THE ROLE OF INFORMATION SYSTEMS IN THE CREATION OF BUSINESS STRATEGY Jacek Unold Abstract
The article revisits the issues of an incorporation of information systems into a business strategy. Information technology (IT) and information systems (IS) can be effectively used in the creation and implementation of an organizational strategy. The most recent approach even assumes that an IS can be viewed as a strategic driver of a modern business. There are many frameworks within which IS strategy can be viewed. Nevertheless, all of them acknowledge that this issue should be determined by the business needs, not by the functions of available technology. Analyzing the details of different levels of an IS strategy, one must clearly differentiate between a business IT strategy and business IS strategy. The article also discusses two practical cases. One illustrates a convergence of an organizational vision, mission and information systems. The other describes an environmental scanning with the use of the Internet, and its potential as an effective strategic tool.
Introduction Cutting-edge information systems (IS) strategies rarely happen by accident. IS managers have the responsibility for developing IS strategy
and managing the day-to-day IS operations of the organization. What is important here, the need for an IS strategy has to be determined by the business needs of the organization, not by the functions of available technology. There are a number of ways to go about developing IS strategic plans. The aim of this article is to revisit the issue of an incorporation of information systems into an overall organizational strategy. Some examples of IS strategic thinking provide insights into the ways that IS can be maximized for organizational advantage. Also, two practical cases are discussed. One illustrates a convergence of an organizational vision, mission and information systems. The other describes an environmental scanning with the use of the Internet, and its potential as an effective strategic tool. 1. Revisiting the role of an IS in a modern business
A “strategy” is a plan for achieving medium and long-term goals. When this is specified for an organization in a document that covers such things as the vision and mission of the business, the organization's goals and how it will achieve them, then it is called a “strategic plan”. A strategic plan provides the organization with a focus and clear mission which can be communicated to employees, suppliers and customers. Thus, strategic planning enables a company to focus on what is important. IS strategic planning is concerned with helping the organization achieve its strategy. If a business had a strategy to tap into global markets, then IS management would look at how the IS could support this. One
option would be to look at how the Internet could be used to reach new markets. This would need to be specified in the IS strategic plan. In the early years of computerized information systems, the focus was on automating the day-to-day transactions of the business and thereby producing significant cost savings. These transaction-based systems contained great volumes of data in files which could be interrogated and summarized to produce management information. Decision support systems were more interactive systems which managers could use to improve their decision making. However, the view of the role of IS was one of supporting the rest of the organization. In more recent times, there are cases where IS has taken on the role of strategic driver in organizations. In other words, the information systems are not just supporting other functions in the business but are the main reason for a company improving its position in relation to its competitors. In this sense, the information systems become a strategic driver for the business. This way new technologies create opportunities for improvement and competitive advantage. As an example, one of the best known current business strategies is Customer Relationships Management (CRM). It is a business strategy to manage customer relationships on a long-term basis in order to add value. CRM becomes a strategic focus for the organization when it embraces management, strategy and organizational culture. Thus, it cannot be effective if viewed solely as a technology solution. According to M. Littell, president of the CRM Division of EDS, CRM is more a strategy than a process. Buying technology before you have your CRM business goals clearly in mind leads to disaster [Sims00].
2. Why an IS strategy?
There are many frameworks within which IS strategy can be viewed. Each emphasizes a different perspective on the issues that a firm may wish to take into account when formulating a strategy. They all have one feature in common – they acknowledge the need for an IS strategy to be determined by the business needs of the organization, not by the functions of available technology. M. Hinton [Hint06] identifies several reasons for the need of an IS strategy and IS strategic planning for a business: 1. The individual departments within an organization (subsystems within a system) may function well in terms of their own objectives but still not serve the objectives of the organization. This is because of a lack of coordination between departments, because departments themselves have specific objectives counter to those of the organization, or because subsystems optimization may on occasion lead to total systems suboptimization. 2. The organization will on occasion need to make major resource allocations, especially for the purchase and development of new plant, property and machines. Information systems will need expensive hardware and will incur design costs. They will need large resource allocations. These allocations can only be made against an agreed direction for the organization – a strategy for the future. 3. The organization will have responsibilities to a number of different 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 corporate strategy, as their interests will be served or otherwise by the extent to which the strategy takes into account their interests and the success of the organization in meeting these interests.
