How strategic is your information technology?

(Information Technology)
Industrial Management - January 1, 1994
Eliezer Geisler

Word count: 1998.

It has become somewhat of a cliche to assert that U.S. companies continually fail
to manage their information technology (IT) in a strategic manner. Some truly
exceptional cases do exist. They include American Airlines' SABRE reservation
system, Merrill Lynch's Cash Management Account (CMA) and American
Hospital Supply's ASAP customer order system. Yet, in the vast majority of
companies, information technology is managed as if these were the 1950s, and
IT merely an emerging tool for improving some backroom operations. In the
decade of the 1980s, companies invested heavily in IT -- somewhere between
one-third to one-half of total durable equipment budget (proportions vary by
industry). In the late 1980s, as well as the 1990s, the non-equipment share of IT
(software and related costs) is rapidly becoming a major investment item.

Yet, little empirical evidence has emerged about IT's contributions to U.S.
business productivity, either at the aggregate national level or the company level.

Information technology and strategy

There is growing literature and many case studies on why companies fail to
strategically manage their information technology. Two main streams have
emerged. The first suggests that top managers misunderstand IT and its
strategic significance, mainly through neglect, fear of new technologies, and the
wide spread practice of delegating unpleasant tasks. Prescriptions abound.
Some suggest that a well-managed company will also generate strategic
management of IT. Others have surveyed senior managers and found little
enthusiasm for computers and other recent technologies on their desks, or in
their decision processes. Hence, they recommend improved communications
with the automation specialists in the company -- to enhance learning and to
allay managers' inherent discomforts.

The second stream encompasses managerial systems tailored to the perceived

tasks and needs of senior executives. Such systems include all "executive"
brands of information systems, expert systems and decision support systems.
The main idea is to enroll the best available and most recent automation
technology in the service of the executive's key functions, such as decision
making. The results of these prescriptions and "support" systems are added
confusion and an even stronger resistance on the part of senior managers to
engage IT for strategic purposes.
Understanding the organization

The key to gaining strategic advantages from IT lies in understanding the

process of installing, implementing, adapting and managing a strategic
information system.

When we present the issue as simply the outcome of indifference by senior

managers, we underestimate the problem and oversimplify a complex
organizational phenomenon. Clearly, the company will not gain a strategic
advantage from its information technology simply because its top executives
finally begin to realize the competitive importance of IT.

The problem is essentially in the process, not solely in the perspective of senior
management nor in their ability or inability to cope with recent technology. The
advent of a new generation of senior managers better skilled in current
technology by no means assures an improved strategic approach to IT and MIS
(management information systems). Senior managers make basic decisions
which determine, first, what the strategically and competitively important
information systems are for the company. Thus, they set the overall direction and
the key criteria for the acquisition of information systems and information
technology. Second, senior managers decide on the specific objectives of any
given system (usually per recommendations of the systems professionals in the
MIS function). Once this is established, the organizational factors, the systems
design, and the technological choices will follow and most probably will be
delegated to lower echelons and to varied functions in the company. However,
although senior managers have had a key role in determining the information
systems to be selected, purchased and established in the firm, their impact on
the subsequent process of managing the routine operations of the systems is
greatly diminished.

IT is essentially managed by the information systems professionals in the

company. Further, IT is embedded in almost all functions and activities of the
corporation, dispersed and diluted at all levels and departments.

In addition, benefits accrued to the company from the usage of IT manifest

themselves in improvements in the information system of the corporation and in
its MIS, and are not directly measurable at the corporate/strategic level.

Therefore, to strategically manage IT, senior managers need to understand the

diffusion of the technology and its role in information gathering, processing, and
transfer -- at all levels and through the services of IS/MIS. Information technology
is too important to be left to the sole discretion of information professionals. Yet,
in most U.S. corporations, IT is not used as a strategic tool or as a crucial
component in the strategic corporate planning process.

Strategy and IT
The difficulties in making IT a key factor in strategic management do not reside
solely, in top management's failures or lack of interest and understanding. The
difficulties are inherent in the way IT is managed in the corporation. All the
information support systems and all the tools designed for executive assistance
are partial and temporary solutions to basic and long-term organizational
problems. These tools are useless unless a major organizational redesign of the
management information systems (MIS) is conducted. Specifically, redesigning
means not only the content of the information gathered for executive use, or the
mode by which the information is presented, but the organizational
characteristics of the MIS and its driving force: information technology.
Organizational and other issues that create barriers to strategic usage of IT are
essentially the outcomes of existing bureaucratic and human barriers in the
company. Issues such as degrees of autonomy, areas of authority and
responsibility (boundaries and territories) and other structural and behavioral
factors generate barriers that separate the operation of IT from its strategic
perspective.

Therefore, redesign efforts should concentrate on removing such barriers. Senior

managers must take the lead in planning and assigning the tasks of lifting key
barriers.

