MBA First Year, DBMS, Unit 3 Syllabus and lesson handout

Information Systems Models: Nolan Stage Hypothesis, IS Strategic Grid, CSFs, Earl’s Multiple Methodology, Wards Model, Soft Systems Methodology, Socio-Technical Systems Approach

Nolan’s Stage Hypothesis

Stages of growth model: Nolan (and Gibson) presented a way of understanding IT use and management. Nolan’s hypothesis is that any organization will move through various stages of maturity as identified by the use and management of IT.

Nolan’s Initial growth model consisted of:

1. Initiation. When computers were first introduced to business organizations to help with tedious work, management saw IS as a means to make cost savings, but no attention was given. Users were encouraged to use the computers. Applications developed were simple. Data Processing organization was centralized.

2. Expansion or Contagion. IS enjoyed a sudden, uncontrolled rise in many business functions. Users were superficially enthusiastic about computers. DP wanted to expand to keep up with demand for services. Budget rose. Management of computer departments was lax. Little planning was done and controls were lacking. Management didn’t see the problems of over‐ambitious projects, thus resulting in large IT expenditure.

3. Control. Concerned senior management wished to justify IT spending. Benefits were not in accordance with the costs. Budgets were either frozen or growth rate was reduced. Staff was trimmed down. Planning and control systems were installed. Emphasis was on documenting existing applications and moving them more toward middle management.

4. Maturity. Senior management learned to leverage between stability and innovation. IS development has reached a stage of balance.

After stage 4, Nolan found that putting together all growth experience as one stage was inadequate and he divided this into three stages and added control level. Initiation is renumbered as stage zero.

1. Integration. The control levels are lowered to encourage innovation; reorganized to allow IS staff to become more involved in the organization. Attempts were made to take advantage of new technology. Existing systems were integrated .DP function was set up as an utility to service the users.

2. Data administration. Database was put in place Users were made accountable for their use of computer resources. Emphasis was on the common integrated systems in which data are shared by various functions in the organization. Management identified the business value of cross‐function database access. New IS strategies included IS architecture that makes up intra‐ and/or inter‐organizational Systems.

3. Maturity. When an organization reached maturity, they have truly integrated the computer into their managerial process. The data resource was meshed with strategic planning process of the organization. Applications mirrored the informational flows of the organization. Management aimed at planning and developing IT in coordination with business development

Advantages of Nolan’s stage Model

It is simple.

It is easy to understand, to use, and to see expected natural developments.

It is relevant to acknowledge the past in the present.

It acknowledges that different ITs can be in different developmental stages and hence need different management treatments.

Points to consider Nolan’s stage Model

Modeling the development of IT is a very useful exercise, whether the model is a simple or complex one.

Stages‐of‐growth approach is a simple way of modeling IT maturity as the basis for IS planning.

Nolan’s stage model was proposed at the time when there was no Internet.

Organizations are going into business operations over the Web.

The Internet is a convenient place to restructure the relationships between customers, suppliers, partners and internal activities of an enterprise.

Corporate information systems are connected to form cross‐organizational or inter‐organizational systems.

Porter’s Competetive Forces Model

Porters Competitive Strategy Framework ( or Porters 5 Forces Model): In the fight for market share, competition does not just come from the other players. Rather, competition is rooted in the underlying economic and competitive forces exerted from beyond the established combatants in a particular industry. Porter’s five forces model depicts competition is balanced by four other forces as shown in the figure below.

In Porter’s competitive forces model, the strategic position of the firm and its strategies are determined not only by competition with its traditional direct competitors but also by four forces in the industry’s environment: new market entrants, substitute products, customers and suppliers.

Traditional Competition: All firms share market space with other competitors, who are continuously devising new, more efficient ways to produce by introducing new products and services, and attempting to attract new customers by developing their brands and imposing switching costs on their customers.