3. Strategy for business IT and IS
The information systems strategy is taking on a key role as more businesses rely increasingly heavily on their computerized information systems for all aspects of their business functions. Therefore, it is important to distinguish between a business information systems strategy and a business information technology strategy. The business information systems strategy is focused on determining what IS must be provided in order that the objectives of the business strategy are realized. The concentration is therefore on information needs and ensuring that the information systems strategy aligns with the business strategy. The business IT strategy is focused on determining what technology and technological systems development are needed in order that the business IS strategy can be realized. The concentration is therefore on how to provide the information, not on what information is required. The strategy will also cover how the information resource and IS development is to be managed. There is a close interaction between the IS strategy and the IT strategy. The importance of distinguishing between them indicates that the emphasis on IS is that strategy is led by the needs of the business, not
by technology. Therefore, the IS strategic plan’s main thrust is to develop and explain the information architecture that will provide the best return for the organization. The information architecture defines the data, processes, information, organizational network and the stakeholders; information technology trends and opportunities are explained; the technology to support the business aims of the organization is defined [BeSt02]. Clearly, the information architecture should be aligned with organizational business goals. The terms 'information architecture' and 'information technology (IT) architecture' are sometimes used interchangeably. However, the IT architecture is actually a subset of the overall information architecture for an organization.
4. IS strategy levels
Organizations typically develop strategies at three different levels: corporate, business and functional [BeSt02]. The corporate-level strategy is developed by the senior people in the business. It can cover new business directions, the closing of some business operations and the allocation of resources between branches of the company's operations. Business-level
(semi)autonomous businesses operating independently. These businesses need to develop their own strategies as they are usually in the best position to do so. However, the business strategy should support the broad aims of the corporate strategy. In smaller organizations, the business unit level is not applicable.
Functional-level strategy is concerned with plans at the functional business level such as marketing, information systems, finance, etc. Effective strategies at the functional level can provide a competitive edge to the organization as a whole. For example, the development of electronic commerce via a well-designed web site has the potential to improve market share for an organization.
Example of a convergence of vision, mission and IS An organization should have a vision statement which defines in a few
sentences the company's main purpose. For example, Western Mining Corporation (WMC) is a large mining company with the following vision [BeSt02]: WMC is a minerals company determined to be BEST. BEST represents our commitment to Bottomline, Environment, Safety and Team performance. Interestingly, WMC's vision statement is not concerned solely with financial profitability. A vision statement can be expanded further, as in WMC's case, to communicate broad organizational aims in a mission statement. These aims should provide a steering mechanism for the functional units where more detailed objectives and goals can be specified along with strategies to achieve them. WMC's mission statement is [BeSt02]: Our aim is to maximize shareholder value by finding, acquiring, developing and operating mineral resource projects throughout the world. We will maintain a diversified portfolio of commodities and exercise prudent financial management. To achieve our purpose, we
develop and retain top-quality people, management, skills and technology. Western Mining's mission statement can be used to strategically align the information systems function with the organizational goals. IS can be used to help manage mineral resource projects. The global focus of the company means that their systems are tightly integrated to facilitate global communication. Systems to provide information for decisionmaking purposes to save costs would be aligned with the goal of 'prudent financial management'. This may include business intelligence software to provide an extra level of analysis and data mining. The vision statement stresses the environment and safety issues. IS can be used to support these areas, too. Monitoring the environmental impact of mining and modeling the likely impact of future mines can be done with Geographical Information Systems (GIS) [Unol05]. Safety data can be gathered, analyzed and presented using a spreadsheet package.
6. Environmental scanning with the use of the Internet
Most strategic analysis approaches are based on outlining a strategic direction with complementary goals and objectives. Many organizations use one or a combination of strategic analysis methods, such as SWOT analysis, Porter's competitive forces model or value chain analysis. However, another approach to developing a competitive organization is an environmental scanning with the use of the Internet. Admittedly, many small businesses have recognized the opportunities provided by the Internet. Unfortunately, a large percentage of small companies that develop their own web sites bypass the strategic planning
needed for it to make a significant impact on the business. A large percentage of them are not obtaining significant returns from their investments in e-commerce. For example, a study of travel agencies revealed that few companies had a strategic plan and, of those that had, many still did not include how e-commerce could strategically affect the business [ChWo05]. Most travel agencies viewed e-commerce as an addon for their business and had only a weak vision for e-commerce within their own companies. However. most companies realized that ecommerce would have a significant impact on the travel sector and would necessitate a restructuring of the industry. And still, the Web can be a very powerful source of precious market information. Companies must develop effective methods for obtaining information about the changing business environment. They need to build changes into their strategic plans to take advantage of opportunities and minimize the impact of emerging threats. Companies pay substantial amounts of money to market research institutions for market information. However, organizations also gather their own information and data. Some information is gathered through informal networks of contacts. Increasingly, the World Wide Web is being used to gather information on competitors, trends and changing consumer buying patterns. The Web is a cost-effective tool for gathering competitive intelligence. People may be using the Web for environmental scanning without being aware that they are doing so. Many employees gather information on trends and competitors while using the Internet for some other purpose, and share this with colleagues, either face to face or by email. This is informal environmental scanning. Some companies employ people to spend some of their time doing environmental scanning.
