Strategic Information Management Challenges and strategies in managing information systems Third edition Robert D. Galliers and Dorothy E. Leidner OXFORD AMSTERDAM BOSTON LONDON NEW YORK PARIS SAN DIEGO SAN FRANCISCO SINGAPORE SYDNEY TOKYO

Butterworth-Heinemann An imprint of Elsevier Science Linacre House, Jordan Hill, Oxford OX2 8DP 200 Wheeler Road, Burlington MA 01803 First published 1994 Second edition 1999 Third edition 2003 Copyright © 1994, 1999, R. D. Galliers, D. E. Leidner and B. Baker. All rights reserved Copyright © 2003, R. D. Galliers and D. E. Leidner. All rights reserved The right of R. D. Galliers and D. E. Leidner to be identified as the authors of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988 No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1T 4LP, Applications for the copyright holder’s written permission to reproduce any part of this publication should be addressed to the publisher British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A catalogue record for this book is available from the Library of Congress ISBN 0 7506 5619 0 For information on all Butterworth-Heinemann publications visit our website at www.bh.com Composition by Genesis Typesetting Limited, Rochester, Kent Printed and bound in Great Britain

Contents List of contributors ix Preface xi Introduction: The Emergence of Information Technology as a Strategic Issue 1 1 Developments in the Application of Information Technology in Business 3 Information technology in business: from data processing to strategic information systems E. K. Somogyi and R. D. Galliers (with a Postscript by R. D. Galliers and B. S. H. Baker) Part One: Information Systems Strategy 27 2 The Evolving Information Systems Strategy 33 Information systems management and strategy formulation: applying and extending the ‘stages of growth’ concept R. D. Galliers and A. R. Sutherland 3 Information Strategy 64 Assessment of information strategies in insurance companies M. T. Smits, K. G. van der Poel and P. M. A. Ribbers 4 The Information Technology and Management Infrastructure Strategy 89 Globalization and information management strategies J. Karimi and B. R. Konsynski 5 Change Management Strategy 113 Change agentry – the next information systems frontier M. L. Markus and R. I. Benjamin

vi Contents Part Two: Information Systems Planning 147 6 Information Systems Plans in Context: A Global Perspective 151 Understanding the global information technology environment: representative world issues P. C. Palvia and S. C. Palvia 7 Approaches to Information Systems Planning 181 Experiences in strategic information systems planning M. J. Earl 8 The Information Systems Planning Process 216 Meeting the challenges of information systems planning A. L. Lederer and V. Sethi 9 Evaluating the Outcomes of Information Systems Plans 239 Managing information technology evaluation – techniques and processes L. P. Willcocks Part Three: The Information Systems Strategy–Business Strategy Relationship 261 10 Measuring the Information Systems–Business Strategy Relationship 265 Factors that influence the social dimension of alignment between business and information technology objectives B. H. Reich and I. Benbasat 11 Information Systems–Business Strategy Alignment 311 The dynamics of alignment: insights from a punctuated equilibrium model R. Sabherwal, R. Hirschheim and T. Goles 12 Strategies in Response to the Potential of Electronic Commerce 347 Market process reengineering through electronic market systems: opportunities and challenges H. G. Lee and T. H. Clark 13 The Strategic Potential of the Internet 376 Strategy and the Internet M. E. Porter

Contents vii 14 Evaluating the Impact of IT on the Organization 404 The propagation of technology management taxonomies for evaluating investments in information systems Z. Irani and P. E. D. Love Part Four: Information Systems Strategy and the Organizational Environment 423 15 The Information Technology–Organizational Design Relationship 427 Information technology and new organizational forms R. Lambert and J. Peppard 16 Information Technology and Organizational Decision Making 460 The effects of advanced information technologies on organizational design, intelligence and decision making G. P. Huber 17 The Information Technology–Organizational Culture Relationship 497 Understanding information culture: integrating knowledge management systems into organizations D. E. Leidner 18 Information Systems and Organizational Learning 526 The social epistemology of organizational knowledge systems B. T. Pentland 19 Information Technology and Customer Service 555 Redesigning the customer support process for the electronic economy: insights from storage dimensions O. A. El Sawy and G. Bowles 20 Information Technology and Organizational Performance 588 Beyond the IT productivity paradox L. P. Willcocks and S. Lester Author index 609 Subject index 617

