The Strategic Management of Information Systems: Building a Digital Strategy / Edition 4

by Joe Peppard, John Ward

Overview

• A comprehensively updated revision of a book regarded by many as one the leading and authoritative titles for practitioners, academics and students in the domain of information systems and technology (IS/IT) strategy.
• Presents a structured framework with tools, techniques and ways of thinking which provide a practical approach to building a digital strategy, expressed primarily in the language of business and management.
• Brings together the implications of the significant advances in IT and the most useful current thinking, research, and experiences concerning the business impact and strategic opportunities created by IS/IT.
• Peppard and Ward discuss the key questions that managers have to grapple with of where, when and how to invest in IS/IT, which is why a IS/IT (or digital) strategy is required.

Product Details

ISBN-13:	9780470034675
Publisher:	Wiley
Publication date:	04/18/2016
Edition description:	4th Revised ed.
Pages:	504
Product dimensions:	7.40(w) x 9.60(h) x 1.00(d)

About the Author

Joe Peppard and John Ward present a structured framework with tools, techniques and ways of thinking which provide a practical approach to building a digital strategy, expressed primarily in the language of business and management. This approach can be used by executives, managers and IS/IT professionals, working together, to combine their experience and skills to identify what can and needs to be done and how best to do it, so that IS/IT is managed strategically.

Read an Excerpt

Strategic Planning for Information Systems

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By John Ward Joe Peppard

John Wiley & Sons

ISBN: 0-470-84147-8

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Chapter One

The Evolving Role of Information Systems and Technology in Organizations: A Strategic Perspective

Today, most organizations in all sectors of industry, commerce and government are fundamentally dependent on their information systems. In the words of Rockart '[i]nformation technology has become inextricably intertwined with business'. In industries such as telecommunications, media, entertainment and financial services, where the product is already or is being increasingly digitized, the existence of an organization crucially depends on the effective application of information technology (IT). With the emergence of e-commerce, the use of technology is becoming just an accepted, indeed expected, way of conducting business. Consequently, organizations are increasingly looking toward the application of technology not only to underpin existing business operations but also to create new opportunities that provide them with a source of competitive advantage.

In order to manage information systems and information technology (IS/IT) strategically, it is helpful to understand how the role of technology-based information systems has evolved in organizations. While organizations today want to develop a more 'strategic' approach to managing IS/IT, many have probably arrived at their current situation as a result of various short-term 'tactical' decisions regarding IS/IT.Many organizations would no doubt like to rethink their investments, or even begin again with a 'clean sheet', but unfortunately have a 'legacy' resulting from a less than strategic approach to IS/IT in the past. It is rarely possible to start again-many banks and insurance companies still depend on systems first developed over 30 years ago; neither is it necessarily advisable-there is no real reason to expect more success in the future than has been the case in the past, unless ability and knowledge have increased in the meantime. Learning from experience-the successes and failures of the past-is one of the most important aspects of strategic management. Earl has noted that much learning about the capability of IT is experiential, and that organizations tend to learn to manage IS/IT by doing, not appreciating the challenges until they have faced them.

However, no one organization is likely to have been exposed to the whole gamut of IS/IT experiences, and neither is it likely that what has been experienced can always be evaluated objectively. This chapter provides an appraisal of the general evolution of IS/IT in major organizations, against which any organization can chart its progress and from which lessons can be learned for its future management. This evolution of IS/IT in organizations is examined from a number of viewpoints, using a variety of models, some of which are further developed and used later in the book, when considering the particular approaches required in planning strategically for IS/IT investments.

A number of important forces affect the pace and effectiveness of progress in using IS/IT and in delivering business benefits. The relative weighting of each factor varies over time, and will also vary from one organization to another. These factors include:

the capabilities of the technology;

the economics of deploying the technology;

the applications that are feasible;

the skills and abilities available, either in-house or from external sources, to develop the applications;

the skills and abilities within the organization to use the applications;

the pressures on the particular organization or its industry to improve performance.

This list is not meant to be exhaustive and could be expressed in other terms-but it is in a deliberate sequence of increasing 'stress', as the complexity and criticality of the management decision-making process becomes more strategic.

Most assessments of the evolution of IS/IT in organizations tend to focus on one or two aspects of its development-organizational, applications, management of technology, planning, etc.-but, in this chapter, these various perspectives will be brought together, as much as possible.

