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I. Magnitude of dollars spent on IS
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.
II. GENERAL MANAGEMENT'S INVOLVEMENT LEADS TO IS-ENABLED BUSINESS SUCCESS.
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:
A. IS's contribution to business process re-engineering
"A company that cannot change the way it thinks about information technology cannot re-engineer" --Hammer & Champy, Re-Engineering the Corporation, 1993, p. 83
Most of the BPR exemplars--Walmart, IBM Credit, and Kodak to name a few, used IS to achieve significant improvements in performance, such as cost, quality, service, and speed:
The main IS competency general managers need to use IS as a BPR enabler:
B. IS's contribution to global expansion
"Firms operating in new world markets will increasingly be at a serious disadvantage if they are unable to firmly control their worldwide operations and manage them in a globally co-ordinated manner. Investments in information technology can give firms a basis for increased coordination and control or can provide direct competitive advantage in world markets." Ives & Jarvenpaa, 1991, p. 33.
Global information systems--which directly support global business strategies--are used to serve traveling customers (such as Marriot's global customer database), support global products (like Coca Cola), create centers of core competency (computer chips may be designed in California, manufactured in Taiwan, and sold worldwide), create flexible manufacturing operations (Compaq can move production between facilities), share resources (petroleum companies share tankers), and reduce risks associated with currency conversions (investment bankers can trade in several global markets, 24 hours a day).
To use IS to enable global expansion, general managers need to:
C. IS's contribution to downsizing
On the one hand--companies are expanding into global markets, while on the other hand they are downsizing domestic headcounts. Downsizing is a result of several trends, such as returning to core competencies (reduces headcount in sold-off businesses), flattening of organizations (reduces management layers), employee empowerment (reduces middle management), cross-training to replace specialists with generalists (reduces the number of specialists needed). IS has been a critical enabler in downsizing:
To use IS to enable organizational changes in structures and processes, general managers must develop the following IS competencies:
Although the demonstration of IS's contribution to BPR, global expansion, and downsizing, captures a general manager's attention due to the "hotness" of such topics, more generally, we describe IS as an enabler/facilitator of competitive advantage, organizational effectiveness, and organizational efficiency. As a competitive tool, IS can differentiate a company's products, services, and prices from its competitors by improving product quality, shortening product development or delivery time, creating new IS-based products and services, improving customer service before, during, and after the sale. Companies that have achieved a competitive advantage through IS include:
IS contributes to organizational effectiveness by providing decision support at every managerial level through the development of executive information systems, decision support systems for both individuals and groups, and expert systems for domain-specific tasks. IS contributes to organizational efficiency by lowering internal costs through automation, task support, and communication support. Like the list generated for companies achieving a competetive advantage with IS, numerous examples could be given to demonstrate how IS contributes to organizational effectiveness and efficiency.
III. LACK OF GENERAL MANAGEMENT INVOLVEMENT CAN LEAD TO BUSINESS FAILURE.
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.
While Banca di Roma and Branson highlight the extreme consequences of management's ignorance of IS, less severe--but far more frequent--are the dollars wasted on systems development. Research has shown that up to 80% of system development efforts fail--not because the technology failed, but because the system development process was poorly managed. General managers need to develop the following competencies:
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.
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