Contributors* B. S. H. Baker, Virgin Direct, UK (formerly Research Fellow in Business Innovation and Information Systems Strategies, Warwick Business School, Coventry, UK) I. Benbasat, University of British Columbia, Vancouver, British Columbia, Canada R. I. Benjamin, Robert Benjamin Consultants, Rochester, New York and School of Information Studies, Syracuse University, New York, USA G. Bowles, Storage Dimensions, Milpitas, California, USA T. H. Clark, Hong Kong University of Science and Technology, Hong Kong, China M. J. Earl, London Business School, UK (formerly with Oxford Institute of Information Management, Templeton College, Oxford University, UK) O. A. El Sawy, University of Southern California, Los Angeles, California, USA R. D. Galliers, London School of Economics, London, UK and Bentley College, Waltham, Massachusetts, USA (formerly with Warwick Business School, Coventry, UK) T. Goles, University of Houston, Houston, Texas, USA R. Hirschheim, University of Houston, Houston, Texas, USA G. P. Huber, University of Texas at Austin, Texas, USA Z. Irani, Brunel University, Uxbridge, UK J. Karimi, University of Colorado, Denver, Colorado, USA B. R. Konsynski, Emory University, Atlanta, Georgia, USA (formerly with Harvard Business School, Boston, Massachusetts, USA) R. Lambert, Cranfield School of Management, Bedford, UK A. L. Lederer, University of Kentucky, Lexington, Kentucky, USA (formerly with Oakland University, Rochester, Michigan, USA) H. G. Lee, Hong Kong University of Science and Technology, Hong Kong, China * Where a contributor’s institution has changed since publication of their article, both their current and former affiliations are listed.

x Contributors D. E. Leidner, Baylor University, Waco, Texas, USA (formerly with INSEAD, Fontainebleau, France) S. Lester, Lloyd’s Register, London and Oxford Institute of Information Management, Templeton College, Oxford University, UK P. E. D. Love, Australian Agile Construction Initiative, Australia M. L. Markus, Bentley College, Waltham, Massachusetts, USA (formerly with Claremont Graduate School, Claremont, California, USA) P. C. Palvia, University of Memphis, Tennessee, USA S. C. Palvia, Long Island University, New York, USA B. T. Pentland, Michigan State University, Michigan, USA J. Peppard, Cranfield School of Management, Bedford, UK K. G. van der Poel, Tilburg University, Tilburg, The Netherlands M. E. Porter, Harvard Business School, Boston, Massachusetts, USA B. H. Reich, Simon Fraser University, Vancouver, British Columbia, Canada P. M. A. Ribbers, Tilburg University, Tilburg, The Netherlands R. Sabherwal, University of Missouri, St Louis, Missouri, USA V. Sethi, College of Business Administration, University of Oklahoma, Norman, Oklahoma, USA M. T. Smits, Tilburg University, Tilburg, The Netherlands. E. K. Somogyi, The Farrindon Partnership, London, UK (formerly with PA Computers & Telecommunications) A. R. Sutherland, Ess Consulting, Perth, Western Australia (formerly with Corporate Systems Planning) L. P. Willcocks, Warwick Business School, Coventry, UK (formerly with Oxford Institute of Information Management, Templeton College, Oxford University, UK and Erasmus University, Rotterdam, The Netherlands)

Preface As with the first and second editions, this third edition of Strategic Information Management: Challenges and strategies in managing informa- tion systems aims to present the many complex and inter-related issues associated with the management of information systems, with a likely audience of MBA or other Master’s level students and senior undergraduate students taking a course in strategic information management or something similar. Students embarking on research in this area should find the book of particular help in providing a rich source of material reflecting recent thinking on many of the key issues facing executives in information systems management. And like the first two editions, this third does not aspire to familiarize the reader with the underlying technology components of information systems nor enlighten the reader on expected trends in emerging technologies. While the second edition was a large departure from the first in the organization and readings, the third edition follows the same framework presented in the second edition while updating the chapters as much as possible. We will briefly recapture the organizing framework for those not familiar with the second edition. The concept of ‘strategic information management’ conveys manifold images, such as the strategic use of information systems, strategic information systems planning, strategic information systems . . . Our conceptualization of the term, and hence of the scope of the book, is presented in Figure 0.1. The inner circle of the figure depicts the information systems (IS) strategy. Whether explicitly articulated, or not1 as appears to be frequently the case (Reich and Benbasat, 1996), without an IS strategy, the achievements of the IS in any given organization are likely to be more a result of hap and circumstance than a carefully guided intentional objective. Three of the dimensions of IS strategy proferred in Galliers (1991), drawing from Earl (1989), form the major topics of the readings in the first section of the book – information, information technology (IT), and information management strategy, and the related change management strategy. 1 See also Ciborra et al. (2000).