INFORMATION SYSTEMS (IS) AND INFORMATION TECHNOLOGY (IT)

Before providing any strategic perspective, it is important that there is a clear understanding of the distinction between the terms information systems (IS) and information technology (IT). While both terms are often used interchangeably, it is important to differentiate between the two if a meaningful dialogue is to take place between business and IS staff and ultimately successful IS/IT strategies are to be developed. It should be remembered that information systems existed in organizations long before the advent of information technology and, even today, there are still many information systems present in organizations with technology nowhere in sight.

IT refers specifically to technology, essentially hardware, software and telecommunications networks. It is thus both tangible (e.g. with servers, PCs, routers and network cables) and intangible (e.g. with software of all types). IT facilitates the acquisition, processing, storing, delivery and sharing of information and other digital content. In the European Union, the term Information and Communication Technologies or ICT is generally used instead of IT to recognize the convergence of traditional information technology and telecommunications, which were once seen as distinct areas.

The UK Academy of Information Systems (UKAIS) defines information systems as the means by which people and organizations, utilizing technology, gather, process, store, use and disseminate information. It is thus concerned with the purposeful utilization of information technology. The domain of study of IS, as defined by the UKAIS, involves the study of theories and practices related to the social and technological phenomena, which determine the development, use and effects of information systems in organizations and society. Mingers notes that, although technology is the immediate enabler of IS, 'IS actually is part of the much wider domain of human language and communication, that IS will remain in a state of continual development and change in response both to technological innovation and to its mutual interaction with human society as a whole.'

Some information systems are totally automated by IT. For example, Dell Computers has a system where no human intervention is required, from taking customer orders, to delivery of components to the Dell factory for assembly, to shipment to customers. With this build-to-order model, perfect information and tight linkages match supply and demand in real time. The company can receive an order for a personal computer (PC) directly from a customer via its own website (dell. com). Indeed, Dell has built in an element of 'intelligence' into its site to help the customer in making decisions regarding the configuration of components, ensuring that 'non-optimal' configurations or configurations not technically possible are not selected. Customers can also choose from a variety of delivery options. Once a customer order has been confirmed, purchase orders for components are automatically generated and electronically transmitted to suppliers. This has enabled Dell to build exactly what the customer has ordered, resulting in a stock-turn of 56-60 times per year compared with 13.5 for Compaq and 9.8 for IBM's PC business. Dell also feeds real-time data from technical support and manufacturing lines directly through to suppliers on a minute-by-minute basis. They also have links to many of their suppliers' manufacturing lines so that they can see their yields. This information system (or, perhaps more correctly, multiple information systems) is underpinned by a variety of different technologies-servers, storage, software, networks, etc.

Another term that is frequently used along with IS and IT is application. Essentially, an application refers to the use of IT to address a business activity or process. There are essentially two types of application:

general uses of IT hardware and software to carry out particular tasks such as word processing, electronic mail or preparing presentation materials;

uses of technology to perform specific business activities or processes such as general accounting, production scheduling or order processing.

These applications can be carried out using pre-packaged, pre-written software programs for a particular business activity or be developed to provide particular functionality. Some business-application software packages can be tailored or customized to the specific requirements of an organization. One of the key selling points of large enterprise resource planning (ERP) packages from vendors like SAP, Baan, Oracle or JD Edwards is that they can be configured, to some extent, to meet the specific way in which an organization operates.

Checkland and Holwell have pointed out that many people find difficulty in distinguishing between IS and IT, because technology seems to overwhelm their thinking about the fundamental information system that the technology is to support. Checkland also notes that information systems exist to serve, help or support people taking action in the real world. He asserts that, in order to create a system that effectively supports users, it is first necessary to conceptualize that which is to be supported (the IS), since the way it is described will dictate what would be necessary to serve or support it (the IT).

This gives a clue as to why organizations may fail to realize any benefits from their investments in IT-investments are often made in technology without understanding or analysing the nature of the activities the technology is to support-either strategically or operationally-in the organization. For example, over the last few years, many organizations have built websites without sufficient thought to the rationale behind the decision other than because everyone else seems to be getting on the 'Net'. We have heard stories recounted of senior executives returning from business trips abroad demanding that a new technology be purchased or a new application be implemented because they have seen an advertisement in an airline's in-flight magazine. It is important to remember that IT has no inherent value-the mere purchase of IT does not confer any benefits to the organization; these benefits must be unlocked. We shall return to this point throughout the book.

E-business and E-commerce

There are two other concepts that we believe are important to discuss up front, particularly given the prominence both have received: e-business and e-commerce. Since the mid-1990s, both concepts have entered the everyday vocabulary of managers and, having observed activity in many organizations such as the appointment of 'Directors of e', 'e-managers' and 'e-Czars' and the fact that many have developed 'e-strategies', suggests that e-commerce and e-business are being treated as something new and different from seeking out opportunities to deploy IS/IT. This should not be the case.

