from the outside world as defined for two organizations (Credit Union Services Corporation, Australia; Surrey Police, UK)

Credit Union Services Corporation Surrey Police

Credit Unions, in Australia and world-wide Trends in crime – local, national,international

Developments in the economy, finance, Local population: age profile,industry, sociodemographic trends employment

Legislation and compliance requirements Local geography, land use, vehiclemovements

Relevant IT developments, e.g. Internet Local industry and commercebanking, electronic commerce

Customer response to products Relevant IT developments, e.g. fortracking crime, imaging

Competitors – banks and building societies Research in criminology

Existing and potential markets Local organizations/institutions

Contacts and organizations it needs to Legislationcommunicate with/influence Other police forces in the UK and

abroad

Contacts – individual, and in localand national organizations

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to take in from their outside world to maintain their knowledge. Theyexemplify the points made by Drucker (1995b), that core competenciesvary according to the nature of the organization, so too does the envir-onmental information which he says is neglected in many companies,though necessary for strategy development – as exemplified by US com-panies which went into Europe in the 1960s without even asking aboutlabour legislation.

I have come to believe that many of the conceptual difficulties whichorganizations, and especially their senior managers, experience in tryingto come to grips with information arise from being content with a gen-eral belief that it is quantitative, about the past and present of their ownorganization, and lives in databases, and from being unaware of the fullrange that emerges once one starts ‘unpacking’ the meaning of missionstatements or corporate objectives. As Farkas-Conn (1989) put it,‘Managers subscribing to the notion that companies must use their cap-abilities and their resources to the fullest are still thinking of informationin a disjointed manner of collections, interactions, and a growing worldof hardware and software, rather than of an interconnected dynamicwhole … we must now develop an extended view of what constitutes corporate information.’

Yet an appropriate definition of knowledge and information for thisorganization at this point in its development is an essential part of thefoundation for any attempt to create and apply an information policyor strategy.

Why organizations need a policy and strategyfor information

If the knowledge organizations need and the information resources theyneed to keep their knowledge in good health are so extensive in rangeand so specific and individual in content, the management of them mustbe based on a clear policy. The investment of effort in developing first apolicy and then a strategy for using knowledge and information canbring both avoidance of dangers and positive benefits.

Risks/losses to avoid

It is commonplace today to speak of information as a potentially prof-itable resource and so it is indeed. But without a policy that compels

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attention to the nature and extent of the resource, how it is used andhow it contributes to corporate objectives, the potential will go unreal-ized and loss rather than profit will be the likely outcome.

These are some of the dangers identified from actual observation ofenterprises (summarized in Table 6.2):

■ Uncoordinated information activities and systems, resultingfrom lack of policy about the use of information technology,with left hands and right hands unacquainted with oneanother’s actions, leading to incomplete exploitation of infor-mation and to anarchic use of information.

■ The control of information activities by people who have, by the nature of their professional background, a limited

Table 6.2Risks and losses that information policy can help to avoid

Situation Consequent risks and losses

Uncoordinated information activities Incomplete exploitation of and systems information, anarchic use

Information activities controlled by people Important kinds of information with restricted understanding of overlooked entirely, or managed organizations and information without professional skills to

exploit them

Inappropriate information activities; Organization wastes time on inappropriate formats for information things it no longer needs to

do; people’s time wasted indisentangling information they do need from inappropriatepresentation

Poor communication of essential information Failures in attempts to innovatefor creating organization’s offerings

Systems and IT investment without strategy Systems and IT cannot make related to overall business objectives maximum contribution to core

competencies of organization

Not possible to bring together relevant Bad decisions, missed information from different sources opportunities for initiatives, losses

Managers do not fully understand what Inability to anticipate and respond they need to know to foresee dangers, appropriately to internal or how to make good use of it external threat

Organization does not understand the Loss of reputation, of customers,importance of accurate and ethical use of of money in compensating and information in dealing with its outside rectifyingworld

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understanding of how organizations work and are managedand a restricted conception of what information is and how itcan be used. There are, for example, a lot of people with ‘infor-mation’ in their job titles, who are well qualified in such fieldsas mathematics, computing, accountancy and engineering, butwhose education and work experience has not included thetheoretical basis of information, or modern methods of hand-ling the textual information which is such an important part of the information resources of enterprises. (Davenport, 1993,suggests that as much as 85 per cent of the important informa-tion in organizations is too unstructured to be captured or dis-tributed electronically – and argues from this against thecommon managerial assumption that information acquisition,analysis and distribution is low-level work.)

■ Inappropriate information activities, unrelated to the organ-ization’s main objectives: for example, information productswhich once had a justification, but which no longer serve anyuseful purpose; or the presentation of information in formatsthat make it very difficult for those who need it to use for theirown purposes.

■ Failures of attempts to introduce innovative products or pro-cesses. Rothwell in the 1980s (1983) analysed a number of suchfailures in British industry and found that poor communicationof information was a major cause of failure in all of them. Theweaknesses included poor internal communication of techno-logical, management and economic information; poor commu-nication with external sources of scientific and technologicalinformation and with users about what they needed; deliberateignoring of outside advice; and failure to provide information tothe users of the product. Sillince (1994) suggests, in a study ofproduction management systems in relation to innovation andorganizational design, that to succeed in innovation, organiza-tions need to develop an ‘information model which considersthe following elements: work units, information needs, goals,inputs and outputs’, which needs to be continually monitoredand updated. And a recent book on technology, globalizationand economic performance argues that the ‘short-termism’characteristic of British shareholders operates against the pro-duction and use of knowledge for innovation in UK firms(Michie, 1997).

■ Systems and IT investment pursued without a strategy relatedto overall objectives and so unable to make its maximum


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contribution to the organization’s ‘core competencies’ where itcould add most value. Holohan’s (1992) research on how organ-izations defined the performance indicators presented on theirExecutive Information Systems (EIS) shows the consequences:‘Unfortunately, not one organization which took part in theresearch modelled its EIS on its overall business strategy, thuslimiting the use of their EIS to that of a glorified fire extin-guisher rather than using it to help bridge the gap between for-mulating and implementing a business strategy.’

■ Inability to bring together relevant information from a numberof different sources and disciplines in a coherent form to bearon problems to which they are relevant. For example, plantinvestment proposals unsupported by in-depth marketinginformation and strategic plans which are short on informationabout the human resources and training requirements onwhich their fulfilment depends.

■ Inability to anticipate and respond appropriately to threaten-ing situations, internal and external. King’s (1996) study ofdeclining and failing medium-large firms in the USA, forinstance, indicates that ‘failures are often caused from withinthe company and by intrinsically interrelated factors that fre-quently are rooted in the faulty acquisition and use of infor-mation by managers’.

■ Loss of reputation among customers and the community, result-ing from not having a policy for ethical use of information, orfrom having a policy but failing to ensure that staff follow it intheir dealings with customers. The insurance industry, forexample, will not quickly forget the damage and loss that cer-tain companies suffered through the dishonest and mislead-ing use of information by pensions salesmen.

Benefits to gain

The advantages are much more than just the avoidance of the dangersof being without a policy. They can be expressed briefly as follows (seealso Table 6.3 for a summary):

■ It becomes possible to integrate all information activities andto mobilize all sources of information to contribute to thetotality of the organization’s objectives.


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■ The information policy provides the basis for objective decisionmaking about resources for information activities and about themanagement of information, because it is integrated within theframework of corporate objectives and priorities. So any pro-posed development in the management of information can beconsidered in relation to how it will contribute to overall object-ives and priorities.

■ A policy for information allows for continuity in development;it reduces the danger of information initiatives being cut shortand the resources invested in them wasted – a hazard to whichinformation services are particularly susceptible in organiza-tions in search of quick cuts in apparent expenditure. The fact

Table 6.3Positive benefits which information policy can help to promote

Situation Benefits promoted by information policy

Integrated information activities All resources of information cancontribute to all organization’sobjectives

Information policy integrated within Decisions about resources for corporate policies and priorities information activities can be taken

in relation to how they contributeto corporate goals

Policy embodies criteria for assessing how Off-the-cuff decisions to cut information contributes to achieving information resources become less organizational objectives likely, because likely effects can be

predicted

Policy brings together distributed knowledge Promotes cooperation, negotiationof all information resources and activities and openness among people

responsible for different aspects of information management

Information flows more freely Innovation, productivity andcompetitiveness are bettersupported

Options for investment in systems and IT Basis for sound systems and IT can be evaluated in relation to key strategy, supporting corporateorganizational goals and to what people goals and allowing productive use need to do with information to achieve of technologythem

Intelligence gathering and constant Not only timely response to monitoring of internal and external change, but chance to initiate environment as part of information policy change so as to take advantage of

changing environments

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that the policy embodies criteria for assessing the contributionthat information makes to fulfilling the objectives of the enter-prise means that it is possible to judge the real gains and lossesthat would follow from a proposed change in resources.

■ Because an information policy is developed by bringing togetherdistributed knowledge of all information resources and activi-ties in the organization, it is capable of promoting cooperationand openness rather than hostility or concealment among thosewho are responsible for different aspects of information man-agement. (There is a lot of uplifting managerial talk these daysabout information sharing and being a learning organization,but it will stay at the level of cynicism-promoting talk without anactual policy for information.) It is also an essential step on theway to combining the benefits of diffused responsibility forknowledge and information with a dynamic, unified view of theorganization’s total resources and with ready access to all of them.

■ The free flows of information that result favour successfulinnovation, as suggested both by the Rothwell studies men-tioned above and by more recent research such as that pre-sented by Bowden and Ricketts (1992), which indicates thatthe factors associated with effective implementation of innov-ation are parallel to those associated with effective imple-mentation of information policy, for example cross-functionalteams and good intra- and inter-firm communications. Theyalso support productivity and competitiveness. Koenig’s(1992) studies of productivity in the pharmaceutical industryrevealed differences in the information environment of moreand less productive firms, with the more productive showinggreater openness to outside information, less concern withprotecting proprietary information, greater effort devoted todeveloping information systems and more uses of them byend-users. Bowonder and Miyake (1992) made similar find-ings, with particular emphasis on the importance of environ-mental scanning, about the relationship between informationmanagement and competitiveness in Japanese companies. […]

■ An information policy makes the basis for a sound strategy forinvestment in information systems and technology, because itallows the options to be evaluated in relation to the organiza-tion’s key objectives and to its human resources. […]

■ Finally, the constant monitoring involved in applying an infor-mation policy means that the organization is capable not onlyof timely response to changes in the internal and external

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environment, but of moving ahead to initiate change that willallow it to take advantage of changing environments. […]

Whose business is information policy and strategy?

Information policy and strategy are too important for the well-being ofthe organization to be left to a limited group of people, or developedwithout close attention from top management and/or board level. Theprocess should involve everyone who manages resources of informationwhich are essential to the organization in the light of its definition ofwhat it is in business for; the senior managers to whom they are respon-sible; representatives of ‘stakeholders’ who use or contribute to theresources; and those who manage the systems and technology whichsupport people in doing things with information. And it should beunder the aegis of the top management team.

This is in line with ideas advanced by Marchand (1997) and byJapanese-American thinkers like Nonaka and Takeuchi (1995) about thevalue that can be created by diffusion of responsibility for knowledge anddecision making throughout organizations, rather than concentrating itat the top.

References

Bowden, A. and Ricketts, M. (1992) Stimulating Innovation in Industry: the chal-lenge for the United Kingdom, Kogan Page/NEDO.

Bowonder, B. and Miyake, T. (1992) Creating and sustaining competitiveness:information management strategies of Nippon Steel Corporation.International Journal of Information Management, 12, 39–56.

Davenport, T.H. (1993) Process Innovation: re-engineering work through informa-tion technology, Harvard Business School Press.

Drucker, P. (1995a) Managing in a Time of Great Change, Butterworth Heinemann.Drucker, P. (1995b) The information executives truly need. Harvard Business

Review, January–February, 54–62.Farkas-Conn, I. (1989) Information as a corporate resource. Information Services

and Use, 9, 205–215.Holohan, J. (1992) Use of executive information systems in measuring busi-

ness performance. Journal of Information Technology, 7, 177–186.King, A.S. (1996) Organon of business failure: phase model of organizational

decline. Journal of Information Science, 22, 4, 259–276. (Useful analysis of

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how lack of strategic use of information contributes to decline and fallof businesses exhibiting various syndromes.)

Koenig, M.E.D. (1992) The importance of information services for productiv-ity ‘under-recognised’ and underinvested. Special Libraries, Fall, 199–210.

Marchand, D.A. (1997) Managing strategic intelligence. Financial Times Master-ing Management, Financial Times/Pitman (‘sharing strategic intelligencerather than processing it centrally encourages a diversity of interpret-ations and views about the future’; helps to cope with rapid change in the environment; strategic intelligence should not be confined to the topof the company, but should be distributed in line with more lateralapproaches).

Michie, J. (1997) Innovation the key to growth for any nation (article onArchibugu, D. and Michie, J. (eds) Technology, Globalisation, and EconomicPerformance, Cambridge University Press). The Guardian, 21 April.

Nonaka, I. and Takeuchi, H. (1995) The Knowledge-creating Company: how Japanesecompanies create the dynamics of information, Oxford University Press.

Rothwell, R. (1983) Information and Successful Innovation, British Library R&DReport 5802, The British Library and the Technical Change Centre.

Sillince, J.A.A. (1994) A management strategy for innovation and organiza-tional design: the case of MRP2/JIT production management systems.Behaviour and Information Technology, 13, 3, 216–227.


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Organizations are increasingly dependent on information. However,they must first be able to get at information when it is needed, where itis needed and in the form it is needed. Moreover, this information hasto complement the gathering, analysing and communication stages ofthe information management process. The purpose of the four chap-ters in this section is to discuss the main ways organizational data aremanaged, prior to decision-making activity. Of course, the choice ofapproach to the management of information is driven, in part, by thesorts of decisions being undertaken. Nevertheless, the storage, pro-cessing and communication of information are critical to the oper-ation of all business functions. Accordingly, the provision of theinformation systems needed to achieve this is central to the activities of the information management function.

In Chapter 7, entitled Generic types of information systems, Hintonbriefly explains the range of systems that are to be found within organ-izations. A classification of these types is offered which makes sense ofhow different systems support different forms of information manage-ment role and business functions. Specific attention is paid to key gen-eric types which form the building blocks for successful information

P A R T

Introduction: ManagingOrganizational Data and

InformationMatthew Hinton

3

management. The chapter starts by describing the role databases play.Databases are a significant component in most information systems.Particular attention is paid to specific information systems central tofuture developments, most notably decision support systems, expertsystems and knowledge bases.

In Chapter 8, Business information systems, James O’Brien exploreshow information systems are used within the different functions of an organization. These information systems represent the overlapbetween the information management function and the other func-tions, such as marketing, accounting, human resources and oper-ations. The chapter describes the key systems in each function in somedetail. However, it also stresses that a number of common features areshared by several of these functional systems, most notably the need forfunctions to manage their resources and their operational processes.For this to happen successfully information needs to be shared acrossfunctional boundaries and beyond organizational boundaries with cus-tomers and suppliers. O’Brien begins to explore the reasons behindgreater functional integration, a debate which will be investigated ingreater detail in Chapter 10.

Chapter 9, Information systems for human resource applications,builds on the functionally specific material presented in Chapter 8. Itrecognizes that information and people are commonly considered tobe the two most valuable assets in an organization, but that they bothstruggle to be seen and used as strategic resources. Through the use ofcase studies the authors, Bee and Bee, explore how information sys-tems can enrich human resources and suggests that the future lies inthe extent to which human resource professionals can harness thepower of information through careful information management, withthe goal of developing their strategic role.

Traditionally, functional information systems have been independ-ent from each other. They were designed to support the specific infor-mation systems needs of each functional area. However, with growingregularity, independent functional systems are proving to be ineffect-ive. While they offer operational solutions to functional problems andallow for increased task automation, they fail to realize their full tac-tical and strategic potential. One remedy is the integrated approach.Cross-functional information systems represent an important develop-ment for organizations and an important area of activity for the infor-mation management function.

In Chapter 10, Distributed systems, EDI and the organization, Curtisand Cobham cover the key cross-functional concepts that are changingthe way organizations operate, most notably distributed systems and

88 Managing Organizational Data and Information Part 3

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electronic data interchange (EDI) as precursors to technological devel-opments such as enterprise resource planning (ERP) and the Internet.Distributed systems represent an alternative way of handling informa-tion provision. Curtis and Cobham examine the impact of the applica-tion of distributed systems on organizations and the benefits that result.In addition to the obvious tangible benefits of lowering costs for datacommunications and telecommunications, there are intangible bene-fits associated with improved flow of information throughout the organ-ization. However, increased user satisfaction and response times areoffset against system complexity and potential data inconsistencies. Thestructure for a distributed system may be expected to reflect the organ-izational structure because data distribution tends to occur at the levelreflecting the organizational structure. This means that the data are dis-tributed with the aim of supporting people performing a similar func-tion and decision-making activity. This has obvious implications forapproaches to information management and this is a terrain that isshifting as the relative costs of data distribution are dramatically loweredwith the growth of Internet-based electronic commerce applications.Chapter 10 emphasizes the need for value-added networks (VANs)where information management is charged with the responsibility offacilitating both cross-functional and interorganizational systems wherevalue creation may be taken to a new level.

Part 3 Managing Organizational Data and Information 89

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C H A P T E R

Generic types ofinformation systems

Matthew Hinton

7

An information system collects, processes, stores, analyses and dissem-inates information for a specific purpose. At its simplest level, an infor-mation system processes a set of inputs (like data and instructions) andproduces a variety of outputs (like reports and calculations) within agiven environment. This chapter sets out to explore the generic typesof information systems that are used for storing and processing infor-mation. To begin with, it describes the important role played by data-bases, as arguably the single most significant component in mostinformation systems. This is followed by a breakdown of the generictypes of information systems that can be identified in virtually allorganizations. System classifications are derived from their variousattributes, such as organizational purpose and value, and the nature ofthe business processes they support.

Databases

Databases are the most widespread form of information store and arecommonly employed throughout organizations. As such, they oftenform the building blocks of management information systems.Essential to the idea of a management information system is the abil-ity to retrieve data and use them for the production of targeted infor-mation for management decision making. Much data will be createdand stored as a result of the ongoing processes and transactions takingplace within an organization. This activity takes place regardless of

the type, size or industry sector the organization finds itself in. The commercial operation of a retail store will produce data every timegoods are delivered, staff employed to place stock on shelves, or gro-ceries paid for by customers. In the same way a public service like a hos-pital will generate data which show its ‘transactions’; how many patientson a waiting list, the allocation of key resources like an operating the-atre or the stock of medical supplies. It is important that such data areseen as a central resource for the entire management information system and not solely connected to the application that produced it:

…Sales transaction data used to update the sales ledger will be storedafter the updating process.This data should be available for otherpurposes. It can be used to provide reports on sales personnelperformance as part of the HR management function.Alternatively, itcan be fed into models that use data and information from othersources to forecast cash flows and aid cash management.

Curtis and Cobham, 1998, p. 25

In order for data to be commonly available, special software, known asthe database management system, is required to control access to thevarious data stores. Figure 7.1 shows how the ongoing organizational


Information Information

Application softwareModel

Informationby directenquiry

Database

Database management system

Data Data

DataData

Materialsprocessing

Transaction dataprocessing

Transaction data

Labour power

Data/information Materials

Product

Report information

Materials energy

Figure 7.1The provision of

information from adatabase.

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processes are fed into the database and the data are passed on to managers via the database management system. Managers may makedirect enquiries of the database or, more commonly, some form ofmanagement information system will process data as required.

Access to accurate and timely information needed for decision mak-ing has become increasingly important for modern organizations.Unfortunately, it has not always been easy to identify and retrieve therequired information. Organizations have accumulated vast databasesystems containing gigantic volumes of data, so the emphasis hasshifted to efficient organization and access management of thisresource. The focus of technology has changed from simple data inputand capture to information access and availability provided by an orga-nization’s data warehouse. A data warehouse is a relational or multidi-mensional database management system designed to support decisionmaking (Turban et al., 2001). The data warehouse transforms data intoa more useful resource by grouping them more conveniently for users,standardizing data formats to enable better data analysis and increasethe availability and accessibility of data to appropriate working groups.The intelligent management of data in many different databases, usinga data warehouse, has many business advantages. These include:

■ Removing barriers among functional areas, thus providing alook at cross-functional activities

■ Consolidating data about individual customers■ Providing users with an integrated, customer-centric view of the

organization’s data, compiled from data in different systems■ Providing added value to customers by allowing them to

access better information when data warehousing is coupledwith communications technologies such as the Internet.

Types of information systems

Business information systems are designed to produce informationthat is of value to the organization. So that the user organization canbe persuaded to invest money in this type of undertaking they must bepersuaded of the value of the information produced. The value of thisinformation is in turn dependent on the purpose of the information.For example, the system may produce information that enables theuser to keep control of the organization’s payroll or enables managementto make better decisions so giving the organization a competitive edge.

Chapter 7 Generic types of information systems 93

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In terms of business objectives, information systems fall into threemajor categories: operational, tactical and strategic.

Operational systems

Information systems of this type concern those operations carried outby the organization in its normal trading environment. These systemsperform necessary routine activities and include applications such asstock control, order processing, retailing systems, on-line booking sys-tems and so on. Operational systems can be unexceptional but they areusually critical to the organization’s endeavours (Cleary, 1998).

Tactical systems

Tactical systems are usually associated with those processes that supplyinformation for immediate decision making. Such decisions usuallyrefer to management activities involved with the monitoring of finan-cial budgets, pricing levels, human resourcing, production schedules,stock level planning and so on.

Strategic systems

Strategic systems are invariably concerned with those decisions thataffect the long-term policy objectives of the organization. Such decisions


Support of business operations

Support of managerialdecision making

Supportof strategicadvantage

Information systems

Figure 7.2Major roles of

informationsystems.

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usually regard matters like determining the types of products/services supplied by the organization, the organization’s centre ofactivities, investment plans in research and development and issuesconcerning the financing of the enterprise. Strategic systems fre-quently depend on information sources that are usually beyond theinfluence of the individual organization. For example borrowingrequirements and export policies could depend upon national factorssuch as interest rates and levels of unemployment, or international fac-tors such as currency exchange rates or commodity prices. So usefulmodels such as sophisticated spreadsheet scenarios incorporating dataof this type have enabled users to make better decisions than mightotherwise have been the case endeavours (Cleary, 1998).

So information systems perform three vital roles in any type oforganization:

■ Support of its business processes and operations■ Support of decision making by its employees and managers■ Support of its strategies for competitive advantage.

The categorization of information systems is a matter of debate.Indeed some regard it as a fruitless debate since change is so rapid, butit can be helpful to sort information systems into levels according to use. With this in mind, O’Brien (2000) offers a classification ofinformation systems that distinguishes between operational and man-agement support systems (see Box 7.1).


Box 7.1 Classification of system roles

Operational support systems

Information systems have always been needed to process data generated by, and used in,business operations. Such operational support systems provide a variety of informationproducts for internal and external use. However, they do not emphasize producing spe-cific information products that can be best used by managers. Further processing bymanagement information systems is required. The role of an organization’s operationalsupport systems is to efficiently process business transactions, control industrial process,support enterprise communications and collaboration. Transaction processing systems arean important example of operational support systems that record and process dataresulting from business transactions. For example, point of sale systems at many retailstores use electronic cash register terminals to electronically capture and transmit salesdata over telecommunication links to regional computer centres for processing. Process

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As mentioned above, the term Decision Support Systems (DSS) covers anycomputerized system that supports decision-making activity. A DSS isintended to support rather than replace decision-making roles. Com-puterized systems can replace the human decision maker in structureddecisions but are of little help in completely unstructured situations. In addition, decision makers encounter a variety of decisions which comprise a structured element, where data are transformed, and anunstructured non-rule-governed element. It is just these decisions thatcan be aided by DSS (Curtis and Cobham, 1998). Many decisions takenwithin an organization will be taken not by a single individual but as aresult of group deliberations. Group decision support systems (GDSS)deliver computer-based support for group decisions. Given their pur-pose, decision support systems require flexible interactive access to data.In addition, DSS are designed with an understanding of the require-ments of the decision makers and the decision-making process in mind.This has implications, two of the most important being:

1 Flexible access to data: many semi-structured decisions are onlypossible if the decision maker has immediate access to ad hoc


control systems monitor and control physical processes. For example, a petroleum refineryuses information systems to monitor chemical processes and make instant adjustmentsthat control the refining process. Enterprise collaboration systems enhance group-workingactivity. For example, a project team may use electronic mail to send and receive mes-sages and to coordinate their activities.