As the amount of data and information available on the Web continues to increase, it is likely that it will be increasingly used for environmental scanning. Environmental scanning is not a form of competitive analysis in its own right but rather a technique for helping in competitive analysis. It can be used, for example, to identify opportunities and threats in the business environment as part of a SWOT analysis. As an example of this approach, the Institute of Economic Computer Science at the University of Economics in Wroclaw, Poland, uses environmental scanning to modernize its teaching programs and make them fully compatible with those offered at the universities in the European Union [Unol05]. There is a special need for this type of analysis, due to the European Union (E.U.) enlargement in May 2004, when Poland and 14 other East European countries finally joined this Community. The type of information the Institute can gather includes: •
number of similar courses being offered both in Poland and in other countries,
course fees charged by other universities,
target market of other universities,
course content and teaching methods,
trends in other countries for certain courses,
The analysis included chosen universities in Poland, but also in Europe, Australia and the U.S.A. Here, we present tentative results of the
environmental scanning with the use of web regarding four American universities: 1. Harvard University in Cambridge, Massachusetts, 2. Stanford University in Palo Alto, California, 3. Yale University in New Haven, Connecticut, 4. Boise State University in Boise Idaho. Generally, there is a high similarity of the programs offered in the U.S. and at the Polish University of Economics (AE) in the field of Computer Information Systems: basic programming languages, databases, operation systems, management information systems, etc. There are several exceptions, however, which point to a much wider approach of the Americans to this filed. Especially, the following courses draw attention: Harvard: •
Human-Computer Communication through Natural, Graphical, and Artificial Languages
Information Resources: Technology and Policy
Topics at the Interface between Computer Science and Economics
Client-Side Internet Technologies
Computers, Ethics and Social Responsibility
Computers and Law
Computers and Society
Creative thinking and problem solving
Social & Legal Issues of Telecommunication
Information Resource Management
It seems that the most visible difference in the programs offered by the AE and the American universities is a secondary importance played by the basics of the information theory. The Polish AE offers only 30 hrs of Economics of Information, whereas the American universities consider this field as a basic one, and offer 60 hrs. of: Information Integration (Stanford),
Management (BSU). Courses in Economics of Information are also offered at the majority of other U.S. colleges in the full 60 hrs dimension. Another significant difference is a special role played by subjects regarding human-computer interaction in the USA, which is not taught in the analyzed Polish college. This is an example of only a small part of a very broad and comprehensive research based on the environmental scanning with the use of the Internet. This method has proven to be very cost-effective and accurate. Moreover, the information gained at this stage constitutes a solid base for a potential cooperation with faculty members at the analyzed universities.
There are many ways to go about using IS within organizations and no one strategic planning approach can guarantee business success. However, the generic description presented in this article does provide a starting point and framework for examining the potential of IS in organizations. No matter which approach, each organization should incorporate the latest technological advancements into its strategic plan. This incorporation can be done using the traditional strategic analysis methods, e.g., Porter’s competitive forces model or SWOT analysis. The most visible sign of an incorporation of IS into an organizational strategy is a divergence of the company’s vision, mission and information systems. An organization can also capitalize on the use of the Internet, and conduct environmental scanning using the Web. Environmental scanning can become, if not itself a strategic analysis method, a very powerful tool supporting the actual strategic analysis of an organization.
Literature [BeSt02] [ChWo05]
Benson S., Standing C., (2002): Information Systems: A Business Approach. Wiley & Sons, Australia Chaffey D., Wood S. (2005): Business Information Management: Improving Performance Using Information Systems. Prentice Hall, Financial Times. Hinton M. (2006): Introducing Information Management: The Business Approach. Elsevier Buttenworth Heinemann.
Sims D., (2000): What is CRM? CRMGuru.com Unold J. (2005): Prezentacja programów kształcenia na uniwersytetach amerykańskich. [In:] Doskonalenie kształcenia informatycznego na kierunku Informatyka i Ekonometria na Wydziale Zarządzania i Informatyki Akademii Ekonomicznej we Wrocławiu,” ed. A. Nowicki, AE Wrocław, p. 25-31.
Informacje o autorze: Dr hab. inŜ. Jacek Unold Boise State University College of Business and Economics 1910 University Drive Boise, ID 83725 USA [email protected]
Katedra InŜynierii Systemów Informatycznych Zarządzania Akademia Ekonomiczna ul. Komandorska 118/120 53-345 Wrocław Tel. (71) 3680 379 Fax (71) 3680 369 [email protected]