New Market Entrants: In a free economy, new companies are always entering the market place. In some industries there are very low barriers to entry; in some entry is very difficult. New companies have several advantages. They are not locked into old plants and equipment; they often hire younger workers who are less expensive and perhaps more innovative. The new firms are not encumbered by old, worn out brand names. These advantages are also their weaknesses. They depend upon outside financing for new plants and equipment. They have little brand recognition.

Substitute products and services: In just about every industry, there are substitutes that your customers might use if your prices become too high. New technologies create substitute s all the time. There are several examples of substitute products. The more substitute products and services are in your industry, the less you can control pricing and the lower your profit margins.

Customers: A profitable company depends in large measure on its ability to attract and retain customers and charge high prices. The power of customers grows if they can easily switch to competitor’s products and services. Or, if they can force a business and its competitors to compete on price only when there is little product differentiation.

Suppliers: The market power of suppliers can have a significant impact on firm’s profits. The more different suppliers a firm has, the greater control it can exercise over the suppliers in terms of price, quality, and delivery schedules.

What can a firm do when it is faced with all these forces? And how can the firm use information systems to counteract some of these forces? There are four generic strategies, each of which often is enables by using information technology and systems: low-cost leadership, product differentiation, focus on market niche, and strengthening customer and supplier intimacy.

Cost leadership: A firm has many avenues for pursuing this strategy, including economies of scale, using or developing new technology and developing preferential access to raw materials. Where competition has been sluggish, becoming a cost leader may revolutionize the entire business.

Differentiation: Requires the organization to seek uniqueness in the eyes of the customers, which justifies their paying a premium price for the product.

Focus: Requires a narrow competitive scope. The organization focuses on a small target group and services this group or segment to the exclusion of others.

Customer and supplier intimacy: Use information systems to tighten linkages with suppliers and develop intimacy with customers.

McFarlan went further to propose five questions for assessing the strategic impact of IT on a firm: If the answer to a particular question is “Yes,” a strategic opportunity exists that requires the attention of top management.

i. Threat of new entrants: Can IT be used to build barriers against new entrants?

ii. Customers: Can IT be used to build switching costs (increase customer reliance on systems)?

iii. Competitors: Can IT change the basis of competition?

iv. Suppliers: Can IT change the balance of power in supplier relationships?

v. Substitutes: Can IT be used to generate new products?

McFarlan’s Strategic Grid(Source: By: Chris Malek, Jan 14 2009 )

The strategic grid model is an IT specific model that can be used to assess the nature of the projects that the IT organization has in its portfolio with the aim of seeing how well that portfolio supports the operational and strategic interests of the firm.

The CIO plots projects and systems from the IT organization’s portfolio on a two dimensional graph. The X axis represents impact of the project on IT strategy. One way of expressing what we mean by this is: what options does this project offer the firm by way of affecting one of Porter’s five forces in our favor? Does it change the nature of competition in our market, affect the bargaining power of buyers or suppliers, raise or lower the barriers to entry into our market, or change switching costs for our products and services? Does it enable us to offer completely new products and services, or enable us to substitute one of ours for one of someone else’s in the eyes of their customers?

The Y axis represents the impact of the project on IT operations. One way of expressing this is to say that projects that are high on this axis improve the efficiency or quality of our existing systems and business processes, or lower their costs.

The graph is usually drawn as shown below:

McFarlan divides the grid made by these axes into four quadrants:

Support: low operational impact, low strategic impact. This quadrant is about local process improvements for individual users.

Factory: high operational impact, low strategic impact. This quadrant is about operational improvements that affect large portions of the firm, and are aimed at improving performance or decreasing cost.

Turnaround: low operational impact, high strategic impact. This quadrant is about exploiting new technologies to provide strategic opportunities.

Strategic: high operational impact, high strategic impact. IT organizations that have most projects in this quadrant understand that IT can both improve core operations of the firm while simultaneously generating strategic options.