Management support systems

When information systems focus on providing information and support for effectivedecision making by managers, they are called management support systems.Conceptually, several types of information system support a variety of managerialresponsibilities. Management Information Systems (MIS) provide information in the formof reports and displays for managers. For example, sales managers may use their per-sonal computers to get displays about sales results of their products and to access salesreports evaluating sales made by each salesperson. Decision Support Systems give directcomputer support to managers during the decision-making process. For example, adver-tising managers may use an electronic spreadsheet package to do sensitivity analysis to test the impact of alternative advertising budgets on forecasted sales. ExecutiveInformation Systems provide critical information in easy to use displays. For example, topexecutives may use touchscreen terminals to instantly view text and graphics displaysthat highlight key areas of organizational performance (O’Brien (2000), pp. 33–34).

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data retrieval and report generation facilities. For internaldecisions this means that access by powerful query languagesof existing data held in a corporate database is required.

2 The need for interactive support: typically many of the semi-structured decisions for which DSS are relevant involve thedecision maker in asking questions that require immediateanswers. As a result of this further interrogation is made.Examples are:Sensitivity analysis (sometimes called ‘what if ?’ analysis) – as in‘what would the effect on profits be if we were to be subject toa 5 per cent material cost rise?’Goal seeking – as in ‘what would be the required mix in theliquidation of short-term and medium-term assets to reduce aprojected cash deficit to zero over the next six months?’Optimization – as in ‘how do we ensure optimum utilization ofour machines?’

The development of artificial intelligence techniques has given rise totwo final categories of information system you will encounter in organ-izations: Expert Systems and Knowledge Management Systems. An expert sys-tem is a knowledge-based information system that uses its knowledgeabout a specific, complex application area to act as an expert consult-ant to decision makers and other system users. As O’Brien (2000)explains, ‘Expert systems provide answers to questions in a very specificproblem area by making human like inferences about knowledge con-tained in a specialized knowledge base’. They must also be able toexplain their reasoning process and conclusions to a user (Egan, 1995).The major limitations of expert systems are the result of their limitedfocus and inability to learn. So expert systems excel only in solving spe-cific types of problems in a limited domain of knowledge. They failwhere a broad range of knowledge is needed to solve a problem andare weak when dealing with subjective managerial decision making.

References

Cleary, T. (1998) Business Information Technology, FT Prentice-Hall.Curtis, G. and Cobham, D. (1998) Business Information Systems: Analysis, Design

and Practice, Addison Wesley Longman.Egan, R. (1995) The expert within. PC Today, January.O’Brien, J. (2000) Introduction to Information Systems, McGraw-Hill.Turban, E., Rainer, R. and Potter, R. (2001) Introduction to Information

Technology, Wiley and Sons.


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C H A P T E R 8

IS in business

Business managers are moving from a tradition where they couldavoid, delegate, or ignore decisions about IT to one where they cannotcreate a marketing, product, international, organizational, or financialplan that does not involve such decisions (Keen and Ballance, 1997).

There are as many ways to use information technology in business asthere are business activities to be pursued. As a business end user, youshould have a basic understanding and appreciation of the major waysinformation systems are used to support each of the functions of busi-ness. Thus, in this chapter we will discuss business information systems,that is, a variety of types of information systems (transaction process-ing, management information, decision support, etc.) that support thebusiness functions of accounting, finance, marketing, operations management and human resource management.

Analysing Amazon.com

We can learn a lot about how information technology empowers thestrategic moves and e-commerce success of Amazon.com (see Box 8.1).

For three years Amazon.com concentrated on becoming the bestonline bookstore on the Web and one of the best websites for customer

Business informationsystems

James O’Brien

Source: O’Brien, J. (2000) Introduction to Information Systems: Essentials for theInternetworked Enterprise. Irwin/McGraw-Hill Education.

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Chapter 8 Business information systems 99

Box 8.1 Amazon.com: success and expansion in electroniccommerce

[…] Originally, it seemed as though the major Internet portals – with Yahoo! andAmerica Online leading the way – held most of the keys to the future of retail commerce.As the biggest online magnets for potential shoppers, portals charge retailers dearly – ineither long-term, multimillion-dollar sponsorship deals or shares of sales revenues – tostake out small plots of valuable portal real estate and drive more customer traffic totheir sites.

Consumer-agent technology and price-comparison sites such as Junglee andCompareNet, on the other hand, have always held the promise of a direct consumer–retailer relationship – with shopbots (shopping software robot programs) available 24hours a day to find any product at the best price. But it was not until Amazon made twomajor acquisitions that industry observers caught a glimpse of how the balance of retailpower might shift.

Amazon’s pace was blistering. In June 1998, the company added music to its offerings.In one quarter, it became the leading Internet music seller, with more than $14 millionin sales, much to the chagrin of stunned competitors such as CDNow and N2K. In thefall, it launched European book sites in Germany and Britain and added videos to its‘media suite’. Then came the acquisitions.

In August 1998, Amazon gobbled up Junglee and PlanetAll (an online address bookand organizer for some 1.5 million users) for $280 million in stock. By November 1998,Amazon announced it would add software to its product line and it opened a gift centre,adding such items as Barbie dolls, watches and PalmPilots to its array of offerings. Onlineauctions began a few months later.

In creating this potential powerhouse of shopping services and offerings, Amazon.comlooks to be moulding itself into not simply a Wal-Mart of the Web but rather a next-generation, retail commerce portal.

Imagine a customized site where, through a Junglee-like shopping service, you will notonly shop easily with a trusted brand for books, videos, gifts and more, but you will alsoresearch the features, price and availability of millions of products from a single store-front that has Amazon’s – and your – name on it. That is the promise and the challengeof Internet retailing in the future.

That is what has got Amazon this far in its first three years of business: exhaustive focuson convenience, selection and personalization. It lived up to its billing as Earth’s BiggestBookstore by building an inventory of more than 3 million titles. It was also among thefirst Internet stores to facilitate credit-card purchases, greet customers by name andoffer customized homepages, send purchase recommendations via e-mail and numberand explain each step in the purchasing process.

But it has not been all roses in Seattle, either. Amazon has been criticized for ineffi-cient inventory management while the company continues to post multimillion-dollarlosses each quarter. According to an IceGroup study of Amazon’s business model in

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service. They invested heavily in electronic commerce software and otherinformation technologies to offer top-rated convenience, selection andpersonalization to their customers. Then they leveraged this investmentin IT and retail e-commerce to support a strategic expansion intomusic, videos, software, gift items and online auctions. In addition,they have made investments in new e-commerce technology by acquiringcompanies that provide shopping agent software and online organizerservices.

These capabilities enabled Amazon to transform itself into a retailcommerce portal for all types of products and services. Thus, now theyhave solved their inventory and logistics management problems, Amazonshould continue to be a dominant player in electronic commerce.

Cross-functional information systems

As a business end user, it is important that you have a specific under-standing of how information systems affect a particular business func-tion – marketing, for example – or a particular industry (e.g. banking)that is directly related to your career objectives. For example, someonewhose career objective is a marketing position in banking should havea basic understanding of how information systems are used in bankingand how they support the marketing activities of banks and other firms.

Figure 8.1 illustrates how information systems can be grouped intobusiness function categories. Thus, information systems in this section

1998, losses were running at the equivalent of $7 per transaction. (Its gross profit mar-gins and customer-retention rates, on the other hand, continue to improve steadily, fac-tors that keep investors happy.) The company needs to ready logistics and backendsystems to handle an expansion of product offerings. Transaction costs need to be cut toensure the seemingly unattainable: a profitable quarter.

Amazon remains the dominant player in e-commerce, despite German media giantBertelsmann and Amazon competitor Barnes & Noble’s joint Web venture. Amazon’sfour-month jump to the top of the music category proved how extensible the Amazonbrand is, especially as the company builds out from books, music and videos. A prof-itable quarter is not due till 2000, but if Amazon decides to begin selling ad space –which it hasn’t done yet – that might change quickly. (Source: Adapted from JeffreyDavis, ‘Mall Rats,’ Business 2.0, January 1999, pp. 41–50)

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will be analysed according to the business function they support to giveyou an appreciation of the variety of business information systems thatboth small and large business firms may use.

However, […] information systems in the real world typically areintegrated combinations of functional information systems. Such sys-tems support business processes, such as product development, pro-duction, distribution, order management, customer support and soon. Many organizations are using information technology to developcross-functional information systems that cross the boundaries of tra-ditional business functions in order to re-engineer and improve vitalbusiness processes. These organizations view cross-functional informa-tion systems as a strategic way to use IT to share information resourcesand improve the efficiency and effectiveness of business processes,thus helping a business attain its strategic objectives (Figure 8.2).

For example, business firms are turning to Internet technologies tointegrate the flow of information among their internal business func-tions and their customers and suppliers. Companies are using theWorld Wide Web and their intranets and extranets as the technologyplatform for their cross-functional and interorganizational informa-tion systems.

• Manufacturing resource planning• Manufacturing execution• Engineering

Production/Operations

• Order processing• Inventory control• Accounts receivable• Accounts payable• Payroll• General ledger

Accounting• Cash management• Credit management• Investment management• Capital budgeting• Financial forecasting

Finance

Businessinformation

systems

• Compensation analysis• Employee skills inventory• Personnel requirements forecast

Human resourcemanagement

• Interactive marketing• Sales force automation• Advertising and promotion• Market research

Marketing

Figure 8.1Examples of

businessinformation

systems. Note howthey support themajor functional

areas of business.

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Enterprise resource planning

In addition, many companies have moved from functional mainframelegacy systems to cross-functional client/server network applications. Thistypically has involved installing enterprise resource planning (ERP) orsupply chain management (SCM) software from SAP, Baan, PeopleSoft, orOracle Corporation. Instead of focusing on the information processingrequirements of business functions, ERP software focuses on supportingthe business processes involved in the operations of a business. […]

Marketing information systems

The business function of marketing is concerned with the planning,promotion and sale of existing products in existing markets and thedevelopment of new products and new markets better to serve presentand potential customers. Thus, marketing performs a vital function inthe operation of a business enterprise. Business firms have increasinglyturned to information technology to help them perform vital market-ing functions in the face of the rapid changes of today’s environment.

Figure 8.3 illustrates how marketing information systems provideinformation technologies that support major components of the mar-keting function. For example, Internet/intranet websites and servicesmake an interactive marketing process possible, where customers canbecome partners in creating, marketing, purchasing and improving prod-ucts and services. Sales force automation systems use mobile computingand Internet technologies to automate many information-processing

Needsanalysis

ResearchMarket

testComponent

designProduct

testProductrelease

Processdesign

Equipmentdesign

Productionstart

Marketing Manufacturing

R&D/Engineering

Figure 8.2The new product development process in a manufacturing company.This business process must besupported by cross-functional information systems that cross the boundaries of several businessfunctions. (Source: Adapted and reprinted by permission of The Harvard Business School Press fromProcess Innovation: Reengineering Work Through Information Technology by Davenport,T.H. (Boston: 1993),p. 222. Copyright © 1993 by Ernst & Young.)

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activities for sales support and management. Other marketing infor-mation systems assist marketing managers in product planning, pric-ing and other product management decisions, advertising and salespromotion strategies and market research and forecasting. Let’s take acloser look at these computer-based applications.

Interactive marketing

The explosive growth of Internet technologies has had a major impacton the marketing function. The term interactive marketing has beencoined to describe a type of marketing that is based on using the Internet,intranets and extranets to establish two-way interaction between a busi-ness and its customers or potential customers. The goal of interactivemarketing is to enable a company profitably to use those networks toattract and keep customers who will become partners with the businessin creating, purchasing and improving products and services.

Table 8.1 outlines the steps of the interactive marketing process onthe Internet. Notice that the Internet has become the primary distri-bution channel of the new online marketing environment. Customersare not just passive participants who receive media advertising prior topurchase, but are actively engaged in a network-enabled proactive andinteractive process.

Notice that interactive marketing views prospective customers asbelonging to many distinct market segments that must be approacheddifferently online through targeted marketing techniques. Interactivemarketing also encourages customers to become involved in productdevelopment, delivery and service issues. This is enabled by variousInternet technologies, including chat and discussion groups, web

Marketing informationsystems

Market researchand forecasting

Customer serviceand support

Productmanagement

Salesmanagement

Interactivemarketing

Advertisingand promotion

Sales forceautomation

Figure 8.3Marketing

informationsystems provide

informationtechnologies tosupport major

components of themarketing function.

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forums and questionnaires and e-mail correspondence. Finally, theexpected outcomes of interactive marketing are a rich mixture of vitalmarketing data, new product ideas, volume sales and strong customerrelationships (Halper, 1997).

Sales force automation

Increasingly, computers and networks are providing the basis for salesforce automation. In many companies, the sales force is being outfittedwith notebook computers, web browsers and sales contact managementsoftware that connect them to marketing websites on the Internet,extranets and their company intranets. This not only increases the per-sonal productivity of salespeople, but dramatically speeds up the captureand analysis of sales data from the field to marketing managers at company headquarters. In return, it allows marketing and sales

Table 8.1The interactive marketing process on the Internet

Step 1 Segment and identify potential customers(Initial market research done by reaching relevant groups – WWW servers, listservs, newsgroups)

Step 2 Create promotional, advertising and educational material(WWW page with multimedia effects – audio and video) (Product information and complementary products, order formsand questionnaires)

Step 3 Put the material on customers’ computer screensPush-based marketing – direct marketing using web broadcasters,newsgroups, listservs and e-mailPull-based marketing – indirect (static) marketing – WWW pages

Step 4 Interacting with customersDialogue with the customer, interactive discussion among customers about various features offering endorsements,testimonials, questions/answers

Step 5 Learning from customers (repeat customers are 80 per cent of the customer base)Incorporating feedback from customers in advertising,marketing strategy Identifying new markets, using experience in new product development

Step 6 Online customer serviceFast, friendly solutions to customer problems

Source:Adapted from Kalakota, R. and Whinston,A. Frontiers of Electronic Commerce,Addison-Wesley, 1996, p. 499. © 1996 Addison-Wesley Publishing Company, Inc.Reprinted by permission of Addison-Wesley Longman Inc.

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management to improve the delivery of information and the supportthey provide to their salespeople. Therefore, many companies areviewing sales force automation as a way to gain a strategic advantage insales productivity and marketing responsiveness.

For example, salespeople use their PCs to record sales data as theymake their calls on customers and prospects during the day. Then eachnight sales reps in the field can connect their computers by modem andtelephone links to the Internet and extranet, which can access intranetor other network servers at their company. Then they can upload infor-mation on sales orders, sales calls and other sales statistics, as well as sendelectronic mail messages and access website sales support information.In return, the network servers may download product availability data,prospect lists of information on good sales prospects and e-mail messages(Table 8.2).

Sales and product management

Sales managers must plan, monitor and support the performance ofthe salespeople in their organizations. So, in most firms, computer-based systems produce sales analysis reports that analyse sales by product,product line, customer, type of customer, salesperson and sales territory.Such reports help marketing managers monitor the sales performanceof products and salespeople and help them develop sales support programmes to improve sales results.

Product managers need information to plan and control the per-formance of specific products, products lines and brands. Computer-based analysis can provide price, revenue, cost and growth information

Table 8.2Some of the benefits of web-based sales force automation

Shorten the sales cycle through prequalification of prospects

Increase revenue through targeted marketing

Automate the management and qualification of web leads

Capture all customer information directly into a sales database

Enhance order management with access to data on pricing, promotions, availability,production schedules, export regulations, carriers and transportation schedules

Source: Adapted from Kalakota, R. and Whinston, A. Electronic Commerce: a manager’s guide,Addison-Wesley, 1997, p. 325. © 1997 by Addison-Wesley Publishing Company, Inc.Reprinted by permission of Addison-Wesley Longman, Inc.

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for existing products and new product development. Thus, providinginformation and analysis for pricing and product development decisionsis a major function of a product management system.

Advertising and promotion

Marketing managers try to maximize sales at the lowest possible costsfor advertising and promotion. Marketing information systems usemarket research information and promotion models to help (1) selectmedia and promotional methods, (2) allocate financial resources and(3) control and evaluate results of various advertising and promotioncampaigns. For example, the INFOSCAN system of InformationResources Incorporated (IRC) tracks the sales of over 800 000 productsby their universal product code (UPC) to more than 70 000 US house-holds at over 2400 retail stores. INFOSCAN measures the effect of promotional tactics such as price discounts, coupon offers and point-of-purchase (POP) promotions. Then INFOSCAN’s computer-basedmarketing models produce sales forecasts and other analyses of marketing strategy.

Targeted marketing

Targeted marketing has become an important tool in developingadvertising and promotion strategies for a company’s electronic com-merce websites. As illustrated in Figure 8.4, targeted marketing is anadvertising and promotion management concept that includes five tar-geting components.

■ Community. Companies can customize their web advertisingmessages and promotion methods to appeal to people in spe-cific communities. These can be communities of interest, such asvirtual communities of online sporting enthusiasts or arts andcrafts hobbyists, or geographic communities formed by thewebsites of a city or local newspaper.

■ Content. Advertising such as electronic billboards or bannerscan be placed on various website pages, in addition to a com-pany’s home page. These messages reach the targeted audi-ence. An ad for a movie on the opening page of an Internetsearch engine is a typical example.

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■ Context. Advertising appears only in web pages that are relevantto the content of a product or service. So advertising is tar-geted only at people who are already looking for informationabout a subject matter (vacation travel, for example) that is related to a company’s products (car rental services, forexample).

■ Demographic/psychographic. Marketing efforts can be aimedonly at specific types or classes of people: unmarried, twenty-something, middle income, male college graduates, for example.

■ Online behaviour. Advertising and promotion efforts can be tai-lored to each visit to a site by an individual. This strategy isbased on ‘web cookie’ files recorded on the visitor’s disk drivefrom previous visits. Cookie files enable a company to track aperson’s online behaviour at a website so marketing effortscan be instantly developed and targeted to that individual ateach visit to their website.

Market research and forecasting

Market research information systems provide marketing intelligenceto help managers make better marketing forecasts and develop moreeffective marketing strategies. Marketing information systems helpmarket researchers collect, analyse and maintain an enormous amount

Demographic/psychographic

Context

Content

Community

Online behaviour

Figure 8.4The five majorcomponents of

targeted marketingfor electronic

commerce on theWorld Wide Web.(Source: Adapted

from Martin, C.The Digital Estate:

strategies forcompeting, surviving,

and thriving in anInternetworked world

(New York:McGraw-Hill, 1997),

pp. 124–25, 206).

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of information on a wide variety of market variables that are subject tocontinual change. This includes information on customers, prospects,consumers and competitors. Market, economic and demographictrends are also analysed. Data can be gathered from many sources,including a company’s databases, data marts and data warehouse,World Wide Web sites and telemarketing services companies. Then, avariety of statistical software tools can help managers analyse marketresearch data and forecast sales and other important market trends.

Manufacturing information systems

Manufacturing information systems support the production/oper-ations function that includes all activities concerned with the planningand control of the processes producing goods or services. Thus, theproduction/operations function is concerned with the management ofthe operational processes and systems of all business firms. Informationsystems used for operations management and transaction processingsupport all firms that must plan, monitor and control inventories, pur-chases and the flow of goods and services. Therefore, firms such astransportation companies, wholesalers, retailers, financial institutionsand service companies must use production/operations informationsystems to plan and control their operations. In this section, we will con-centrate on computer-based manufacturing applications to illustrateinformation systems that support the production/operations function.

Computer-integrated manufacturing

A variety of manufacturing information systems is used to support computer-integrated manufacturing (CIM) (Figure 8.5). CIM is anoverall concept that stresses that the objectives of computer-based systems in manufacturing must be to:

■ Simplify (re-engineer) production processes, product designsand factory organization as a vital foundation to automationand integration.

■ Automate production processes and the business functionsthat support them with computers, machines and robots.

■ Integrate all production and support processes using com-puters, telecommunications networks, and other informationtechnologies.

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The overall goal of CIM and such manufacturing information systems isto create flexible, agile, manufacturing processes that efficiently pro-duce products of the highest quality. Thus, CIM supports the conceptsof flexible manufacturing systems, agile manufacturing and total quality man-agement. Implementing such manufacturing concepts enables a companyto respond quickly to and fulfil customer requirements with high-qualityproducts and services.

Manufacturing information systems help companies simplify, auto-mate and integrate many of the activities needed to produce productsof all kinds. For example, computers are used to help engineers design better products using both computer-aided engineering and computer-aided design and better production processes with computer-aided process planning. They are also used to help plan the types of mate-rial needed in the production process, which is called material requirementsplanning (MRP), and to integrate MRP with production schedulingand shop floor operations, which is known as manufacturing resourceplanning.

Computer-aided manufacturing (CAM) systems are those that auto-mate the production process. For example, this could be accomplishedby monitoring and controlling the production process in a factory

Manufacturing resourceplanning systems

Production forecasting

Production scheduling

Material requirementsplanning

Capacity planning

Production cost control

Quality control

Computer-integrated manufacturing

Shop floor scheduling

Shop floor control

Machine control

Robotics control

Process control

Manufacturingexecution systems

Computer-aided design

Computer-aidedengineering

Computer-aidedprocess planning

Product simulationand prototyping

Engineeringsystems

Figure 8.5Manufacturing information systems support computer-integrated manufacturing.

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through manufacturing execution systems, or by directly controlling aphysical process (process control), a machine tool (machine control),or machines with some humanlike work capabilities (robots).

Manufacturing execution systems (MES) are performance monitoringinformation systems for factory floor operations. They monitor, trackand control the five essential components involved in a productionprocess: materials, equipment, personnel, instructions and specifica-tions, and production facilities. MES includes shop floor schedulingand control, machine control, robotics control and process control sys-tems. These manufacturing systems monitor, report and adjust the sta-tus and performance of production components to help a companyachieve a flexible, high-quality manufacturing process.

Collaborative manufacturing networks

Manufacturing processes like computer-aided engineering and design,production control, production scheduling and procurement man-agement typically involve a collaborative process. Increasingly, thisinvolves using the Internet, intranets, extranets and other networks tolink the workstations of engineers and other specialists with their col-leagues at other sites. These collaborative manufacturing networks maylink employees within a company, or include representatives from acompany’s suppliers or customers wherever they may be located.

For example, Johnson Controls uses the Internet, intranets and othernetworks to link the workstations of employees at their AutomativeSystems Group with their counterparts at Ford and Chrysler and othercompanies worldwide. The engineers and other specialists use thesecomputer networks to collaborate on a range of assignments, includingcar seat design, production issues and delivery schedules.

Process control

Process control is the use of computers to control an ongoing physicalprocess. Process control computers control physical processes in petrol-eum refineries, cement plants, steel mills, chemical plants, food prod-uct manufacturing plants, pulp and paper mills, electric power plantsand so on. Many process control computers are special-purpose mini-computer systems. A process control computer system requires the useof special sensing devices that measure physical phenomena such as tem-perature or pressure changes. These continuous physical measurements

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are converted to digital form by analogue-to-digital converters andrelayed to computers for processing.

Process control software uses mathematical models to analyse thedata generated by the ongoing process and compare them to stand-ards or forecasts of required results. Then the computer directs thecontrol of the process by adjusting control devices such as thermostats,valves, switches and so on. The process control system also providesmessages and displays about the status of the process so a human oper-ator can take appropriate measures to control the process.

Machine control

Machine control is the use of a computer to control the actions of a machine. This is also popularly called numerical control. The control of machine tools in factories is a typical numerical control application,though it also refers to the control of typesetting machines, weavingmachines and other industrial machinery.

Numerical control computer programs for machine tools convertgeometric data from engineering drawings and machining instructionsfrom process planning into a numerical code of commands that controlthe actions of a machine tool. Machine control may involve the use ofspecial-purpose microcomputers called programmable logic controllers(PLCs). These devices operate one or more machines according to thedirections of a numerical control program. Manufacturing engineersuse computers to develop numerical control programs, analyse produc-tion data furnished by PLCs and fine-tune machine tool performance.

Robotics

An important development in machine control and computer-aidedmanufacturing is the creation of smart machines and robots. Thesedevices directly control their own activities with the aid of microcom-puters. Robotics is the technology of building and using machines(robots) with computer intelligence and computer-controlled human-like physical capabilities (dexterity, movement, vision, etc.). Roboticshas also become a major thrust of research and development efforts inthe field of artificial intelligence.

Robots are used as ‘steel-collar workers’ to increase productivity andcut costs. For example, a robot might assemble compressor valves with12 parts at the rate of 320 units per hour, which is 10 times the rate of

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human workers. Robots are also particularly valuable for hazardousareas or work activities. Robots follow programs distributed by serversand loaded into separate or on-board special-purpose microcomputers.Input is received from visual and/or tactile sensors, processed by themicrocomputer and translated into movements of the robot. Typically,this involves moving its arms and hands to pick up and load items orperform some other work assignment such as painting, drilling or weld-ing. Robotics developments are expected to make robots more intelli-gent, flexible and mobile by improving their computing, visual, tactileand navigational capabilities.