xii Preface The second circle in Figure 0.1, encompassing that of the IS strategy, depicting IS Planning, forms the basis of the second section of the book. While the literature often associates Strategic IS Planning with IS strategy, we consider the topics as two: the plan produces the strategy. Included under the umbrella of IS planning are considerations of the IS planning environment, of the major issues of importance to IS planners, of the principal approaches used in developing IS plans, and of the evaluation of the success of IS. The third circle in Figure 0.1 naturally forms the third section of the book, which considers the link between an organization’s IS strategy (the inner circle) and the organization’s business strategy. Because of the common substitution of IS planning for IS strategy in the literature, it was difficult to find articles that dealt explicitly with an IS strategy component as conceptualized in our figure. The topics forming this third section include two readings on IS-Business alignment, two readings concerned with eBusiness Strategies, and one reading concerned with the evaluation of IT proposals. Four of these chapters are new to this edition. The outermost circle depicts the fourth and final section of the book, which offers some readings that examine the organizational outcomes of IS. The Figure 0.1 Conceptualizing strategic information management

Preface xiii articles in this section deal less with IS strategy as the underlying basis but with IS and their impact on the organization. The reason behind the inclusion of this fourth section is that, ultimately, the aim of introducing IS into organizations is to have positive results on the organization. These articles consider the relationships of IT to organizational structure, organizational design, organizational culture, organizational communication and decision making, organizational learning, customer relationships, and organizational performance. Two new chapters in Part Four are included in this edition. The specific readings included in each section will be briefly summarized in the section introductions and hence will not be introduced here. Some of the articles included are marked by an academic quality. It might be helpful to suggest students prepare an analysis of the article using the following basic questions: (1) The research question: what is the major question and why is it important? (2) The assumptions: what are some of the primary assumptions guiding the study and are these valid in today’s context? (3) The method: what method was used to investigate the questions (interviews, surveys, experi- ments, other) and how might the method have influenced, for better or worse, the results? (4) The results: what were the major findings, what was new, interesting, or unexpected in the findings and what are the implications of the findings for today’s IT manager? Following each article, we offer some questions that could serve as points of departure for classroom discussion. We recommend additional readings relevant to the chapters in the section introductions. What we have attempted to achieve is to cover some of the more important aspects of each topic, while at the same time providing references to other important work. The subject of strategic information management is diverse and complex. It is not simply concerned with technological issues – far from it in fact. The subject domain incorporates aspects of strategic management, globalization, the management of change and human/cultural issues which may not at first sight have been considered as being directly relevant in the world of information technology. Experience, often gained as a result of very expensive mistakes (for example, the London Stock Exchange’s ill-fated Taurus System), informs us that without due consideration to the kind of issues introduced in this book, these mistakes are likely to continue. In selecting readings for this edition with the objective of covering the topics introduced in Figure 0.1, we noticed that the majority of new work dealt with topics covered in the third and fourth sections. We were unable to find many new ideas about IS strategy per se or about IS planning per se.2 However, we found many new ideas concerning the IS–Business Strategy relationship as well as the relationship of IS to organizational outcomes. 2 A Special Issue of the Journal of Strategic Information Systems is planned, designed to fill this gap.

xiv Preface We attempted to include as many new readings of high calibre without unduly increasing the page length. We were particularly happy to note the new articles on alignment. In the second edition, we had observed much talk about alignment but little research on the nature of the link. This gap has been filled with fascinating work by Reich and Benbasat (Chapter 10) and by Sabherwal, Hirschheim, and Goles (Chapter 11). We hope the third edition has built upon the framework offered in the second and introduces some additional current thinking to help you consider some of the many ways that IS can contribute to organizations. Bob Galliers and Dorothy Leidner References Ciborra, C. U. and Associates (2000). From Control to Drift: The Dynamics of Corporate Information Infrastructures, Oxford University Press, Oxford. Earl, M. J. (1989). Management Strategies for Information Technology, Prentice Hall, London. Galliers, R. D. (1991). Strategic information systems planning: myths, reality, and guidelines for successful implementation. European Journal of Information Systems, 1(1), 55–64. Reich, B. H. and Benbasat, I. (1996). Measuring the linkage between business and information technology objectives, MIS Quarterly, 20(1), 55–81.