Literally, e-commerce refers to the conduct of commerce or business electronically-essentially using Internet technologies. In the 1980s, electronic commerce was already a reality, in this instance referring to inter-company trading, specifically the exchange of business documents, using electronic data interchange (EDI). EDI was a cumbersome technology, requiring the use of a third party (a value-added network supplier or VANS) to facilitate information flow, but it did enable business partners to reduce the costs of exchanging business documents such as orders, invoices and price lists with each other. Indeed, the advent of Financial EDI-the issuing of electronic payment instructions and receiving remittance notices electronically-was seen as closing the loop between purchaser and supplier. Of course, all parties involved had to adhere to particular technical standards in exchanging information and, as has been the case throughout the history of IT, a variety of different EDI standards emerged. Industries such as automotive, banking and retail had their own standards to define message structures. The United Nations did attempt to bring some uniformity to these diverse standards through UN/EDIFACT (United Nations/EDI for Administration, Commerce and Transport), but with mixed success.

With the opening up of the Internet for commercial activity in 1991, a vast new medium was emerging for the conduct of business transactions. This 'network of networks' was based on open standards, facilitating easier connectivity without the need for the use of VANS. More latterly, the emergence of WAP (Wireless Application Protocol) has made it possible for mobile devices (phone, personal digital assistant [PDA], etc.) to connect up to the Internet, thereby permitting everything from 'browsing the Net' to engaging in business transactions while on the move. M-commerce has been coined to refer to the use of mobile devices for the conduct of business transactions while t-commerce refers to a similar use of television.

E-business, on the other hand, has come to refer to the automation of an organization's internal business processes using Internet and browser technologies. At one extreme, we have the 'pure play' dot.coms, whose business models are often portrayed as being totally web- or Internet-enabled, often reaching out directly to customers. However, unless the product is digitizable, such companies do not exist totally in the virtual world. In industries such as retailing, manufacturing and transportation, the physical aspects overpower the virtual-logistics still wins the day, not glossy websites as many dot.coms have found to their detriment. At the other extreme, we have companies who have 'web-enabled' selected business processes using Internet technologies. Such companies still operate in the physical world and seek to develop a 'bricks and clicks' strategy to integrate the Internet with their mainstream operations.

Unfortunately, the potential benefits and impact of those aspects of IS/ IT that have been labelled e-business, e-commerce and latterly m-commerce and t-commerce have been exaggerated, resulting in tremendous hype surrounding these concepts, much of it fuelled by technology vendors and the media. In 1999, just issuing a press release stating the company was embracing the 'net' or announcing an e-commerce strategy was enough to send a company's share price rocketing. Subramani and Walden examined the impact of e-commerce announcements by firms on share price and found that e-commerce initiatives did lead to cumulative abnormal increases in shareholder value. Even changing a company name to incorporate the '.c

Continues...

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Table of Contents

Preface to the Fourth Edition ix

About the Authors xvii

1 The Evolving Role of Information Systems and Technology in Organizations: A Strategic Perspective 1

Information Systems (IS), Information Technology (IT) and ‘Digital’ 2

‘Digital Disruption’: The Impact of IS/IT 7

A Three‐era Model of Evolving IT Application in Organizations 15

A Classification of the Strategic Uses of IS/IT 17

Success Factors in Strategic Information Systems 25

A Portfolio Management Perspective on IS/IT Investments 27

What Is an IS/IT or Digital Strategy? 29

From Strategic Alignment to Strategy Co‐evolution 35

Digital Strategies for the 21st Century: Building a Dynamic Capability to Leverage IS/IT 39

Summary 43

Endnotes 44

2 An Overview of Strategic Management and the IS/IT Strategy Implications 49

The Evolving Nature of Strategic Management in Organizations 50

Scope of Strategy Development 54

A Framework for Strategy Formulation 55

Where to Compete 57

How to Gain an Advantage 60

What Assets do We Have? What Assets are Required? 77

How to Change – the Need for Dynamic Capabilities 81

Strategy Implementation 82

Summary 83

Endnotes 84

3 Establishing an Effective Process for Developing Information Systems and Technology (or Digital) Strategies 87

Some Definitional Clarity 88

The Evolution of the IS/IT Strategy Process: From Technology Deployment to Strategic Focus 89