In a study of over 150 service companies conducted by the Center for

Information and Telecommunications Technology (CITT) at Northwestern
University, we found clear examples of such barriers. In one case, a major bank
was going through very difficult times. Although strategy level meetings, studies,
plans and policies abounded for 10 months, not once was the Chief Information
Officer (CIO) and head of the MIS unit consulted as to the potential contributions
of IT or MIS to solving the bank's problems.

We found this example to be the rule, not the exception. Strategic management
in most companies is conducted in an organizational framework, which is for all
practical purposes, divorced from MIS and from IT.

A strategic checklist

How strategically does a company manage its IT? Before embarking on radical
redesign of the conditions in which IT and MIS operate, a checklist to examine
the IT strategy connection is proposed. There are five key indicators:

1. Is information technology currently acquired and implemented as an

integral part of your corporate strategic plan?

Here the emphasis is on both the acquisition and the implementation.

Although IT is acquired through a planned assessment of the corporation's
needs for strategic and competitive information systems, once applied in
 the corporate environment IT may not be used as an integral part in the
overall corporate strategic plan.

2. Are the executives in charge of MIS, IT or equivalent positions

permanent members of the decision-making group, with direct and
constant access to the CEO?

In American corporations, the CIO, head of MIS, or equivalent position is

seldom a member of the "inner group" around the CEO. In some
companies we have studied, the CIO is not even an officer of the
corporation. This indicator measures the degree to which IT or IS is
considered important enough to have its manager participate in the small
group making the top decisions and with continuous access to the CEO.

3. Do business strategic decisions (such as opening new markets,

launching new products/services) include considerations based on the
impact of IT and MIS, as routine inputs to these decisions?

This indicator assesses the degree to which basic business decisions

consider inputs from IT on a routine basis. In our study of U.S.
corporations, we found that basic business decisions, such as opening
new markets and launching new products, do not consider the IT
component as a crucial element. For example, does the corporation
consider the role IT will play in launching a new product? Does the
corporation, or its marketing function, consider the effects of the new
market or product on its IS and IT, or the benefits and services that it can
provide to the new market or product?

4. Is information technology currently planned, acquired, implemented,

updated or modified in response to such criteria as customer satisfaction
and/or comparative market advantages?

This indicator provides an assessment of the link between factors used in

managing IT and downstream strategic criteria such as customers. Does
the corporation manage its IT in response to impacts of strategic
variables, such as customer satisfaction? This indicator assesses the
degree to which IT may be modified in response to strategic pressures,
hence allowing IT to better contribute to the downstream variables.

5. Are acquisition, implementation usage and evaluation of IT in all units

and departments subject to overall corporate assessment criteria that
include, among other things, coordination of information outputs and
subordination of the generation processing, storage and transfer of
managerial information by all units and departments -- to corporate long-
term objectives?
 This indicator assesses the relationship between the routine management
of IT, and the long-term corporate objectives. It is designed to assess the
degree of "islands of automation" existing in the corporation. These
islands occur when IT is managed by the various units in the company
with lack of coordination and little regard to the overall corporate
objectives. This creates situations in which technologies cannot
communicate, leading to serious problems of "connectivity." This becomes
particularly unhealthy when the corporation attempts to install Local Area
Network (LAN) environments.

Conclusion

Strategic management of information technology is contingent upon changes in

organizational conditions, in addition to changes in senior managers' perspective
and their interest in and comfort with advanced technology.

If a company answers all five key indicators on the checklist with a "no," it is likely
to grossly overspend or underspend, and it is certain to misspend considerable
resources on information technology without knowing what these resources
produced. Furthermore, the company probably lacks the organizational format
that allows it to strategically benefit from its IT.

Companies should audit their management of IT, starting with the checklist of key
indicators. Information technology is too important and too crucial to be managed
as a non-strategic resource.

For further reading

Geisler, E. and Hoang, Wen, "Purchasing Information Technologies: An

Empirical Study of Some Behavioral Patterns in Service Companies,"
International Journal of Purchasing and Materials Management Summer, 1992.

Geisler, E., "Information and Telecommunication Technologies in the 1990s:

Trends and Managerial Challenges," International Journal of Technology
Management Special Issue on the Strategic Management of Information and
Telecommunication Technology, Vol. 6-8, 1992.

Luftman, J., P. Lewis and S. Oldach, "Transforming the Enterprise: The

Alignment of Business and Information Technology Strategies," IBM Systems
Journal, Vol. 32, No. 1, 1993.

Morton, M. S., The Corporation of the 1990s, Information Technology and

Organizational Transformation Oxford University Press, 1991.

Eliezer Geisler is professor of management in the College of Business and

Economics at the University of Wisconsin-Whitewater. He is department editor
for information technology of Transactions on Engineering Management, guest
editor of the Journal of Information Technology Management, and editor of a new
series on technology in healthcare for the International Journal of Technology
Management.

Citation Details

Title: How strategic is your information technology? (Information Technology)

Author: Eliezer Geisler
Publication: Industrial Management (Magazine/Journal)
Date: January 1, 1994
Publisher: Institute of Industrial Engineers, Inc. (IIE)
Volume: v36 Issue: n1 Page: p31(2)