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General managers need to be involved in information systems (IS)--the amalgamation of hardware, software, data, people, and procedures--for three reasons:
Thus, IS enables or inhibits business objectives depending on management's involvement in IS. The big challenge IS managers face is: how do we get general managers involved? Research has shown that involvement is highly correlated with personal experience with IS and IS education, including university classes and IS executive seminars. Once general managers understand IS through experience and education, they are more likely to be involved in IS, and more likely to lead their organizations in achieving business success through IS.
On average, companies' annual IS budgets represent about 5% of revenues.
Capital investments in information technology are typically twice the amount of the IT operating budget.
IS capital investments represent 40% of most large companies' capital expenditures
The information technology and telecommunications markets represent $380 billion of annual GNP.
The service sector spent over $750 billion on IS hardware in the 1980s.
General managers must manage these IS expenditures to ensure they are getting value for money. In particular, general managers must develop the following IS competencies:
"Some CEOs consider themselves unqualified to participate directly in decisions regarding IT. They express personal frustration at being unable to evaluate IT proposals." Jarvenpaa & Ives, p. 219
Research shows, however, that many senior executives fail to develop these IS competencies. Instead, they typically set the IS budget based on either historical trends (such as increasing last year's IS budget by 4%), or by simply matching the IS budgets of competitors. But these methods are totally ineffective at ensuring that IS expenditures lead to business-value--they focus on cost rather than value.
A large body of research has found that general management involvement in IS a critical factor to achieving IS-enabled business success. Examples of current IS enabled success include:
Despite the previous evidence and arguments outlined above, many general managers still question why they need to bother to understand IS. Senior executives often misperceive IS as is merely a utility--much like electricity. But IS is distinctive from "utilities" because information systems are not homogenous, but require customization. The problem with the "utility" metaphor is that it ignores the idiosyncratic nature of an organization's information needs. Close communication between the business units and IS must occur to accurately meet requirements. As utility users, we typically do not call the power company to communicate our complicated changing business needs. As IS users, we do.
Treating IS as a utility--something than can be plugged and unplugged--can lead to business failure. For example, Banca di Roma's disastrous merger was largely blamed on management's failure to plan for integrating IS systems from the three merged banks.12 Senior executives who made the deal assumed that the systems could merely be unplugged from one bank and plugged into another. Branson Airlines outsourced its airline reservation system to British Airways because they considered this a "utility". After mysteriously losing millions of dollars worth of sales, Branson discovered that BA was assessing their data and offering their customers a lower ticket price is they would cancel their Branson reservation and book with BA. This has lead to a billion dollar lawsuit.
General managers need to understand the actual--as well as the potential--role that IS assumes within organizations. To realize this potential, general managers must create an IS infrastructure, including IS management, IS staff, hardware, software, data, and processes.
1 For a summary of the literature on Executive Involvement in IS, see Jarvenpaa, S., and Ives, B. "Executive Involvement and Participation in the Management of Information Technology, MISQ, 1991, pp. 205-226.
2 Ibid, p. 215;
Lederer, A. and Mendelow, A., "Convincing Top Management of the Strategic Potential of IS, MISQ, 1988, pp. 525-534.
Feeny, D., Edwards, B., and Simpson, K., "Understanding the CEO/CIO relationship," MISQ, December, 1992, pp. 435-448.
3 Minoli, D., Analyzing Outsourcing, McGraw Hill, 1994
4 Loh, L., and Venkatraman, N., "Determinants of Information Technology Outsourcing," JMIS, Vol. 9, 1, 1992, pp. 7-24.
5 Quinn, J., and Baily, M., "Information Technology: Increasing Productivity in Services," Academy of Management Executive, 1994, Vol. 8, 3, pp. 28-47.
7 Jarvenpaa, S., and Ives, B., " Executive Involvement in IT Management," MISQ, 1991, pp. 205-224.
8 Lacity & Hirschheim, Information Systems Outsourcing: Myths, Metaphors, and Realities, Wiley, 1993.
9 Hammer, M., and Champy, J., Re-Engineering the Corporation, HarperBusiness, New York, 1993.
10 Ives, B., and Jarvenpaa, S., "Applications of Global Information Technology," MISQ, 1991, pp. 33-47.
11 The list represents half the companies identified by Kettinger,W., Grover, V., Guha, S., and Segars, A;, "Strategic Infornmation Systems Revisited": MISQ, 1994, pp. 31-55.
12 Banking Technology, 1993, p. 30.