Evaluation for use by CIO

The CIO can use the strategic grid to assess business/IT alignment, to assign appropriate governance and oversight to individual projects, and to select projects and systems for outsourcing.

After plotting all projects in the portfolio on the grid, the CIO assesses where the bulk of them lay: that is how IT is being used in the organization. This will indicate how well aligned IT strategy is to business strategy, and can be used as either a confirmation that the IT org is doing what is expected of it by the business organization, or as a wake up call. If the projects that the IT organization is working on are not where the CIO expects them to be, then they can see what kind of changes need to be made.

Secondly, different quadrants demand different kinds of project governance: support quadrant projects can be handled by IT specialists and individual end users; factory quadrant projects should be handled by a business executives and IT executives working together; turnaround quadrant projects should be handled by business executives, IT executives and emerging technologies development groups; and strategic quadrant projects should be initiated, defined and managed at the top levels of the firm. The failure of many projects may come about because the quadrant they lay in was misidentified and inappropriate governance was applied to them.

Thirdly, the CIO can use the position of a project in the grid to assess how good a candidate it is for outsourcing. Support and factory projects are good candidates for outsourcing largely due to economies of scale that outsourcing vendors might be able to offer, access to skills and best practices that the IT org may not possess, and increased time to market/implementation. Turnaround and strategic quadrant projects should be outsourced with caution; the firm may choose to outsource such project to access rare skills, resources or applications or to work around an out-of-control IT organization.

CSFs (Critical Success Factors)

Critical Success Factors Analysis: Can be applied to support both IS planning and requirements analysis. Designed to provide a structured method to help managers determine their CSFs and thus identify their information needs.

Critical Success Factors (CSF): The limited number of areas in which satisfactory results will ensure competitive performance for the individual, department or organization. These are the few key areas where “Things must go right” for the business to flourish and the manager’s goals to be attained.

CSFs are time dependent. Examples of CSFs are shown in the table.

The main strengths of CSF analysis:

it provides effective support to planning, since the consideration of critical activities develops management insights.

CSF analysis may serve as the effective top level input for a subsequent structured analysis.

Earl’s Multiple Methodology

Earl (1989) proposed a very comprehensive methodology that provides a basis for analyzing IS planning. Earl’s multiple methodology is top‐down clarification, bottom up evaluation, and inside‐out innovation.

Earl’s multiple methodology is an approach to IS strategy formulation. This helps us to relate IT investment more closely with the strategic aims and direction of the organization. One element here is a top-down approach. This approach might be used to establish key business objectives, decompose these into critical success factors, and establish the IS needs that will drive these CSFs. A bottom-up evaluation would start with an evaluation of current systems. This may reveal gaps in the coverage by systems, for example in the marketing function or in terms of degree of integration of systems across functions. Evaluation may also find gaps in the technical quality of systems and in their business value. This permits decisions on renewing, removing, maintaining or enhancing current systems. The final leg of Earl’s multiple methodology is ‘inside-out innovation’. The purpose here is to ‘identify opportunities afforded by IT which may yield competitive advantage or create new strategic options’. The purpose of the whole threefold methodology is, through an internal and external analysis of needs and opportunities, to relate the development of IS applications to business/organizational need and strategy.

Source: L. P. Willcocks inhttp://www.carig.co.uk/pages/userdata/carig/willcocksitevaluationchapter2003.pdf

Earl highlighted three issues:

1. Clarification of the business needs and strategy in IS terms ‐ what is the business strategy and IS strategy?

2. Evaluation of current IS provision and use ‐ How to integrate legacy systems?

3. Innovation of new strategic opportunities afforded by IT ‐ what are the operational goals?

Top down Classification: Four step Process

1. Identification of corporate objectives – Objectives of all business units should be solicited, agreed upon and clearly stated;

2. Determination of critical success factors – CSFs that are needed to achieve the agreed business objectives are suggested and determined after resolving conflicts among different business units;

3. Decomposition to critical business processes – The CSFs that were identified are transformed into business processes that can be improved by IS;

4. Identification of IS and IT – Details of the IS to support those business processes and the underlying IT infrastructure are analyzed and a development plan is decided.