Computer-aided engineering

Manufacturing engineers use computer-aided engineering (CAE) tosimulate, analyse and evaluate the models of product designs they havedeveloped using computer-aided design (CAD) methods. Networks ofpowerful engineering workstations with enhanced graphics and com-putational capabilities and CAD software help them analyse and designproducts and manufacturing processes and facilities. CAD packagesrefine an engineer’s initial drawings and provide three-dimensionalcomputer graphics that can be rotated to display all sides of the objectbeing designed. The engineer can zoom in for close-up views of a spe-cific part and even make parts of the product appear to move as theywould in normal operation. The design can then be converted into afinished mathematical model of the product. This is used as the basisfor production specifications and machine tool programs.

Manufacturing engineers design products according to productspecifications determined in cooperation with the product designefforts of marketing research, product development and customermanagement specialists. One of the final outputs of this design processis the bill of materials (specification of all required materials) used bythe MRP application. In addition, manufacturing engineers use CADsystems to design the production processes needed to manufactureproducts they have developed (computer-aided process planning).

Human resource information systems

The human resource management (HRM) function involves therecruitment, placement, evaluation, compensation and developmentof the employees of an organization. The goal of human resource management is the effective and efficient use of the human resources

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of a company. Thus, human resource information systems aredesigned to support (1) planning to meet the personnel needs of thebusiness, (2) development of employees to their full potential and (3)control of all personnel policies and programmes. Originally, busi-nesses used computer-based information systems to (1) produce pay-cheques and payroll reports, (2) maintain personnel records and (3)analyse the use of personnel in business operations. Many firms havegone beyond these traditional personnel management functions and havedeveloped human resource information systems (HRIS) that also sup-port (1) recruitment, selection and hiring, (2) job placement, (3) per-formance appraisals, (4) employee benefits analysis, (5) training anddevelopment and (6) health, safety and security (Figure 8.6).

HRM and the Internet

The Internet has become a major force for change in human resourcemanagement. For example, online HRM systems may involve recruit-ing for employees through recruitment sections of corporate websites.Companies are also using commercial recruiting services and data-bases on the World Wide Web, posting messages in selected Internetnewsgroups and communicating with job applicants by Internet e-mail.

The Internet has a wealth of information and contacts for bothemployers and job hunters. For example, take the home page of Top Jobson the Net, found at www.topjobs.com. This website is full of reports,

Tacticalsystems

Strategicsystems

Training and development

• Skill assessment• Performance evaluations

• Training effectiveness• Career matching

• Succession planning• Performance appraisal planning

Operationalsystems

Staffing

• Manpower planning• Labour force tracking

• Labour cost analysis and budgeting• Turnover analysis

• Recruiting• Workforce planning/ scheduling

• Contract costing• Salary forecasting

• Compensation effectiveness and equity analysis• Benefit preference analysis

• Payroll control• Benefits administration

Compensation administration

Figure 8.6Human resource information systems support the strategic, tactical and operational use of thehuman resources of an organization.

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statistics and other useful HRM information, such as an internationaljob report by industry, or a listing of the top recruiting markets in var-ious countries by industry and profession. Of course, you may also wantto access the job listings and resource database of commercial recruitingservices on the Web. […]

HRM and the corporate intranet

Intranet technologies allow companies to process most common HRMapplications over their corporate intranets. Intranets allow the HRMdepartment to provide around-the-clock services to their customers –the employees. They can also disseminate valuable information fasterthan through previous company channels. Intranets can collect infor-mation online from employees for input to their HRM files and theycan enable employees to perform HRM tasks with little intervention bythe HRM department.

For example, employee self-service (ESS) intranet applications allowemployees to view benefits, enter travel and expense reports, verifyemployment and salary information, access and update their personalinformation and enter data that have a time constraint to them. Throughthis completely electronic process, employees can use their web browsersto look up individual payroll and benefits information online, right fromtheir desktop PCs, mobile computers, or intranet kiosks located arounda worksite.

Another benefit of the intranet is that it can serve as a superior train-ing tool. Employees can easily download instructions and processes toget the information or education they need. In addition, employeesusing new technology can view training videos over the intranet ondemand. Thus, the intranet eliminates the need to loan out and tracktraining videos. Employees can also use their corporate intranets to pro-duce automated paysheets, the online alternative to timecards. Theseelectronic forms have made viewing, entering and adjusting payrollinformation easy for both employees and HRM professionals.

Staffing the organization

The staffing function must be supported by information systems thatrecord and track human resources within a company to maximize theiruse. For example, a personnel record-keeping system keeps track ofadditions, deletions and other changes to the records in a personnel

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database. Changes in job assignments and compensation, or hiringsand terminations, are examples of information that would be used toupdate the personnel database. Another example is an employee skillsinventory system that uses the employee skills data from a personneldatabase to locate employees within a company who have the skillsrequired for specific assignments and projects.

A final example involves forecasting personnel requirements to assurea business an adequate supply of high-quality human resources. Thisapplication provides forecasts of personnel requirements in each majorjob category for various company departments or for new projects andother ventures being planned by management. Such long-range plan-ning may use a computer-based simulation model to evaluate alternativeplans for recruitment, reassignment, or retraining programmes.

Training and development

Information systems help human resource managers plan and monitoremployee recruitment, training and development programmes byanalysing the success history of present programmes. They also analysethe career development status of each employee to determine whetherdevelopment methods such as training programmes and periodic per-formance appraisals of employee job performance are available tohelp support this area of human resource management.

Compensation analysis

Information systems can help analyse the range and distribution ofemployee compensation (wages, salaries, incentive payments and fringebenefits) within a company and make comparisons with compensationpaid by similar firms or with various economic indicators. This infor-mation is useful for planning changes in compensation, especially ifnegotiations with labour unions are involved. It helps keep the com-pensation of a company competitive and equitable, while controllingcompensation costs.

Governmental reporting

Nowadays, reporting to government agencies is a major responsibilityof human resource management. So organizations use computer-based

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information systems to keep track of the statistics and produce reportsrequired by a variety of government laws and regulations. For example,in the USA, statistics on employee recruitment and hiring must be col-lected for possible use in Equal Employment Opportunity Commission(EEOC) hearings; statistics for employee health, workplace hazards,accidents, and safety procedures must be reported to the OccupationalSafety and Health Administration (OSHA); and statistics on the use ofhazardous materials must be reported to the Environmental ProtectionAgency (EPA). Software packages to collect and report such statisticsare available from a variety of software vendors.

Accounting information systems

Accounting information systems are the oldest and most widely usedinformation systems in business. They record and report businesstransactions and other economic events. Accounting information sys-tems are based on the double-entry bookkeeping concept, which ishundreds of years old, and other, more recent accounting conceptssuch as responsibility accounting and activity-based costing. Computer-based accounting systems record and report the flow of funds throughan organization on a historical basis and produce important financialstatements such as balance sheets and income statements. Such systemsalso produce forecasts of future conditions such as projected financialstatements and financial budgets. A firm’s financial performance ismeasured against such forecasts by other analytical accounting reports.

Operational accounting systems emphasize legal and historicalrecord-keeping and the production of accurate financial statements.Typically, these systems include transaction processing systems such asorder processing, inventory control, accounts receivable, accountspayable, payroll and general ledger systems. Management accountingsystems focus on the planning and control of business operations.They emphasize cost accounting reports comparing actual to forecastedperformance.

Figure 8.7 illustrates the interrelationships of several importantaccounting information systems commonly computerized by bothlarge and small businesses. Many accounting software packages areavailable for these applications. Let us briefly review how several ofthese systems support the operations and management of a businessfirm. Table 8.3 summarizes the purpose of six common, but important,accounting information systems.

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Purchases transactionprocessing system

Cash receipts and disbursementstransaction processing systems

General ledgerprocessing and

reporting system

Payroll transactionprocessing system

Sales transactionprocessing

system

Salesanalysis

Timekeeping

Payroll

Cashdisbursements

Accountspayable

Purchases

Inventoryprocessing

Sales orderprocessing

Accountsreceivable

Cashreceipts

Financialreporting

Generalledger

Billing

Figure 8.7Important accounting information systems for transaction processing and financial reporting. Notehow they are related to each other in terms of input and output flows. (Source: Adapted fromWilkinson, J.W. and Cerullo, M.J. Accounting Information Systems: Essential Concepts and Applications, 3rdedn, p. 10. Copyright © 1997 by John Wiley & Sons, Inc. Reprinted by permission.)

Table 8.3A summary of six widely used accounting information systems

Order processingCaptures and processes customer orders and produces data for inventory controland accounts receivable

Inventory controlProcesses data reflecting changes in inventory and provides shipping and reorderinformation

Accounts receivableRecords amounts owed by customers and produces customer invoices, monthlycustomer statements and credit management reports

Accounts payableRecords purchases from, amounts owed to and payments to suppliers andproduces cash management reports

PayrollRecords employee work and compensation data and produces paycheques andother payroll documents and reports

General ledgerConsolidates data from other accounting systems and produces the periodicfinancial statements and reports of the business

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Online accounting systems

It should come as no surprise that the accounting information systemsillustrated in Figure 8.7 and Table 8.3 are being affected by Internetand client/server technologies. Using the Internet, intranets,extranets and other networks changes how accounting informationsystems monitor and track business activity. The online, interactivenature of such networks calls for new forms of transaction documents,procedures and controls. This particularly applies to systems like orderprocessing, inventory control, accounts receivable and accountspayable. These systems are directly involved in the processing of trans-actions between a business and its customers and suppliers. So natur-ally, many companies are using or developing network links to thesetrading partners for such applications, using the Internet or other networks.

Order processing

Order processing, or sales order processing, is an important transac-tion processing system that captures and processes customer ordersand produces data needed for sales analysis and inventory control. Inmany firms, it also keeps track of the status of customer orders untilgoods are delivered. Computer-based sales order processing systemsprovide a fast, accurate and efficient method of recording and screen-ing customer orders and sales transactions. They also provide inven-tory control systems with information on accepted orders so they canbe filled as quickly as possible.

Inventory control

Inventory control systems process data reflecting changes to items ininventory. Once data about customer orders are received from anorder processing system, a computer-based inventory control systemrecords changes to inventory levels and prepares appropriate shippingdocuments. Then it may notify managers about items that needreordering and provide them with a variety of inventory status reports.Computer-based inventory control systems thus help a business pro-vide high-quality service to customers while minimizing investment ininventory and inventory carrying costs.

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Accounts receivable

Accounts receivable systems keep records of amounts owed by cus-tomers from data generated by customer purchases and payments.They produce invoices to customers, monthly customer statementsand credit management reports. Computer-based accounts receivablesystems stimulate prompt customer payments by preparing accurateand timely invoices and monthly statements to credit customers. Theyprovide managers with reports to help them control the amount ofcredit extended and the collection of money owed. This activity helpsto maximize profitable credit sales while minimizing losses from baddebts.

Accounts payable

Accounts payable systems keep track of data concerning purchasesfrom and payments to suppliers. They prepare cheques in payment ofoutstanding invoices and produce cash management reports. Computer-based accounts payable systems help ensure prompt and accurate pay-ment of suppliers to maintain good relationships, ensure a good creditstanding and secure any discounts offered for prompt payment. Theyprovide tight financial control over all cash disbursements of the busi-ness. They also provide management with information needed for theanalysis of payments, expenses, purchases, employee expense accountsand cash requirements.

Payroll

Payroll systems receive and maintain data from employee time cardsand other work records. They produce paycheques and other docu-ments such as earning statements, payroll reports and labour analysisreports. Other reports are also prepared for management and govern-ment agencies. Computer-based payroll systems help businesses makeprompt and accurate payments to their employees, as well as reports tomanagement, employees and government agencies concerning earn-ings, taxes and other deductions. They may also provide managementwith reports analysing labour costs and productivity.

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General ledger

General ledger systems consolidate data received from accounts receiv-able, accounts payable, payroll and other accounting information sys-tems. At the end of each accounting period, they close the books of abusiness and produce the general ledger trial balance, the incomestatement and balance sheet of the firm and various income andexpense reports for management. Computer-based general ledger sys-tems help businesses accomplish these accounting tasks in an accurateand timely manner. They typically provide better financial controls andmanagement reports and involve fewer personnel and lower costs thanmanual accounting methods.

Financial management systems

Computer-based financial management systems support financialmanagers in decisions concerning (1) the financing of a business and(2) the allocation and control of financial resources within a business.Major financial management system categories include cash andinvestment management, capital budgeting, financial forecasting andfinancial planning (Figure 8.8).

Cash management

Cash management systems collect information on all cash receipts anddisbursements within a company on a realtime or periodic basis. Suchinformation allows businesses to deposit or invest excess funds morequickly and thus increase the income generated by deposited or

Forecast andmanage cash

position

Forecast financialperformanceand financing

needs

Investmentmanagement

Financialplanning

Cashmanagement

Manageshort-term andother securities

Capitalbudgeting

Evaluaterisk/returnof capital

expenditures

Information systemsin finance

Figure 8.8Examples of

important financialmanagement

systems.

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invested funds. These systems also produce daily, weekly or monthlyforecasts of cash receipts or disbursements (cash flow forecasts) thatare used to spot future cash deficits or surpluses. Mathematical modelsfrequently can determine optimal cash collection programs and deter-mine alternative financing or investment strategies for dealing withforecasted cash deficits or surpluses.

Capital budgeting

The capital budgeting process involves evaluating the profitability andfinancial impact of proposed capital expenditures. Long-term expend-iture proposals for plants and equipment can be analysed using a var-iety of techniques. This application makes heavy use of spreadsheetmodels that incorporate present value analysis of expected cash flowsand probability analysis of risk to determine the optimum mix of capitalprojects for a business.

Financial forecasting and planning

Financial analysts typically use electronic spreadsheets and other finan-cial planning software to evaluate the present and projected financialperformance of a business. They also help determine the financingneeds of a business and analyse alternative methods of financing.Financial analysts use financial forecasts concerning the economic situ-ation, business operations, types of financing available, interest ratesand stock and bond prices to develop an optimal financing plan forthe business. Electronic spreadsheet packages, DSS software and web-based groupware can be used to build and manipulate financial models.Answers to what-if and goal-seeking questions can be explored as finan-cial analysts and managers evaluate their financing and investmentalternatives. […]

Summary

■ IS in business. Business information systems support the func-tional areas of business (marketing, production/operations,accounting, finance and human resource management)through a wide variety of computer-based operational andmanagement information systems.

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■ Marketing. Marketing information systems provide informa-tion for the management of the marketing function. Thus,marketing information systems assist marketing managers inmarket research, product development and pricing decisions,as well as in planning advertising and sales promotion strategiesand expenditures, forecasting the market potential for new andpresent products and determining channels of distribution.Major types of marketing information systems include inter-active marketing, sales force automation, sales management,product management, advertising and promotion, targetedmarketing, sales forecasting and market research. Interactivemarketing on the Internet and other networks is changing marketing to a more customer-driven interactive process.

■ Manufacturing. Computer-based manufacturing informationsystems help a company achieve computer-integrated manu-facturing (CIM) and thus simplify, automate and integratemany of the activities needed to produce quickly high-qualityproducts to meet changing customer demands. For example,computer-aided design (CAD) using collaborative manufac-turing networks helps engineers collaborate on the design ofnew products and processes. Then material requirementsplanning (MRP) systems help plan the types of material neededin the production process. Finally, manufacturing executionsystems monitor and control the manufacture of products onthe factory floor through shop floor scheduling and controlsystems, controlling a physical process (process control), amachine tool (numerical control), or machines with somehumanlike work capabilities (robotics).

■ Human resource management. Human resource information systems support human resource management in organiza-tions. They include information systems for staffing theorganization, training and development, compensationadministration and governmental reporting. HRM websites onthe Internet or corporate intranets have become importanttools for providing HR services to present and prospectiveemployees.

■ Accounting and finance. Accounting information systems recordand report business transactions and events for business firmsand other organizations. Operational accounting systemsemphasize legal and historical record-keeping and the produc-tion of accurate financial statements. Management accountingsystems focus on the planning and control of business opera-tions. Common operational accounting information systems

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include order processing, inventory control, accounts receiv-able, accounts payable, payroll and general ledger systems.

■ Electronic commerce. Electronic commerce encompasses the entireonline process of developing, marketing, selling, delivering,servicing and paying for products and services. The Internet’sweb browser and client/server architecture and networks ofhypermedia databases on the World Wide Web, serve as thetechnology platform for electronic commerce among Internet-worked communities of customers and business partners.

■ Electronic commerce applications. The Internet encourages innov-ation and entrepreneurship, thus generating many businessopportunities to serve a global audience of both business andconsumer customers. Successful retailing and wholesaling onthe World Wide Web depend on factors such as efficient per-formance and service, personalization and socialization of theshopping experience, the look and feel of the website, incen-tives offered and the security and reliability of business transactions. Business-to-business applications of electroniccommerce support the processes of supply chain manage-ment through a variety of Internet and website services andnetwork applications like electronic data interchange.

■ Online transaction processing. Online transaction processing sys-tems play a vital role in electronic commerce. Transactionprocessing involves the basic activities of (1) data entry, (2)transaction processing, (3) database maintenance, (4) docu-ment and report generation and (5) enquiry processing.Many firms are using the Internet, intranets, extranets andother networks for online transaction processing to providesuperior service to their customers and suppliers.

■ Electronic payment and security. The electronic payment processpresents a vital and complex challenge to business and finan-cial institutions to develop efficient, flexible and secure pay-ment systems for electronic commerce. A variety of paymentsystems have evolved for electronic funds transfers, includingseveral major ways to provide security for transactions andpayments over the Internet.

References

Halper, M. (1997) Meet the new middlemen. Computerworld Commerce, 28 April.Keen, P. and Ballance, C. (1997) Online Profits: a manager’s guide to electronic

commerce, Harvard Business School Press.

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Introduction

It is interesting to look at some of the similarities between the two aidsto strategic and tactical business success – information technology andhuman resource management (HRM). Both have struggled to be seenand used as a strategic and in some cases even as a tactical resourcebut, now into the new millennium, both appear to have achieved thisrecognition at last – at least in the more go-ahead organizations! In theearly days of computers the majority of the information systems to becomputerized were the financial systems. Until recently in many organ-izations, HRM was seen as primarily an administrative function, keep-ing the personnel files and perhaps in some cases administering thewages, company cars, etc. A salutary example of this was supplied to usby Tony Reid during our research for Project Management: The peoplechallenge (Bee and Bee, London, IPD, 1997). Reid was at that timechairman of one of the major committees of the Association of ProjectManagement. He quoted from his wide experience that HR staff werenot usually involved in major activities on forming project teams, such

C H A P T E R

Information systems forhuman resource

applicationsRoland Bee and Frances Bee

9

Source: Bee, R. and Bee, F. (1999) Managing Information and Statistics. TheChartered Institute of Personnel and Development.

Chapter 9 Information systems for human resource applications 125

as the selection of the project leader, saying that HR staff’s traditionalinvolvement on project teams was:

in determining salary bands, pay and conditions and especially,where there is an overseas element to the project, the expatriatearrangements. Otherwise their involvement is usually around theadministrative aspects of recruitment – processing the appointmentforms after the decisions have been taken.

Bee and Bee, 1997, p. 48

It was not surprising that many personnel departments, trying valiantlyto cope with all downsizing, resizing, right-sizing, etc., were over-whelmed with their paperwork and always so far behind the strategicissues facing the business. The emphasis has been, and still is to someextent, on coping with the present rather than focusing on the future.

For many organizations, introducing computers into HR depart-ments was a low priority on the list of their IT managers. We are awareof one HR manager who, in desperation, bought and installed his owncomputer. Then, even when they did arrive, computerized HR systemswere largely an electronic version of what had gone before.

Things have clearly moved on, relational databases are now thenorm. We cannot imagine a system being installed without the oppor-tunity for the users, through SQL or an equivalent, to be able easily topull off their own customized reports. Local and wide area networksand security systems […] have made it possible for the systems andtheir data to be distributed throughout the organization. This allowsother users, where authorized, to input, change and amend the dataand drill down to the level of detail they require to produce their owninformation and reports. As we will show shortly these systems, whenused in multinational organizations even allow the users to producetheir reports in the language of their choice.

This [chapter] is about using information systems to support HR professionals in their roles. We start by looking at the core features of HR information systems and then at specific modules aimed at par-ticular activities, for example, recruitment, training and development.We use two case studies to illustrate some of the points made. It is notour intention to present you with a complete review of what is available.Nor does the fact that we mention products by name mean that we areendorsing those products. We are simply using them as examples todemonstrate how some HR information systems have been developed.

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Core features of HR information systems

Whatever features are included, in overall terms the system should besimple to use, have good help facilities (including printed user manuals)and be sufficiently flexible for non-computer specialists to ‘do it them-selves’. In these days of multisite/multinational operations the systemneeds to have an intranet (a communication system, internal to the organ-ization) and possibly even an Internet (a global communication system,external to the organization) capability. With this distributed IT facility, itwill need to have a security system capable of restricting access to groupsof records for authorized users, for example, line managers having accessto the records of those reporting to them. The security system will alsomonitor and show an audit trail for all changes made. Finally, the data-bases should be ‘relational’. We will consider in the following paragraphssome of the individual features that would normally be included:

■ To help all HR people with their time management, the sys-tem should have a diary management function, so that import-ant dates, for example, end of probation period, long serviceand/or retirement dates, can be brought forward automat-ically. It is also helpful to have the facility to enter diary datesmanually. Many systems include electronic personal diariesfor recording and sharing diary information between mem-bers of the HR team.

■ The system will need to interface with other HR systems suchas time and attendance and payroll.

■ It will allow easy import and export with other packages, forexample, word processing, spreadsheets and databases. Tomake the statistics produced more informative it is useful ifthe output is linked to a graphics package.

■ Being ‘relational’, the system will be capable of acceptingglobal updates, for example, when salary scales are changedor when parts of the organization change their names.

■ There will be standard reports and self-generated reports,plus the capability to produce cross-tabulated reports and per-form ‘what if ’ calculations.

■ It is very useful for the system to be capable of storing imagessuch as photographs, application forms and, where there arestandard letters, to scan in the signatures of the originators. Auseful by-product of this function is the ability to produce per-manent labels such as staff identity labels and temporarylabels such as conference and training course labels.

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■ Most proprietary systems today have at their core a personnelrecords system. The system should be capable of providingselected information on an individual or group of individualsfor, say, training course profiles, performance review meet-ings, etc.

■ The system should also make it possible to extract all the dataheld on the individual to satisfy the employer requirementsunder the Data Protection Act where the employee requeststhat information.

■ Where the organization has a multinational workforce thereshould be the facility to pick off reports in the language of theend-user.

What follows now is a case study describing the introduction of a com-prehensive HR information system into an international law firm.

Case study:Allen & Overy Personnel Project

Allen & Overy

Allen & Overy is a leading international law firm with offices in Londonand 18 other cities across the globe. The firm employs in excess of2300 staff, including 200� partners and 700� associates.

Background

The personnel department, numbering nearly 40, used a computer-ized system for maintaining personnel records and running the pay-roll. This system was considered to be cumbersome to use, lacked a lotof required functionality, for example, there was no absence manage-ment or recruitment facility, and offered poor performance on payrollbecause the payroll run took around nine hours to complete. Themain problem with the original system was that people avoided using itand it began to fall into disrepute as the quality of the information pro-vided could not be relied on.

When the supplier announced that they were to withdraw support onthe version of software running at Allen & Overy, the firm had to decidebetween taking the proposed upgrade or looking elsewhere. The deci-sion was to conduct a full review of the personnel function and identifyexactly what was required. Two projects were set up, one a business process

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re-engineering exercise, the other to establish what data were held onindividuals in the 20 or so unsynchronized, different applications. Theoutputs from these projects were used to assess the upgrade on offer;however, this fell a long way short of what was required.

A business case was made for replacing the existing system and a fall-back strategy put into place for the temporary outsourcing of payrollpending the decision and implementation of a new system(s).

Evaluation and selection

A requirements specification was produced from the review exercisetogether with a technical element based on the planned migrationwithin the firm to a Windows NT/SQL Server platform.

A number of products were reviewed but were soon reduced to ashort list of three. Those were reviewed in detail and scored against aweighted version of the requirements specification. The three prod-ucts all scored very much the same and so other factors came into play.The firm considered such factors as reference sites where the productswere already in use, reputations – market position, direction the sup-plier’s business was going. They also had numerous meetings with thevendors aimed at building relationships as Allen & Overy had decidedthat they wanted more than just the purchase of a product. Theywanted a vendor with company growth and direction in line with theirown business aspirations.

Allen & Overy decided to go with Peterborough Software. The deci-sion was based both on their current offerings plus their future plans,especially in the international arena.

PS enterprise is a very user-friendly product that is simple to install andconfigure. Like most projects, the difficult part is managing the transitionfrom your existing systems. Because of the functional inadequaciesassociated with the previous system, a plethora of personnel-relatedsubsystems had evolved. The implementation plan was constructed tofacilitate the systematic migration from each of these subsystems ontoPS enterprise together with a roll-out starting in London and then mov-ing to the larger international offices.