The Business Context for Developing and Managing the Strategy 94

Establishing an Effective Process: Continuous and Flexible 97

Setting the Scope for the Strategy 104

A Framework for IS/IT Strategy Formulation 108

Other Deliverables from the IS/IT Strategy Process 119

Summary 122

Endnotes 123

4 IS/IT Strategic Analysis: Achieving Alignment with Business Operations and Strategy 125

Understanding the Current Situation 126

The Business Operating Model: Processes, Activities and Key Entities 130

Organizational Environment 136

Examining the Existing IS/IT Environment 139

Information and Systems to Meet Current Business Objectives: the Use of Balanced Scorecards and Critical Success Factors 146

Process Analysis 153

Redesigning Processes 158

Evaluating the Gap between Existing and Required IS/IT Environments 161

Summary 162

Endnotes 163

5 Innovating with Technology, Systems and Information 165

Understanding What It Means to Innovate with IT 166

The Process of Digital Business Innovation 168

The ‘push’ and ‘pull’ of Innovating with IS/IT 173

Getting Management Attention for Ideas and Innovations 177

Joining the Dots: the Search for Ideas 180

Innovating by Leveraging Information: Exploration and Exploitation 184

The Big Data Challenge 188

Discovering Strategic IS/IT Opportunities from Information 191

Building an Analytic Capability 198

Summary 201

Endnotes 202

6 Exploiting Information Systems for Strategic Advantage 207

Achieving and Sustaining Advantages across the Value Disciplines 208

Exploring New Value Propositions: Informating Products and Services 210

Analysis of Competitive Forces to Identify IS/IT Opportunities and Threats 216

Value Chain Analysis 220

Customer Life‐cycle Management and the Value Chain 228

From Value Chain to Value Network 235

The Internal Value Chain 239

The Uses of Value Chain Analysis 244

Summary 247

Endnotes 248

7 Determining the Business Information Systems Strategy 251

Business Strategy and IS/IT 252

Tools for IS/IT Strategy Formulation and Their Relationships 256

A Framework for Using the Tools and Techniques Effectively 258

Identifying how IS/IT Could Impact the Business Strategy 260

Establishing the Relative Priorities for IS/IT Investments 265

Large Organizations, Multiple SBUs and Strategy Consolidation 270

Summary 272

Endnote 272

8 Managing the Portfolio of Business Applications 273

Conclusions from Various Portfolio Models 275

Classifying the Applications in the Portfolio 277

Reconciling Demand and Supply Issues in the Portfolio 280

Generic Application Management Strategies 282

Portfolio Management Principles Applied to the Application Portfolio 291

Aligning Development Approaches to the Portfolio Segments 298

The ‘Special Case’ of Enterprise Systems 304

Managing Application Portfolios in Multi‐unit Organizations 306

Summary 309

Endnotes 309

9 Justifying and Managing Information Systems and Technology Investments 311

Investment and Priority Setting Policies 313

Justifying and Evaluating IS/IT Investments 314

Justifying Business Applications 322

Justifying Infrastructure Investments 326

Assessing and Managing Investment Risks 332

Managing the Portfolio of Investments 336

Setting Priorities amongst IS/IT Investments 338

Organizational IS/IT Portfolio and Investment Management Maturities 344

Summary 349

Endnotes 350

10 An Organizing Framework for the Strategic Management of IS/IT 353

The Strategic Management Requirement 354

Positioning and Managing IS/IT in an Organization 356

From a Functional View of IS/IT to an Organization‐wide Perspective – Capability and Competences 359

IS/IT Governance and Why It is Important 366

What Decisions Need to be Governed? 371

Creating the Organizing Framework for IS/IT Decision Making 374

Instruments of Governance 375

Summary 391

Endnotes 392

11 Strategic Management of IS/IT Services and IT Infrastructure 395

Creating and Sustaining Business Change: Projects and Services 396

The Need for the Strategic Management of IS/IT Services and IT Infrastructure 397

IS/IT Service Categories 400

Managing Operational and Value‐enabling Services 410

Strategies for Managing IT Infrastructure and Infrastructure Services 414

Understanding and Managing IT Risks 420

Sourcing of IS/IT Resources and Services 423

Business Process Outsourcing 434

Innovation and Outsourcing 436

Back‐sourcing and Switching Suppliers 438

Summary 440

Endnotes 441

12 The Strategic Management of Information Systems: Quo Vadis? 445

The Evolution of IS/IT Strategy in Theory and Practice 447

A Brief Résumé of some Core Ideas 452

Building an IS/IT or Digital Capability 455

From Creating IS/IT Assets to Improving Organizational Performance: Joining the Means to the Ends 458

Achieving Alignment: a Multi‐themed Perspective 459

The Co‐evolution of Business and Digital Strategies 463

The Opportunity for CIOs to Have a Key Strategic Role 466

Conclusion 468

Endnotes 469

Index 475