Bottom‐up Evaluation: Three step process

1. Find out the quality and capacity of the IS applications (legacy systems) currently being used in the organization.

2. Demonstrate to top management (the strength and the weakness of) the current IS status of the organization.

3. Identify components of the current IS that can be improved for better strategic advantage by simple add‐ons rather than a total renovation.

Ward and Peppard Strategic Planning Framework

Ward and Peppard (2002) provided an in-depth analysis of strategic planning in their proposed IT Strategy Formulation and Planning Framework. The model, as shown in the figure consists of three building blocks—inputs, outputs, and essential activities.

INPUTS

The inputs to Ward and Peppard’s strategic planning framework are as follows:

• The internal business environment: current business strategy, objectives, resources, processes, and the culture and values of the business.

• The external business environment: the economic, industrial, and competitive climate in which the organization operates.

• The internal IT environment: the current IT perspective in the business, its maturity, business coverage, and contribution to attainment of the organization’s goals (e.g., cost reduction), skills, resources, and the technological infrastructure. The current application portfolio of existing systems and systems under development, or budgeted but not yet under way, is also part of the internal IT environment.

• The external IT environment: technology trends and opportunities and the use made of IT by others, especially customers, competitors, and suppliers.

External business environment

Internal business environment

Internal IS/IT environment

External IS/IT environment

Figure The IS/IT strategic model.

(Source: Ward and Peppard, 2002)

OUTPUTS

The outputs to Ward and Peppard’s strategic planning framework are:

• IT management strategy: the common elements of the strategy that apply throughout the organization, ensuring consistent policies where needed.

• Business IS strategy: how each unit or function will deploy IT in achieving its business objectives.

• Application portfolios. Alongside each of the business objectives are application portfolios to be developed for the business unit and business models, describing the information architectures of each unit. The portfolios may include how IT will be used at some future date to help the units achieve their objectives.

• IT strategy: policies and strategies for the management of technology and specialist resources.

APPROACH

In any strategic process, some sort of structure to the approach and clear principles are obviously necessary. Ward and Peppard (2002) have summarized the key characteristics of the approach chosen:

• Flexible, modular, and able to pick up deliverables from earlier or parallel activities

• Emphasis on deliverables

IT Strategy

IS/IT Mgmt. Strategy

Business IS strategies

IS/IT Strategy Process

S

Future Applications Portfolio

Current Application Portfolio

• Clear checkpoints

• Recognition of the interactive and cyclic nature of the process

• Recognition of the importance of the human side of the process

• Simple diagramming tools

Soft Systems MethodologySource: http://www.ifm.eng.cam.ac.uk/dstools/control/softsm.html

Soft Systems Methodology attempts to foster learning and appreciation of the problem situation between a group of stakeholders rather than set out to solve a pre-defined problem. The complexity of many organizational/social problem situations defeats attempts at defining a problem: in many such situations the problem is 'what is the problem?' SSM provides a framework for tackling such situations.

There are two main modes within SSM, real world activities and systems thinking about the real world. Initial work involves interviews and meetings to gain an understanding of the problem situation, which is represented by the use of 'rich pictures'. Systems thinking use concepts of hierarchy, communication, control, and emergent properties to identify 'relevant systems' which may provide useful insights.

These relevant systems are logically defined by constructing 'root definitions' which are then used to generate 'conceptual models' of the selected systems. Different conceptual models representing different viewpoints are then used as the basis of a debate, which through an 'appreciative process' can lead to feasible and desirable change and then to action. Soft Systems Methodology has been developed over twenty years by Peter Checkland of the Department of Systems at Lancaster University, and others.