To date some seven months after signing contracts, Allen & Overyhave implemented the core personnel module, payroll is being run inparallel, a start is about to be made on the recruitment module and thefirm expects to get to the intranet in around three months time. Thiswill allow managers and individuals to access authorized levels of datafrom any place in the world at any time of the day or night. In addition,

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the open architecture of PS enterprise allows easy integration with theexisting desktop environment. Eventual use of the recruitment mod-ule and the Internet will allow prospective applicants to complete anonline application form. The sophisticated security system and audittrail incorporated into the system will be used to protect personal andconfidential data from unauthorized use.

Costs and benefits

A case can be made for calculating the financial cost of the new systemagainst cash benefits such as increases in efficiency and there will clearlybe financial benefits as administrative processes are automated. However,the real business benefits are derived from having an accessible, cohesiveand up-to-date database providing personnel information in a form thatis required, when it is required and without the need for cumbersomereprogramming. The business need of Allen & Overy is to recruit andretain the best legal minds for the partnership and they are using infor-mation systems and information technology to give them their competi-tive advantage and this benefit will only be seen in the longer term.

PS enterprise is not so much the solution but the vehicle with whichAllen & Overy can achieve their business requirements. The basic prem-ise being that data should exist only once, they should, where possible,be captured at source, validated and then stored in a central reposi-tory. That repository should facilitate multiple types of access andretrieval of the data in conjunction with a security mechanism whichitself must be easy to administer.

Functionality is important and clearly one of the reasons for select-ing a package over a bespoke development is that a whole host of func-tions are available from day one. Said Martin Onley, the ProgrammeManager at Allen & Overy: ‘Wherever possible, we are looking to “flex”our business processes to suit the package but where this is not possiblewe need to be able to “bend” the package or develop a “bolt on”.’

The system also needs to be responsive to change, which could bebusiness, technology or legislation led. As an international player,Allen & Overy needs to be able to manage their people data collect-ively and at the same time be aware of and understand local variationsin requirements.

The success of this project should be judged by the responsiveness ofthe implemented package in supporting the evolving business require-ments of the firm.

(Source: Martin Onley, programme manager, Allen & Overy)

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All the features described are of a general nature and it is importantthat there is the capability of adding specific modules to the core sys-tem. Two of the most frequently requested modules are the recruit-ment module and the training and development module. We willdiscuss these modules in more detail below.

Recruitment modules

The bane of many HR professionals’ lives is the mass of paperworkassociated with recruitment. It is not unusual to have scores of appli-cants, even with the most tightly drawn personnel specification. Allthese applications need to be acknowledged and tracked through theprocess. At each stage there is the requirement for an appropriate let-ter to be generated and sent off to advise of the good news or the notso good. Most recruitment modules will do these chores automaticallythus saving an enormous amount of repetitive effort. What they do notdo is make our selection decisions for us, although even here we arebeginning to see this happening in part with the introduction of somemechanistic sifting through of candidate details which have been inputto the computer. This feature can be further developed where theorganization is using clearly defined competencies and/or behav-iourally anchored ratings to differentiate between the candidates andmay go yet further in some recruitment applications with the develop-ment of expert systems.

The systems allow for the automatic collection of data and, for exam-ple, the automation of the recruitment process as described above alsomakes the systematic monitoring of equal opportunities in recruit-ment a reality.

Most of the modules available provide for automatic media analysis(i.e. which publication produced the best recruitment response) andvacancy cost analysis (i.e. which media were the most cost effective) asa standard feature. They will also provide for the successful applicants’details to be automatically input into the personnel records system.

Training and development modules

Like his or her recruitment colleagues, the trainer will from time totime disappear into the paper quagmire. Training records get out of

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date and the administration associated with a single training coursecan overwhelm even the most efficient trainer, not to mention theperennial problems surrounding the allocation of training rooms. Alsomany organizations use outside training facilities and contract withindependent, freelance trainers to run the courses. The efficient train-ing professional will want to have the facts about these external resourcesimmediately accessible. The training and development modules canautomate and therefore simplify all of these administrative trainingfunctions. The case study of Eastern Electricity describes the use ofsuch a training and development information system.

The identification and analysis of training needs is another areawhere the power of the computer can be harnessed to the advantage ofthe training professional. It is particularly helpful where there areclearly defined competency levels specified for different jobs and indi-viduals can be assessed against these competency levels so that trainingand development needs can be allocated. Some systems also includespecific training interventions with the competencies they address sothat once a need has been identified an appropriate intervention canbe identified. The data on needs can be collected directly and rela-tively easily from potential participants and/or their managers usingthe intranet facility where this exists. The ability to model future organ-izational structures can make it possible to assess the volumes of train-ing (different subject areas and levels) required in the future. In theseways, and probably others in the future, the computer gives someopportunity for the training professionals to be liberated from thepresent and to be able to cast their eyes into the future – to becomemore strategic!

Another area, which has received little attention from the comput-ing specialist is that of training evaluation. There are some packagesavailable that offer this capability. However, most are fairly limited andoperate only at reaction level, the very basic happy sheet, testing partici-pant satisfaction with the training as delivered by the use of simplequestionnaires and analysis features. With the computer’s ability totrack peoples’ progress in the organization after training there is thepossibility of using the computer further in the evaluation process.This is to identify the success of certain kinds of training such as super-visory and management skills back in the workplace – at the intermedi-ate level of evaluation. Use of the intranet capability would allow datafor intermediate evaluation to be collected easily from participants andother interested parties say, three months and six months after thetraining.


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Case study: Eastern Electricity Training

In late 1996 staff in the HR function in Eastern Electricity decided thatthey wanted to install a computerized information system to cope withthe throughput of delegates on their large range of training pro-grammes. This vast amount of training activity generated masses ofpaper and did not always work as efficiently as they wished. They werelooking for a system that was efficient, less labour intensive, involvedless duplication of effort, was very customer focused and was in linewith Eastern Electricity’s paper reduction policy. The targets for thesystem were all the people in the training chain – the nominees,the training providers, the staff at the residential training centre andthe print unit, who deal with the handouts, exercises, etc.

They decided on a system built by Logsys Ltd, a bespoke software company based in Wokingham, which went ‘live’ in 1997. Gareth Scragg,the Marketing Manager of Logsys described the system as ‘a work-flowautomation based system that proactively manages the training adminis-tration process from delegate nomination to delivery, by the applicationof business rules and deadlines which ensure that the training functionprovides an effective, high quality service to the rest of the organization’.The system cost around £40 000 to install and it is estimated that, whilearound one person’s time will be saved as a result of the information sys-tem there will be additional benefits, both financial and otherwise, thatare difficult to quantify at this stage. Examples of such benefits are:

■ The better management of business processes enables bettercommunication.

■ By making the current business processes more efficient it ispossible to optimize the use of resources, e.g. number of dele-gates per course, and enable training needs to be met morequickly.

■ Better productivity allows greater volumes of work to beachieved, faster and to higher levels of quality by existingresources.

■ By making the process more accessible to potential delegates itwill encourage the use of training and development internally.

■ There is complete auditability and reporting on all processes.

The system is, as yet, only semi-automated and the training staff initiatemany of the activities; however, further developments are being con-sidered in this direction. Another major development is to use EasternElectricity’s intranet facility to allow direct customer access into thedatabase.

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Sue Burstall is Eastern Electricity’s training coordinator and joinedthe project team in the early design stage. Burstall highlighted themain aspects of the system as:

1 Once a person has registered an interest in a particular course(by telephone, fax or e-mail), their application is currentlykeyed into a screen-based form that assigns them to the rele-vant waiting list.

2 As soon as there are enough people on the waiting list tomake a course viable, one is set up on the system.

3 People from the waiting list are then invited by a system-generated e-mail to confirm their commitment to attendingthe new course.

4 If their reply is ‘yes’, their status (keyed in by Burstall) ischanged from applicant to delegate.

5 Once all the replies are in a standard e-mail confirmation mes-sage is sent to Eastern Electricity’s Essendon Training Collegeadvising that the course will go ahead and automaticallyattaches the names of the delegates.

6 Two weeks before the start of the course the delegates are e-mailed their joining instructions, together with any pre-coursework. An e-mail is sent to the print unit requesting that ‘theattached inserts for the workbooks are copied’ and actuallyspecifies how many copies of the handouts and exercises areneeded. The system takes the number of copies required fromthe delegate list.

7 After the course has taken place any non-attendees are placedback on the waiting list by Burstall in order to give them a fur-ther opportunity to attend.

Overall, the system is a relational database with standard reports, forexample, on volumes of training taken up, whether classroom based, dis-tance learning or by outside providers. There is the opportunity for the sys-tem operators to produce their own, ad hoc reports using a type of SQLenquiry system and the information is passed to the personnel system toupdate their records. This function is not yet fully automated but is one ofthe planned developments. The system is password-protected and has abuilt-in audit trail. Burstall confirmed that at some stage it is their hopethat employees will have the opportunity to key in their own data at source.

In summary, Burstall had this to say about the problems and otherissues the section had faced along the way: ‘We didn’t actuallyencounter many problems. It was helpful that I was involved right fromthe start in the specification and having regular input into the look and

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feel of the system. What few problems we had were quickly resolvedwith Logsys and the system has worked really well’.

(Source: Sue Burstall, training coordinator, Eastern Electricity)

Other modules

The range of add-ons to core HR systems is growing all the time.Health and safety modules, absence and leave management (oftenintegrated with time and attendance systems), payroll, pension andsophisticated salary modelling packages are all available.

In our experience the development of modules to help with strategicHR planning has not kept pace with the more ‘administrative’ HR sys-tems. While there are modules that will help with career planning andsuccession planning we have yet to come across strategic modules thatare used in HR planning. HR planning systems probably do exist insome organizations but are designed specifically for those organiza-tions. The reason for this is that there are so many variables that affecta single organization that it is impracticable to design a single system forgeneral needs. Where it happens at all, strategic HR planning is likely tobe the province of the specialist and the specialist system. Due to theuse of work measurement techniques, […] masses of data are availableon the standard times allowed for an experienced and motivatedworker to complete a unit of production. Thus HR planning in the pro-duction area tends to lead other areas. It seems to us that there is stillsome way to go in HR information systems in the HR planning field.

Conclusion

We have seen that the development of relational databases and theease of producing custom-made reports has given the HR professional,whatever his or her specialism, the opportunity to get to grips with allthe data on people that are available within the organization. The tech-nology has also given the HR professional the opportunity to automatemany of the administrative processes that have previously absorbedtheir energies in the day-to-day running of the function. This has enabledHR staff to tackle their operational and tactical roles efficiently andeffectively. The future lies in the extent to which HR professionals canharness the power of information systems to develop their strategic role.

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C H A P T E R

Distributed systems, EDIand the organization

Graham Curtis and David Cobham

10

Major developments over the last 30 years have been achieved in infor-mation technology. It is not uncommon to view this purely as the adventand development of computer systems. This, though, ignores the signifi-cant impact that improvements and innovations in telecommunicationshave had as an enabling technology for information systems.

This chapter begins with a consideration of the way in which cen-tralized and distributed systems can be seen as alternatives for hand-ling information provision. The impact of a distributed system on the organization, its benefits and its acceptability are analysed. […]Finally the impact of electronic data interchange (EDI) and its effecton the competitive position of the firm within the market is assessed.

Networks and distributed systems

In the last decade many organizations have adopted the policy ofinstalling several geographically distinct computers within their organ-izations and linking these with telecommunications. The computersmay be microcomputers linked together locally within one site or evenone office. Or it might be the linking of minicomputers or mainframecomputers across large geographical distances. The issues involved inthis distribution of computing power and the linking networks are thesubject of this [chapter].

Source : Curtis, G. (1998) Distributed systems, EDI and the organisation. In: Busi-ness Information Systems Analysis, Design and Practice. Addison Wesley Longman.

It used to be believed that computing benefited from economies ofscale. This is enshrined in Grosch’s law stating that the computationaland data processing power of a computer increases with the square ofits cost. It therefore made financial sense for an organization to cen-tralize its computer systems in order to get the most power for itsmoney. Under centralization an organization that is located on severalgeographically distant sites would then incur a large communicationcost. Terminals at each site needed to interchange data constantly withthe centralized central processing unit.

With the development of much cheaper computing hardware and,in particular, the development of the microchip, Grosch’s law has broken down. There are no longer the same economies of scale to begained by centralization. Local computers can carry out local process-ing needs and the necessity to communicate between different sites inan organization is reduced to those occasions where data held at onelocation are needed at another. This is called distributed computing.

An example of a distributed system is shown in Figure 10.1. A tyreand car battery manufacturer purchases materials and produces goodsfor sale throughout the country. The headquarters, factory and a ware-house are located at one site. In order to cut distribution costs and sat-isfy retail outlet orders quickly, the organization maintains two otherwarehouses in different parts of the country to which the manufac-tured goods are distributed for storage prior to sale. The headquarters’mainframe computer takes care of centralized accounting, purchas-ing, production scheduling, wages and salaries, local stock control andlocal sales order processing. Each of the two warehouses has a smallminicomputer to handle its own local stock control and local sales order


• Accounts• Purchasing• Production scheduling• Wages and salaries• Local stock control• Local sales order processing

Sales orders

Time sheet details

Warehouse Site B

• Local stock control• Local sales order processing

• Local stock control• Local sales order processing

Warehouse Site C

HQ, warehouse and factory Site A

Figure 10.1An example offunctions in a

hierarchicaldistributed system.

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processing. These two minicomputers are connected to the mainframecomputer so that an enquiry can be made to the other warehouses forproducts not held in the local warehouse that are needed for localretail outlets.

Most of the stock control enquiries and updates will therefore be onthe locally held data stores. On the occasions when the local warehousecannot satisfy a customer demand interrogation is made of the dataheld at the other warehouses via the telecommunications links. As theaccounting is carried out centrally, although the sales order processingis local, it is necessary to ensure that sales order and delivery details areexchanged between the local computers and the mainframe. As this isnot required immediately on a sale then the data can be transferred atthe end of each day in one transfer operation. Although accounting,wages and salaries are handled centrally in this organization, an organ-ization with a different structure might grant greater independence toits branches. These functions would then be the responsibility of eachsite and headquarters would receive consolidated accounting reports.

Compare this with a centralized system as shown in Figure 10.2. Hereall the functions are carried out centrally at headquarters. Each timethere is a need to access the data store or carry out any processing theinteraction between the local sites and headquarters will involve atelecommunications link – even though the processing of data onlyconcerns stock held at the local site. This involves a heavy telecommu-nications cost. Moreover, unless the links involve high-speed connectionsthe response times in the interaction will be slow. At the headquartersthe mainframe will need to be able to accept transactions from manysites and will need to give over some of its processing time to the main-tenance and servicing of queues. This problem will be larger the

Chapter 10 Distributed systems, EDI and the organization 137

• Accounts• Purchasing• Production scheduling• Wages and salaries• Stock control• Sales order processing

Sales orders

Warehouse Site B

HQ, warehouse andfactory Site A

Remote terminal

Warehouse Site C

Remote terminalStock and delivery

sheets

Time sheet details

Figure 10.2An example offunctions in a

centralized system.

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greater the number of sites and the greater the traffic. In this scenarioit is unlikely that computer centre personnel will reside at each of thesites. It would be more common to have a centralized team at the head-quarters responsible for applications development and the day-to-dayrunning of computer operations. It is easy for users at the local sites to feel isolated – particularly if help is required or difficulties areencountered with the operation of the system. As can be seen from thetwo treatments of essentially the same set of functions a distributedapproach has much to commend it.

It would be simplistic, however, to suggest that there were only twopossible approaches – distributed or centralized. In the above casethere is a hybrid. In the ‘distributed’ version of the example certainfunctions are in fact centralized.

Within the ‘distributed’ version, the distribution of the stock controlsystem, particularly that component dealing with the update of stockdata relating to another warehouse held at another site, involves con-siderable technical complexity as the database itself is distributed. A vari-ation on this is to hold copies centrally of the stock data on each of thesites. Downloading to each site of all the stock data on all of the sitesoccurs early in the morning. Local processing of data on stock heldlocally occurs during the day. However, information on stocks at otherwarehouses is obtained by interrogating the early morning copiesreceived locally. These may be out of date – but only by a maximum of24 hours. Requests for stock from other sites together with the end-of-day copy of the local stock data are transferred to the centralized main-frame at the end of the day. The central mainframe carries out overnightprocessing and produces up-to-date stock data for each site, which isdownloaded the following morning. This escapes the complexity ofrequiring a truly distributed database at the expense of forfeiting theimmediate update of all stock transactions.

It should be clear from the above that the simple idea of distributedversus centralized does not apply. Rather the question that is addressednowadays is to what extent and how should the organization decen-tralize its functions and data? […]

Organizational benefits of distributed systems

Distributed systems were first introduced in the 1970s and have becomeincreasingly common in the 1980s and 1990s. This is partly because oftechnological advances in telecommunications, distributed databases


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and communications software, and partly because of the recognitionof the benefits conferred on an organization by the use of such sys-tems. This is one area in which IT developments have responded touser needs as well as being driven by them.

Organizational benefits are as follows:

■ Increased user satisfaction. As stated above, users can feel remotefrom the computer centre, its expert staff and the developmentof applications if geographically separated from the source ofthe computing power. User needs are often not taken intoaccount and assistance may be slow or at ‘arm’s length’ throughthe computer terminal. Local computer centres serving localneeds solve this problem by ensuring that users have greaterautonomy. However, from a central organizational perspec-tive, it is important that dispersed sites are connected withone another and the centre. This is not only for reasons ofdata sharing but also to ensure that, although autonomy maybe welcomed, local sites act congruently with corporate goals.Distributed systems ensure that data transfer and connectivitywith the centre occur while encouraging local autonomy anduser satisfaction.

■ Flexibility of systems development. An organization that is growingcan add to its computer power incrementally in a distributedsystem by the purchase, installation and connection of newnodes to the network as the needs arise. With a centralized sys-tem flexibility is reduced by the inability to grow incremen-tally. Growth typically involves the overloading of the currentsystem, which is then replaced by a more powerful computer.If further growth is planned this will need to be taken intoaccount by building in redundant computing power in thecurrent system to cope with a future growth in requirements.This is expensive.

■ Lower telecommunications costs. In a distributed system it is usualfor most of the local computing to take place locally. The net-work is accessed only when data or processing are requiredelsewhere. Telecommunications costs are reduced comparedwith a centralized system which requires transmission of localtransactions for central processing.

■ Failsoft. With a centralized system if a breakdown occurs in thecomputer all computing functions within the organization cometo a halt. This is an unacceptable state of affairs. Backup facil-ities, such as a duplicated computer or reciprocal agreements


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with other companies to use their computers in times of break-down, are expensive and often not satisfactory. However, witha distributed system breakdowns will be limited to one com-puter at a time. The remaining machines in the network cancontinue functioning and perhaps also take over some of the work of the failed node. What can be achieved dependson the particular network topology and the communicationssoftware.

■ Transborder dataflows. Many multinational corporations main-tain separate computer systems in each country in which theyoperate. These are connected via networks. Only limitedtransborder dataflows may be allowed by legislation. Thus it isimportant to ensure local processing while retaining the pos-sibility of transnational dataflows. Data protection legislationon the holding and processing of personal data (data on persons) is often different in different countries and this isparticularly restrictive on transnational dataflows.

■ Lower data communications costs. Processing relating to locallystored data and functions is carried out locally, rather thanincurring the cost of data transfer to and from a centralizedcomputer.

■ Response times. Centralized systems can, at peak loading, givepoor response time for users.

Persuasive though these organizational benefits may seem there arepotential drawbacks and costs associated with distributed systems. Theseshould be taken into account when assessing the overall systems strategy:

■ Loss of centralized standard-setting and control. In a distributedsystem where processing, data storage and computing staffare located at many sites it is common for local practices toevolve, local alterations and ‘patches’ to software to be carriedout to meet specific user needs and local adjustment to datarepresentation and storage characteristics to occur. All thesecan lead to non-standardization across the organization andto difficulties in data communications and security.

■ Complex networking software is needed. This controls data communications.

■ Possibility of replicated common data at several sites. If the sameportion of data is used by all sites it is common for the data tobe held as copies at each of the several sites rather than be heldonce and accessed through the network when needed. Thiscuts down data communications cost and increases response


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times. However, it may lead to inconsistencies if the data areupdated or changed.

■ Loss of career paths for computer centre personnel. A large central-ized computer centre provides more opportunities for staffdevelopment and promotion. Distributing staff leads to smallernumbers of personnel at each site.

Organizational levels and distributed systems

It is not usual within a distributed system for each node to be directlyconnected to each other node. Nor is it common, if data are to be dis-tributed, that they are spread over all nodes within the distributed net-work. It is more likely that the structure for the distributed systemreflects the organizational structure it is meant to serve.

A typical organization structure is shown in Figure 10.3. This is a traditional hierarchical structure, which exemplifies many large indus-trial and service organizations. There is a headquarters for the organ-ization. The organization has several local plants or sites that carry out many of the functions of the organization itself at a local level.Examples are the functional departments of production, stock controland order processing. Within each functional department there areworkgroups that reflect groupings of employees that perform much


Organizational headquarters

Individuals

Workgroups

Local sites(e.g. plants, warehouses)

Functional departments(e.g. order processing, production, marketing)

Figure 10.3Typical hierarchical

organizationalstructure.

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the same function within a department – an example might be cus-tomer enquiry handling within a sales order processing department.Then finally there are the individual employees who are the simplest‘processing unit’ (i.e. unit that may require a computer for support)within the organization.

Where there are distributed systems within an organization one pos-sible architecture for the distribution is to ensure that where data aredistributed and computers are networked this occurs at the levelreflecting the organizational structure. For example, within one work-group the network ensures that connections and data needed by thatgroup are spread over the entire group. The various levels will of coursealso be connected together and if required will effect data transfers.

The larger the organization the more likely it is to have large num-bers of personal computers, minicomputers and mainframe computers.In this case it is also more important that the distributed architectureis planned to reflect the needs of the organization.

The extent of distribution

In the early 1980s one of the uppermost questions in the minds ofthose involved in long-term strategic planning of information systemswas whether to employ distributed systems or whether to rely on cen-tralized mainframes. The issue has now shifted to decisions on theextent to which the organization should embark on distributing itsinformation systems for its future information provision.

There are technological determinants governing the distribution of data and computers, especially those to do with communications.However, technology is designed to support the organizational informa-tion requirements, not drive the development of information systems.Technological factors must be considered in deciding on the extent andnature of the distributed systems but other features are equally significant.Central among the other important characteristics are the following:

■ The corporate culture and employee behaviour. Managerial assump-tions about human behaviour will have implications for theamount of control that is exercised over employee activities. Atraditional model characterizes attitudes in two distinct group-ings. Theory X perspectives hold employees as inherentlyunwilling to work and needing to be controlled by incentivesand discipline in order to ensure that their activities align withorganizational goals. In contrast, Theory Y perspectives hold


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employees as self-motivated and willing to ensure that theiractivities are congruent with organizational objectives. In anorganization where Theory X views are the dominant culturethere will be an unwillingness to relinquish central power.This will be mirrored in a hierarchical organizational structureand a pressure towards centralization of information systemswhere standards and control are easier to implement. Thelocal autonomy that accompanies distributed systems fits a managerial strategy of decentralization of control within a Theory Y culture.

■ The location of decision making. Closely linked to the points raisedabove is the issue of who makes the key decisions. The furtherdecision making is decentralized in an organization the morelikely it is that the resources follow. Decentralization of resourcesand decisions over their commitment with respect to informa-tion technology is most compatible with a distributed system.

■ Interdependent activities. Where one type of activity is very closelyrelated to another it is more likely that processing associatedwith both will occur in one processing location. Distributionof processing between two activities tends to lead to a lack ofconnectivity, which should only be allowed if the activities arethemselves not connected.

■ Homogeneous activities. In some cases activities may be inde-pendent of one another but there is a case for centralizedplanning of distributed systems. For example, franchises mayinvolve local franchisees in carrying out completely inde-pendent activities from each other. Yet their operations are sohomogeneous that it makes sense that they each have thesame type of system. This can only be achieved if there is cen-tralized planning and control over the development and pur-chase of the information systems.

Electronic data interchange

Electronic data interchange (EDI) can be defined as:

the transfer of electronic data, from one organization’s computersystem to another’s, the data being structured in a commonly agreedformat so that they are directly usable by the receiving organization’scomputer system.


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What distinguishes EDI from other electronic communications betweenorganizations, such as fax, electronic mail, telephone and telex, is that in these latter cases the information is intended for consumptionby a human being who needs to understand it before any action can betaken. With EDI the received electronic data can be immediatelyprocessed by the receiver’s system without the necessity for humaninterpretation and translation before action.

An example

To see how EDI can be used in the context of significant in-houseautomation consider the following example. It is important for manymanufacturing companies that assemble final products to be assured ofthe supply of components from their stock. When the stock of a particu-lar kind of component runs low the manufacturer orders replacementsfrom the supplier. The supplier then despatches these and invoices later.