Introduction: The Emergence of Information Technology as a Strategic Issue Although information systems of some form or another have been around since the beginning of time, information technology (IT) is a relative newcomer to the scene. The facilities provided by such technology have had a major impact on individuals, organizations and society. There are few companies that can afford the luxury of ignoring IT and few individuals who would prefer to be without it . . . despite its occasional frustrations and the fears it sometimes invokes. An organization may regard IT as a ‘necessary evil’, something that is needed in order to stay in business, while others may see it as a major source of strategic opportunity, seeking proactively to identify how IT-based information systems can help them gain a competitive edge. Regardless of the stance taken, once an organization embarks on an investment of this kind there is little opportunity for turning back. As IT has become more powerful and relatively cheaper, its use has spread throughout organizations at a rapid rate. Different levels in the management hierarchy are now using IT where once its sole domain was at the operational level. The aim now is not only to improve efficiency but also to improve business effectiveness and to manage organizations more strategically. As the managerial tasks become more complex, so the nature of the required information systems (IS) changes – from structured, routinized support to ad hoc, unstructured, complex enquiries at the highest levels of management. IT, however, not only has the potential to change the way an organization works but also the very nature of its business (see, for example, Galliers and Baets, 1998). Through the use of IT to support the introduction of electronic markets, buying and selling can be carried out in a fraction of the time, disrupting the conventional marketing and distribution channels (Malone et al., 1989 Holland, 1998). Electronic data interchange (EDI) not only speeds up transactions but allows subscribers to be confident in the accuracy of information being received from suppliers/buyers and to reap the benefits of cost reductions through automated reordering processes. On a more strategic level, information may be passed from an organization to its suppliers or customers in order to gain or provide a better service (Cash, 1985). Providing a better service to its customers than its competitors may provide the differentiation required to stay ahead of the competition in the short term. Continual improvements to the service may enable the organization to gain a longer-term advantage and remain ahead. The rapid change in IT causes an already uncertain business environment to be even more unpredictable. Organizations’ ability to identify the relevant information needed to make important decisions is crucial, since the access to data used to generate information for decision making is no longer restricted by the manual systems of the organization. IT can record, synthesize, analyse and disseminate information quicker than at any other time in history. Data can be collected from different parts of the company and its external environment and brought together to provide relevant, timely, concise and precise information at all levels of the organization to help it become more efficient, effective and competitive.

2 Strategic Information Management Information can now be delivered to the right people at the right time, thus enabling well- informed decisions to be made. Previously, due to the limited information-gathering capability of organizations, decision makers could seldom rely on up-to-date information but instead made important decisions based on past results and their own experiene. This no longer needs to be the case. With the right technology in place to collect the necessary data automatically, up-to-date information can be accessed whenever the need arises. This is the informating quality of IT about which Zuboff (1988) writes so eloquently. With the use of IT, as with most things, comes the possibility of abuse. Data integrity and security is of prime importance to ensure validity and privacy of the information being held. Managing the information involves identifying what should be kept, how it should be organized, where it should be held and who should have access to it. The quality of this management will dictate the quality of the decisions being taken and ultimately the organization’s survival. With the growth in the usage of IT to support information provision within organizations, the political nature of information has come into sharper focus. Gatekeepers of information are powerful people they can decide when and if to convey vital information, and to whom. They are likely to be either highly respected, or despised for the power that they have at their fingertips. Such gatekeepers have traditionally been middle managers in organizations. Their role has been to facilitate the flow of information between higher and lower levels of management. With the introduction of IT such information can now be readily accessed by those who need it (if the right IT infrastructure is in place) at any time. It is not surprising then that there is resistance to the introduction of IT when it has the potential of changing the balance of power within organizations. Unless the loss in power, through the freeing up of information, is substituted by something of equal or more value to the individuals concerned then IT implementations may well be subject to considerable obstruction. Developments in IT have caused revolutionary changes not only for individual organizations but for society in general. In order to understand the situation we now find ourselves in with respect to IT, it is as well to reflect on their developments. This is the subject matter of Chapter 1. Written by Somogyi and Galliers, it describes how the role of IT has changed in business and how organizations have reacted to this change. They attempt, retrospectively, to identify major transition points in organizations’ usage of IT in order to provide a chronicle of events, placing today’s developments in a historical context. The chapter charts the evolution of the technology itself, the types of application used by organizations, the role of the DP/IS function and the change in the methods of system development. Such histories are not merely academic exercises, they can serve as a foundation for future progress, allowing organizations to avoid past mistakes and to build on their successes. A postscript has been added in order to bring the original article up to date, listing a number of key applications that have appeared over the past decade or so. References Cash, J. I. (1985) Interorganizational systems: an information society opportunity or threat. The Information Society, 3(3), 199–228. Galliers, R. D. and Baets, W. R. J. (1998) Information Technology and Organizational Transformation: Information for the 21st Century Organization, Wiley, Chichester. Holland, C. (ed.) (1998) Special edition on electronic commerce. Journal of Strategic Information Systems, 7(3), September. Malone, T. W., Yates, J. and Benjamin, R. I. (1989) The logic of electronic markets. Harvard Business Review, May–June, 166–172. Zuboff, S. (1988) In the Age of the Smart Machine: The Future of Work and Power, Butterworth- Heinemann, Oxford.