Soft Systems Methodology is based on the following axioms:

Problems do not exist independent of human beings, they are constructs of the concerned mind, defined by individual world view; therefore look not at the problem but at the situation.

Interrelationship of problems = 'mess' (multiple problem situation).

Worldview - different (and equally valid) interpretations of the world by each individual.

(Corollary of 1) Solutions are also intellectual constructs and no 'problem' exists in isolation.

Improvements in situations are most likely through sharing of perceptions, persuasion and debate. Analysts should be interactive/therapeutic rather than expert.

Analysts cannot be divorced from the problem.

CATWOE

Soft systems use the mnemonic "CATWOE" to list the perspectives of a situation that must be considered:

Customers Actors Transformation process Worldview Owner Environmental constraints.

Transformation is judged by the 3 EsEfficacy (Ability to produce a desired amount of desired effect)

Efficiency (Amount of output over resources used)

Effectiveness (Meeting the longer term aim?)

Roles

The following roles are recognized explicitly:

Client (who caused the study to take place).

Would-be problem solver (Who wishes to do something about the situation).

Problem owner(s) (list, including the above). Socio Technical Systems Approach

Source: http://www.accel-team.com/work_design/wd_03.html

Open systems approach

An approach to the design of jobs focuses on the individual job. There are some weaknesses to this type of approach.

While the job redesign techniques were being developed and implemented in the USA, progress was being made, particularly in Europe and Scandinavia, on the development of the socio-technical systems approach where the focus of attention is at the level of the working group and the aim is to develop a match between the needs of the group and the organization in relation to the technology.

Organization as an open system

This approach is based upon the concept of the organization as an open system with the primary work group as a subsystem of the total organization. Organizations can be compared to other living systems such as biological cells in that they are engaged in active transactions with the environment

Raw materials or customers form the input to the organizational system and finished goods or services form the output. The environment through competition, the influence of suppliers, and customers and

government legislation will all exert pressure on the organization to comply with certain rules and organize in certain ways. The changing economic situation, changing values in society, new alternative products or services, and many other factors demand adaptation within the organization if it is to survive.

Since these factors have an impact on the internal design and functioning of an organization it is important that the organization be aware of environmental changes when seeking an optimal design of its social and technical systems.

Guiding Principles

A sociotechnical systems approach to designing organizations is based upon a set of guiding propositions:

The design of the organization must fit its goals.

Employees must be actively involved in designing the structure of the organization.

Control of variances in production or service must be undertaken as close to their source as possible.

Subsystems must be designed around relatively self-contained and recognizable units of work.

Support systems must fit in with the design of the organization.

The design should allow for a high quality of working life.

Changes should continue to be made as necessary to meet the changing environmental pressures.

Motivation Factors

It has been suggested that four categories of job characteristic are significant in terms of motivation and performance:

responsible autonomy- the group's acceptance of responsibility for the production cycle, output rate, quality, and quantity of output;

adaptability;

variety;

participation.

Autonomous behavior includes the self-regulation by the group of work content, critical self-evaluation of work group performance, self-adjustment to cope with changes, and participation in goal setting.

Limitations

The socio-technical systems approach is not without its limitations. While many advantages can result from focusing on the work group rather than the individuals and their jobs, autonomous group working does not seem to have widespread appeal.

Certainly the roles of both supervision and specialist advisers are considerably affected and in some cases eliminated.

Movement of personnel between work groups with high levels of autonomy may be difficult, hence removing some of management's flexibility.

Difficulties are often experienced in implementation in existing work situations.

A participative design process is not acceptable in many organizations and can be very time-consuming.

Alternative ways of organizing work are not always apparent where existing technology has to be employed.

Management are often not prepared to take the risk of introducing radically different approaches to organizing work alongside other changes which already have a high element of disruption and associated risk.

Source: A portion of this information is taken from www.oumstudents.tk which contains the structured summaries of OUM Modules