The whole process can take a long time – particularly if the manu-facturer’s purchasing department needs to draw up a paper order thatis posted to the supplier. At the supplier’s end this needs to beprocessed by the accounts and the despatch department. The produc-tion of paperwork by the manufacturer and the supplier, together withthe transfer of this between organizations can lead to costly delays anderrors. It may be necessary for the manufacturing company to maintainlarger stocks to take account of the lead time in ordering. This in itselfwill be a cost. Of course if the supplier is also low on stock of the com-ponent it may take several days for this to be notified to the manufacturer.This scenario can occur even if both organizations are fully computer-ized as far as their own internal transaction processing is concerned.

In the context of full automation and EDI this situation could behandled in the following way. As soon as the manufacturer’s compon-ent stocks fall below a minimum level a computer-based list of possible suppliers is consulted and the most appropriate chosen. An electronic order is generated on the manufacturer’s computer system.This is then transmitted to the supplier’s computer system (EDI)where it is electronically matched against stock records of the itemheld. An instruction to despatch the goods with full delivery details issent to the supplier’s despatch department. An electronic acknow-ledgement of order satisfaction is transmitted to the manufactureralong with an electronic invoice which will await receipt of the goodsbefore payment is made.


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In the above EDI automated version there need be no paperworkexchanged at all. Human beings need only limited involvement – forinstance, in the loading and distribution of the goods, or in the author-ization of the placing of the purchase order by the manufacturer andagreement to satisfy the order by the supplier. These human authori-zations can be by entry into the computer system, though it would bequite possible to automate the process of authorization entirely as well.The advantages for both companies are:

■ the speed with which the order is satisfied■ the lack of paperwork involved■ the low cost of processing the transaction as the involvement

of costly human labour on both sides is minimal■ the lack of human error.

There may be further organizational advantages if the respective trading relationship between the two companies is altered. […] A typ-ical configuration for EDI transfer is illustrated in Figure 10.4.

EDI – the method

EDI may be introduced where a group of organizations wish to ensurethat electronic transactions are passed between one another. EDI groups


A

A

B

B

EDI service provider

EDI service provider

Mailbox facilities

B’s mailbox

Applications software

Translation software

Network software

Message

Applications software

Translation software

Network software

Message

EDI transmission

Figure 10.4Electronic data

interchangenetwork.

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require EDI services in order to effect the data exchanges. These areoften provided by a third-party organization. The service provided bythe third party is more than merely the transmission of the data. It iscustomary for added facilities, especially mailbox facilities, to beoffered. An electronic mailbox for a client is an electronic storage loca-tion for messages or data that are sent to the client by other organiza-tions. The client (addressee) can read the data or messages, which areusually held on an identified area of the service provider’s disk space.By providing these services the third party adds value to the data transmission and is thus said to run a value-added network. […]

The benefits of EDI

Some of the benefits of EDI are clear from the examples in previoussections. In particular, EDI ensures:

■ The time with which an interorganizational transaction isprocessed is minimized.

■ The paperwork involved in transaction processing is eliminated.■ The costs of transaction processing are reduced, as much of

the need for human interpretation and processing is removed.■ Reduced human involvement reduces error.

These are benefits experienced by both sender and receiver in an EDIrelationship. Of course there is a cost – the cost of purchase and instal-lation of the technology. However, there are more strategic advantagesassociated with the introduction of EDI.

First, by increasing the speed of processing of transactions betweenan organization and its suppliers and between an organization and itscustomers it enables the supply chain to the customer to provide afaster service. This gives the companies in the supply chain a competi-tive advantage over other companies in the same sector.

Second, the speed of response to requests for component parts in themanufacturing process enables all participants in the supply chain toreduce their holding of buffer stocks. This reduces the need to tie up acompany’s assets in unproductive materials and is compatible with theorganization of production on ‘just-in-time’ principles. The whole chain,therefore, gains a competitive advantage within the industry sector.

Finally, it is in the interests of an organization to ‘tie in’ both manysuppliers and many customers through EDI. For example, a motor carproduction manufacturer will gain a significant competitive advantageby linking in many suppliers of substitutable component parts through


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EDI. While EDI benefits each supplier for the reasons stated above, itsown position of dominance over the manufacturer in these circum-stances is weakened by other suppliers participating in EDI. Similarly,it is in the interests of the supplier to link up with as many manufac-turers through EDI as possible. The supplier’s competitive position isthen strengthened because it is no longer dependent on one customermanufacturer.

From the above it can be seen that the presence of EDI in the supplychain increases the competitive advantage of that chain over others inthe sector. But, depending on the exact nature of the supplier–customerrelationships, individual organizations in the chain may have theircompetitive advantage weakened or strengthened by EDI.

EDI – a case example

The American pharmaceuticals company, McKesson, began linking inits customer pharmacies in the USA through EDI by the installation ofterminals. Pharmacies were then able to input orders for productsdirectly. This saved McKesson the cost of employing sales personnel totake drug orders and reduced the number of paperwork errors. From thecustomer point of view the system, called ECONOMIST, enabled a speedyand error-free response to ordering stock, especially when late orderswere required. McKesson could fill and deliver an order overnight,ensuring that the drugs would be on the shelves the following morning.

Stage two of the involvement occurred when McKesson also offeredsoftware through the terminals to assist pharmacists in the preparationof accounts and the improvement of shop layout. This provided anadditional source of revenue for McKesson.

Finally, McKesson was then able to provide a service to pharmacistsin processing the millions of medical insurance prescriptions putthrough pharmacists each year. This was achieved by electronicallypassing on the details to the identified medical insurance company.The effect was to save the pharmacist a great deal of time and expense.Once established it was difficult for a competitor pharmaceutical company to compete in the same arena.

Summary

[The 1990s] witnessed a dramatic increase in the use of distributed systems. […]


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The benefits of distributed systems include increased user satisfac-tion and autonomy – users do not need to rely on a remote computercentre for the satisfaction of their needs. Telecommunications costsare lower as local processing will not involve expensive remote links.Distributed computing also allows for flexible systems development inthat computing power can be expanded incrementally to meetdemand. Though there are substantial advantages, an organizationneeds to be aware that unbridled distribution may lead to problems ofstandard setting and loss of control. If data are distributed then dupli-cation of data may lead to inconsistency.

Although technological features will be operative in determiningthe extent of the use of distributed systems, it is important to rememberthat other features are also significant. In particular the corporate cultureand location of decision making need to be compatible with distribu-tion which, by its nature, involves devolution of resources and power.The type of activities undertaken by the organization must also be considered – distribution is more likely to be recommended the lessdependent computerized activities are on each other. […]

Electronic data interchange (EDI) is one area where developmentsin telecommunications and networking are having an impact beyondthat of merely passing messages between computer systems. EDI isunderstood as the exchange of formatted data capable of immediatecomputer processing. Various benefits derive from EDI including costsaving and speedy processing of transactions. In particular, though,EDI affects the nature of the trading relationships between organiza-tions in a sector and, by way of influencing the supply chain, can considerably enhance the competitive advantage of a company.


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Why is there a need for an information systems strategy? The previouschapters have already established that information is a valuable organ-izational resource and the information systems that help it flow throughthe organization permeate all corners of organizational life. The com-plexity of the IT management challenge increases considerably when itpenetrates to the heart of an organization’s activity. Indeed, it has longbeen argued that information systems allow organizations to develop astrategic information base that can provide information to support theorganization’s competitive strategies. We have already seen, in Chapters8 and 10, how the information stored in an organizational database canbe a valuable asset in promoting efficient operations and effective man-agement. Taken a step further, information about an organization’s oper-ations, supply chain, competitors and business environment should beregarded as a strategic resource, as it is fundamental to planning, mar-keting and other strategic initiatives. In much the same way, information

P A R T

Introduction: InformationManagement in

Organizational Strategyand Change

Matthew Hinton

4

about best business practices and other business knowledge stored inintranets is also part of the strategic knowledge base. The strategicvalue of information is realized when information systems seek to pulltogether the information from the various business functions andmake sense of this at an organizational level. Accordingly, an importantpart of the information management challenge is involved with thestrategic perspective critical to managing and planning for the infor-mation resource.

But how can competitive strategies be applied to the use of informa-tion systems by organizations?

In Chapter 11, titled Strategy and information systems, GrahamCurtis and David Cobham address this question. They outline the rela-tionship between strategy and information systems and go on to explainhow the two areas can be interwoven. In doing this they suggest thatseveral frameworks can be employed to make sense of information sys-tems strategy. They also outline one such approach and explore how itmight be used when formulating strategy. This approach is central tounderstanding how information flows through the value chain of anorganization. This is a useful starting point in understanding how infor-mation can provide competitive advantage. However, the applicationof information systems to an organization’s primary and support activ-ities raises a number of questions. How will information systems trans-form an organization with respect to its competitors? Will informationsystems create barriers to entry? Can information systems change thebalance of power in supplier relationships?

In Chapter 12, The search for opportunity, Applegate et al. seek toaddress these concerns. They provide an insight into how the applica-tion of information systems may be used for competitive advantage bythe other business functions, whether as a part of primary organizationalactivity or as a support function. Indeed, it is useful to see the roleplayed by the information management function as one of support.

One of the strategic values of information systems is their role in improv-ing business processes. An organization’s operational processes can bemade substantially more efficient and its managerial processes mademore effective. Making such improvements to business processes couldenable an organization to cut costs, improve quality and customer serv-ice, or even develop innovative products. As has already been stressed,information management has the potential to provide new strategicopportunities. These opportunities are just as likely to offer radicalrather than incremental change. The approach taken to this wide-spread organizational change is often referred to as business processredesign, or BPR for short. BPR involves stepping back from a process

150 Information Management in Organizational Strategy and Change Part 4

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to inquire into its overall business objectives and then effecting creativeand radical change to realize order-of-magnitude improvements in theway that objective is accomplished. In theory BPR does not require theintroduction of a new technology. However, in practice, the use of IT asan enabler is required in almost all cases due to the ways IT can manip-ulate the information resources of an organization.

In Chapter 13, entitled The need for redesign – a paradigm shift?,Wendy Robson discusses what is driving the growth in business re-engineering and why information management is becoming moreimportant. She describes how the forces driving the need for businessprocess redesign may be seen as exerting influence at four levels: globalchange, the business environment, the organizational level and thetechnology level. However, central to her argument is how these forcesare interwoven, driving organizational change in a number of ways.

Finally, in order for organizations to leverage the strategic potentialof information systems significant investments are required over a sus-tained period of time. In Chapter 14, entitled Investing in informationtechnology: a lottery?, Hinton and Kaye explore how the costs and bene-fits of investing in information systems are often intangible and cancarry with them hidden outcomes for the organization. They describehow there is a tendency to concentrate on the tangible and quantifi-able technological elements of IT to the detriment of strategic issues andhow organizations need to foster an approach to information manage-ment that encompasses the strategic perspective if lasting organiza-tional change is to be realized.

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C H A P T E R

Strategy andinformation systems

Graham Curtis and David Cobham

11

The subject of this chapter is to expand on the relationship betweenstrategy and information systems. Initially the need for a business stra-tegy is explained together with a suggested overview of the business strate-gic planning process. The way in which this necessitates an informationsystems strategy is covered. There are many frameworks within whichinformation systems strategy can be viewed. One framework is outlinedand its various components are explained. Each emphasizes a differentperspective on the issues that a firm may wish to take into account whenformulating strategy. They all have one feature in common though – theyacknowledge the need for an information systems strategy to be deter-mined by the business needs of the organization, not by the functions ofavailable technology.

The need for a business strategy

A business will function on a day-to-day basis without the obvious needfor a business strategy. Orders will be taken from customers, goods dis-patched, invoices sent and payments from customers acknowledged.Where stock runs low, purchase orders will be drafted and sent, goodswill be received, stock stored and inventory records updated and whenthe invoices arrive from the suppliers these will be authorized for pay-ment and payment made. Work will be scheduled and products manu-factured. Payroll will produce payslips and instruct banks to make

Source : Curtis, G. (1998) Strategy and information systems. In: BusinessInformation Systems Analysis, Design and Practice. Addison Wesley Longman.

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automated payment of wages and salaries at the end of the month.Sales reps’ cars will be put into garages for maintenance, bills receivedand so on. This is the day-to-day functioning of business.

A business, or any other organization, may continue to function in thisway for some period of time without reference to any strategy. However,a business under these conditions is analogous to a ship under way with-out a destination or without reference to the environment within whichit is voyaging.

There needs to be a strategy and strategic planning for a business forseveral reasons:

1 The individual departments within an organization (subsys-tems within a system) may function well in terms of their ownobjectives but still not serve the objectives of the organization.This is because of a lack of coordination between departments,because departments themselves have specific objectivescounter to those of the organization, or because subsystemsoptimization may on occasion lead to total systems subopti-mization. It is therefore important that there be an agreed andcommunicated set of objectives for the organization and a planon how to achieve these.

2 The organization will on occasion need to make major resourceallocations, especially for the purchase and development ofnew plant, property and machines. Information systems willneed expensive hardware and will incur design costs. They willneed large resource allocations. These allocations can only bemade against an agreed direction for the organization – a strategy for the future.

3 The organization will have responsibilities to a number of dif-ferent groups. Included among these would be the owners,whether it be the shareholders or the public, the employees,the customers and those that provide finance such as banks.These parties will have a particular interest in the corporatestrategy, as their interests will be served or otherwise by theextent to which the strategy takes into account their interestsand the success of the organization in meeting these interests.

Business strategic planning

There is no one accepted method that a business should adopt in itsstrategic planning. There are, however, a number of different steps


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that would normally be taken in the development of a business strategy(Figure 11.1).

Most large organizations will already have strategies currently for-mulated. These strategies are often for a future period of five years. Thisis a convenient time horizon. If it were longer then future uncertaintieswould render the planning process for the later stages of little value; ifit were shorter then many developments could not be planned throughto fruition. (For some organizations the planning horizon will need to besignificantly extended – national defence and the nuclear industry aretwo such examples.)

The business strategy is not frozen into the operations of the businessbut is evaluated and redrafted from time to time. This often occurs ona yearly basis when the strategy for the next five years will be decided.The business strategic planning process then yields a five-year rollingplan. Unless there are serious problems within the organization or it isundergoing major internal change it is likely that changes to strategywill be incremental. The following sections expand on Figure 11.1.

Determine the business mission and objectives

The mission of the organization will be a general statement of its over-all purpose and aims. It often consists of a number of individual aims.Examples might be (for a chemical company) ‘to become a major sup-plier of agrochemicals to the farming sector through the research anddevelopment of new and more effective fertilizer and pest controls’ or

Chapter 11 Strategy and information systems 155

Figure 11.1Developing a

business strategy.

Determine business missionand objectives

Identify strengthsand weaknesses

Information systemsstrategy

Financial strategy Marketing strategy

Internal External

Identify threats andopportunities

Identify likely future performanceagainst objectives (current strategy)

Develop business strategy

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(for a chain of hi-fi shops) ‘to expand the number of retail outlets anddiversify into the sale of all leisure electronic goods’.

The objectives, both medium and long term, should support theorganization’s overall mission. Each objective should have a measur-able performance indicator, which can be used to determine the successof the organization in meeting the objective. In the above, an objectivecould well be ‘to increase the number of retail outlets by 35 per centwithin three years and the square metres of floor space devoted to salesby 50 per cent within the same period’.

Identify the likely future performance against objectives

The organization should be continuously monitoring and evaluatingits performance against its current objectives. Part of this monitoringprocess will involve forecasts of future sales, cash flows, materials require-ments and profitability, based on the current situation. In other words,when developing business strategy the current operations of the organ-ization will have an implied future scenario, which can be compared withdesired objectives.

As an input into the assessment of future performance it is commonto identify internal and external factors that will have a significant impact.This SWOT (strengths, weaknesses, opportunities, threats) analysis willidentify internal strengths, such as a highly trained and flexible work-force, and internal weaknesses, such as a poor internal information sys-tem, together with external opportunities, such as the opening up oftrade through a common European Market, and external threats, suchas the absence of low economic entry barriers to the industry.

Given the predictions and the identified strengths, weaknesses, oppor-tunities and threats, it will be possible to estimate the extent of the gapbetween future objectives and forecast future performance. The busi-ness strategy should determine a series of measures and plans that willremove this gap.

Develop the business strategy

The business strategy will be the set of plans that the business will imple-ment in order to achieve its stated objectives. These plans may involvenew projects or the continued operation of existing activities.

Most businesses are modelled and managed in a functional way. Humanresources, information systems, marketing, financial management, and


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production are examples of common functions. The business strategywill have as components a human resource strategy, an information sys-tems strategy, a marketing strategy and so on. These strategies will sup-port the business strategy and interact with one another. The informationsystems strategy is taking on a key role as more businesses rely increas-ingly heavily on their computerized information systems for all aspectsof their business functions.

Business information systems strategy

The previous section identified, in broad terms, the steps taken instrategic planning. But it provides no insight into what specific factorsshould be taken into account in business information strategy devel-opment. In particular it does not give any framework within which toanswer the questions as to which information systems should be developed and why. This section will be directed at these two issues.

First it is important to distinguish between a business informationsystems strategy and a business information technology strategy.

The business information systems strategy is focused on determining whatinformation systems must be provided in order that the objectives of thebusiness strategy are realized. The concentration is therefore on deter-mining information needs and ensuring that the information systemsstrategy aligns with the business strategy.

The business information technology strategy is focused on determiningwhat technology and technological systems development are needed inorder that the business information systems strategy can be realized. Theconcentration is therefore on how to provide the information, not onwhat information is required. The strategy will also cover how the infor-mation resource and information systems development is to be managed.

There is a close interaction between the information systems strategyand the information technology strategy. The importance of distinguish-ing between them indicates that the emphasis on information systemsis that strategy is led by the needs of the business, not by technology.

There has been a considerable debate as to how best to develop astrategy for information systems/information technology. The urgency ofthis debate has been fuelled by the speed with which information tech-nology has changed and by a recognition that information technology isbeing used less in a support function within the business but is increas-ingly integral to the business operations and development itself.

Many models have been put forward to guide the strategist in formu-lation. An important selection is explained in the rest of this section.

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They have different approaches and objectives and cover differentaspects of the strategy formulation process. The framework in Figure 11.2indicates that some models address the area of information systemsstrategy whereas others can be seen as more relevant to informationtechnology strategy. Within the former (information systems strategy)there is a division between those approaches which concentrate on inter-nal aspects of the business compared with those that focus on areaswithin the environment of the organization.

Competitive forces within an industry – the five forces model

Modern technology is increasingly being used as part of an informa-tion systems strategy which yields competitive advantage for the organ-ization. One way in which a business can gain a competitive advantage isby using information technology to change the structure of the indus-try within which it operates.

The five forces model (Porter and Millar, 1985) views a business, oper-ating within an industry, as being subject to five main competitive forces.The way in which the business responds to these forces will determine itssuccess. These forces are illustrated in Figure 11.3. Information technol-ogy can aid a business in using these competitive forces to its advantage.


Information systems strategy Information technology strategy

Factors external to the organization

Critical successfactors

Constraintson the exploitation

of IT

Factors internal to the organization

Environmentalinfluences

on the organization(PEST analysis)

Exploitation of ITthrough value chain(Porter and Millar)

Strategic grid showingimpact of IT applications

(McFarlan andMcKenney)

Competitive forceswithin an industry(Porter and Millar)

Internal stagesof growth

(Nolan) (Earl)

Dynamicinteraction of

internal forces(Scott Morton)

Figure 11.2A framework for the interrelation of influences on information systems strategy and informationtechnology strategy (adapted from source material by Susan Gasson,Warwick Business School).

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In this way information technology can be seen as a strategic competi-tive weapon.

Suppliers

The suppliers provide the necessary inputs of raw materials, machineryand manufactured components for the firm’s production process. Thesuppliers to a business can exert their bargaining power on that busi-ness by pushing up the prices of inputs supplied using the threat of tak-ing their supply goods elsewhere to a competitor business in the sameindustry. It is in the interests of the business to make alternative rival busi-nesses who would purchase the supplier’s goods seem less attractive tothe supplier.

One way of achieving this is by creating good relationships with thesupplier by using electronic data interchange (EDI). EDI requires that thereis an electronic connection between the business and its suppliers. Whensupplies are to be ordered this is accomplished by sending structuredelectronic messages to the supplier firm. The supplier firm’s computerdecodes these messages and acts appropriately. The advantage of thisfor both partners is:

■ reduced delivery times■ reduced paperwork and associated labour costs■ increased accuracy of information.


Figure 11.3An industry and itscompetitive forces.

Threat of newentrants

Suppliersexert

bargainingpower

Suppliers

Internalrivalry amongst

existing competitors

Customersexert

bargainingpower

Customers

Threats ofsubstitute products

or services

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For the business that is purchasing supplies, EDI can be part of its just-in-time approach to manufacturing. This yields benefits in terms ofreduced warehousing costs.

Creating links with suppliers is becoming increasingly important inthe manufacturing sector especially between car manufacturers andthe suppliers of component parts.

Customers

Customers can exert power over a business by threatening to purchasethe product or service from a competitor. This power is large if thereare few customers and many competitors who are able to supply theproduct or service.

One way in which a business may reduce the ability of a customer tomove to another competitor is by introducing switching costs. These aredefined as costs, financial or otherwise, that a customer would incur byswitching to another supplier. One way of achieving switching costs is toallow the customer to have online ordering facilities for the business’sservice or product. It is important that the customer gains a benefit fromthis or there is little incentive for the customer to put itself in a potentiallyweak bargaining position.

For instance, with electronic banking the belief is that once a customerhas established a familiarity with one system, gaining advantage from it,there will be a learning disincentive to switch to another. Another exampleis American Hospital Supplies. It has improved its competitive positionby allowing online terminals into customer hospitals. These allowed theswift order/delivery of supplies by using less skilled personnel com-pared with more expensive purchase agents. Once established it becamevery difficult for a hospital to change suppliers.

Substitute products

Substitute products or services are those that are within the industry butare differentiated in some way. There is always the danger that a businessmay lose a customer to the purchase of a substitute product from arival business because that product meets the needs of the customermore closely. Information technology can prevent this happening in twoways. First it can be used to introduce switching costs as stated above. Orthe technology may be used to provide differentiated products swiftlyby the use of computer-aided design/computer-aided manufacturing(CAD/CAM). In this latter case the business produces the substituteproduct itself.


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New entrants

Within any industry there is always the threat that a new company mightenter and attract some of the existing demand for the products of thatindustry. This will reduce the revenue and profit of the current com-petitors. The traditional response has been for mature business withinan industry to develop barriers to entry. These have been:

■ exploiting economies of scale in production■ creating brand loyalty■ creating legal barriers to entry – for example patents■ using effective production methods involving large capital

outlays.

Information technology can assist a business in developing these bar-riers. In as far as information technology makes a firm more productive,for instance by reducing labour costs or speeding up aspects of the pro-duction process, any firm attempting to enter the market place will becompetitively disadvantaged without a similar investment in capital. Ifexpensive CAD/CAM equipment is common for the production of dif-ferentiated products speedily then this will also act as a barrier to entry.

Competitor rivalry

Unless in a monopoly position, any business within an industry is sub-ject to competition from other firms. This is perhaps the greatest com-petitive threat that the business experiences. Information technology canbe used as part of the firm’s competitive strategy against its rivals as illus-trated in the preceding sections. Close linkages with suppliers and cus-tomers produce competitive forces against rivals, as does the investmentin technology allowing product differentiation and cost reductions.

In some cases the investment in information technology will be necessary to pre-empt the competitiveness of other businesses. Themajor investment by the banks in automated teller machines is just oneexample of this.

Environmental influences on the organization – PEST analysis

Porter’s five force model considers the industry sector within which thebusiness operates. However, in formulating strategy there are otherexternal factors which the strategist needs to take into account.


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This is the function of a PEST (political, economic, sociocultural, techno-logical) analysis.

The questions to be asked are:

‘Which environmental factors are currently affecting and are likely toaffect the organization?’‘What is the relevant importance of these now and in the future?’

Examples of the areas to be covered under each heading are givenbelow:

■ Political/legal. Monopolies legislation, tax policy, employmentlaw, environmental protection laws, regulations over inter-national trade, government continuity and stability.

■ Economic. Inflation, unemployment, money supply, cost ofparts and energy, economic growth trends, the business cycle –national and international.

■ Sociocultural. Population changes – age and geographical distri-bution, lifestyle changes, educational level, income distribu-tion, attitudes to work/leisure/consumerism.

■ Technological. New innovations and development, obsolescence,technology transfer, public/private investment in research.

At a minimal level the PEST analysis can be regarded as no more than achecklist of items to attend to when drawing up strategy. However, it canalso be used to identify key environmental factors. These are factors thatwill have a long-term major influence on strategy and need special atten-tion. For instance, included in the key environmental factors for a hos-pital will be demographic trends (increased percentage of older citizensin the population and decreased percentage of those who are of work-ing age), increases in technological support, government policy onfunding and preventative medicine. These key factors are ones that willhave significant impact on strategy and must be taken into account.