1 Developments in the Application of Information Technology in Business Information technology in business: from data processing to strategic information systems E. K. Somogyi and R. D. Galliers Introduction Computers have been used commercially for over three decades now, in business administration and for providing information. The original inten- tions, the focus of attention in (what was originally called) data processing and the nature of the data processing effort itself have changed considerably over this period. The very expression describing the activity has changed from the original ‘data processing’, through ‘management information’ to the more appropriate ‘information processing’. A great deal of effort has gone into the development of computer-based information systems since computers were first put to work automating clerical functions in commercial organizations. Although it is well known now that supporting businesses with formalized systems is not a task to be taken lightly, the realization of how best to achieve this aim was gradual. The change in views and approaches and the shift in the focus of attention have been caused partly by the rapid advancement in the relevant technology. But the changed attitudes that we experience today have also been caused by the good and bad experiences associated with using the technology of the day. In recent years two other factors have contributed to the general change in attitudes. As more coherent information was made available through the use of computers, the general level of awareness of information needs grew. At the same time the general economic trends, especially the rise in labour cost, combined with the favourable price trends of computer-related technology,

4 Strategic Information Management appeared to have offered definite advantages in using computers and automated systems. Nevertheless this assumed potential of the technology has not always been realized. This chapter attempts to put into perspective the various developments (how the technology itself changed, how we have gone about developing information systems, how we have organized information systems support services, how the role of systems has changed, etc.), and to identify trends and key turning points in the brief history of computing. Most importantly, it aims to clarify what has really happened, so that one is in a better position to understand this seemingly complex world of information technology and the developments in its application, and to see how it relates to our working lives. One word of warning, though. In trying to interpret events, it is possible that we might give the misleading impression that things developed smoothly. They most often did not. The trends we now perceive were most probably imperceptible to those involved at the time. To them the various developments might have appeared mostly as unconnected events which merely added to the complexity of information systems. The early days of data processing Little if any commercial applications of computers existed in the early 1950s when computers first became available. The computer was hailed as a mammoth calculating machine, relevant to scientists and code-breakers. It was not until the second and third generation of computers appeared on the market that commercial computing and data processing emerged on a large scale. Early commercial computers were used mainly to automate the routine clerical work of large administrative departments. It was the economies of large-scale administrative processing that first attracted the attention of the system developers. The cost of early computers, and later the high cost of systems development, made any other type of application economically impossible or very difficult to justify. These first systems were batch systems using fairly limited input and output media, such as punched cards, paper-tape and printers. Using computers in this way was in itself a major achievement. The transfer of processing from unit record equipment such as cards allowed continuous batch-production runs on these expensive machines. This was sufficient economic justification and made the proposition of having a computer in the first place very viable indeed. Typical of the systems developed in this era were payroll and general ledger systems, which were essentially integrated versions of well-defined clerical processes. Selecting applications on such economical principles had side-effects on the systems and the resulting application portfolio. Systems were developed with