PEST analysis may also be used to identify long-term drivers of change.For instance, globalization of a business may be driven by globalizationof technology, of information, of the market and of the labour force.

In general a PEST analysis is used to focus on a range of environ-mental influences outside the organization and (perhaps) outside theindustry, which are important to longer-term change and thereforestrategy, but may be ignored in the day-to-day decisions of the business.

Internal stages of growth

The preceding two sections explain the way that factors external to theorganization will need to be taken into account when developing an


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information systems strategy. However, factors internal to the organ-ization will also need to be introduced into the strategy. The introduc-tion, development and use of computing information systems cannotbe achieved overnight. It requires the organization internally to undergochange and a learning process. This concerns not only the technologicalfactors of information systems but also the planning, control, budgetaryand user involvement aspects.

Over the last twenty years several influential approaches have beendeveloped which look at the development of information systems withinan organization as proceeding through several stages of growth. In thefollowing sections two of these models will be considered.

The Nolan stage model

The earliest of these models, developed by Nolan, explains the extentand type of information systems used within an organization as beingdetermined by the maturity of growth of information systems withinthat organization.

It was Nolan’s original thesis that all organizations went through fourstages of growth. This was later refined by adding two intermediategrowth stages. The six-stage growth model (Nolan, 1979) was used toidentify which stage of growth characterized an organization’s informa-tion systems maturity. This, in turn, had further implications for suc-cessful planning to proceed to the next level of growth. The model hasbeen used as the basis in over 200 consultancy studies within the USAand has been incorporated into IBM’s information systems planning(Nolan, 1984). Before considering any planning implications of themodel the stages will be briefly explained.

The Nolan stage model purports to explain the evolution of an infor-mation system within an organization by consideration of various stagesof growth. The model is based on empirical research on information sys-tems in a wide range of organizations in the 1970s. Expenditure on ITincreases with the stages (Figure 11.4).

Within each stage of growth four major growth processes must beplanned, managed and coordinated:

■ Applications portfolio. The set of applications which the informa-tion systems must support – for example financial planning,order processing, online customer enquiries.

■ DP organization. The orientation of the data processing – forexample as centralized technology driven, as management ofdata as a resource.


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■ DP planning and control. For example, degree of control, formalization of planning process, management of projects,extent of strategic planning.

■ User awareness. The extent to which users are aware of andinvolved with the technology.

The stages have different characteristics (see Figure 11.4).

■ Stage 1 Initiation. The computer system is used for low level trans-action processing. Typically high volume data processing ofaccounting, payroll and billing data characterize the stage.There is little planning of information systems. Users are largelyunaware of the technology. New applications are developedusing traditional languages (such as COBOL). There is littlesystematic methodology in systems analysis and design.

■ Stage 2 Contagion. The awareness of the possibilities of ITincreases among users, but there is little real understandingof the benefits or limitations. Users become enthusiastic andrequire more applications development. IT is generally treatedas an overhead within the organization and there is little checkon user requests for more applications. Budgetary control overIT expenditure and general managerial control over the devel-opment of the information system are low. Technical problemswith the development of programs appear. An increasing


Figure 11.4The six-stageNolan model.

1Initiation

Leve

l of i

nfor

mat

ion

syst

ems

expe

nditu

re

2Contagion

3Control

4Integration

Stages

5Data

administration

6Maturity

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proportion of the programming effort is taken in mainten-ance of systems. This is a period of unplanned growth.

■ Stage 3 Control. As continuing problems occur with the unbridled development of projects there is a growing aware-ness of the need to manage the information systems function.The data-processing department is reorganized. The DP man-ager becomes more accountable having to justify expenditureand activities in the same way as other major departmentswithin the organization. The proliferation of projects is con-trolled by imposing changes on user departments for projectdevelopment and the use of computer services. Users see littleprogress in the development of information systems. Pent-updemand and frustration occur within user departments.

■ Stage 4 Integration. Having achieved the consolidation of Stage3, the organizational data-processing function takes on a newdirection. It becomes more orientated towards informationprovision. Concurrent with this and facilitating it, there is theintroduction of interactive terminals in user departments, thedevelopment of a database and the introduction of data com-munications technologies. User departments, which have beensignificantly controlled in Stage 3 by budgetary and organiza-tional controls, are now able to satisfy the pent-up demand forinformation support. There is a significant growth in thedemand for application and a consequent large increase inthe supply and expenditure to meet this demand. As the rapidgrowth occurs the reliance on computer-based controlsbecomes ineffective. In particular redundancy of data andduplication of data become a significant problem.

■ Stage 5 Data administration. The response to the problems ofStage 4 is to introduce controls on the proper administrationof data. The emphasis shifts from regarding data as the inputto a process which produces information as an output, to theview that data are a resource within an organization. As suchthey must be properly planned and managed. This stage is char-acterized by the development of an integrated database serv-ing organizational needs. Applications are developed relyingon access to the database. Users become more accountable forthe integrity and correct use of the information resource.

■ Stage 6 Maturity. Stage 6 typifies the mature organization. Theinformation system is integral to the functioning of the organ-ization. The applications portfolio closely mirrors organiza-tional activities. The data structure becomes a data model for


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the organization. There is a recognition of the strategic import-ance of information. Planning of the information system iscoordinated and comprehensive. The manager of the infor-mation system takes on the same importance in the organiza-tional hierarchy as the director of finance or the director ofhuman resources.

The Nolan model – implications for strategic planning

The Nolan stage model was originally intended to be a descriptive/analytic model which gave an evolutionary explanation for informationsystems development within an organization. It identified a pattern ofgrowth which an organization needed to go through in order to achievematurity. Each stage involved a learning process. It was not possible toskip a stage in the growth process. As such the model became widelyaccepted. On the Nolan analysis most organizations will be at Stage 4 orStage 5.

However, the model has also become used as part of a planningprocess. Applied this way, the organization identifies the stage it is cur-rently occupying. This has implications for what has to be achieved inorder to progress to the next stage. Planning can and should be achieved,it is argued, in the areas of the applications portfolio, the technologyused, the planning and control structures and the level of user aware-ness and involvement. Managers should attend to planning which willspeed the process of progression to the next stage and the accom-panying organizational learning.

The Nolan model – critique

The model is based on empirical research in the 1970s. It cannot,therefore, incorporate recognition of the impact of the new technolo-gies of the 1980s or 1990s. In particular its concentration on databasetechnology ignores the fact that:

■ the growth of microcomputers has significantly increased theextent to which users have been able to use information tech-nology and to become autonomous of the computer centre

■ there have been important developments in the area of communications and networks, especially local area networkslinking microcomputers and other technologies together

■ new software development tools and decision support toolshave shifted the emphasis to the user as development agent.


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Despite these limitations the Nolan stage model still provides a way ofviewing the development of information systems within an organiza-tion by recognizing:

■ that growth of information systems within an organizationmust be accompanied by an organizational learning process

■ that there is an important interplay between the stimulationof growth involving the presence of slack resources togetherwith the need for control

■ that there is a shift of emphasis between the users and thecomputer centre in the process of growth

■ that there is a move from concentration on processor tech-nology to data management.

The Earl model

Earl (1989), along with others (e.g. Hirscheim et al., 1988; Galliers andSutherland, 1991) takes seriously the idea of maturity through stagesof growth. For Earl it is of particular importance to note that stages ofgrowth apply to different technologies. The S-curve is still reflected foreach technology with the relationship existing between the degree oforganizational learning, the technology and time (Figure 11.5). It isalso acknowledged that different parts of the organization may be atdifferent points on the stages of growth.

Earl’s model concentrates not on the interplay between expenditure/control but rather on the task and objectives of planning at each stage.


Figure 11.5Earl’s model of

multiple learningcurves (adapted

from Galliers andSutherland, 1983).

Data processing

Time

Lear

ning

Database

Microcomputing

Office automationTelecommunications

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The view taken by Earl is that the early focus on information systemsdevelopment is planned around the extent of IT coverage and theattempt to satisfy user demands. As the organization develops alongthe learning curve the orientation of planning changes. Senior man-agers recognize the need for information systems development to linkto business objectives and so take a major role in the planning process.During the final stages of growth the planning of information systemstakes on a strategic perspective with planning being carried out byteams consisting of senior management, users and information systemsstaff (Table 11.1).

Dynamic interaction of internal forces

Nolan and Earl were interested in the various internal stages of growththrough which organizations progress in the use of information tech-nology, together with the implications of this for strategic planning. Thecurrent section takes a different perspective in that it concentrates on


Table 11.1Earl’s stage planning model (Galliers and Sutherland, 1991)

Stages

Factor I II III IV V VI

Task Meeting IS/IT Business Detailed Strategic Business-IT demands audit support planning advantage strategy

linkage

Objective Provide Limit Agree Balance IS Pursue Integrate service demand priorities portfolio opportunities strategies

Driving IS reaction IS led Senior User/IS IS/executive Strategic force management partnership led: user coalitions

led involvement

Method- Ad hoc Bottom-up Top-down Two-way Environmental Multiple ological survey analysis prototyping scanning methodsemphasis

Context User/IS Inadequate Inadequate Complexity IS for Maturity,inexperience IS resources business/ apparent competitive collaboration

IS plans advantage

Focus IS department Organization- Environmentwide

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internal organizational forces and how these must be acknowledged inthe derivation of a business information systems strategy.

It has long been recognized that there is an internal organizationalinteraction between people, the tasks they perform, the technology theyuse to perform these and the structure of the organization in which theywork. This drives from organizational psychology and has influencedstrategy formulation and, among other areas, approaches to the analysisand design of information systems. […]

Following this theme, an organization may be viewed as being subjectto five internal forces in a state of dynamic equilibrium (as well as beingsubject to external influences and forces). This is illustrated in Figure11.6. It is the central goal of the organization’s management to controlthese forces and their interaction over time in order that the organizationmay meet its business objectives and its mission. Scott Morton (1991)takes this model as the basis for research into the likely impacts thatchanges in IT will have on organizations and to provide theories of man-agement on how these changes may be steered to the benefit of theorganizations concerned.

1 Technology will continue to change. The effect of this will be tocut down ‘distance’ within the organization as geographical sep-aration is rendered less important. This will be aided throughthe development of telecommunications and will be evidencedby new applications such as e-mail, the intranet, video-conferencing and shared data resources. The organizationalmemory and access to it will be improved through more effec-tive classification of data and its storage.

2 Individuals and their roles will change as information technol-ogy provides support for tasks and increases interconnection


Figure 11.6The dynamic

interaction ofinternal forces.

Organizationboundary

Strategy

Structure

Managementprocesses

Technology

Individualsand roles

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within the organization. This will require significant investmentin training and the reclassification of roles. The nature of jobswill change as IT facilitates some roles, makes some redundantand has no effect on others.

3 The structure of the organization will change as roles vary. Thegreater interconnection brought about by information tech-nology will lead to integration at the functional level.

4 Management processes will be assisted by the provision of easyaccess to fast, flexible, virtually costless, decision-relevant internalinformation. This will enable new approaches to operationalplanning and control within the organization.

5 The key to effective planning, and to the benefits of new infor-mation systems enabled by information technology, lies in theproper use of strategy. This will ensure that information systems/information technology developments are aligned with thebusiness strategy.

Exploitation of IT through the value chain

Continuing developments in information technology, together withdecreasing costs, have enabled businesses to exploit new opportunitiesto change the nature of competition. In a series of publications(Porter, 1980, 1985; Porter and Millar, 1985) Michael Porter has developed a model of business organization and its associated industryby focusing on the value chain and the competitive forces experienced(five forces model). This allows an understanding of the way competi-tion affects strategy and the way information provision, in its turn,affects competition.

Central to Porter’s analysis of the internal aspects of the businessand the strategy for its exploitation of IT is the value chain. The valuechain divides the firm’s activities into those that it must carry out inorder to function effectively (Figure 11.7). The value chain consists ofnine value activities. Each of these activities adds value to the final prod-uct. In order to be competitively advantaged the business must carry outthese activities at a lower cost than its competitors or must use these activ-ities to create a product that is differentiated from those of its com-petitors and thereby be able to charge a premium price for the product.The nine activities are divided into two categories – primary activities,which are concerned with the direct generation of the organization’soutput to its customers, and support activities, which contribute to theoperation of the primary activities.


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■ Primary activities– inbound logistics: activities which bring inputs into the organ-

ization such as receipt of goods, warehousing, inventorycontrol

– operations: activities which transform the product into its finalform whether it be physical good or service

– outbound logistics: activities which despatch products anddistribute them to clients

– marketing and sales: activities concerned with locating andattracting customers for the purchase of the product – forexample advertising

– service: activities which provide service and support to customers – for example maintenance, installation.

■ Support activities– firm infrastructure: activities which support the whole value

chain – for example general management, financial planning– human resource management: activities concerned with train-

ing, recruitment and personnel resource planning– technology development: activities which identify and develop

ways in which machines and other kinds of technology canassist the firm’s activities

– procurement: activities which locate sources of input and purchase these inputs.

As well as having a physical component, every value activity creates and uses information. The competitive advantage of the organizationis enhanced by reducing costs in each activity compared with its


Organizationalinfrastructure

Developmentproduct/technology

Human resourcemanagement

Inbound logistics(receipt/warehousing

of input)

Operations(manufacture of

product)

Outbound logistics(distribution of product)

Sales andmarketing

Primary activities

Customer service

Margin �value added

� cost

Procurement

Sup

port

act

iviti

es

Figure 11.7The value chain.

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competitors. Information technology is used to reduce the cost of theinformation component of each activity. For instance, inbound logisticsactivities use information technology to provide information on goodsreceived and use this to update inventory records. Financial planning,an infrastructure activity, will use information technology to collectinformation provided by many of the firm’s activities to generate fore-casts on future performance. Information technology may also be usedto increase product differentiation for specific customer needs. Forinstance, operations can use information technology to control theproduction process to generate tailor-made output for customers.

Where previously the organization relied on the manual productionof information, it is now more common for information technology topermeate its entire value chain (Figure 11.8). The greater the extent towhich this reduces costs or enables product differentiation the greaterthe competitive advantage conferred on the business.

The organization’s value chain is composed of a set of interdependentactivities that are linked to one another. These linkages need to be coord-inated in order to ensure that the activities are carried out in the mosteffective way. Information is necessary to manage these linkages. Oneway this may occur is in just-in-time (JIT) manufacturing. JIT is an approachto production which requires the output of each stage of the produc-tion process to be fed into the following stage without undergoing anintermediate storage stage of indefinite length. The benefits of JIT are


Primary activities

Sup

port

act

iviti

es

Organizationalinfrastructure

Financial planning modelsSpace optimization

Administrative informationBuilding management systems

Developmentproduct/technology

Computer-aided designMarket analysis/modelling

Optimization of distribution of personnelHuman resourcemanagement

Procurement

Automatedwarehousing

Inbound logistics(receipt/

warehousingof input)

Operations(manufacture of

product)

Customization ofmanufacturing

process

Processingorders

(through EDI)and automated

distribution

Outboundlogistics

(distribution ofproduct)

Sales andmarketing

Customerservice

Telemarketing

Online monitoringand servicing of

equipment.Schedulingservicing

Online ordering of inputs through electronic data interchange (EDI)

Margin �value added

� cost

Figure 11.8Information technology in the value chain.

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that it removes intermediate inventory storage costs for personnel andspace and prevents the organization’s working capital being tied up ingoods waiting in the production process. JIT can also be extended out-side the organization to include the purchase of inputs that are deliveredjust in time for the manufacturing process which, in turn, produces anoutput just in time to meet the specific needs of a customer. Automatedbilling systems or electronic data interchange (EDI) can be used for the exter-nal linkages. For JIT to work the effective management of linkages isimperative and it is here that information technology can provide thenecessary information – accurately and on time. Hence cost reductionsin the organization’s value activities are achieved and the business cangain a competitive advantage.

In summary, information technology is at the basis of information sys-tems within business which increase the competitive advantage of thatbusiness over its competitors by:

■ reducing the cost of the information component of valueactivities

■ allowing product differentiation■ providing information for the effective management of

linkages.

The importance of this approach is that it views information not merelyas a support for the tasks that a business undertakes but rather as per-meating the entire set of business activities. As such its correct provisioncan give the organization a strategic competitive advantage over its rivalsin the industry.

The strategic grid

The strategic grid (McFarlan and McKenney, 1983; McFarlan, 1984)assists the organization in determining within which of four categoriesit finds itself with respect to the impact of IT and its information systems (Figure 11.9).

The grid plots the extent to which the existing applications portfoliohas a strategic impact against the likely strategic impact of the plannedapplications development. The four resulting possible positions are:

■ Support. The role of the information system is to support thetransaction processing requirements of the organization. Theemphasis on information technology is on cost reduction andinformation is produced as a by-product of the process.


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■ Factory. The current information systems are an integral part ofthe strategic plan of the organization. Few strategic develop-ments are planned and the focus of IT activity is on improvingexisting systems.

■ Turnaround. This is a transitional phase. Organizations movefrom the ‘support’ category to this as a result of internal andexternal pressures. Internal pressures result from the confi-dence of management in the support systems together with therecognition of the strategic benefits of information technologyas a competitive weapon. The external pressures come fromimproving technology acting as an enabler for developmenttogether with the increasing use of information technology bycompetitor firms within the same industry. If the firm continueswith strategic innovation it will enter the ‘strategic’ category,otherwise it will revert to the ‘factory’ category.

■ Strategic. This category requires a continuing development ofinformation systems through the exploitation of informationtechnology at a strategic level. It can only be accomplished withthe commitment of senior management and the recognitionof the integral part played by the information system withinthe entire fabric of the firm’s activities.

These categories aid managers in identifying the role and importanceof information technology within their business. It plots ‘where we arenow’ rather than ‘where we want to go’ or ‘how we get there’. This is notunimportant since each of the categories implies a strategy for the man-agement of the information system. The ‘support’ and ‘factory’ positionsare essentially static. They concern the more effective and efficient useof the existing applications portfolio and, as such, do not require an


Figure 11.9The strategic grid

(adapted fromMcFarlan and

McKenney, 1983).

Support

Factory Strategic

Turnaround

Strategic impact of applicationsportfolio (planned)

HighLow

Low

Hig

h

Str

ateg

ic im

pact

of a

pplic

atio

nspo

rtfo

lio (

exis

ting)

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extensive senior management involvement. The ‘turnaround’ and‘strategic’ categories imply a dynamic strategy which must, if it is to besuccessful, involve senior management in an active way in the imple-mentation of strategy. An organization moving from one category toanother should be prepared to adopt the appropriate involvement ofsenior management. […]

Summary

There is a general recognition that businesses must strategically planin order to ensure that individual operating units act in a coordinatedway to support the business objectives of the organization, that thoseobjectives are realizable given the internal resources within the businessand the external environment and that current and future resourceallocation is directed to the realization of these corporate objectives.

Although there is no one accepted method of strategic planning,central themes are commonly accepted. Specifically there must be adetermination of business objectives, an identification of future per-formance against these objectives and the development of a plan toclose any identified gap.

Businesses are commonly viewed as being composed of various func-tions. Each of these will require information in order to plan, operateand monitor performance. The function of the provision of informationis thus key to an organization’s success. The development of an infor-mation systems strategy to support this function recognizes the priorityof information systems planning over information technology plan-ning. The latter supports the former.

There are many frameworks within which one can develop an infor-mation systems strategy. The one provided in this chapter distinguishesthe information systems strategy from the information technologystrategy and within the former recognizes both the influence of factorsexternal to the organization and those internal to it.

One of the factors external to the firm is the forces exerted on itdepending on the structure of the industry within which it operates.These competitive forces may be exerted by suppliers, customers, exist-ing competitors, new entrants or through differentiated products. Ananalysis of these forces can provide a guide to information systemsstrategy. A PEST analysis takes into account other political, economic,sociocultural and technological influences.

Emphasizing internal factors, the work of Nolan suggests that organ-izations undergo a series of several discrete stages of development in

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their evolution. By identifying the current stage an organization can planthe most effective and swift route to the next. Although this research wasbased largely on the evolution of mainframe systems, there are strikingsimilarities with the development of microcomputers and local area net-works. This approach has been extended by Earl. As well as the internalevolution of the information system within the organization and itsconnection with technological development, it is important to recognizethat the technology will have an impact on the work of individuals andthe roles they fulfil. Management control may be significantly affectedalong with the internal structure of the organization. This must be takeninto account in the formulation of strategy.

The work of Porter and Millar views the firm as being composed of alinked value chain consisting of nine primary and supporting activities.If an organization is to be competitive then each of these must functionat a cost advantage over similar functions within its competitors, or helpto produce a differentiated product. The way in which information tech-nology can be used as a competitive weapon and support these activ-ities and coordinate their linkages was examined. The strategic grid ofMcFarlan and McKenney identifies the strategic impact of existing computer-supported applications compared with planned applications.The firm broadly falls into one of four categories – support, factory,turnaround and strategic. Different information systems strategies aresuggested dependent on which category best fits an organization currently and which best fits its likely development. […]

This [chapter] looks at a selection of the more influential approachesto information systems strategic planning. What has been emphasized is that business information needs should determine strategy, not thecharacteristics of the various technologies.

References

Earl, M. (1989) Management Strategies for Information Management, Prentice Hall.Galliers, R. and Sutherland, A. (1991) Information systems management and

strategy formulation: the ‘stages of growth’ model revisited. Journal ofInformation Systems, 1, 89–114.

Hirscheim, R., Earl, M., Feeny, D. and Lockett, M. (1988) An exploration intothe management of the information systems function. In ProceedingsInformation Technology Management for Productivity and Strategic Advantage,IFIP Conference, March 1988.

McFarlan, F.W. (1984) Information technology changes the way you compete.Harvard Business Review, May–June, pp. 98–103.


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McFarlan, F.W. and McKenney, J.L. (1983) Corporate Information Management:the issues facing senior management, Dow-Jones-Irwin.

Nolan, R.L. (1979) Managing the crisis in data processing. Harvard BusinessReview, March–April, pp. 115–126.

Nolan, R. (1984) Managing the advanced stages of computer technology: keyresearch issues. In The Information Systems Research Challenge, McFarlan F.W.ed., pp. 195–214, Harvard Business School Press.

Porter, M.E. (1980) Competitive Strategy, Free Press.Porter, M.E. (1985) Competitive Advantage, Free Press.Porter, M.E. and Millar, V.E. (1985) How information gives you competitive

advantage. Harvard Business Review, July–August, pp. 149–160.Scott Morton, M. (ed.) (1991) The Corporation of the 90s: information technology

and organizational transformation, Oxford University Press.


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C H A P T E R 12

Five key questions can be used to guide an assessment of the impactof IT on strategy.

Can IT build barriers to entry?

A successful entry barrier offers not only a new product or service thatappeals to customers but also features that keep the customers ‘hooked’.The harder the service is to emulate, the higher the barrier to entry. Alarge financial service firm sought to build an effective barrier to entrywhen it launched a unique and highly attractive financial product thatdepended on sophisticated software that was both costly and difficult toimplement. The complexity of the IT-enabled product caught competi-tors off guard; it took several years for them to develop a similar product,which gave the initiating firm valuable time to establish a significant mar-ket position. During this time, the firm continued to innovate, enhanc-ing the original product and adding value to the services. Competitorsnot only had to catch up, but had to catch a moving target.

The payoff from value-added features that increase both sales andmarket share is particularly strong in industries within which there aregreat economies of scale and where customers are extremely price

The search foropportunity

Lynda M. Applegate, F. Warren McFarlan and James L. McKenney

Source: Applegate, L.M., McFarlan, F.W. and McKenney, J.L. (1999) CorporateInformation Systems Management, 5th edn. McGraw-Hill.

Chapter 12 The search for opportunity 179

sensitive. By being the first to move onto the learning curve, a com-pany can gain a cost advantage that enables it to put great pressure onits competitors.

Systems that increase the effectiveness of the sales force representanother kind of entry barrier – a knowledge barrier. For example, sev-eral large insurance companies have implemented sophisticated,customer-oriented financial-planning support packages that have greatlyexpanded the ability of their agents to deal with the rapidly changingand increasingly complex knowledge requirements within the industry.By increasing the capabilities of the sales force (a key strategic resourceof the firm), these insurance companies have created significant barriersto entry that are exceedingly difficult to emulate. With the advent of theInternet in the late 1990s, many companies are finding that knowledgebarriers are among the most potent of competitive forces.

Can IT build in switching costs?

Are there ways to encourage reliance on IT-enabled products and ser-vices? Can industry participants be encouraged to embed these prod-ucts and services into their operations in such a manner that thenotion of switching to a competitor is extremely unattractive? Ideally,an IT system should be simple for the customer to adopt at the outset,but then, through a series of increasingly complex – yet very valuable –enhancements, the IT system becomes tightly intertwined with the cus-tomer’s daily routine. Proponents of electronic home banking hope tocapitalize on the potential of increasing switching costs. Indeed, many‘virtual’ banks now exist that have no branches; their customers, hav-ing tightly integrated their financial records into the bank’s IT systems,conduct all transactions electronically.

A manufacturer of heavy machines provides another example ofhow IT can add value to and support a company’s basic product linewhile also increasing switching costs. The firm embedded into its prod-uct software that enables remote monitoring and, in some cases, cor-rection of problems. In case of mechanical failure, the diagnosticdevice calls a computer at corporate headquarters, where softwareanalyses, and if possible, solves the problem. If the problem cannot besolved remotely, the computer pages a mechanic and provides a com-plete record of the current problem and the maintenance history ofthe product. Availability of the parts required to fix the problem is alsonoted and technical documentation is provided. Now installed around

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the globe, the system has dramatically improved service quality andresponse time, significantly enhanced customer loyalty and decreasedthe tendency of customers to buy service contracts elsewhere.

The joint marketing programme of MCI, Citibank and AmericanAirlines, through which customers can earn American Airlines fre-quent flyer miles whenever they use the telephone or their creditcards, is another example of how IT can support value-added servicesthat enhance customer loyalty and increase switching costs.

Can IT change the basis of competition?

In some industries IT has enabled a firm to alter fundamentally thebasis of competition within the industry. This occurs when a firm usesIT to change radically either its cost structure (cost advantage) or itsproduct/service offerings (differentiation advantage).

For example, in the mid-1970s, a major distributor of magazines, avery cost-competitive industry segment, used IT to lower significantlyits cost structure by developing cheaper methods of sorting and dis-tributing magazines. By radically reducing both headcount and inven-tory, it was able to become the low-cost producer in the industry.Because buyers were extremely price sensitive, the distributor was ablequickly to increase market share, but it did not stop there. Havingattained significant cost advantage, the distributor differentiated itsproducts and services. Recognizing that its customers were small, unso-phisticated and unaware of their profit structures, the distributor usedits internal records of weekly shipments and returns to create a newvalue-added product – a customized report that calculated profit persquare foot for every magazine sold and then compared these datawith aggregate information from comparable customers operating insimilar neighbourhoods. The distributor could thus tell each customerhow it could improve its product mix. In addition to distributing mag-azines, the company used IT and the information it generated to offera valuable inventory-management service. In this example, the distribu-tor initially used IT to change its competitive position within an indus-try; it then used IT to change fundamentally the basis of competition.

Dramatic cost reduction can significantly alter the old ground rulesof competition, enabling companies to find strategic opportunity inthe new cost-competitive environment. For example, there may be anopportunity for sharp cost reduction through staff reduction or theability to grow without hiring staff, improved material use, increased

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machine efficiency through better scheduling or more cost-effectivemaintenance, or inventory reduction. In the drug wholesale industry,for example, from 1971 to 1996, the average operating cost/sales ratioof the major players dropped from 16 per cent to 2 per cent mostlythrough the use of IT and a fragmented industry of 1000 firms was con-solidated to approximately 100, with the top five players controlling 80 per cent of the market.

Understanding when to take advantage of these competitive oppor-tunities can be particularly difficult and troublesome. For example,few people now doubt that home banking is becoming important tofinancial services. The importance was less clear in the mid-1980s,when pioneering banks launched home banking services that failedmiserably. The situation confronting libraries is another excellentexample of the uncertain nature of competitive decisions. Drawing onover 1000 years of tradition in storing books made of parchment andpaper, today’s libraries are at a crossroads. Soaring materials costs,expansion of computer databases, networking, the Internet, and elec-tronic links between libraries have made the research facility of todayutterly unrecognizable from that of 1990. In many cases, the period oftransition is relatively short, the investments high and the discontinu-ity with the past dramatic.

As managers consider opportunities to use IT to alter radically thebasis of competition, it is often difficult, especially in the early stages,to distinguish the intriguing (but ephemeral) from the path-breakinginnovations. The consequences of action (or inaction) can be devas-tating if managers misread the cues.

Can IT change the balance of power in supplier relationships?

The development of IT systems that link manufacturers and suppliershas been a powerful role for IT within the firm. For example, just-in-time inventory systems have dramatically reduced inventory costs andwarehouse expenses, while also improving order fulfilment time.Traditionally, companies have used inventory to buffer uncertainty intheir production processes. Large safety stocks of raw materials andsupplies are kept on hand to allow operations to run smoothly. Butinventory costs money; it ties up capital, it requires costly physical facil-ities for storage and it must be managed by people. Increasingly, com-panies are using IT to link suppliers and manufacturers; by improving

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information flow, they are able to decrease uncertainty, and, in theprocess, reduce inventory, cut the number of warehouses and decreaseheadcount while also streamlining the production process. In some cases,they have been able to pass inventory responsibility and its associatedresponsibilities from one player in an industry value chain to another.

A large retailer capitalized on these advantages by electronicallylinking its materials-ordering system to its suppliers’ order-fulfilmentsystems. Now, when 100 sofas are needed for a particular region, theretailer’s computer automatically checks the inventory status of its pri-mary sofa suppliers; the one with the fastest availability and lowest costgets the order.

Equally important, the retailer’s computer continually monitors itssuppliers’ finished-goods inventories, factory scheduling and commit-ments against its schedule to make sure enough inventory will be avail-able to meet unexpected demand. If a supplier’s inventories areinadequate, the retailer alerts the supplier; if a supplier is unwilling togo along with this system, it may find its share of business droppinguntil it is replaced by others. As a purely defensive investment, a majortextile manufacturer recently undertook an $8 million IT project tobuild a new order-entry-and-fulfilment system: failure to do so wouldhave meant the loss of its top three customers.

A major manufacturer proposed CAD-to-CAD links with a $100-million-a-year-in-sales pressed-powder metal parts manufacturer. Within18 months, this system shortened the product design cycle from eightmonths to three.

Such interorganizational systems can redistribute power betweenbuyer and supplier. In the case of [an aerospace manufacturer], CAD-to-CAD systems increased dependence on an individual supplier, makingit hard for the company to replace the supplier and leaving it vulnerableto major price increases. The retailer, on the other hand, was in a muchstronger position to dictate the terms of its relationship with its suppliers.

Can IT generate new products?

As described earlier, IT can lead to products with higher quality, fasterdelivery or less cost. Similarly, at little extra expense, existing productscan be tailored to meet a customer’s special needs. Some companiesmay be able to combine one or more of these advantages. In addition,at little additional cost, as in the case of the online diagnostic systemfor machine failure described earlier, electronic support services canincrease the value of the total package in the consumer’s eyes.

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Indeed, mergers are currently being planned around those capabil-ities. For example, a catalogue company and a credit card companyrecently examined the possibility of combining their customer datafiles to facilitate cross-marketing and offer a new set of services.

In another example, credit card companies have become voraciousconsumers of delinquent accounts receivable data from other firms;indeed, there is a whole industry dedicated to the collection andorganization of these data. Similarly, non-proprietary research datafiles often have significant value to third parties.

In some cases, a whole new industry has emerged. For example, anumber of market research firms now purchase data from large super-market chains, analyse it and then sell it back to the supermarkets inscrubbed and easily analysable form. The market research firm organ-izes these data by [postal] code into a research tool for retail chains,food suppliers and others interested in consumer activity.

Finally, the information content of products has increased markedly.For example, today’s upscale cars have more than 100 microcomputersin them controlling everything from braking to temperature. Sewingmachines use microcomputers to control everything from stitchingpattern to complex thread shifts. Fighter aircraft and submarines havehighly sophisticated automated control systems.

Analysing the value chain for IT opportunities

An effective way to search for potential IT opportunities is through asystematic analysis of a company’s value chain – the series of interde-pendent activities that bring a product or service to the customer. […]In different settings, IT can profoundly affect one or more of these valueactivities, sometimes simply by improving effectiveness, sometimes byfundamentally changing the activity and sometimes by altering therelationship between activities. In addition, the actions of one firm cansignificantly affect the value chain of key customers and suppliers.

Inbound logistics

In many settings IT has expedited procurements of materials. One majordistribution company, for example, installed hundreds of personal com-puters on supplier premises to enable just-in-time, online ordering. Thecompany required its suppliers to maintain adequate inventory and

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provide online access to stock levels so that they can appropriately planorders. This system decreased the need for extensive warehousing ofincoming materials and reduced disruptions due to inventory shortfalls.The need to maintain inventory safety stocks and the associated holdingcosts were reduced for both the supplier and the buyer.

A retail chain’s direct linkage to its major textile suppliers not onlyimproved delivery and enabled inventory reduction but also providedthe flexibility to meet changing demand almost immediately. This, inturn, offset the impact of the lower price offered by foreign suppliers,thus enabling US textile manufacturers to gain share in this cost-sensitive,highly competitive, fast-response environment.

Operations and product definition

Information systems technologies can also influence a manufacturer’soperations and product offerings. In 1989, a manufacturer of thintransparent film completed a $30 million investment in new computer-controlled manufacturing facilities for one of its major product lines.This change slashed order response time from 10 weeks to two daysand improved quality levels significantly.

A financial services firm, having decided to go after more small pri-vate investors (with portfolios of about $25 000), introduced a flexiblefinancial instrument that gave its investors immediate online ability tomove their funds among stocks and other financial products, providedmoney market rates of idle funds and offered the same liquidity as achecking account. The company – the first to introduce this service –captured a huge initial market share, which it has maintained over theyears by continued product enhancement. In the first two years, thecompany achieved six times the volume of its nearest competitor. Fiveyears later it still retained a 70 per cent share of the market.

A major insurance company that defined its business as a provider ofdiversified financial services improved its services to policyholders byallowing immediate online access to information on the status of claimsand claims processing. The company also provided online access to newservices and products, including modelling packages that enabled cor-porate benefits officers to tailor various benefit packages, balancingcost and employee service. In response to client demand, it sold eithersoftware for claims processing or claims-processing services. The companycredits these IT-enabled product initiatives for its ability to maintain itsposition at the top of its industry despite tremendous competition fromother diversified financial services companies.

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Outbound logistics

IT can also influence the way services and products are delivered to customers. [The] reservation system, provided chiefly by UnitedAirlines and American Airlines, has profoundly affected smaller airlinesthat do not furnish this service. Indeed, in December 1984, the CivilAeronautics Board, believing that the systems strongly influenced pur-chasing behaviour, issued a cease-and-desist order that required that allcarriers’ flights be fairly represented. Automatic teller machines, as wellas theatre-ticket and airline-ticket machines, allow cash and services tobe rapidly and reliably delivered to customers where they work or shop.Today, the Internet has become an important retail channel for all typesof physical and information-based products and services.

Marketing and sales

Marketing and sales, functional areas often neglected in the first threedecades of IT, are now areas of high impact. In many firms, the salesforce has been supplied with a wide array of personal portable tech-nologies that enable firms to collect detailed customer and market dataand then to package and deliver the data back to the sales force – anddirectly to customers.

A large pharmaceutical company offered online order entry for itsproducts and those of its non-competitors. This service increased itsmarket share and revenues. The companies excluded from the systemthreatened legal action because of damage to their market position.

An agricultural chemicals company developed a sophisticated onlinecrop-planning service for its major agricultural customers. From a per-sonal computer, using a standard telephone connection, farmers canaccess agricultural databases containing prices of various crops, neces-sary growing conditions and the costs of various chemicals to supportdifferent crops. They can then access various models and decision sup-port systems, tailor them to their unique field requirements and exam-ine the implications of various crop rotations and timing for planting.The model also helps the farmers to select fertilizer and chemicalapplications and to group their purchases to achieve maximum dis-counts. Finally, with a few keystrokes, farmers can place orders forfuture delivery. Similar services have been offered by a major seed com-pany in coordination with a state agricultural extension service. Tostrengthen its marketing of agricultural loans, a major bank has offered

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a similar crop-planning service. This example shows how three com-panies in different industries are now offering the same software to theend consumer.

Over the past decade, a major food company has assembled a nationaldatabase that keeps track of daily sales of each of its products in eachof the 500 000 stores it services. This database is now totally accessiblethrough a wide-area network to market planners in their 22 regionaldistricts. Combined with market and competitor data from marketresearch companies, this information has significantly increased theprecision and sophistication of market planning and execution. Similarly,one of the store chains, using a customer loyalty card and the marketdata, can precisely identify which customers buy which brands of com-peting merchandise. This information is of extraordinary importanceto suppliers as they focus their coupon efforts.

After-sales service

IT is also revolutionizing after-sales service; for example, on its newline of elevators, an elevator company has installed online diagnosticdevices. These devices identify potential problems before the customernotices a difficulty, thus enabling the service representative to fix theelevator before it breaks down, reducing repair costs and increasingcustomer satisfaction. ‘The best elevator is an unnoticed elevator’ inthe words of their CEO.

A large manufacturer of industrial machinery has installed an expertsystem on its home-office computer to support product maintenance.When a machine failure occurs on a customer’s premises, the machineis connected over a telephone line to the manufacturer’s computer,which performs an analysis of the problem and issues instructions tothe machine operator. Service visits have decreased by 50 per cent,while customer satisfaction has significantly improved.

Corporate infrastructure

A large travel agency has electronically connected via satellite smalloutlying offices located near big corporate customers to enable accessto the full support capabilities of the home office. These network capa-bilities have transformed the organizational structure from one largecentral corporate office to many small full-service offices, resulting in a27 per cent growth in sales.

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Management control

A major financial services firm used to pay a sales commission on eachproduct sold by its sales force; thus, the sales force had maximumincentive to make the initial sale and no incentive to ensure customersatisfaction and retention. Using its new integrated customer database,the company implemented a new commission structure that rewardedboth the initial sales and customer retention. This approach, madepossible by new technology, aligned the company’s strategy and its salesincentive system much more effectively.

In some instances, IT has dramatically enhanced coordination by pro-viding greater access to a more widely connected network using fairlysimple but powerful tools such as voice mail, electronic mail, groupwareand video-conferencing. New networked ‘workflow’ systems are alsoenabling tighter coordination of operation. For example, due to highcapital costs and operating expense, every major US air carrier uses anetwork to monitor the precise location of all its aircraft. It knows eachairplane’s location, the passengers on-board, their planned connectionsand the connection schedules. It can instantaneously make decisionsabout speeding up late flights or delaying connecting departures. Theopportunities for controlling fuel costs and preventing revenue lossamount to tens of millions of dollars a year. Trucking companies and rail-roads use similar methods to track cargoes and optimize schedules.

Human resources

Human resources management has also changed. For example, tofacilitate important personnel decisions, an oil company has given per-sonal computers to all its corporate management committee members,thus giving full online access to the detailed personnel files of the 400 most senior members in the corporation. These files contain data onfive-year performance appraisals, photographs and lists of positions forwhich each person is a backup candidate. The company believes thiscapability has facilitated its important personnel decisions. Additionally,special government compliance auditing, which used to take monthsto complete, can now be done in hours.

Technology development

To guide its drilling decisions, a large oil company processes vast amountsof data gathered from an overhead satellite. The company uses this

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information to support oil field bidding and drilling decisions.Similarly, CAD/CAM (computer-aided design and manufacturing) tech-nology has fundamentally changed the quality and speed with whichthe company can manufacture its drilling platforms.

A seed company considers its single most important technologyexpenditure to be computer support for research. Modern geneticplanning involves managing a global database of millions of pieces of germ plasm. These database planning and molecular simulationmodels – the keys to their future – are not possible without large-scalecomputing capacity. Repeatedly, their detailed data files have allowedthem to find a germ plasm thousands of miles away in Africa to solve aproblem in an Iowa cornfield.

Procurement

Procurement activities are also being transformed. For example, with aseries of online electronic bulletin boards that make the latest spotprices instantly available around the country, a manufacturing com-pany directs its nationwide purchasing effort. The boards have led to atremendous improvement in purchasing price effectiveness, both indiscovering and in implementing new quantity pricing discount data,as well as ensuring that the lowest prices are being achieved.

A retailer, by virtue of its large size, has succeeded in its demand foran online access to the inventory files and production schedules of itssuppliers. This access has permitted the company to manage its inven-tories more tightly and to exert pressure on suppliers to lower priceand improve product availability.

New market opportunities also abound. For example, an entrepre-neurial start-up provides desktop software to allow traders and otherswith intense needs for fast-breaking information to pull relevant mater-ial from over 400 continuous news feeds (e.g. Reuters, Dow Jones),analyse the information and deliver it to end users. The firm’s rev-enues – $40 million in 1997 – are growing rapidly.

In summary, a systematic examination of a company’s value chain isan effective way to search for profitable IT applications. This analysisrequires keen administrative insight, awareness of industry structureand familiarity with the rules of competition in the particular setting.Companies need to understand their own value chains as well as thoseof key customers and suppliers in order to uncover potential new ser-vice areas. Similarly, understanding competitors’ value chains providesinsight on potential competitive moves. Careful thought is needed to

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identify potential new entrants to an industry – those companies whosecurrent business could be enhanced by an IT-enabled product or service.

Reference

Jelassi, T. (1994) European Casebook on Competing through Information Technology,Prentice Hall.


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At the heart of business re-engineering is the notion of discontinuousthinking, of recognizing and breaking out-of-date rules and assump-tions that underlie current business operations. Quality, innovationand service are now more important for survival than cost, growth andcontrol. So processes that suited command and control organizationsno longer suit service and quality driven ones and earlier assumptionsof necessary roles are no longer valid.

During the post-war decades organizations need to funnel informa-tion to the handful of people who know what to do with that informa-tion but this funnelling is now obsolete and can lead to peoplesubstituting the narrow goals of their department or section for theoverall ones of the organization – of the process as a whole. When workpasses from process to process, delays and errors are inevitable andhence large numbers of processes exist solely to expedite delays andrepair errors, accountability blurs and critical issues fall between thecracks. The situation is now fundamentally different: large parts of theorganization are educated and able and eager to contribute and to beempowered; IS [information systems] offers a way of doing this.

Managers have tried to adapt their processes to the new circum-stances, but usually in ways that just create more problems. If, say forexample, customer service is poor, they create a mechanism to deliverservice but overlay it on the existing organization. If cash flow is poor,

C H A P T E R

The need for redesign –a paradigm shift?

Wendy Robson

13

Source: Robson, W. (1997) Strategic Management and Information Systems: an inte-grated approach, 2nd edn. Pearson.

Chapter 13 The need for redesign – a paradigm shift? 191

debt chasing is stepped up rather than taking steps to avoid marginalaccounts. Bureaucracy thickens and so costs rise giving away marketshare to other, more enterprising, organizations. Dealing with thisproblem is the concern of re-engineering and is obviously closely akinto total quality management (TQM) where management seeks toremove the cause of faults rather than merely detect when they haveoccurred. Ford, for instance, threw away the old rule ‘we pay when weget an invoice’ which no one had articulated anyway and replaced itwith the designed rule ‘we pay when we get the goods’.

A seminal work on the changes and the new circumstances of businessand IS is Tapscott and Caston (1993). The paradigm shift currently beingexperienced by IS (Figure 13.1) demands a business reappraisal since, aswith any other paradigm change, our view of what is real has changed. (Aparadigm is a scheme for understanding, for making sense of, reality.) It isnot only IS that experiences such paradigm shifts; indeed Tapscott andCaston’s work suggests that four key factors have all radically altered. Theinformation revolution may be entering its second stage. The four forcesfor openness that drive this are shown in Figure 13.2.

The power of these four forces is obvious. The world is opening up,leading to the consequent issues of globalization of trade. Not only havemany of the old political orders gone but so too have many of the oldtrade groupings and so the days of limited competition are over andthe new business environment is far more open and dynamic.

Since the world and its commercial activities are different a differentorganization is created, the ‘traditional’ ones simply do not survive the newcircumstances. The new organization is flatter, simpler, team oriented,

??

Informationrevolution

Industrial revolution

Agricultural revolution

Figure 13.1Paradigm shifts.

Each ‘layer’ createsnew opportunities

and each layer is laidupon a foundation

created by thelower one and, inturn, affects that

lower one: ISimpacts upon

production;production impacts

upon agriculture.

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with a team commitment rather than a command and control mental-ity. In this situation the warrior-based metaphors associated with com-mand and control should give way to thinking about activities in termsof cooperation.

The final force generating the paradigm shift is the technology itself.The changes in the other three forces have caused a new role for IS to becreated and, in turn, the ‘new’ IS has driven the changes in those otherthree forces. IS is now made of interchangeable parts of an increasinglyopen whole. IS is no longer composed of discrete islands of technology,as it was during the first stage of the information revolution. The entireframework for IS decisions has changed, costs fall, performance capabil-ities rise and standards become the dominant concern. So far as the useand management of IS is concerned there have been three criticalmoves as a result of this paradigm shift. These moves are:

■ From personal to work group computing■ From island systems to integrated systems■ From internal to enterprise computing.

These changes and their enabling technologies are shown in Figure 13.3.So the technology dimension of the paradigm shift builds in layers.

The people teams are enabled by a range of technical moves towardsmore flexible, open ways to network media, systems and people. Thischanges the business team approach from a design for accountability,which was appropriate when the organization needed to focus on con-trol, to the design for commitment necessary when the organization needsto gain accomplishments. This move from ‘stand-alone’ humans to highperformance teams challenges the existing business approach anddemands the technology-driven re-engineering of those approaches.

New technology:

• New goals for IS• Open, user-oriented, networked computing

New business environment:

• Open, competitive, dynamic market place

New geopolitical order:• Open, volatile, multipolar world

New enterprise:• Open, networked, information- based organization

Figure 13.2Four forces for

openness.

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Competitive advantage may have been the buzzword of the 1980s butre-engineering for empowered teams was the concern of the 1990s.

The integration of people into teams can be built upon by theincreasing integration of systems. These integrated systems permit theorganization to change into an integrated organization. The inte-grated systems allow the integration of business processes to increasethe effectiveness of the organization’s provision of a coherent unifiedview of itself to its customers. The gradual move away from arbitraryand divisive distinctions between voice, data and images and thegrowth in open standards allows technology to build the integratedorganization that can then become the extended organization.

Technology has now moved beyond the era of simply seeking to lockin customers and beyond simple EDI links with suppliers into an era ofstrategic alliances that are supported by IS. Examples of this are every-where: banks have to collaborate on new ATM networks, hotel chainsmust collaborate on reservation systems, the international aerospaceindustry is highly competitive with development and supply costs meas-ured in millions of dollars and so it must operate by using world-widecollaborative partnerships. This increase in regional, national andglobal alliances complicates the nature of business process redesignbut creates the extended enterprise that recasts its external relation-ships by using interenterprise computing, a trend again driven by stan-dards and probably begun by the humble fax technology. It is possibleto identify seven key drivers to the information, information systemsand information technology paradigm shift; they are:

■ Productivity of knowledge and service workers: IS is needed to auto-mate this area in order to achieve productivity gains of any sig-nificant size. Such productivity gains can be from either lower

The change

Re-casting externalrelationships

Organizational transformation

Business process redesign

Enabling technology

Interenterprisecomputing

Integrated systems

Work group computing

Extended enterprise

Integrated organization

High performance teamFigure 13.3

IS critical changesand enabling

technologies.

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costs or higher performance and IS permits the developmentof new high performance work models.

■ Quality: product and service quality programmes are increas-ingly information-based and not production-based. The keyissues are consistency and predictability and these are ensuredby the employee motivation, supplier involvement and per-formance measurement enabled by IS. Countless works focusupon the issue of quality and total quality management.

■ Responsiveness: it is now essential for any business to respondfast. The new global markets demand that organizationsbecome far less time and space dependent. The time lagbetween opportunity and action is the key to opportunisticstrategies – ‘better never than late’ sums up the costs of miss-ing the opportunity time. Stalk (1988) focused particularlyupon this key driver and claimed it was time (and relatedresponsiveness) that was the key to competition in the 1990s.

■ Globalization: this key driver is often associated with mergers,acquisitions and alliances that are responses to the world econ-omy created by the removal of national shelters for ineffi-ciency. The alternatives of either operating from ‘home’ andtreating overseas as sales and service colonies for standardproducts with the resulting economies of scale, and undiffer-entiated goods versus tailoring to local conditions with theresulting duplication of effort and resources, can now bereplaced by a third approach which is to treat the world as themarket-place. The organization may manage regionally andlocally as always, but these ‘regions’ are independent of phys-ical restraints and it is advances in production and communi-cation technologies that support this globalization.

■ Outsourcing: there is growing concern to focus upon the keyareas of business, those of key value-adding capability andhence a refusal to dilute the management attention given tothese areas. The technical infrastructures that support theextended enterprise’s links to its customers and suppliers alsosupport the move to outsourcing. Organizations ‘stick to theirknitting’ and, rather than seeking self-sufficiency, go forstreamlining with key suppliers, alliance partners, supportorganizations, etc. Many organizations restructure themselvesinto a ‘shamrock’ organization, where a core of qualified pro-fessionals, technicians and managers are the focus of theresources since they represent how the organization com-petes. They have the role of developing strategy, analysing


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problems, planning and communicating. This core is flankedby outsourced key services and a flexible labour force. Thisshamrock organization is illustrated in Figure 13.4. The use ofpart-time, temporary workers and the outsourced key servicesdemands a far greater reliance upon IS to manage this morecomplex relationship web.

■ Alliances: these often occur between organizations that previ-ously had nothing in common. The extended enterprise takesmany forms, from research consortia to shop–bank link-ups.The role of technology in these alliances is ambivalent. Whiletechnology supports enterprise-level collaborative work just asit does individual and work group level collaboration, the con-straints of technical ‘Berlin walls’ are being felt far longerthan the survival of the actual wall!

■ Social and environmental responsibilities: the ‘me now’ selfishnessof the 1980s drove a backlash leading to a significant rise insocial awareness making the 1990s the ‘decency’ decade. Theorganizational rise of empowerment and autonomy demandsrespect for the individual and these individuals now demanda stake in the success of the organization and appropriatetools in order to help achieve it.

The first wave of the information revolution has tended toautomate existing processes. It is not just that this was limited,it has also frozen the structure and approach of the business.The thrust of process redesign is to unfreeze this frozen struc-ture and so un-pick the departmentalization of thirty yearsago that is now inappropriate and replace it with structures

Core:indispensablecore people

Suppliers:outsourced key

services

Interface:flexible labour

force

Figure 13.4The shamrock

organization.

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and methods that are suitable to the fast-paced, customer-focused business environment of the 1990s.

The frozen, inappropriate departmentalism createstremendous fragmentation and specialization that createsexpense and yet is inimical to good customer service by beingslow, error prone and incapable of change as market situa-tions alter. Therefore BPR initiatives are undertaken simulta-neously to lower costs and improve customer service in orderto create dramatically improved competitive health. The spe-cific aims in BPR, as reported by Kelly (1996), are as shown inFigure 13.5 grouped as cost or service objectives.

The drive to use IS in such process redesign obviously has asignificant impact upon the organizational type, the types ofstaff needed, the appropriateness of training and reward sys-tems and the necessary management roles. […]

Cost objectives Service objectives

2 3 4 5 01 2 3 4 510

Reduced stocks of finished goods

Reduced stocks of materials and components

Economies of scale in purchasing distributionservices (e.g. transport)

Economies of scale in purchasing materialsand components

Reduced fixed assets

Reduced administrative staff

Offer lower-priced products than competitors

More reliable delivery times

Shorter order-to-delivery times

Quicker response to market changes

Improved stock availability

Improved quality management

More responsive after-sales service

Shorter product development cycles

Figure 13.5Objectives for BPR initiatives. Scale: importance, where 1 � not important, 5 � very important.(Adapted by permission of Computer Weekly, from Information Service, 18 January 1996.)

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References

Kelly, S. (ed.) (1996) Information Service, Computer Weekly, 18 January, p. 16. Stalk, G. (1988) Time – the next source of competitive advantage. Harvard

Business Review, July–August, pp. 41–51.Tapscott, D. and Caston, A. (1993) Paradigm Shift: The New Promise of

Information Technology, McGraw-Hill.


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C H A P T E R

Why are companies spending more and more money on IT when mostof them find it so difficult to justify their investment? The answer tothis is not straightforward; but there would appear to be a number ofimportant issues for investment decision makers to consider:

■ the intangibility of costs and benefits■ the hidden outcomes of investing in IT and■ the changing nature of IT systems.

A proportion of most IT investments is associated with its tangible costsand benefits. These address the elements of an investment decisionwhich can be easily identified and have a quantifiable value attached.Usually these have a historical cost in accounting terms and some physicalform, e.g. a piece of hardware or off-the-shelf software. By contrast, intan-gible costs and benefits commonly do not have a physical form and areaccounted for in terms of some expected future value, rather than his-torical cost. As a result they are difficult to measure and problematic toquantify. Examples of such intangibles include increased market share,gains in customer service and enhanced corporate image, among others.Benefits such as these are difficult to quantify with any degree of accuracyand increasingly rely on the subjective judgements of the decision maker.

While such intangibles are obscure and qualitative they are, neverthe-less, widely recognized by decision makers. However, with any IT invest-ment there may be a number of insidious outcomes which are ‘hidden’from the decision maker. This involves the qualitative ramifications of

Investing in informationtechnology: a lottery?

Matthew Hinton and Roland Kaye

14

Source : Hinton, M. and Kaye, R. (1996) Investing in information technology: alottery? Management Accounting, 74, 10. CIMA Publishing.

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the investment which the decision maker either overlooks or chooses toignore or, for one reason or another, fall beyond the boundaries established by existing investment approaches. For example:

■ As Handy (1993) has stressed, organizational power can beobtained from the control of critical organizational data andinformation. Because IT systems have the capacity to encap-sulate a body of information, the design and responsibility forsuch a system is frequently contentious. As power is a rela-tional phenomenon the introduction of IT may mean thatparticular departments lose the power and flexibility they pre-viously enjoyed. This may create costs for the organizationwhich offset some of the expected benefits.

■ IT systems are only one segment of an organizational communi-cation network, along with the telephone, fax and postal sys-tems, not to mention a variety of informal communications.To consider them as separate from the rest of organizationalcommunication is to misunderstand the knock-on effects ITundoubtedly has. Common practice means that these diverseforms of communication are budgeted and accounted for inseparate areas. However, if you bring them together thencommunications and computing become very large invest-ments indeed. Consequently, it is essential to look at the issuesof communication as a whole.

■ The reaction of employees to the introduction of an IT system iswidely accepted as critical to its eventual success or failure. Butat no stage does this issue form part of an accepted investment-appraisal approach. Employees may feel more motivated andproductive as a consequence of the system. Equally, they mayexperience a degree of alienation. It is also recognized thatintroduction of IT commonly leads to changing work roles,potentially deskilling or, in certain cases, enhancing the skillsof employees. Ultimately, the result may be redundancy. Whilea reduction in labour costs is frequently cited as a justificationfor investing in IT, there will be significant changes to theknowledge base of an organization and its distribution whichare impossible to forecast, let alone quantify in financial terms.

The changing nature of IT systems causes decision makers to questionthe appropriateness of the measures they use. In the past the exploita-tion of IT has generally resulted in efficiency-related benefits. Thiscould be appraised using well-established techniques and principles,like cost benefit analysis or return on investment. Yet, as the nature ofIT applications changes to include a greater strategic dimension, these

Chapter 14 Investing in information technology: a lottery? 199

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techniques are no longer as applicable. Furthermore, strategic applica-tions become enmeshed with other business operations, so that costs maybe spread throughout an organization and over a long timescale. Thebenefits that accrue will, in all probability, be seen in other areas of thebusiness and over a long time horizon. This conflicts with traditionalinvestment-appraisal methods which have at their centre an accountingperspective which supports a short-term investment ethos. Miskin (1995)points out that measurement systems are dominated by the demands offinancial reporting. Managers feel obliged to provide hard facts and figures. The negative aspects of this approach are that it limits vision and locks management into systems which provide short-term payback.

In order to gain some insight into the processes decision makers usewhen justifying IT the authors conducted a survey of 50 CIMA(Chartered Institute of Management Accountants) members with res-ponsibility for appraising a range of key organizational investments.This made it possible to compare the way IT was justified with invest-ments in three other areas, namely operations, marketing and training.

Different investments, different techniques

Analysis of the formal approaches to the justification and evaluation ofIT investment suggests that decision makers are inclined to perceive ITas a capital, rather than revenue expenditure. In the vast majority ofcases IT was justified using some form of capital appraisal. The mostcommon techniques were, in order of preference, payback, dis-counted cashflow and cost benefit analysis. Approximately 60 per centof decision makers questioned employed more than one technique.However, these techniques were not uniformly used across the four dif-ferent types of investment. Table 14.1 suggests that decision makers are

Table 14.1Organizational treatment of expenditure

Investment treated as (%)

Investment type Capital Mixed Revenue

Operations 58 31 11

Information technology 39 41 20

Marketing 4 9 87

Training 0 1 99

Note:‘Mixed’ refers to situations where investments are treated as acombination of capital and revenue.

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more inclined to perceive IT investments as similar to their invest-ments in operations, rather than as comparable to marketing or train-ing investments. Furthermore, respondents were able to articulateclearly their approach to the justification for hardware, but found con-siderable difficulty justifying software.

The most common solution would appear to be to treat software in thesame way as hardware and to overlook its possible intangible characteris-tics. Also, no special dispensation is given to development of innovativeapplications of IT. This encompasses IT investments which may result incompetitive advantage or some evolution in current working practices.

Perspectives of the decision makers

By far the most popular reason for justifying IT investment focused onthe issue of cost reduction (approximately 50 per cent of organizationsquestioned). This was defined by decision makers in terms of meetingcost reduction targets, making staff savings or potential head-countreductions. The next most popular reason for justification involves thenotion of adhering to some strategy. Approximately one in four respond-ents attempt to establish whether an investment is in line with ‘overall ITstrategy’. This introduces a political dimension to justification as it is notclear who determines IT strategy or how this strategy is supposed torelate to an overall business strategy. Furthermore, the degree to whichan IT investment may be perceived as matching IT strategy tends to besubjective. Indeed, in one instance ‘improved control over various areasof the business’ was cited as justification for IT in itself. This suggests thatIT would appear to be justifiable if it changes the balance of powerwithin the organization. In only three cases were intangible benefitstaken into account. This addressed the idea that IT could not always bequantified, but may still benefit the organization. For example, IT invest-ments had been justified in terms of ‘enhanced patient care satisfaction’(at a healthcare organization) and ‘a better speed of response to the cus-tomer’ (at a petrochemicals company). Finally, decision makers in bothhealthcare and local government stated that justification for IT was predominately driven by the need to satisfy changes of legislation.

For the most part, investments in operations bear a striking resem-blance to investments in IT. The main themes of justification centre onestablished techniques, e.g. return on investment or return on capitalemployed. Alternatively, operational investments focus on efficiency-related criteria like ‘inventory reductions’, ‘increased capacity’ and

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‘man/hour savings’. Furthermore, these themes are common across awide range of operational investment categories.

By contrast, decision makers adopt a different perspective when assess-ing marketing investments. This perspective clearly focuses on a rangeof intangible and non-quantifiable measures. Analysis to date suggeststhat decision makers incorporate a strategic dimension into their processof justification. This includes common statements by decision makerssuch as ‘strategic positioning’, ‘improving competitive positions’ and‘enhanced market share’.

Alternatively, several decision makers justified their marketing expen-diture by referring to organizational image, i.e. ‘the perception of thecompany in the marketplace’ or ‘building a brand image’. Indeed, thedichotomy between IT and marketing investments is exemplified byone engineering organization which describes a rigorous procedure ofcost benefit analysis for all types of IT, but sees marketing as ‘blue skyand therefore difficult to judge’. The evaluation of marketing invest-ments, if it is done at all, commonly uses a non-financial indicator, likemarket share or position.

There is a strong tendency to concentrate on quantifiable and tan-gible technological elements of IT, to the detriment of possible stra-tegic and/or individual costs and benefits which may be associated.

Approaches to the justification of training investments appear torely on a series of intangible measures as with marketing. However, thefocus of these measures is at the behavioural/individual level, ratherthan strategic/organizational level. With few exceptions, most organ-izations have no formal procedure in place for justifying training. Aleading manufacturing organization stated that ‘training issues arenever justified in a financial sense’. The vast majority of decision mak-ers appear to prefer an ad hoc approach. Across a wide range of organ-izations training is seen as justifiable if it will lead to ‘improved morale’and ‘motivation’ or if it fosters ‘skills acquisition’, ‘team working’ orthe ‘development of key personnel’. By the same token, organizationsevaluate training investments as purely individual and subjective meas-ures, by means of staff appraisal, post-training feedback etc.

Where does IT belong?

Figure 14.1 maps out the different perspectives that decision makershave regarding operations, marketing and training and attempts tolocate IT investments with respect to these perspectives.

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Marketing

Operations

Training

Currenttreatment

of ITinvestments

Traditionaltechnologicalperspective

Long-term strategicand competitive

perspective

Subjective, behavioural and individually focused perspective

The findings so far suggest that there is a strong tendency to con-centrate on quantifiable and tangible technological elements of IT, tothe detriment of possible strategic and/or individual costs and benefitswhich may be associated. This raises the question of whether thisreflects the anchoring of IT investment in the historical, operationalterritory. Clearly, this needs further exploration in order to understandwhich types of organization are more inclined to treat IT in the sameway as operations.

External influences

The survey suggests that a majority of organizations are prepared toadapt their justification decisions in response to developments madeby their competitors and more general trends in their sector. This isparticularly apparent among the information-intensive financial andretail sectors, where information is considered a critical part of anorganization’s operations. A decision maker with a large financial ser-vices company stated that IT could be largely justified in terms of ‘keep-ing up with developments in our industry’. The influence of the widerbusiness environment and the actions of competitors was less evidentamong engineering and manufacturing organizations.

Figure 14.1Mapping the

differentinvestment

perspectives.

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Comparison of IT with other areas of business spending suggests adichotomy between technology-centred investments and human-centredinvestments. IT seems to encompass both sets of attributes and deci-sion makers would appear confused as to which of these attributes theyshould use in IT justification.

The role of key individuals and past experience

Decision makers appear to prefer a proposed IT investment to have achampion of some description. This may take the form of a ‘businesssponsor’ or a ‘user champion’. Equally, the key individual may be asenior manager who lends the project authority and carries some ofthe burden of responsibility. The initial findings suggest that the repu-tation of the person proposing an investment influences the final out-come of the decision, over and above the conclusions to anyquantifiable assessment. Decision makers would appear to perceive thepresence of a champion as a sign of commitment to the success of theinvestment. However, the reputation of a key individual rests with pastexperiences, in terms of both past IT successes and failures.

Conclusions

The […] findings from the survey provide some understanding of howdecision makers respond to the hidden costs and benefits of IT invest-ments. It is clear that established capital-appraisal techniques as the for-mal means of justification are the mainstream. Furthermore, the mostcommon reason for appraising IT expenditure is centred on the issue ofcost reduction. However, the initial findings have also identified a num-ber of other issues which have the capacity to influence the outcome ofan investment decision. These introduce a variety of broader, organiza-tional issues, which reflect the role and reputation of key individuals, theeffect of past investment experiences and the response to externally gen-erated changes. This suggests that the organizational context in whichthe investment decision is made has an important role to play.

Comparison of IT with other areas of business spending suggeststhat a dichotomy exists between technology-centred investments andhuman-centred investments. IT seems to encompass both sets of attrib-utes and decision makers would appear confused as to which of theseattributes they should use in IT justification.

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It is also evident that decision makers approach different areas ofbusiness spending from various perspectives and it is believed that thismay radically alter the nature of these investments. For example, numer-ous innovative IT projects may be being abandoned at the justificationstage because they cannot demonstrate a short-term return on invest-ment in keeping with quantitative techniques. By comparison, trainingand marketing investments are not subjected to this rigour, allowingorganizations to take a more long-term or strategic perspective.

The IT investment problem is not one of technique, nor is it eitherat the beginning of a project ( justification stage) or at the end (evalu-ation stage), but rather as an ongoing process within an organizationalcontext. In recognizing this organizational context we have begun toexplore how future IT investments are interwoven with the effects ofboth past and present investments. However, current approaches toinvestment appraisal, and the general accounting culture, emphasize ashort-term perspective which focuses on a single investment.

While this survey has begun to explore the different perspectiveswhich decision makers hold, we may be masking the importance ofunderstanding the process of interaction which occurs between thedifferent parties. With this in mind, we are currently undertaking alongitudinal study which follows the justification process for a numberof IT developments in a variety of organizational settings.

We would welcome participation and debate from individuals andorganizations, both accountants and managers. In particular, we areinterested in the range of approaches being adopted and problemsencountered.

The authors can be contacted at the Open University Busi-ness School, telephone 01908 655888, fax 01908 655898, [email protected]

References

Handy, C. (1993) Understanding Organizations, Penguin.Miskin, A. (1995) Performance measurement. Management Accounting, 73,

22–23.

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Index

Accountability 57Accounting information systems 116–20

accounts payable 119accounts receivable 119general ledger 120inventory control 118online accounting systems 118order processing 118payroll 119

Accounts payable 119Accounts receivable 119Advertising and promotion 106After-sales service 186Allen & Overy 127–30Alliances 195Amazon.com 98–100Analysis of information see Data analysisApplications portfolio 11, 23, 163Appreciative settings 67–8, 70Automated billing systems 173

Bar-coding 57Basis of competition 180–81Benefits of information policy 81–4Business information systems 98–123

accounting 116–20accounts payable 119accounts receivable 119general ledger 120inventory control 118online accounting systems 118order processing 118payroll 119

Amazon.com 98–100cross-functional information systems

100–102financial management systems 120–21

capital budgeting 121cash management 120–21financial forecasting and planning 121

human resource management 112–16compensation analysis 115corporate intranet 114governmental reporting 115–16Internet 113–14staffing 114–15training and development 115

manufacture of 108–12collaborative manufacturing networks 110computer-aided engineering 112computer-integrated manufacturing

108–10machine control 111process control 110–11robotics 111–12

marketing information systems 102–8advertising and promotion 106interactive marketing 103–4market research and forecasting 107–8sales force automation 104–5sales and product management 105–6targeted marketing 106–7

strategy 157Business information technology strategy

157Business plan alignment 20

H6668-Index.qxd 6/1/05 1:52 PM Page 207

Business strategy 153–77information systems 157–75need for 153–4strategic planning 154–7

Capta 51–4Centrally planned strategy 24Cognitive filters 70Cognitive style 61Collaborative manufacturing networks 110Commitment 192Communication of information 58–60, 199Communities of interest 106Compensation analysis 115Competitive growth 33Competitor rivalry 161Computer-aided design 112Computer-aided engineering 112Computer-aided manufacturing 109–10Computer-integrated manufacturing 108–10Computing technology 13

areas of concern 13–14Corporate culture 142–3Corporate databases 36–7Corporate infrastructure 186–7Corporate intranet 114, 136Cost analysis 37–8Cost-benefit analysis 16Critical success factors 22Cross-functional information systems 100–102Customers 160

Data 47–55definitions of 48

Data analysis 57–8Databases 14, 91–3Data definition 57Data dependency 18Data management 87–9Data processing

organization 163planning and control 164

Data processing systems 13, 54Data Protection Act 127Data warehouse 93

Decision making 2, 201–2location of 143

Decision support systems 96Demographics 107Discontinuous thinking 190Distributed computing 136Distributed systems 135–8

extent of distribution 142–3organizational benefits 138–41organizational levels 141–2

Dynamic interaction of internal forces 168–70

Earl model 167–8Eastern Electricity 132–4ECONOMIST system 147Effectiveness 15Efficiency 15Electronic commerce 98–100, 123Electronic data exchange 143–7Electronic data interchange 159, 173Electronic data processing 54Electronic payment 123Employee behaviour 142–3Employee self-service 114Enterprise collaboration systems 96Enterprise resource planning 102Entry barriers 178–9Executive information systems 81, 96Expert systems 97External influences 203–4

Factory systems 174Failsoft 139–40Feasibility 36Finance and accounting 12Financial management systems 120–21

capital budgeting 121cash management 120–21financial forecasting and planning 121

Five forces model 158–61competitor rivalry 161customers 160new entrants 161substitute products 160suppliers 159–60

208 Index


Forces for openness 191–2Formulation 58Free market strategy 24

General ledger systems 120Generic information systems 91–7

databases 14, 91–3operational 94strategic 94–7tactical 94

Globalization 194Goal seeking 97Governance 20Governmental reporting 115–16Grosch’s law 136Group decision support systems 96Groupthink 59–60

High-level information 1–2High potential applications 23Homogeneous activities 143Human resource management 12, 112–16,

124–34, 187Allen & Overy 127–30compensation analysis 115core features 126–7corporate intranet 114Eastern Electricity 132–4governmental reporting 115–16Internet 113–14recruitment modules 130staffing 114–15training and development 115, 130–31

ICT department 11functional applications supported by

11–12ICT management 9

benefits of 15–16history of 12–16stages of growth 21–2

Inbound logistics 183–4Information 47–55

definitions of 49organizational definition of 76–8

Information and communication technologiessee ICT

Information gathering 56–7Information management 2, 5, 11, 42–55

key concepts 19–25Information management function 5–27

development of 15–16key challenges 16–19need for 10–12

Information management superiority 20–21Information policy 78–84

benefits 81–4responsibility for 84risk avoidance 78–81

Information processing 60–62Information systems 69Information technology see ITINFOSCAN 106Interactive marketing 102, 103–4Interactive support 97Interdependent activities 143Internal stages of growth 162–8

Earl model 167–8Nolan stage model 163–7

Internet 9, 17, 113–14, 126Interpretation 60Inventory control 118IT 1, 5

and barriers to entry 178–9and basis of competition 180–81exploitation through value chain 170–73,

183generation of new products 182–3investment in 198–205and supplier relationships 181–2and switching costs 179–80

IT control, pressures towards 35–8corporate databases 36–7cost analysis 37–8feasibility 36fit with corporate structure and strategy 37staff professionalism 35–6

IT development 28–42organizing issues in 28–32

IT dominance 30

Index 209


IT policy, coordination and location 38–41general management support and policy

overview 40–41IT responsibilities 38–9user responsibilities 40

IT responsibilities 38–9

Just-in-time manufacturing 172

Key operational applications 23Knowledge 52–4Knowledge barrier 179Knowledge-based work 11Knowledge discovery and analysis 25–6Knowledge distribution and use 26Knowledge identification 25Knowledge management systems 25, 97

Leading edge strategy 24Legacy systems 18Long-term information architecture building 38

Machine control 111McKesson Pharmaceuticals 147Mainframe systems 13Maintenance 34Management information systems 96Management support systems 96Manufacture of information systems 108–12

collaborative manufacturing networks 110computer-aided engineering 112computer-integrated manufacturing 108–10machine control 111process control 110–11robotics 111–12

Manufacturing execution systems 110Manufacturing resource planning 109Marketing information systems 102–8

advertising and promotion 106interactive marketing 103–4market research and forecasting 107–8sales force automation 104–5sales and product management 105–6targeted marketing 106–7

Marketing and sales 12, 185–6Market research and forecasting 107–8Material requirements planning 109Mini computers 14Mission statement 155–6Monopoly 24

Necessary evil 25Networks 135–8New entrants 161New product generation 182–3Nolan stage model 163–6

critique 166–7implications for strategic planning 166

Numerical control 111

Objectives 155–6Online accounting systems 118Online behaviour 107Online transaction processing 123Operating excellence 20Operational support systems 95–6Operational systems 94Operations 12

and product definition 184Optimization 97Order processing 118Organizational knowledge bases 26Organizational power 199Organizational process 68–73Organizational setting 61Organizations 75–85

definitions 75–8essential knowledge 76information policy/strategy 78–84

Outbound logistics 185Outsourcing 194–5

Paper-based systems 3Paradigm shifts 190–97Payroll 119Personal computers 15Personal process 63–6Personnel dependency 18

210 Index


Personnel management 113PEST analysis 161–2Point-of-purchase (POP) promotions 106POM model 70–73Primary activities 170–71Process control systems 95–6, 110–11Process improvement 20Procurement 188–9Product definition 184Programmable logic controllers 111PS enterprise 128

Quality 194Quality monitoring 57

Reception 59Recruitment modules 130Redesign 190–97Reid, Tony 124Resource optimization 20Response times 140Responsiveness 194Return on investment 16Risk avoidance 78–81Robotics 111–12

Sales force automation 102, 104–5Sales and product management 105–6Scarce resource 24–5Sensitivity analysis 97Service growth 33Shamrock organization 195Silent Spring 66, 67Social/environmental responsibilities 195Social process 66–8Software engineering 14Staff 114–15

flexibility and growth 33professional growth 33professionalism 35–6

Standardization 57Storage of information 60Strategic advantage 16Strategic applications 23

Strategic grid 173–5Strategic planning 154–7

business mission and objectives 155–6future performance versus objectives 156see also Business strategy

Strategic systems 94–7Streamlining 194Substitute products 160Suppliers 159–60

relationships with 181–2Supply chain management 102Support activities 170–71Support applications 23Support systems 173Switching costs 160System roles 95–6

Tactical systems 94Targeted marketing 106–7Technology dependency 17–18Technology development 187–8Telecommunications and networking 14–15Total quality management 191Training and development 115, 130–31Transaction processing systems 95Transactions 92Transmission 59Turnaround 174

Universal product code 106User awareness 164User control 33–4

development 33–4maintenance 34

User demand 32User dominance 30

pressures towards 32–5competitive and service growth 33fit with organization 34pent-up user demand 32staff flexibility and growth 33staff professional growth 33user control 33–4user learning 34–5

Index 211


User learning 34–5User responsibilities 40User satisfaction 139

Value activities 170Value-added network 146

Value chain 170–73Virtual communities 106Virtual organization 26Voice-based systems 3

212 Index


introducing information management: the business approach

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